journal of international trade, logistics and law, vol. 9, num. 1, 2023, 10-14 10 state relationship with private legal entities on oil and natural gas management in indonesia sony rizaldi universitas 17 agustus 1945 surabaya slamet suhartono universitas 17 agustus 1945 surabaya syofyan hadi universitas 17 agustus 1945 surabaya tomy michael universitas 17 agustus 1945 surabaya received: nov 08, 2022 accepted: jan 18, 2023 published: june 01, 2023 abstract: indonesia has undang-undang dasar negara republik indonesia 1945 (uud nri 1945), chapter 33 (3) uud nri 1945 give a mandate to the state that is equipped with the right to control the state as an instrument to achieve one of the highest goals of establishment negara kesatuan republik indonesia (nkri), that is: promote the general welfare. the state represented by bp oil and gas and then skk oil and gas, is in an unequal position with private legal entities in the upstream oil and gas business. the concept of the relationship between the state and private legal entities in the management of oil and gas is deemed by the mk to be inappropriate or contrary to the meaning chapter 33 (3) uud nri 1945, which causes the lack of realization of oil and gas management for the greatest prosperity of the people. management of oil and gas resources that are not in line or contrary to meaning chapter 33 (3) uud nri 1945 can cause the goal of the greatest prosperity of the people not to be achieved. in the management so far, it is difficult to realize the nature of the constitutional management of oil and gas resources, this occurs because the government of indonesia as the representative of the state is apparently unable to maintain state sovereignty and adequate state control rights in the presence of foreign contractors involved in the management of oil and natural gas resources. through cooperation contracts due to ignoring priorities to government agencies such as independent bumn. bumn must dominate the management of oil and gas as strategic natural wealth in indonesia, so that state sovereignty and the right to control the state can be used for the greatest prosperity of the people without third party intervention. keywords: private legal entity, country, oil and natural gas 1. introduction indonesia has undang-undang dasar negara republik indonesia 1945 (hereinafter referred to as uud nri 1945) as a written constitution with the highest position in the hierarchy of national laws and regulations, chapter 33 (3) uud nri 1945 state that: “bumi dan air dan kekayaan alam yang terkandung di dalamnya dikuasai oleh negara dan dipergunakan untuk sebesar-besarnya kemakmuran rakyat”(nizammudin, 2016). chapter 33 (3) uud nri 1945 give a mandate to the state which is one of the goals of the state, which is stated in the opening of uud nri 1945 pragraph 4, that is: “…..melindungi segenap dan seluruh tumpah darah indonesia, memajukan kesejahteraan umum, mencerdaskan kehidupan bangsa dan ikut serta dalam ketertiban dunia yang berdasarkan perdamaian abadi dan keadilan sosial….”. there is a paradigm shift in sustainable economic development, which lays down the basic constitution chapter 33 (3) uud nri 1945 by means of the explanation of the article being deleted and there being no further explanation state relationship with private legal entities on oil and natural gas management in indonesia 11 of the article, especially regarding the concept of 'controlled by the state'. this means that with the abolition of the explanation of the article, the prohibition on private parties or individuals from participating in managing natural resources will also be removed. this degrades the chapter 33 (3) uud nri 1945 meaning, that is: the message of exercising the right to control natural resources is not prohibited from being handed over to third parties, both private parties and individuals. (arba et al., 2016). the existence of bp oil and gas which has been replaced by skk oil and gas is equally considered by the mk to degrade the meaning of state sovereignty and the right to control the state in managing oil and gas resources in indonesia so that the government as the representative of the state tends to be unable to use these strategic natural resources. for the greatest prosperity of the people as mandated in chapter 33 (3) uud nri 1945 (wicaksono, 2015). the implication is that the management and exploitation of oil and gas resources in indonesia in the reform era is carried out by the government through the ministry of finance esdm that create bp oil and gas (20012012), which was later replaced with skk oil and gas (2013-2020), which incidentally is not a legal entity equivalent to the state, but only an institution under a ministry with a limited scope of sovereignty and state control rights. (salsabila, 2021). the state, represented by bp oil and gas and later skk oil and gas, is in an unequal position with private legal entities in the upstream oil and gas business. the concept of the relationship between the state and private legal entities in the management of oil and gas is deemed by the constitutional court to be inappropriate or contrary to the chapter 33 (3) uud nri 1945 meaning, which causes the lack of realization of oil and gas management for the greatest prosperity of the people. based on the description of the problem of managing oil and gas resources identified under bp oil and gas (2001-2012) and skk oil and gas (2013-2020) in indonesia during the reform era, the researcher limits the problem of this research to the nature of resource management. oil and gas under bp oil and gas and skk oil and gas in terms of chapter 33 (3) uud nri 1945 and how the relationship between the state and private legal entities in the management of oil and gas resources. (jaelani, 2015). the two main aspects are examined from the perspective of the theory of state sovereignty, state control rights, and legal certainty to find out empirically whether the management of oil and gas resources during the bp oil and gas contract regime and the oil and gas skk is in accordance with or is contrary to the meaning chapter 33 (3) uud nri 1945. this is the main problem that was identified and prompted researchers to conduct a critical study of the relationship between the state and private legal entities in the management of oil and gas resources in indonesia, especially during the reform era of the last two decades. (2001-2021). the type of research used in this research is normative legal research. by using primary and secondary legal materials, along with tertiary legal materials as supporting materials.(michael, 2020). 2. research results and discussion 2.1. the nature of management of oil and gas resources in the perspective of chapter 33 (3) uud nri 1945 understanding the meaning of the state and government system contained in the uud nri 1945 cannot be separated from the philosophy of the founding fathers in indonesia in badan persiapan usaha-usaha persiapan kemerdekaan indonesia (bpupki). formed by the japanese military government on march 1, 1945, the idea of the state foundation of the founding fathers of the nation is very important to be able to understand the existence and sovereignty of an independent indonesia. the basic state thought in bpupki from the beginning had anticipated differences in views, especially between islamic nationalist groups and secular nationalist groups, especially a small committee consisting of 9 members whose task was to prepare the "pembukaan hukum dasar". the initiators of bpupki have differences in viewing religion and state issues, especially in the context of the country's economy, but the two groups finally reached an agreement as outlined in the draft preamble document known as the jakarta charter and signed by its members on june 22, 1945 in jakarta. regarding the state basis, the formulation of the precepts of pancasila is not exactly the same as what was stated by ir. muhammad yamin and ir. sukarno. in the context of the country's economy, of course, these differing views have serious implications for the right to control the state on behalf of the people in managing and utilizing the strategic resources of the indonesian nation, as stated in chapter 33 uud ri 1945, between different nationalist groups. with a focus on state sovereignty and the welfare of the people, bpupki lays down the philosophical foundations of the national economy based on the interests of the people. (prakoso, 2015). sony rizaldi & slamet suhartono & syofyan hadi & tomy michael 12 relating to the study of the nature of the management of oil and gas resources, ratio legist from chapter 33 uud nri 1945 can be found in the philosophical foundations of the founding fathers of the state, who explicitly determined the indonesian state law and economic policy based on the principle of popular sovereignty through the realization of state sovereignty through the government's role in strategic national natural wealth management, in this case oil and gas resources. for the greatest prosperity of the people. the philosophical foundation of the founding fathers of the nation contained in chapter 33 uud nri 1945 has a very deep meaning and should be respected by state and government administrators since 1945 until the present reform era (1999-2021). if at present you want to realize people's sovereignty, state sovereignty, and the harmonious relationship between these two sovereigns with the right to control the state associated with private legal entities in the management of natural resources, ideally state administrators explore the meaning of ratio legist chapter 33 uud nri 1945 (bobby, 2016). if the state cannot manage and utilize strategic national resources for the greatest prosperity of the people, the sovereignty of the state through the right to control the state in a government regime is questionable. in practice so far, the management of oil and gas resources in indonesia has undergone fundamental changes along with the changing government regime, both in the old order, new order, reform era, and the era of the work regime (sarifudin, 2019). when examined more deeply in uu ri 22, 2001 about oil and natural gas emphasized that the control and exploitation of strategic national natural resources such as oil and gas are in the hands of the state. as referred to in chapter 4 (1), oil and natural gas are non-renewable strategic natural resources contained in the indonesian mining jurisdiction as national assets controlled by the state. control by the state is held by the government as the holder of the mining authority, which forms the implementing body. (sibarani, 2018). this agency has mining rights to carry out oil and gas business activities, which consist of upstream business activities covering exploration and exploitation and downstream business activities, including processing, transportation, storage, and trading. state control rights in oil and gas management at that time tended to be handed over to foreign companies through a cooperation contract mechanism. within the framework of the privatization, other problems also arise related to the weakness of the state in commercial contracts due to the formation of unequal relations between the state as a public legal entity represented by bp oil and gas which was eventually replaced by skk oil and gas and the foreign private legal entity. in practice, the applicable positive law is influenced by the model of a government regime at a certain time period. with the spirit of anti-western capitalism, the management of oil and gas resources during the old order emphasized the policy of expropriation or nationalization of oil and gas business assets managed by foreign companies. (kadir and murray, 2019). this implies that the law is a tool of social engineering (law is a tool social engineering). 2.2. relations between the state and private legal entities on oil and gas management in indonesia the difficulty in realizing the nature of the constitutional management of oil and gas resources occurs because the government of indonesia as the representative of the state is apparently unable to maintain adequate state sovereignty and state control rights in the presence of foreign contractors involved in the management of oil and gas resources through cooperation contracts due to ignoring priorities for government agencies such as independent bumn. bumn must dominate the management of oil and gas as strategic natural resources in indonesia, so that state sovereignty and the right to control the state can be used for the greatest prosperity of the people without the intervention of third parties. (ansari, 2018). in the study of constitutional discussions, that the sovereignty of oil and gas management in indonesia can be started from the constitutional arrangements regulated in chapter 33 (3) uud ri 1945 which affirms that: “bumi, air, dan kekayaan alam yang terkandung di dalamnya dikuasai oleh negara dan dipergunakan sebesar-besar untuk kemakmuran rakyat”. based on the constitutional mandate, there are two main elements in the management of the earth, water and natural resources (including oil and gas) in indonesia, namely the elements "controlled by the state" and "the greatest prosperity of the people".(michael, 2022) these two elements become the spirit of every natural wealth management, including oil and gas owned by indonesia. furthermore, in the history of oil and gas regulation in indonesia, there are several regulations that have been and are still in effect. it is divided into several phases of the government regime, namely: a. regime colonial indies-dutch: indische mijnwet 1899; state relationship with private legal entities on oil and natural gas management in indonesia 13 b. regime government old orde: undangundang chapter 44, 1960 about concerning oil and gas mining. c. regime government new orde: undangundang chapter 8, 1971 about oil and natural gas mining company (pertamina); and d. regime reform era government: undang-undang chapter 22, 2001 about oil and natural gas. the oil and gas management regime that is currently enacting regulations concerning the management of oil and gas in indonesia, indicates that indonesia is a country capable of realizing a form of sovereignty in terms of state control over oil and gas wealth to make regulations, in which the regulation regulates in detail the form and method. work of each institution appointed by the state in the field of oil and gas management. still cannot be separated from the influence of other parties who have a big interest in the oil and gas wealth owned by indonesia. moreover, in the enactment of uu ri chapter 22, 2001, which is still in effect, has received several highlights such as the nature of this law which supports the liberal economy of the international oil and gas industry to the extent that it limits the role of national companies (pertamina) to be dominantly involved in oil and gas management. for this reason, it can be said that state control in terms of oil and gas management in the form of state sovereignty has not been fully optimized because there are still forms of intervention from outside parties in terms of dictating the form of regulations in the field of oil and gas management. 3. conclusion the essence of oil and gas management seen from the perspective of chapter 33 is as a form of state control over the state's constitutionally owned national natural wealth, which cannot be limited only by the fact that the wealth is needed by other countries, as well as the nature of managing oil and gas resources as a form of the means of achieving people's welfare, this becomes the basis for understanding that the earth, water and natural resources contained therein are controlled by the state, which means that they cannot be controlled by private legal entities liberally, with the intention that state-owned natural resources can be used to achieve the greatest prosperity of the people, not the economic benefits of the group. management of oil and gas resources, that the state has a higher position than private legal entities (unequal) so that it has the authority to control. the existence of the state represented by the government can actually create an equal relationship between the state and legal entities in which the state grants authority to state companies and stateowned enterprises so that they can maintain the position of state sovereignty and adequate state control rights, and private legal entities can generate profits steadily. provide the greatest benefit to the prosperity of the people in accordance with the nature of chapter 33 (3) uu ri 1945 which realizes the greatest prosperity of the people. sony rizaldi & slamet suhartono & syofyan hadi & tomy michael 14 references ansari, m.i., 2018. mimbar hukum fakultas hukum universitas gadjah mada 29, 515. arba, m., satryadin, priyono, e.a., gutami, b., 2016. e-jurnal universitas diponegoro 5. bobby, m.k., 2016. iv. jaelani, a.k., 2015. jurnal panggung hukum 1. kadir, m.y.a., murray, a., 2019. asian journal of international law 9, 298–333. michael, t., 2020. research, society and development 9. michael, t., 2022. meaning the phrase “own demand” in leadership in east java [www document]. journal of international trade, logistics and law. url http://jital.org/index.php/jital/article/view/238 (accessed 6.27.22). nizammudin, n., 2016. jurnal hukum dan peradilan 5. prakoso, a., 2015. jurnal ilmiah universitas bakrie. salsabila, d.r.n., 2021. jurnal akuntansi dan manajemen 18. sarifudin, r., 2019. jurnal sosio sains 5. sibarani, s., 2018. brawijaya law journal 5, 217–232. wicaksono, g.p., 2015. yuridika 30. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 141-146 141 the effects of the russia ukraine war on global trade ebru orhan istanbul commerce university, turkey received: april 11, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: the russia’s invasion of ukraine has created a catastrophic humanitarian crisis and threatened the stability of geopolitical relations. the war has added to mounting concerns about a sharp slowdown in global growth, a rise in inflation and debt and a surge in poverty. the economic impact of conflict has rippled through various global channels, including commodity and financial markets, trade and migration links and confidence. the aim of this research is to reveal the effects of the russia-ukraine war on the global economy. while examining the economic impacts of the war in the research, the reports of organizations such as oecd, world trade organization, world bank, un, imf, unctad were used. according to the reports, it is possible to say that the conflict between russia and ukraine will affect the global economy via three main channels: financial sanctions, increase of commodity prices and supply chain disruptions. keywords: russia, ukraine, war, international trade, global economy 1. introduction ukraine’s which is in the interest of russia’s close circle deepening relations with eu and nato disturbed russia and turned into a crisis, resulting in russia’s intervention in ukraine in 2014. this intervention went as far as the annexation of crimea with the occupation of eastern ukraine. as a result of these conflicts, firstly crimea declared its independence by using the right of “self-determination” in a way that caused controversy and then it was connected to russia with a referendum. in the light of all these developments, on february 24, 2022, vladimir putin launched a military operation in the region with the aim of clearing ukraine from soldiers and nazism. putin stated that, they have no intention of occupying the territory of ukraine and he supported the right of self-determination of the people living there. at the same time, he added that the purpose of the operation was to protect the people of the predominantly russian speaking donbas region which was faced humiliation and genocide by the kyiv regime for eight years. when a literature review is made, the reasons for the intervention are the rapprochement of westukraine, energy security, geopolitical factors, russian nationalism, the importance of the crimea and black sea fleet and the historical ties. the purpose of this article is to search the effects of the russia-ukraine war on global trade. the war between russia and ukraine has triggered turmoil in the financial markets, drastically increased uncertainty about the recovery of global economy. in this article, the effects of the war on the global economy were investigated by using the reports of organizations such as oecd, world trade organization, world bank, un, imf, unctad. in brief, according to the results of the research, the conflict between russia and ukraine will affect the global economy via three main channels: financial sanctions, increase of commodity prices and supply chain disruptions. in the first part of the article, the reasons behind the scenes of the war are stated, in the second part, the global economic impacts of the war is discussed. 2. the background of the russia-ukraine war russia maintains its ability to be the dominant military power in nuclear weapons by controlling the euroasian geography with its geopolitical structure and territorial integrity (karabayram, 2007). russia which is located in a geopolitically important geography has the largest surface area in the world. it is an important raw material and energy exporter with its petroleum, natural gas, copper, iron and many other mine and rich forest resources (ağır, ebru orhan 142 2016). in the 1990’s russia entered into an economic transformation with the effect of the economic crisis, lost its former imperialist power and super power in the international arena with the narrowing of its borders, entered into a hot conflict with chechnya and on the other hand, it faced more independence demands from other autonomous regions included in the federation (yılmaz, 2006). regarding for russia, the countries of the former soviet socialist republics union have always been important and the close relations of these countries with international organizations such as european union (eu) and nato has caused russia to be uncomfortable. as for ukraine, is of special importance to russia due to both its geopolitical position and its role in russian history. ukraine which was joined the soviet union in 1922, left the union in 1991 and became one of the founding members of commonwealth of independent states in the following period. although ukraine declared its independence after the soviet union, it could not achieve a stable political structure in the last period and went back and forth between western countries and russia. ukraine, which followed a distant policy with russia during the orange revolution and yushchenko period, experienced various crises with russia due to the sharing of the black sea fleet, the energy problem and its rapprochement with western countries (bolgün, 2022). the announcement by the ukrainian government that the association agreement, which was expected to be signed in november 2013 between ukraine and eu was suspended, came to the agenda of other countries and turned into a major crisis. this crisis which continued with the annexation of crimea by russia, turned into an international problem (semercioğlu, 2016). ukraine’s location between europe and russia, its dominance over the black sea and the fact they come from the same race make ukraine to be come into prominece in the immediate surrounding. for this reason, russia is making moves to prevent western countries from advancing towards to the ukraine. consequently, the rapprochement of nato and eu with ukraine disturbed russia and it caused russia to intervene ukraine (keskin, 2015). after weeks of protests as part of euromaidan movement (2013-2014), pro-russian ukrainian president viktor yanukovych and ukrainian parliamentary leaders signed a compromise agreement calling for early elections on february 21, 2014. the leaders of the russian speaking eastern regions of ukraine declared their continuing loyalty to yanukovych, leading to pro-russian unrest. the turmoil was followed by the donbass war which began with the annexation of crimea by russia in march 2014 and the formation of the two russia-backed separatist quasi states of the donetsk people’s republic and the luhank’s people’s republic. on september 14 2020, ukrainian president volodymyr zelenskyy approved ukraine’s new national security strategy which ensures the development of distinctive partnership with nato for the purpose of nato membership. on march 2021, zelenskyy signed decree approving “the strategy for the de-occupation and the reintegration of the temporarily occupied territory of the autonomous republic of crimea and the city of sevastopol. on february 24 2022 putin announced that he had made a decision to launch a military operation in ukraine. he remarked that there were no plans to occupy ukrainian territory and he supported the right of the ukrainian people to self-determination. he stated that the purpose of the operation was to protect the people in the predominantly russian-speaking region of donbas who had been facing humiliation and genocide perpetrated by the kyiv regime for eight years now. within the minutes of putin’s announcement explosions were begun in kyiv, kharkiv, odessa, and the donbas region. immediately following the attack, zelenskyy announced the introduction of martial law in ukraine (wikipedia, 2022). 3. the economic impacts of the war the war between russia and ukraine is a humanitarian disaster. moreover, the economic damage is already being felt around the world and threatens to become increasingly severe and protracted. russia’s invasion of ukraine on february 24 has thrown into question the recovery of growth from pandemic covid 19 and unleashed catastrophe accross the region that has destroyed lives, homes, and infrastructure. the impact has been felt around the world. russia and ukraine are major commodity producers. the disruptions have caused global prices to skyrocket, especially for natural gas and oil. food costs have also soared with wheat which russia and ukraine account for 30 percent of global exports, reaching record levels. the impact of the war will occur through three main channels. first, higher prices for commodities such as food and energy will continue to drive up inflation which in turn will reduce the value of incomes and weigh on demand. second, neighboring economies in particular will face disruption in trade, supply chains and remittances as well as a historic increase in refugee flows. and third, lower business confidence and greater investor uncertainty will weigh on asset prices, tightening financial conditions and potentially leading to capital outflows from emerging markets (kammer et al., 2022) the effects of the russia ukraine war on global trade 143 the deep humanitarian crisis sparked by the war has been the most pronounced of the initial global shockwaves and will likely be among the most enduring legacies of the conflict. the war has triggered one of the fastest growing refugee crisis since world war ii, with more than 4 million refugees-about half of whom are children-fleeing from ukraine within about one month of the invasion. an additional 6.5 million people are estimated to be internally displaced within ukraine, with about one-third of the total population requiring emergency humanatarian assistance (world bank, 2022) the below figure indicates the number of the refugees coming from ukraine from the beginning of the war. figure 1: refugee arrivals source: https://www.oecd.org/economic-outlook/ note: applicants have submitted an application for international protection. ukrainan refugees between 24 february and 15 march. during the uncertainty, the oecd estimates that this year global economic growth could be more than 1 percentage point lower than forecast before the conflict, while inflation, already high at the beginning of the year, could be at least another 2.5 percentage points higher in individual countries overall than it would have been without the war. the following chart shows the potential impact on gdp and inflation over the 1 year period beginning 24 february 2022 (cormann and boone, 2022). figure 2: the conflict implies a substantial hit to global growth and stronger inflation source: oecd calculations using nigem global macroeconomic model. https://www.oecdilibrary.org/sites/4181d61b-en/index.html?itemid=/content/publication/4181d61b en&_csp_=56c704db250f23a2bbc31916dc53e922&itemigo=oecd&itemcontenttype=book ebru orhan 144 with russia supplying about 19% of the world’s natural gas and 11% of its oil, energy prices have skyrocketed alarmingly. europe in particular is highly dependent on russian gas and oil. spot prices for gas in europe are now more than 10 times what they were a year ago, while the cost of oil has almost doubled in the same period. the price shock risks increasing poverty and distrupting the production of goods and services worldwide. the below figure shows the rise of the energy prices. figure 3: energy prices source: brent oil prices (usd/barrel), eu ttf and us henry hub natural gas prices (eur/mwh) and coal newcastle (fob) prices (usd/mt). https://www.oecd.org/economic-outlook/ russia and ukraine have an important role on the global economy. their influence as major suppliers in a number of commodity markets. russia and ukraine together account for about 30% of global wheat exports, 20% for corn, mineral fertilizer and natural gas and 11% for oil. in addition, supply chains around the world depend on exports of metals from russia and ukraine. russia is a major supplier of palladium, used in catalytic converters for automobiles and nickel used in steel production and battery manufacturing. russia and ukraine are also sources of noble gases such as argon and neon which are used in the manufacture of semiconductors and major producers of titanium sponge which is used in aircraft industry. both countries also have significant global reserves of uranium. prices for many of these commodities have risen sharply since the war began, although there have been no significant interruptions in production or export volumes (cormann and boone, 2022) the figure 3 below shows the risen prices of export commodities of russia and ukraine beginning from january 2022. figure 4: the prices of the principal export commodities of russia and ukraine (% change from january 2022) source:refinitivhttps://www.oecd-ilibrary.org/sites/4181d61ben/index.html?itemld=/content/publication/ 4181d61b-en the effects of the russia ukraine war on global trade 145 russia’s invasion to ukraine has prompted several countries to impose a wide range of sanctions. russia is now estimated to be the most sanctioned country in the world. by the end of march, financial sanctions has covered about three-quarters of russia’s banking sector assets. the sanctions have restricted russia’s access to global financial markets, including through the removal of seven russian banks from the social for worldwide interbank financial telecommunication (swift) network. restrictions on the central bank of russian federation (cbr) are the most damaging sanctions with the freeze of russia’s gross international reserves held overseas inhibiting russia’s ability to meet its financial obligations. russia has also announced restrictions, including a requirement that european energy imports to be invoiced in rubles. while this has helped to support the ruble, such a move could accelerate europe’s plans to reduce its dependence on russia’s energy and limit russia’s ability to finance exports in the longer term (world bank,2022). many international companies are also abandoning the russian market. oil and gas exports have yet to be strongly affected by the sanctions, but the crisis could accelerate the global transition towards greener energy sources (world trade organization, 2022). financial sanctions will impact supply chains and trade, as companies will have difficulty to find financial channels through which to manage trade with russia. in addition to this, the potential destruction of some infrastructure (particularly ports in ukraine) will exacerbate existing supply chain problems. disruption to supply chains will come from three sources: 1) land-based trade routes between europe and asia will be disrupted as transit through russia becomes more difficult or impossible from a compliance, reputational or safety perspective. 2) air ties between europe and russia (and in turn russia and europe) will be severely been hampered because of the decision of eu countries to close their airspace to russian aircraft and cargo. 3) sea freight routes through the black sea will be cancelled for several weeks following ukraine’s decision to shut down commercial shipping (economic intelligence, 2022). while russian airspace is closed to 36 countries and vice versa, some carriers currently recommend not to book overland shipments between europe and asia. the war will have a negative impact on global air cargo capacity and increase air freight prices as freight forwarders are forced to take longer routes and spend more money on fuel (unctad, 2022). according to the united nations, based on the six indicators of countries exposure to the war’s ripple effects on global commodiy and financial markets, 1.7 million people in the world live in 107 economies that are severely exposed to at least one of this crisis’ three global channels of transmission: rising food prices, rising energy prices and tightening financial conditions (united nations, 2022). 4. conclusion in february 2022, the world was shocked by the russia’s invasion of ukraine. the most significant consequence of the war between russia and ukraine is the lives lost and the humanitarian crisis associated with the large number of people besieged and displaced. however, there are also many important economic impacts which is affecting all over the world. russia and ukraine are major producers and exporters of key food items, minerals and energy, although they are relatively small output terms. the war has already caused significant economic and financial shocks, particularly in commodity markets where prices for oil, gas and wheat have skyrocketed. movements in commodity prices and financial markets seen since the outbreak of war, if sustained, could reduce global gdp growth by more than 1 percentage point in the first year, resulting in a deep recession in russia and push up global consumer price inflation by around 2.5 percentage points. well-designed and carefully targeted financial support can reduce the negative impact on growth by adding only a small extra boost to inflation. in some countries this could be financed by taxation of windfall profits. on the face of a new negative shock of uncertain duration and magnitude, monetary policy should continue to focus on ensuring-well anchored inflation expectations. most central banks should carry on their pre-war plans, with the expectation of the most affected economies, where a pause may be needed to fully assess the consequences of the crisis. in the short term, many governments will need to cushion the blow of higher energy prices, diversify energy sources and increase efficiency where possible. regarding of the food, higher production in the countries, refraining from protectionism and multilateral support for logistics will help the countries most affected by a disruption to supply from russia and ukraine. the war has pointed up the importance of minimizing dependence on russia for key energy imports. policymakers should reconsider the appropriateness of market design with a view to ensure energy security and create incentives in place to ensure the green transition in publicly supported way. the results of the war confirm a rapidly worsening outlook for the world economy, underpinned by rising food, fuel and fertilizer prices, heightened financial volatility, sustainable development ebru orhan 146 divestment, complex global supply chain reconfigurations and rising trade costs. during these difficult times, policy makers must fortify macroeconomic policy buffers and institutions to strengthen stability; promote an inclusive and more equal recovery by strengthening social protection systems to protect the most vulnerable, including refugees and maintain focus on improving energy efficiency and the green transition to secure a sustainable future. references ağır, o. 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(2006). rusya'da devlet merkezli sistem ve bürokrasi, versus kitap, i̇stanbul. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 28-34 28 filling the vacancy for the position of vice head of regional head who are inability to continue to review with jurisdictional aspects ragil kurniawan fakultas hukum universitas 17 agustus 1945 surabaya received: dec 14, 2022 accepted: march 09, 2023 published: june 01, 2023 abstract: in running the regional government, it is undeniable that something will happen that creates a vacancy, in this case there are also many deputy regional heads who quit before their term of office expires, such as resigning, dying from a long-standing illness, and there are also those whose positions are terminated. in law number 10 of 2016 concerning the second amendment to law number 10 of 2015 concerning the stipulation of government regulation in lieu of law number 1 of 2014 concerning the election of governors, regents and mayors to become laws, precisely in the provisions of article 176 paragraph ( 4) who wants to fill the vacancy for the deputy regional head who still has a remaining position of more than 18 (eighteen) months. the absence of a legal norm that limits the maximum time for filling vacancies in the position of deputy regional head is a factor why there is no refilling of the position of deputy regional head in indonesia. keywords: position filling, deputy regional head, regional government 1. introduction as a country, indonesia has a constitution called the constitution of the republic of indonesia 1945. in the form of a republic and proclaimed the indonesian nation to be a sovereign state of the people. this makes it clear that indonesia is a democratic constitutional state and a unitary republic..(bayuaji, 2019) the united nation of the republic of indonesia is basically divided into several regions, provinces, and the provinces themselves are divided into districts and cities. states and districts/cities are regions with local governments. a local government is a territorial unit of government that is located at a lower level and has the right to regulate certain governmental matters in the field of public administration itself. article 18(4) of the 1945 constitution of the republic of indonesia states that "governors, regency governors and mayors shall be democratically elected as heads of provincial, district and municipal governments respectively".(redaksi et al., no date) in recent years, i.e. from 2019 to 2022, many lieutenant governors and governors have died due to the covid-19 disaster, and in addition to several district heads and deputy district heads who have died from covid-19, other issues also occurred. for some hoax that has occurred sufficiently to influence the election or replacement of a permanently incapacitated or permanently absent regional leader or deputy regional leader and to confuse the public. in a country adhering to democratic liberty, when something threatens the country, all provision must be based on the sovereignty of the people.her three principals of certainty, fairness and legal supremacy pay attention to goals. (tomy michael, 2020) on december 9, 2015, for the first time in the history of general elections, indonesia held simultaneous general elections of regional chiefs (pilkada). in 2015, up to 269 regions consisting of 9 provinces, 36 cities and 234 counties will simultaneously elect regional leaders. this means that nearly 53% of indonesian provinces and cities are holding universal local chief elections (pilkada) simultaneously in a total of 537 provinces and cities..(aulia and wisnaeni, 2018) for the first time in indonesia's history of general elections, there were obstacles to filling the vacancies of indonesia's deputy regional chiefs, and when the position of deputy regional chief was not compulsory, he could not filling the vacancy for the position of vice head of regional head who are inability to continue to review with jurisdictional aspects 29 be cut off from the alibi. her 1945 constitution of the republic of indonesia made no mention of the suspension of the role of deputy regional chief. law no. 12 year 2008 on secondary substitution of shrimp article 26 clause 6 – law no. 32 year 2004 on local government and government decree no. 49 year 2008 article 131 clause 2a on the decree of 2005 on elections in connection with the third amendment to no. 6, confirmation of appointment and removal of regional heads and deputy regional heads, in this situation there are vague and unclear criteria for filling vacancies of deputy regional heads. i have. political party combination (parpol) and political party combination (parpol), multiple interpretations arise. (alit et al., no date) the occurrence of vacancies in the position of deputy chief is a problem not only for local governments but also for citizens. the regional head runs the system of government for the region. although there are laws regulating the filling of deputy district chiefs, there are still a number of specific districts that face the process of filling vacancies. contrary to article 4(1) of law no. 3 of 2017 on governor election and nomination of deputy governor, i don't understand why the local government is not always looking for a candidate to replace the absent deputy governor, regent and deputy mayor regent, mayor and deputy mayor. the article emphasized that all indonesians can be appointed as deputy regional heads under certain conditions.. (b. michael, 2020) 2. method the writing of this magazine is part of a prescriptive legal study, a study to fill vacancies for regional heads, especially governors, according to the 1945 constitution of the republic of indonesia. legislation invitations, cases, and facts. the data collection method used is a library method. data analysis methods are descriptive and qualitative techniques for describing research results, comparing them to existing theories, and analyzing them. 3. results and discussion 3.1. election of deputy regional heads in the provisions of the 1945 constitution of the republic of indonesia constitutionally, article 18, clause 4 of the 1945 constitution of the republic of indonesia confirms that "governors, regents and mayors shall be democratically elected as regional heads of provinces, districts and cities". the contents of the paragraph clearly provide the legal basis for those who serve as leaders in a state, district, or city to become governors, regents, and mayors. on the other hand, deputy governors or lieutenant governors, deputy regents and deputy mayors are not specifically mentioned in the constitution.. universal suffrage is the process of upholding the sovereignty of those who hold office in organizations and governments, based on the principles of openness, equality, liberty, confidentiality, honesty, and justice. community participation in united (people) general elections in direct or indirect political decisions is one of its hallmarks. democratic government. achieving democracy is inherently empowering, a commitment to community participation and the realization of constitutional social security political rights.. (aziz and michael, 2020) in this case, the assistant regional director or assistant regent, governor, assistant mayor, or vice president's job is to assist the regional director and the president. according to wirjono prodjodikoro, the language endorsed by article 4(2) of the 1945 constitution provides that the vice president is the first person to appear in the absence of the president (this is his 1945 (reaffirmed in article 8 of the constitution). from this we can conclude that the vice president's position as assistant to the president is subordinate to the president and that the vice president is elected by the mpr, not by the president. this is in line with the deputy regional director's role of assisting the regional director in his absence.. (michael, 2015) it is also included in law no. 32 year 2004 on local governments in article 1 general provisions. number 3 (3) says: this provision does not declare the deputy regional director to be a regional government. furthermore, article 19(2) of law no. 32 of 2004 states that ``the organizers of the local government are the local government and her dprd''. for purposes of section 1, section 3, the lieutenant governor, deputy regent and/or deputy mayor are not local officials..(indra pahlevi, 2012) article 18(1) of the 1945 constitution of the republic of indonesia indicates that the relationship between the central government and the state governments is multi-layered. the governor runs the government within the state according to the principle of devolution, the delegation of powers from central state agencies to subordinate agencies to carry out specific duties and powers in government administration. article 18 (2) of the constitution of the ragil kurniawan 30 republic of indonesia states that the relationship between the provincial government and the district/municipal government is an equal relationship. agree to the principle of deconcentration and also perform auxiliary tasks. the governor serves a dual role as head of state and as regional head/regional deputy central government. (ni et al., no date). article 18(1) of the 1945 constitution of the republic of indonesia does not clearly describe the status of deputy regional chiefs such as deputy governor, deputy regent and deputy mayor. although the position of deputy chief is not stipulated by law, the position of chief deputy chief is very important in leading a local government, as the chief assists in the leadership of the local government until the post of chief is completed. important to the deputy regional manager's tasks to support the regional manager are: 1. assisting local leaders in local government administration. 2. support regional leaders in managing vertical agency activities. 3. follow up on reports submitted by people and later present them to regional leaders. 4. monitoring and evaluation of local government implementation. 5. advice and consideration for regional leaders 6. if preventive, fill the position of regional manager 7. replacement of regional manager in case of full-time absence or death of regional manager before expiration of term 3.2. the authority of the deputy regional head the term authority corresponds to the english "authority, power, competence", the dutch "bevoegd" and the german "gezag". the term privilege can be interpreted as follows: lawful transfer of power from one person to another”.15 the term “competence” is defined as “having sufficient power or authority”. 16 the term ``power'' means ``the right, ability, or ability to do something. authority is distinguished from power in. (t. michael, 2020) during the new order era, the position of deputy regional head was one of the career positions, this was also regulated in article 24 paragraph (1) of law number 5 of 1974 concerning the principles of regional government, which emphasized; “wakil kepala daerah tingkat 1 diangkat oleh presiden dari pegawai negeri yang memiliki persyaratan, ayat (2) dengan memperoleh persetujuan dewan perwakilan rakyat daerah tanpa melalui pemilihan, gubernur kepala daerah mengajukan calon wakil kepala daerah tingkat 1 kepada presiden melalui menteri dalam negeri, ayat (3) wakil kepala daerah tingkat ii diangkat oleh menteri dalam negeri atas nama presiden dari pegawai negeri yang memenuhi persyaratan, ayat (4) dengan memperoleh persetujuan dewan perwakilat rakyat daerah tanpa melalui pemilihan, bupati/walikota kepala daerah mengajukan calon wakil kepala daerah tingkat ii kepada menteri dalam negeri melalui gubernur kepala daerah dan ayat (5) pengisian kekosongan jabatan wakil kepala daerah dilakukan menurut kebutuhan” deputy regional heads are given duties and powers that are directly handled in practice, so they should be filled with people or candidates who understand the existing government and laws of indonesia and have influence over specific organizations. , related to government functions. the role of government in local government is very important. that is because it is the deputy governor who later supports and manages the local government and implements development in a particular area. it is expected to be able to absorb and solve existing problems within local governments. for this reason, a deputy regional manager is required and must be available to assist the regional manager in fulfilling his duties and responsibilities as a regional manager.. (hj. yeyet solihat, 2016). new candidates for the position do not necessarily have the same vision and mission as the current regional manager. the issue later invalidated the district government's job, as he encountered some difficulties in filling the post of deputy district chief, had political unrest, and was involved in ways that led to legal uncertainty. did. of course, it would be extremely harmful to the people of each region and would create community distrust of local governments.. the mechanism for filling the post of deputy regional manager is essentially regulated and statutory. among them, there are some assistant ward mayors who will resign, and others who will be dismissed by the judgment of the plenary session. in appointing a deputy regional manager, we will strive to meet the requirements of laws and regulations regarding the election of regional managers. otherwise, the position of deputy district head must be filled, and failure to do so may affect the operation of the district government. exercise power without the presence of a deputy regional chief to influence local government and challenge citizens. in the same position as the chief, in filling the vacancy for the position of vice head of regional head who are inability to continue to review with jurisdictional aspects 31 the same position as the chief, in the same position as the chief, in the same position as the chief, in the same position as the chief, in the same position as the chief it is a post of the chief, a position equivalent to that of the chief, and has an influence on the administration of the chief. on the other hand, there are differences in the mechanism between the governor and the regent/mayor if they experience termination of office before the term of office, such as death, quitting of their own volition and also being terminated by force. the following table shows the differences between the governor and the regent/mayor if they are dismissed: table 1 regarding governors who experienced dismissal before their term of office ended. governor in permanent disability (died) the governor who was removed at your own demand governor forcedly removed if the deceased regional head/deputy regional head is a governor and/or deputy governor, the dismissal is carried out by the leadership of the provincial dprd in a plenary meeting and is proposed by the leadership of the provincial dprd to the president through the minister of interior of the country to obtain a decision on the dismissal of the deceased governor/deputy governor. , the president dismisses the governor/deputy governor. if the regional head/deputy regional head who has completed his duties at his own request is a governor/deputy governor, the dismissal is carried out by the leadership of the provincial dprd in a plenary meeting and is proposed by the leadership of the provincial dprd to the president through the minister of the state to obtain preparations for dismissal. in the case of the leadership of the provincial dprd not recommending the dismissal of the deceased governor/deputy governor. the president dismisses the governor/deputy governor. term of office ends or is unable to carry out duties for a prolonged period or is unable to continue consecutively throughout the 6 months of dismissal of the governor/deputy governor whose term of office ends or is unable to carry out duties for a prolonged period or is unable to carry out duties continuously for 6 months, carried out by the leadership of the provincial dprd in plenary meeting and proposed by the leadership of the provincial dprd to the president through the minister of the state to obtain a decision on dismissal. table 2 regarding regents/mayors who experienced termination of office before the end of their term of office bupati/wakil bupati dan/ atau walikota/wakil wali kota yang berhalangan tetap bupati/wakil bupati dan/ atau walikota/wakil wali kota berhenti atas permintaan sendiri bupati/wakil bupati dan/ atau walikota/wakil wali kota yang diberhentikan masa ragil kurniawan 32 (meninggal dunia) jabatannya if the deceased director/deputy director is a regent/deputy regent or mayor/deputy mayor, the removal shall be carried out and proposed by the regency/municipal dprd in plenary session. city to the minister of state through the governor as the central government to get sacked. if the dprd county/city leadership does not recommend the removal of the deceased regent/deputy regent or mayor/deputy mayor, the secretary of state will remove the regent/deputy regent or mayor/deputy mayor. proposal of the governor as central government. if the governor as central government does not recommend the removal of the deceased regent/deputy regent or mayor/deputy mayor, the home secretary removes the regent/deputy regent or mayor/deputy mayor. if the deceased regional head/deputy regional head is a regent/deputy regent or mayor/deputy mayor, the removal will be implemented by kanupten/municipal dprd leadership at plenary session and proposed by the regent/municipal leadership . the dprd, as deputy central government, will be sent to the secretary of state through the governor to receive notice of termination. if the dprd county/city leadership does not recommend the removal of the deceased regent/deputy regent or mayor/deputy mayor. the secretary of state removes the regent/deputy regent or mayor/deputy mayor from office as central government on the governor's proposal. if the governor as central government does not recommend the removal of the deceased regent/deputy regent or mayor/deputy mayor, the home secretary removes the regent/deputy regent or mayor/deputy mayor. the dismissal of the regent and/or deputy regent or mayor and/or deputy mayor whose term of office has expired or who has been unable to hold office continuously for a long period of time or six months shall be made by the regency/municipal administration dprd. will do. her dprd leadership of the county/city proposed to the minister of home affairs through the governor as representative of the central government to obtain a decision on dismissal. if the regent/municipal leader of the dprd does not recommend the removal of the regent and/or deputy regent or mayor and/or deputy mayor whose term has expired, the minister of interior shall remove the regent and/or deputy mayor. . deputy regent or mayor and/or deputy mayor on the recommendation of the governor, representing the central government. if the governor, on behalf of the central government, does not recommend the removal of the regent and/or deputy regent, mayor and/or deputy mayor whose term has expired, the minister of the interior filling the vacancy for the position of vice head of regional head who are inability to continue to review with jurisdictional aspects 33 shall remove the regent and/or deputy mayor. regent or mayor and/or deputy mayor. 4. closing 4.1. conclusion based on the discussion of the research problem, it can be concluded that: the meaning of a deputy regional head in helping regional heads carry out regional government even though it is not explicitly written in the 1945 constitution of the republic of indonesia does not mean unconstitutional and also means the duties of deputy regional heads as contained in article 63 and article 66 of law no. 23 of 2014 concerning regional government which contains the duties of the deputy regional head in carrying out regional government, a kind of deputy regional head who helps carry out certain tasks, and takes over the regional head if the regional head is absent. the duties and authorities of regional representatives have a universal character in which full power is still held by the regional head, but on the other hand the regional head also always relies on his representatives in certain affairs and if the regional head does not have a deputy regional head, the regional head is not considered capable of administering regional government. alone and this can be a polemic or problem, especially in the regional government because if the deputy regional head is not available, then there is no one to help the regional head and replace the regional head if something is absent. indirectly, the regional head really needs a representative figure to assist his duties and authorities in carrying out regional government. 4.2. suggestions based on the results of the discussion and also the conclusions above, the suggestions given by the author are as follows: 1. the government of indonesia should pay more attention to the importance of the position of deputy mayor who directs and supports the local government's mayor. 2. regional leaders must bring two vice regional leader candidates with them when they take office. 3. a regional leader must act quickly to find a new deputy leader if his deputy is permanently absent or dies. must be announced publicly. references alit, t. et al. (no date) pengisian kekosongan jabatan wakil kepala daerah yang berasal dari partai politik atau gabungan partai politik berdasarkan undang-undang nomor 12 tahun 2008. available at: http://sigmanews.co.id/id/read/6549/polemik-. aulia, r. and wisnaeni, f. (2018) ‘pengisian jabatan kepala daerah dan wakil kepala daerah yang berhalangan tetap dalam sistem ketatanegaraan indonesia(studi kasus pengisian jabatan wakil bupati kabupaten grobogan) 1’, jilid, 48(3), pp. 298–316. aziz, m.a. and michael, t. (2020) ‘netralitas gubernur dalam pemilihan umum’, ’adalah, 4(3). available at: https://doi.org/10.15408/adalah.v4i3.16215. bayuaji, y. (2019) ‘totaliter pengisian jabatan wakil kepala daerah yang kosong: perspektif undang-undang nomor 23 tahun 2014 tentang pemerintahan daerah’, 2(3). hj. yeyet solihat, s.h., m.k. dan drs.n.n.sh., mh., m.si. (2016) ‘reposisi kewenangan wakil kepala daerah dalam penyelenggaraan pemerintahan daerah’, 1. indra pahlevi (2012) ‘posisi wakil kepala daerah dalam sistem pemerintahan di indonesia’. michael, b. (2020) ‘negara dan eksistensinya dalam privasi subjek hukum’, jurnal hukum magnum opus, 3(2). ragil kurniawan 34 michael, t. (2015) esensi etika dalam norma pemberhentian presiden dan/atau wakil presiden. michael, t. (2020) prinsip keabsahan (rechtmatigheid) dalam penetapan keputusan tata usaha negara. ni, o.: et al. (no date) kedudukan wakil gubernur dalam memperkuat sistem pemerintahan daerah nyoman a martana . redaksi, a. et al. (no date) jurnal thengkyang fakultas hukum universitas sjakhyakirti palembang pengisian kekosongan jabatan wakil kepala daerah dalam kerangka pemerintahan daerah di indonesia. available at: http://jurnaltengkiang.ac.id. tomy michael (2020) ‘kesulitan dalam memaknai kesempurnaan informasi era covid-19’, 4. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 102-107 102 evaluation of green human resources management within the scope of corporate social responsibility nihan yavuz aksakal istanbul ticaret university, turkey received: august 12, 2022 accepted: october 20, 2022 published: december 01, 2022 abstract: the increase in environmental problems in recent times points to the need for organizations to have a corporate environmental awareness of sustainability and environmental responsibilities. environmental awareness practices can also be considered as social responsibility practices. that’s why, it is very important that human resources practices support the environmental goals and sustainable resources of the organization and be seen as a corporate social responsibility tool. this study aims to contribute to the field by scanning the conceptual literature on the evaluation of green human resources management and practices within the framework of corporate social responsibility. keywords: green human resource management, corporate social responsibility, green human resource management practices. 1. introduction the rapid depletion of natural resources necessitates organizations to act with environmental awareness. at the same time, global problems such as sustainability, global warming, and rapid depletion of limited resources indicate that organizations should give more attention to green philosophy and environmental management. in this direction, organizations have started to include green management philosophy and green practices in various fields in their management processes. with the global problems experienced, human resources, which are in a key position in the success of the business, are starting to take on roles outside of their traditional roles. the human resources department, which is seen as a strategic unit, has also started to include green practices more in its management processes, especially in recent years. in this direction, the understanding of green human resources management has started to take place in the functions of human resources management. green human resource management (ghrm) is concerned with demonstrating environmental practices in the organization and trying to make the organization and especially its environmental practices sustainable as a strategic unit of the organization. apart from the traditional roles of human resources, it is expected that one of the roles it assumes will be to adopt the corporate social responsibility approach to employees, which can also be seen as an aspect of green human resources. corporate social responsibility (csr) is seen as supporting the implementation aspect of green human resources. in this study, the connection between green human resources management and corporate social responsibility is covered through literature and various researches. 2. green human resources management and practices the relationship between human resources and sustainability is expressed by ehnert and harry (2012) at the macro and micro level. according to the macro level, the relations of organizations with the economic and social environment affect society and sustainability. at the micro level, sustainability studies focused on the internal environment of the organization and its most important resource, human resources, are considered important (kavgacı and erkmen, 2021). over time, the context of sustainability and human resources evolves towards green human resources. it is evaluation of green human resources management within the scope of corporate social responsibility 103 stated that green human resources management covers human resources practices that address three sustainability areas: environmental, social and economic balance (öselmiş, 2020). ghrm is concerned with the environmental dimension of human resource management in order to support the sustainable use of resources (rani and mishra, 2014; renwick et al., 2008; deshwal, 2015). the ghrm process is expressed in three basics. (1) recruitment, selection-placement, training and development functions where green talents are developed, (2) employee motivation, performance evaluation and rewarding, and (3) employee participation (rezaei-moghaddam, 2016). 2.1. green recruitment and selection the green recruitment ve selection process considers it important to create a human resource which shares the organization’s green values and culture (chaudhary, 2019). the mentioned function refers to the process of selecting and recruiting individuals who are interested in protecting the environment and who have the behavior, knowledge and skills related to environmental management (mwita and kinemo, 2018). if the hired employee is aware of the environment and cares about environmental values, it will create a positive process for the company (obaid and alias, 2015). green recruitment and placement, which also includes the paperless recruitment process (oncer, 2019), is also important in terms of corporate social performance of organizations (kavgacı and erkmen, 2021). 2.2. green training and development this function can be explained as a continuing training process on environmental issues with the aim of the environmental management goals of the organization. issues such as legal requirements, employee awareness, high quality, communication with stakeholders, and training of green managers have an important place in the green training development function (zoogah, 2011; teixeira et al., 2016; renwick et al., 2008; ahmad, 2015). this function also aims to gain competence for green philosophy and environmental management (chaudhary, 2019). in addition, with this function, employees can take an active role in identifying environmental problems and focusing on solutions, being aware of environmental issues, and developing values in environmental issues (pham et al, 2020). 2.3. green performance management green performance management consists of employee motivation and monitoring activities on environmental issues (kavgacı and erkmen, 2021). it is stated that green performance management is important to achieve better environmental performance by attracting and retaining employees who are knowledgeable about environmental issues to the organization (martins et al., 2021). the green performance management and feedback process motivates employees to engage in voluntary green behaviors that support corporate environmental performance (chaudhary, 2019). it is stated that evaluating the environmental performance of the employees will increase their responsibilities in this regard, enable them to see their duties holistically and show voluntary green behaviors (pham et al., 2020). 2.4. green compensation and reward management this function is a potential tool to support environmental activities. it is claimed that green behaviors can be displayed by employees by integrating green culture into the compensation and reward management process (mandago, 2018). this function, which has an important role in the motivation of employees, can be considered as material and moral elements (oncer, 2019). it is suggested to provide different green awards at different levels in the organization. while green rewards motivate subordinates, they provide recognition to middle management. it is stated that green reward systems are also important in terms of green creativity and innovation (ghouri et al., 2020). 2.5. green employee involvement green practices require significant changes in the coordination and operation process. in this regard, employee participation, skills development and training are important. the involvement of every employee from the highest to the lowest level in the process and the sharing of ideas is a key factor. recruiting talented employees, creating applications for the development of employees, training processes, controlling and evaluating applications, developing green reward systems are among the important points regarding employee participation (oncer, 2019: 202). another important point regarding employee participation is employee empowerment. it is emphasized that empowering employees is in a positive relationship with various issues such as employee participation in processes, nihan yavuz aksakal 104 supervision support, support of organizational culture and information sharing (kavgacı and erkmen, 2021: 800). it is also stated that empowering employees creates eco-intrapreneurs (chaudhary, 2019). 3. corporate social responsibility csr, which is considered as a way of ensuring sustainable development (dubravská et al., 2020), is expressed as the voluntary participation and efforts of organizations for a better social and clean environment (ec, 2002: 5, cited in uçar and işık, 2019). employees are seen as csr stakeholders and it is claimed that csr contributes to human capital (úbeda-garcía et al., 2021). csr is expressed as the integration of environmental and social elements into the activities of the organization by combining them in a balanced way (strandberg, 2009). according to mosca and civera (2017), corporate social responsibility refers to the practices and strategies related to social and environmental benefits implemented for the interests of stakeholders. csr is seen as a comprehensive business strategy, and attempts to reduce the negative effects on the environment, to solve economic and social problems (seyitoğulları and bilen, 2020). issues such as motivating employees, acting in accordance with legal regulations, meeting customer expectations, creating a reliable company image are among the objectives to be achieved with csr (seyitoğulları and bilen, 2020). organizations need to fulfill various responsibilities for purposes of achieve the mentioned objectives and meet the expectations. carroll’s (1991) corporate social responsibility pyramid includes economic, legal, ethical and philanthropic responsibilities from bottom to top, respectively. continuity and competitiveness in profitability represent economic responsibility. acting in accordance with the law explains legal responsibility. it is an ethical responsibility for the organization to act without harming the environment and society while realizing its objectives and processes. voluntary responsibilities for the benefit of society are expressed as philanthropic responsibilities (çetinkaya özdemir and okur, 2020). organizations need employees to fulfill the responsibilities mentioned above. for this reason, organizations can demonstrate corporate social responsibility in various ways such as employee volunteering and ethical workforce practices (gedik, 2020). at this point, the active participation of human resources plays a very important role (úbeda-garcía et al., 2021). 4. relationship between green human resources management and corporate social responsibility human resources, which has an significant role in developing csr awareness and adopting practices, is an important connector for all departments in the organization. green human resources initiatives are effective in encouraging employees on social responsibility, raising awareness and achieving csr goals (sheopuri and sheopuri, 2015). at the same time, the active involvement and empowerment of employees in the processes is considered as an important result for organizations in the scope of csr practices of human resources (uçar and işık, 2019). ghrm practices are focused on creating green workers who understand green philosophy, green culture and green values and comply with csr requirements. the attitudes and behaviors of all employees in the human resources department and the organization are very important in the implementation of csr projects (úbeda-garcía et al., 2021). it’s stated that green human resources practices will also encourage green culture and environmentalist corporate culture (uçar and işık, 2019). various studies in the literature show that there are various connections and relationships between ghrm and csr. in a study conducted in 150 organizations in china, it was seen that csr positively affects both green corporate identity and green adaptability. in the study, it is recommended that businesses strengthen their sense of organizational green identity, which will be helpful their sustainable development, and improve their organizational green adaptation capabilities (song et al., 2019). freitas et al. (2020), it is revealed in a study conducted in the automotive and chemical industries in brazil that ghrm practices positively affect csr practices. it has been found that performance evaluation, teamwork and recruitmentselection practices are important in increasing csr performance. a study conducted with participants from five-star hotels in china reveals that corporate social responsibility and ghrm have significant positive effects on employees’ green behavior and performance. in the study, it is suggested that organizations can increase their sustainability with csr, ghrm and responsible leadership practices (he et al., 2021). evaluation of green human resources management within the scope of corporate social responsibility 105 in a study by malik et al. (2021), it was revealed that ghrm practices and csr are positively related to sustainable performance. according to a study conducted by úbeda-garcía et al (2021) in hotels in spain, it is suggested that green human resources management also has an indirect effect on the positive relationship between csr and performance. it is stated that ghrm supports csr activities in various ways such as developing green skills and abilities, green motivation and green participation. 5. conclusion due to increasing environmental problems, the environmental responsibilities that organizations have to undertake are also increasing. especially in order to reduce the environmental impacts of organizations in their production and management processes, new philosophies, management understanding and practices are needed. for this reason, organizations are investing more in csr. csr is a strategic perspective that includes practices on social and environmental issues, creates benefits for the employer brand, empowers, develops and motivates employees. organizations raise awareness for all their stakeholders with environmentalist corporate social responsibility practices. it supports this with green human resources practices. ghrm, on the other hand, is seen as an organizational tool for corporate social responsibility (shen et al., 2018). ghrm can also be seen as sustainable human resources management that includes csr. acting with csr awareness in ghrm and policies is important for organizations to create a socially and environmentally responsible organization. ghrm is seen as part of the corporate social responsibility framework. green human resources aims to develop environmental and ecological sensitivity in human resources in the organization and to make them aware of how their own behavior can affect the environment. it is stated that green practices motivate the sense of social responsibility of human resources and help protect high-level talents (öselmiş, 2020: 37). ghrm is concerned with creating human resources that understand and embrace the green values of the organization and are compatible with corporate social responsibility (sarıyıldız, 2021). for this reason, it is considered important for organizations and managers to carry out corporate social responsibility activities for the environment with the help of green human resources practices. it is recommended for organizations, managers and practitioners to invest more in environmental corporate social responsibility projects. it is important to apply tests to measure the environmental awareness of candidates in recruitment processes. reducing paper consumption in recruitment processes and advancing processes electronically can be seen as both a green human resources practice and a corporate social responsibility effort when evaluated from an environmental point of view. cooperation with various non-governmental organizations and social associations in the field of activity of the organization will be an example of activity in terms of corporate social responsibility. green culture can be supported by creating green values that emphasize corporate social responsibility awareness, promoting them in the organization and integrating them into systems such as wage management and performance evaluation. green human resources practices that can increase employee participation are considered important in the realization of csr practices. providing environmental trainings to employees in accordance with their duties will also be a way to improve csr awareness. the creation of green teams will be an important step in the creation of various csr projects for the environment (kavgacı and erkmen, 2021). it is argued that organizations that benefit from green human resource management practices have lower employee turnover rates by retaining socially responsible employees (sheopuri and sheopuri, 2015). it is also stated that csr can be seen as a way to attract talent, motivate employees and improve recruitment practices (úbeda-garcía et al., 2021). in this regard, attracting and retaining environmentally conscious talents will reduce the employee turnover rate and create a positive image of csr in the eyes of both candidates and stakeholders. in addition to all these, top management support is very important in all management processes. for this reason, it will be important for them to add csr principles for green culture to the mission, vision, values and goals of their organization. this will enable employees to better understand green human resources practices and the work they do, and to believe in csr projects. in future studies, it will be useful to examine ghrm and its practices in different concepts and contexts. nihan yavuz aksakal 106 references ahmad, s. 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(2011). the dynamics of green hrm behaviors: a cognitive social information processing approach, zeitschrift für personalforschung (zfp)”-rainer hampp verlag, mering, 25 (2), 17-139. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 125-132 125 compensation system and employees motivation in commercial bank of ethiopia: evidence from duna branch sanait tadele hagayo jimma university, ethiopia negese tamirat mulatu jimma university, ethiopia received: september 12, 2022 accepted: november 06, 2022 published: december 01, 2022 abstract: commercial bank of ethiopia seeks to obtain maximum level of performance from bank employees. compensation system is a key to enhances employees’ motivation and performances. employees motivation also a crucial in human capital and resource management. therefore, this study was aiming to investigate the role of compensation system on employee′s motivation in the commercial bank of ethiopia. for the study total 55 sample was determined. the research was applied primary and secondary data. primary data wa s collected through questionaries and interviews. descriptive and inferential data analysis method was conducted. the result presented that out of 100% employees, 83.64% employees received compensation in the study branch. hence, compensation system and practice positively and significantly associated with employee’s motivation and good performance. commercial bank of ethiopia under research should focus on enhancing compensation systems, practices, and policies implemented in the bank. keywords: commercial bank, compensation practice, employee motivation, human capital, ethiopia 1. introduction world today need innovation and development to induce organizational communication to their employees. need is a key the organizations to systematize their tasks such as re-design system and processes and enhance management system (catanzaro, 2001). the companies at least expect employees to accomplish the assigned tasks and management expect that the employees should learn new skills and supervise themselves to the organizational business needs, and employees expect fair pay and safe working condition (wang, 2004). effective utilizing all available resources such as human and non-human resources are very crucial to achieve certain needs and goals. specifically, human resources are the most valuable resource or asset to derive such needs and goals. employees are a key or backbone of a companies to attain its needs, goals and desired objectives in terms financially and nonfinancially (armstrong, 2009). compensation is the remuneration, systematic way, organized practice, and integral part of human resource management which is very crucial in motivating the employees and enhancing company effectiveness and efficiency. employee compensation is a key element in better human resource management (wang, 2004). it is a vital determinant influencing motivation individual to enhance the good performance in the company (casio, 2013). a good compensation package (gcp) is very crucial to motivate employees to enhance company productivity. motivated employees through by compensation very important the organization in order to achieve the goal of efficiently and effectively (sara et al., 2004). the appropriate employee compensation encourages workers knowledge and capacity to improve their performance (gebremedihin, 2013). compensation is very important deriver in human resource management. in order to create incentives for employee’s organization use different type of compensation such as direct financial compensation, indirect financial compensation, and non-financial compensation (wang, 2004). direct financial compensation such as wages and salaries, bonus, tips, promotion, and commission are widely recognized form of compensation (frey and osterloh, sanait tadele hagayo & negese tamirat mulatu 126 2002). indirect financial compensation is employees achieve benefits that has financial value not a direct monetary payment like group medical insurance coverage, retirement plan, stock option, profit sharing (celestial, 2009). nofinancial compensation is not monetary value but satisfaction that comes from work environment to employees such as status, appreciation and recognition, work-life balance, delegation, working conditions, job enrichment, and job security (gebremedihin, 2013). employees compensations reveals all form of payment or reward to employees like wage salaries, incentives, bonus, medical insurance, commissions (armstrong, 2012; bowra et al., 2012; gray, 2005). human resources are the vital factor for achieving organizational development either financially or non-financially. employees compensations is something going to employee for their good work either monetary and nonmonetary (griffeth et al., 2000). it is very crucial activity to employees satisfaction. compensation is referred as a responsibility and willingness and ability of an organization to derive to employees for their better achievement and performance (armstrong, 2009). the role of organization to enhance employee’s performance by facilitating fair, attractive and competitive compensation system which create employees legal, motivative, happy and productive (bowra et al., 2012; celestial, 2009; robbins, 2003). all financial compensation not included in direct financial reward such as medical and hospital insurance worker receive job is performed itself or psychologically protection like health, life insurance, vacation, and sick lives (bernardo, 1998). the number of factors like individual needs, reward expectation, equity and fairness influences employee motivation which in turn affect human living standards and behavior. the cognitive factor such as perception and learning affect motivation and working performance. motivation is the vital determinant towards enhancing the performance (prasad, 2005). low and absence motivation leads employee’s inefficiency, corruption, indiscipline and absenteeism at organization (memmott and growers, 2002). 2. statement of the problem employee’s performance highly and positively related with employee motivation that means motivated employees are committed, punctual and provide good services to the companies which in turn leads good companies’ performance (wang, 2004). the motivation employees influenced by different factors such as lack incentives, lack of income opportunities, lack housing, poor education, inaccessibility health, poor access to water and low electricity availability in the companies. cbe to minimize these different provide safe place of market share by facilitate good bank service in attractive way to employees which is very crucial to attract different customers to the bank and vital to enhance employee’s performance in the cbe (armstrong, 2005). excellent compensation system in a company is very key to reduce turnover of employees, enhance job or work satisfaction, and enhance moral of employees. it is vital contributes for worth function of the companies (frey and osterloh, 2002). in cbe due to lack of know how the employees, employees there is no choice of employment. compensation employee give priority or depends on high performance. cbe to increase better compensation system practices would manage their company and employees in productive way, otherwise, bank face loss of bank performance. this mean bank compensation enhances the efficiency of the bank by enhancing profit (catanzaro, 2001). in cbe in ethiopia in general and cbe of duna branch in particular, there is limited data and empirical literature review on compensation system and employee’s motivation. therefore, this research was aimed to examine compensation system and employee’s motivation in cbe in duna branch. 3. review of literature (owusu, 2012) study on impact of motivation on permanent employee performance commercial bank of ghana applying qualitative and quantitative data. the result presented that there is positive significant association between motivation and permanent employee performance. (albeit, 2015) developed the research the role of motivation and employee performance in commercial bank of victoria in kenya employing correlation and regression analysis. the findings revealed that motivation significantly influenced permanent employee performance. according to the research (bushiri, 2014) on the effect of working environment and permanent employee’s performance applying qualitative and quantitate data. the result presented that there is positive correlation between working environment and employees’ performance. as (mruma, 2013) the study developed on effect of motivation and teacher’s performance in nya magana district, tanzania education institutions applying qualitative and quantitative. the finding showed that there is positive relationship between motivation and permanent teacher’s performance. compensation system and employees motivation in commercial bank of ethiopia: evidence from duna branch 127 (vijayakumar and subha, 2013) evaluated that there is positive significant association between motivation, work satisfaction, reward, and permanent employees’ performance. their result showed that rewards should have positive impact on motivation and satisfaction. according to (hafiza et al., 2011) the research developed on employees’ motivation, concluded that there is a significantly positive associations between rewards and employee motivation. (ajmal et al., 2015) conducted their studies on intrinsic and extrinsic rewards, and employee′s satisfaction and motivation. intrinsic and extrinsic rewards are key elements for employee motivation and satisfaction. as their studies appropriate rewards are the essential motivators to achieve better companies’ goal. (nebiat, 2010) developed study on relationship between rewards and nurse′s motivation in addis ababa hospitals. the aims of the study were to evaluate the association between rewards and nurse motivation in the study area. the finding presented that there is positively significant association between reward and the nurse′s motivation. (vijayakumar and subha, 2013) indicated that many studies tried to reveal association between motivation and permanent employees’ performance. therefore, this study evaluates effect of compensation practices or system on employee’s motivation of cbe in duna branch. the research estimation approach is guided by the conceptual framework. the conceptual framework is developed based on the empirical review of literature (mruma, 2013). for the study compensation is explanatory variable and employees motivation is dependent variable. the factors such as sex, age, educational, experiences, wages and salaries, bonus, tips, promotion, omission, medical insurance coverage, retirement plan, stock option, profit sharing, appreciation and recognition, work-life balance, delegation, working condition, job enrichment, and job security are affect employee’s motivation. the conceptual framework of the present study showed in figure 1. figure 1: conceptual framework of the study sources: modified from (mruma, 2013) indirect financial compensation  group medical insurance coverage  retirement plan  stock option  profit sharing employee motivation direct financial compensation  wages and salaries  bonus  tips  promotion  commission non-financial compensation  appreciation/recognition  work-life balance  delegation  working condition  job enrichment  job security demographic characteristics  sex  age  educational status  service year sanait tadele hagayo & negese tamirat mulatu 128 3. methods and materials 3.1. description of the study branch the study was conducted in duna branch of cbe in hadiya zone, snnprs, ethiopia. duna branch of cbe found in duna woreda. duna woreda are located in the south west central part of ethiopia about a distance of 270 km south of addis ababa. duna woreda geographically located between 7 0 37′19ʹʹ n latitude and 37 0 37′ 14ʹʹe longitudes. the duna branch of cbe were established in 2001 g.c. currently the total permanent employees of duna branch of cbe are 55. out of total permanent employees of duna branch of cbe, 36 employees are male and 19 employees are female. 3.2. data collection the date for this study was collected from primary and secondary source of date. the primary data was collected by questionnaires and interviews. for the data analysis both qualitative and quantitative data were collected. for the study the census of data from total 55 permanent employees of cbe in duna branch were collected. the secondary data was supplementary data for this study collected from published and unpublished source, books, and document of cbe in duna branch. 3.3. population of the study the total and target populations of this research is 55 permanent employees of cbe in duna branch. the current study was applied census sampling technique. the total amount of target population in the cbe in duna branch is 55. therefore, the study was applied the entire total permanent employee of cbe in duna branch. 3.4. data collection instruments for the data collection the study applied questionnaires and interviews. both open and close-ended structured questionnaire was prepared to collect required primary data. the interview was conducted with manager of the cbe in duna branch. 3.5. methods of data analysis this research was applied both descriptive and inferential data analysis methods. the descriptive analysis performed by applying percentage, frequency, means, standard deviation, tables, and minimum and maximum values. the inferential statistics was conducted by applying correlation and regression. 4. results and discussions 4.1. demographic characteristics of respondents table 1 presented that demographic features of permanent employees of cbe in duna branch. as the descriptive analysis from 55 permanent employees, 36 (65.54%) and 19 (34.55%) are males and females respectively. the result presented that majorities are males and enhancing female employees in cbe in general and in duna branch in particular is a key to optimize employee’s motivation, and worker and bank performance. as a result, compensation is vital components to improve the employee’s motivation in cbe of duna branch. the finding of this study is consistent with (armstrong, 2009). the mean age of employees in cbe of duna branch is 31.8 years with minimum and maximum are 21 and 52. the mean age of employees who have got compensation is 34.52 and the remaining mean age 27.45 is not compensated. the mean age difference between compensated and counterparts in cbe of duna branch is 7.07. the age group employees in cbe of duna branch account 26 – 35 age group is 35 (63.64%), this present that the majorities employees exist in this age group. the result indicated this age group receive better compensation than the remain age group in cbe of duna branch. the result is in line with (owusu, 2012). education is very important elements in affecting compensation practice as well as employee’s motivation and performance. according to the data result, the majorities of employees in cbe of duna branch are first degree holder 42 (76.37%) and the result is followed by diploma holders 7 (12.73%). in order to increase competitive advantage, it is most suitable the cbe of duna branch create capable and skilled employees which in turn increase bank performance. the data result indicated that the more education relatively creat better opportunity in terms of employees’ compensation than counterparts. the finding of the present study is in line with the findings (armstrong, compensation system and employees motivation in commercial bank of ethiopia: evidence from duna branch 129 2009). service year employees showed that the majority of the employees are between 3 – 6 years account from total 35 (63.63%) fallowed by 0 – 3 years account 13 (23.64%). the result is in line with (bushiri, 2014). table 1: demographic characteristics/profiles of respondents s. no category variables frequency percentage 1 sex male 36 65.54 female 19 34.55 total 55 100 2 age less than 25 14 25.45 26 – 35 35 63.64 36 – 45 4 7.27 above 46 2 3.64 total 55 100 3 educational level certificate diploma 7 12.73 first degree 42 76.37 second degree 6 10.90 phd degree total 55 100 4 service year 0 – 3 years 13 23.64 3 – 6 years 35 63.63 6 – 9 years 7 12.73 9 and above years total 55 100 source: computed from own survey data 2022 4.2. compensation practices table 2 indicated that the descriptive statistics presented that the attitudes in cbe of duna branch employees towards compensation practice. the analysis result showed mean and sd of financial compensation are 3.35 and 0.48 on average respectively. the table 2 revealed employee showed salary pay with mean value of 3.32, sd = 0.57 and bonus pay mean value 3.24, sd = 0.51. the analysis result presented that there is moderate employee perceptions financial compensation and low perceptions on bonus than salary. the mean value and sd of non-– financial compensation is 3.21 and sd = 0.38 on average respectively. the overall employee perception on compensation practice were mean 3.32, sd = 0.427 on average. sanait tadele hagayo & negese tamirat mulatu 130 table 2: mean and standard deviation of compensation practices s. no description n mean std. deviation 1 salary 55 3.3203 0.57324 2 bonus 55 3.2431 0.51215 3 financial compensation 55 3.354 0.48418 4 non-financial compensation 55 3.2160 0.38422 total compensation 55 3.3215 0.42735 source: computed from own survey data 2022 4.3. employee motivation the data analysis results in the table 3 indicated that the majorities of permanent employees in cbe of duna branch 46 (83.64%) who have got compensation are motivated towards better performance. the remaining 9 (16.36%) of permanent employees are not motivated by compensation in the study branch. the result of the current study is consistent with (ajmal et al., 2015; hafiza et al., 2011). improved compensation practice is very crucial and positively affects employee’s motivation in cbe of duna branch. therefore, it revealed that better compensation practice and system positively influences permanent employee’s motivation than counterparts. hence, there is major difference between compensated and non-compensated permanent employees in cbe of duna branch in terms of employee’s motivation. table 3: compensation motivates employees to better performance motivated status frequency percentage yes 46 83.64 no 9 16.36 total 55 100 source: computed from own survey data 2022 4.4. compensation practice and employee’s motivation the correlation analysis applied to show the correlation between compensation practice and employees’ motivation. the findings presented that all elements of compensation are significantly positive relationships with employees’ motivation. the result of regression revealed that financial compensation r = 0.484, non-financial compensation r = 0.172, total compensation r = 0.408. the presented that the compensation and employee’s motivation were positively correlated. therefore, compensation practice has positive effect on employee’s motivation in cbe of duna branch. 4.5. analysis of interviews according to the manager in cbe of duna branch compensation policy is very important instruments to derive better motivation and performance which in turn a key to achieve objectives. the good performed employees are compensated than counterparts based up on this policy instrument. as a manager response there are external such as market condition, competitors, gdp of nation, and cost of living, and internal factors affecting compensation policy. additionally, manager presented that compensation packages very necessary towards enhance the performance of permanent employees in cbe of duna branch because compensation is merit based. compensation system and employees motivation in commercial bank of ethiopia: evidence from duna branch 131 5. conclusions and recommendations compensation system is a very important or prerequisite for achieving better employees’ motivation, which in turn contributing towards enhanced employees’ performance and living standards. employees motivation is a key component in human resource management and it is very crucial in promoting employee’s performance and organizational productivity. therefore, this study was aiming to assess compensation practice and employee’s motivation in cbe of duna branch. for the data analysis primary and secondary sources of data was collected. the census data collection method was applied to determine a total 55 permanent employees. descriptive and inferential methods were employed for data analysis. the results of data analysis presented that compensation practice significantly positive effects on employees’ motivation in cbe of duna branch. based up on the results of the study the following recommendations were developed. the achieve better employees and organization goals appropriate compensation plan is very crucial. therefore, companies better guided by proper compensation plan to achieve their objectives. employees skill, knowledge, attitude, and willingness are very important components in compensation practice and employee’s motivation. hence, organization is better to develop employee’s knowledge and skill by using different training about their work, which in turn properly enhance skill and knowledge of employees. compensation package and policy plays a great role towards motivate employees and ensure the competitiveness of the organization. so, in order to improve employee’s performance and organization goal it is better to use improved and structured compensation policy. therefore, further study considers extending this line of study by expanding scope of the study branch. references ajmal, a., bashir, m., abrar, m., mahroof, m., khan. and saqub, s. (2015). the effect of intrinsic and extrinsic rewards on employee attitudes: mediating role of perceived organizational support. journal of service science and management, vol. 8; pp 461 – 370. albeit, m. (2015). the role of motivation on employee performance. a case of victoria commercial bank of kenya. unpublished mba dissertation, chandria school of business. nairobi, kenya. armstrong. (2005). employee reward management and practice.london: kogan page limited. armstrong, m. (2009). armstrong's handbook of performance management,4th edition london and philadelphia kogan page ltd. armstrong, m. (2012). handbook of human resources management practice. london: jellyfish. bernardo, h. j. (1998). human resource management, 2nd ed., published at mcgraw-hill company, printed in usa. pp 273 – 293. bowra, z. a., sharif, b., saeed, a., and niazi, m. k. (2012). impact of human resource practices on employee perceived performance in banking sector of pakistan. african journal of business management, 6(1), 323-332. bushiri, c. (2014). the impact of working environment on employee’s performance. the case of institute of finance management in dar es salaam. unpublished mhrm dissertation, open university of tanzania. dar es salaam, tanzania. casio, w. f. (2013). managing human resource: productivity, quality of work life, profits. new york, usa: mcgraw-hill iran. catanzaro, t. (2001). compensation and motivation. journal of veterinary emergency and critical care, 11, 62-65. celestial. (2009). human resource management 5th ed. published at time mirror higher education group inc. company. frey, b. and osterloh, m. (2002). successful management by motivation. london: springer verlag. gebremedihin, w. (2013). compensation practices and teachers turnover intention in tigray. international journal of science and research (ijsr). volume 5 issue 9, september 2016. gray, d. (2005). human resource management. new delhi: tata mcgraw-hill publishing company limited. griffeth, r.w., horn, p. w. and geartner, s. (2000). a meta-analysis of antecedents and correlates of employee turnover: update, moderator tests, and research implications for the next millennium. journal of management, 26(3): 463 – 488. hafiza, n.s., shah, s.s., jamshed, h. and zaman, k. (2011). relationship between rewards and employee′s motivation in the nonprofit organizations of pakistan. business intelligence journal, 4(2): 327 – 334. sanait tadele hagayo & negese tamirat mulatu 132 mruma, j. m. (2013). effect of motivation factors on teacher’s performance in tanzania education institutions: a case of public secondary schools in nyamagana district council. unpublished mhrm dissertation, open university of tanzania. dar es salaam, tan. memmott, l. and growers, s. (2002). retaining and motivating employees. washington dc: wsu publishers. owusu, t. (2012). effects of motivation on employee performance, a case study of ghana commercial bank, kumasi zone. unpublished mba thesis, kwame nkrumah university of science. kumasi, ghana. prasad, l. m. (2005). organizational behavior, 3rd edition, new delhi: sultan chand & sons. robbins, s. p. (2003). organizational behavior 7th ed., published at prentice hall company simple study for incentive compensation. com google search. sara, p, locke, e. and luthans, f. (2004). job satisfaction and promotion. social science network. 1, 5-7. vijayakumar, v. t. r. and subha, b. (2013). impact of rewards and recognition on employees job satisfaction and motivation in private banks of tirunelveli city. international research journal of business and management, vol. 5, pp 63 – 74 . wang, y. (2004). observations on the organizational commitment of chinese employees: comparative studies of state-owned enterprises and foreign-invested enterprises, the international journal of human resource management, 15(4/5): 649–64. journal of international trade, logistics and law, vol. 4, num. 2, 2018, 13-18 13 security alternatives of sea waybill and straight bill of lading vasileios ziakas received: september 08, 2018 accepted: november 20, 2018 published: december 15, 2018 abstract: apart from the traditional bill of lading, numerous shipping documents have emerged relatively recently trying to offer a satisfactory solution to the bill’s crisis. among them, sea waybills are very commonly used in contemporary transport operations, especially when bills of lading are not suitable and useful. in front of this development, many inquiries seem to arise, to which this article seeks to answer. in other words, the aim of this article is to analyse whether the sea waybill can provide security to lenders, such as banks, and to what extent. answering to that question, the next inquiry is whether the straight bill of lading is tantamount to sea waybill or the tradi tional bill of lading, whatever this means regarding the legal implications, including, of course, the level of the furnished security. keywords: sea waybill, equitable pledge, nodisp, straight bill of lading 1. sea waybill 1.1. definition the economic commission for europe defines sea waybill as follows: ‘a non-negotiable document which evidences a contract for the carriage of goods by sea and the taking over or landing of the goods by the carrier, and by which the carrier undertakes to deliver the goods to the consignee named in the document’. similarly, the following definition is also to be cited by virtue of its comprehensive approach to the nature and features of the sea waybill. ‘the sea waybill is a non-negotiable transport document and its great advantage is that its presentation by the consignee is not required in order for him, on production of satisfactory identification, to take delivery of the goods, thus avoiding delay both for him and the carrier where the goods arrive before the waybill. it is not a document of title but contains, or is evidence of, the contract of carriage as between the shipper and carrier in that it incorporates the standard terms of the carrier on its face. however, unlike a bill of lading, these terms are not detailed on the reverse of the waybill which is blank. a waybill is usually issued in the ‘‘received for shipment’’ form but may, like a bill of lading, be notated once the goods have been loaded’. 1.2. the emergence of the sea waybill there are numerous reasons that have resulted in the emergence of the sea waybill. in a nutshell, the vessels’ higher speeds have as a consequence the timely arrival of the goods at the port of discharge, while bills of lading are still en route. on the one hand, diminishing the time of the voyage is, of course, to be praised, but, on the other hand, it surely shook the shipping industry up. in essence, the shipping industry had to confront the violation of the presentation rule, because most times vessels used to arrive at the port of destination, but the production of the bill of lading was impossible. shipping industry dealt with this issue by coming up with the idea that the delivery of the goods shall be feasible even though the bill of lading is not presented. in that case, the issue of a letter of indemnity by the consignee is essential. the restricted use of the bill of lading was also the corollary of containerization. this transport method brought remarkable changes, such as reduction in the speed of the transportation operations. however, it must be noted that international community did not remain passive spectator to the new tendencies, practices and commercial documents that were occasionally introduced. on the contrary, it reacted and responded to the new challenges by trying to enact a comprehensive and coherent legal framework regulating sufficiently the vasileios ziakas 14 nascent circumstances. as regards the sea waybill, the international maritime commission (cmi) sanctioned the uniform rules for sea waybills in 1990. it is noteworthy, though, that concerns and proposals expressing the urgent codification and legislation pertaining to non-negotiable documents, such as sea waybills, had already sprung up. particularly, at the cmi colloquium in 1983 one of the submitted suggestions, which had been keenly embraced, was related to the deterrence of the massive use of the bill of lading on the apparent ground that it is not always essential. unlikely, the use of non-negotiable documents (i.e. sea waybill) should be motivated, because, under some circumstances, bills of lading are absolutely useless. 2. the qualities of the sea waybill besides the similarities between sea waybills and bills of lading (both serve as proof of receipt of the cargo as well as evidence of the contract of carriage), their role and practicality are remarkably different. from a legal point of view, the features of the sea waybill differ significantly from those of the bill of lading. first of all, the former is not negotiable/transferable, since it is destined for a definite consignee, whose name is expressly written on its face. normally, that single person has the right to receive the goods, once he has certified that he is the party entitled to have the goods received. nevertheless, under few strict circumstances, the goods can be delivered to a different consignee than the named on the sea waybill. to elaborate more, the consignee is likely to be changed provided that he has not previously exercised his right to request delivery of the goods and on condition that this change is not barred in terms of the law governing the contract. put simply, modification must be concurrently permitted, because otherwise, the fulfillment of one of the aforementioned requirements does not suffice. additionally, under a sea waybill contract of carriage, the identification of the consignee suffices for the delivery of the goods, because the sea waybill is not a document of title. at common law documents of title have to be produced against the carrier so that the latter proceeds to the physical delivery of the goods. otherwise, the car rier is reluctant to hand over the goods and prefers to retain them by virtue of his liability in case of misdelivery. indeed, the carrier confronts that risky situation with the most preventive measures, because he does not want to get involved in unenviable incidents, which would result in his liability. in contrast, when it comes to the delivery of the goods in the context of a sea waybill contract, the carrier might be found liable when he has brought his obligation to exercise reasonable care at the time of the consignee’s identification. indeed, according to article 7 of the cmi uniform rules for sea waybills 1990, the carrier will be discharged if he delivers the goods to the consignee upon performance of appropriate identification, and if he proves that he has exercised reasonable care to ascertain that the party claiming to be the consignee is in fact the recipient. 3. it can the sea waybill be regarded as a document of title? the debate whether the sea waybill could be considered a similar document of title dates back to 1924, when the international convention for the unification of certain rules of law relating to bills of lading (hague rules) was ratified. undeniably, the phrase ‘‘any similar document of title’’, which is found under article 1(b), provokes mere uncertainty and ambiguity. but, which is, in fact, the real cause of the inquiry whether the sea waybill could be classified as a document of title? in particular, the dispute’s origins have to be searched out in the translation of the original french text to english. in the course of the translation procedure, a few literal discrepancies and inconsistencies came into being. the challenging task of an accurate rendition of the french text was nearly impossible taking into consideration the variances between the legal system of common law and civil law, respectively. in that case, the phrase ‘similar document of title’ which is entirely conceivable and plausible under common law, lacks legal essence and interpretation under civil law. specifically, under continental law the phrase in question is apparently too obscure and evasive. confusion can also be caused by the interpretation of the section 1(4) of the factors act 1889, which provides: ‘the expression ‘‘document of title’’ shall include any bill of lading any bill of lading, dock warrant, warehouse-keeper’s certificate, and warrant or order for the delivery of goods, and any other document used in the ordinary c ourse of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented’’. in terms of this wide definition, one may wonder whether a sea waybill could be considered a document of title falling under the above connotation. in order to answer that question as aptly as possible, the following subqueries have to security alternatives of sea waybill and straight bill of lading 15 be previously posed. firstly, whether the bailee, who has the immediate control of the goods, is supposed to give in the goods to whom they are destined and additionally what kind of rights does the former enjoy. secondly, with regard to the nature of the document, whether it serves as proof of ownership or of power to control the goods. all in all, although it is incontrovertible that the sea waybill is not a document of title, this does not imply that its holder is not capable of having the oversight of the goods during the voyage. the shipper is entitled to request redelivery of the goods until the time of their arrival at the place of delivery designated ad hoc in the contract. 4. en security provided by the sea waybill given that the sea waybill is not a document of title, its security role is rather debatable. the reason is that in comparison with the bill of lading, the use of sea waybills is accompanied by a quite limited range of functions confined to the two following: as evidence of a carriage contract and as a receipt of the shipment. notwithstanding these common functions, the sea waybill cannot substitute the bill of lading by virtue of the fact that handing over the sea waybill does not result automatically in the transfer of the goods. this specific ‘flaw’ is pivotal for the inability of the sea waybill to supplant the bill of lading, because it does not signify the conveyance of the possession as well as of the property over the goods. consequently, it is not suitable for documentary security either upon the purchaser’s request or in favour of third parties beneficiaries, such as banks that enter into a transaction after they have issued a letter of credit or made any other similar arrangement. in the absence of its function as document of title, it is generally admitted that the sea waybill is not capable of providing security either for the seller or for the bank as efficiently as the negotiable bill of lading. the security alternative that is possible for a bank under a sea waybill contract is feasible only if the bank is named as consignee. therefore, it follows that the security offered by waybills are available to a much lesser extent compared to that of the bill of lading. regarding the likely security role of the sea waybill, it is indisputable that it cannot serve as the legal basis of the pledge due to the lack of its function as document of title. one of the requirements of an effective pledge is the possession of the goods. according to the black’s law dictionary the definition of the pledge is the following: ‘a bailment of goods to a creditor as security for some debt or engagement. a bailment or delivery of goods by a debtor to his creditor, to be kept till the debt lie discharged’. from this definition may not be deduced the linkage between the transfer of the document of title which automatically entails the transfer of possession and the right of pledge. therefor a more detailed definition is to be subjoined. specifically, pledge is a ‘type of security which comprises of the delivery of possession of an asset as security until payment. possession may be actual or constructive, for example, handing over the keys to the store where the pledged goods are kept. ownership remains with the pledgor. the pledge confers on the creditor or pledgee a power of sale in the event of default’. under a sea waybill contract of carriage, the only alternative with respect to the security of third parties’ interests is available under article 6 (2) (a) of the cmi rules. allotting to the shipper the right to qualify as consignee another person than the one, whose name is recorded on its face, is surely a protective provision for the benefit of the shipper. the latter has the supervision of the goods which, in fact, circulate under his auspices and subject to his reclaim. consequently, he can hand the goods to a third party and exercise his right of estoppel. the uniform customs and practice for documentary credits revision number (ucp 500), which prescribe the capability of sea waybills to operate as security in the context of documentary credit transactions, have set some conditions, upon which the security is strictly dependant. first and foremost, sea waybills are adequate and completely competent to provide efficient security on condition that the shipper has relinquished both entitlements of stoppage in transit and changing the consignee, i.e. the bank, during the voyage. to sum up, the only alternatives for securing the interests of a third party are either the right of redelivery of the goods or the set of a nodisp clause. normally, nodisp clauses stipulate as follows: ‘‘by acceptance of this waybill, the shipper irrevocably renounces any right to vary the identity of the consignee of the goods during transit”. recently, the emergence of another clause named as the control clause is to be highlighted. in essence, the objective is much more the same with nodisp and it has the following wording: “upon acceptance of this waybill by a bank against a letter of credit transaction (which acceptance the bank confirms to the carrier) the shipper irrevocably renounces any right to vary the identity of the consignee”. vasileios ziakas 16 5. conventions, statutes and the sea waybill in respect of the status of the sea waybill in international conventions, it must be noted that there is no common policy among the hague-visby rules, the hamburg rules and the rotterdam rules. in particular, the sea waybill is excluded from the application scope of the hague-visby rules, whereas hamburg rules do apply when a sea waybill is issued. the explanation is found in the fact that the hague-visby rules adopt a ‘‘carrier-prone system’’, whilst the hamburg rules as well as the rotterdam rules embrace the so-called ‘‘shipper prone’’ system. considering that, on the one hand, the hamburg rules have been ratified by a few countries, and on the other, that the hague-visby rules do not apply in case of the sea waybill, it can be deduced that the conditions and the terms of a sea waybill contract are at the discretion of the carrier. to put it the other way round, in the absence of mandatory law (international conventions) sea waybills contracts are freely determined by the parties pursuant to the basic legal principle ‘’freedom of contract’’. however, governments and lawmakers can play a significant role in the legislative incorporation of the use of sea waybills into domestic law by enacting its statutory implementation. a typical example of legislating independently of international conventions is the cogsa 1992. under english law, the hague-visby rules do not apply only to bills of lading or other documents of title, but also to sea waybills. in fact, hague-visby rules were incorporated into english law through the enactment of the cogsa 1992, whose scope of application is wider covering both instruments, namely bills of lading and sea waybills, as well. 6. measurement the straight bill of lading a bill of lading, on the face of which the word ‘’to order’’ is not written, is classified as a straight bill of lading. under common law, the straight bill of lading is transferred by physical delivery in contrast to the shipped bill of lading, the valid transfer of which requires both endorsement and delivery. in addition, the particular type of bill of lading lacks transferability/negotiability. from all the above it follows that the straight bill of lading is not considered a document of title. but, what about the potentiality such a bill of lading (made out to a named consignee) to be qualified as a similar document of title within the meaning of article 1(b) of the hague-visby rules and section 1(4) of the cogsa 1992? remarkably, this dilemma has led to disunity and disagreement between scholars and jurisprudence. gaskell, for example, is of the opinion that the straight bill of lading is not a document of title, while courts are deemed to incline to the contrary view, namely that straight bills of lading can be viewed as documents of title or, properly, that they are equivalent to that type of document. the court’s verdict in the rafaela s has altered the legal perspective regarding the status of the straight bill of lading. while the judgment was enough pioneering in view of the majority and dominant opinion at that time that the straight bill of lading was not considered a document of title, some points of criticism have to be pointed out. in the rafaela s the court came to the conclusion that a straight bill of lading is indeed a document of title on the grounds that it has to be presented to the carrier, so that delivery of the goods is being held. that argument was actually the major one that raised doubts and disapproval of the court’s decision. specifically, denunciation was mainly based on the fact that the court came to its conclusion that arguing that the delivery of the goods can take place only after the straight bill of lading has been presented. considering the straight bill of lading as a document of title would actually mean that new documents which used to function only as a receipt of the goods, could now be regarded as documents of title. in other words, non-negotiable documents could be viewed and classified as documents of title expanding the true meaning and interpretation of the term evidently in the name of the facilitation of commercial practices. moreover, as it is known, there are two requirements with regard to the transfer of the symbolic possession. the first one is indorsement and the second one is delivery of the bill of lading. but to what extent is the transfer of the possession by the aforementioned means applicable in the case of a straight bill of lading? in the rafaela s the court faced the dilemma whether the straight bill of lading is equivalent to the sea waybill by virtue of their common feature to write on the name of the consignee or whether does it fall within the same category as the original bill of lading and hence, to whatever is incidental. to elaborate more, it seems to be a division of the straight bill of lading in respect of its legal status under two legal frameworks, namely the cosga 1971 and the cosga 1992. under the former it was equivalent to the bill of lading or any similar document of title, whereas under the latter it was much the same as the sea waybill. security alternatives of sea waybill and straight bill of lading 17 7. security provided by the straight bill of lading as regards the potential security offered by a straight bill of lading, it is extremely deficient and inferior compared to the security provided by the shipped bill of lading. in general, the straight bill of lading is considered equivalent to the sea waybill and its legal status is closer to the non-negotiable sea waybill rather than to the traditional bill of lading. of course, in the case of the straight bill of lading, there are a few alternatives through which security is feasible. the most practicable is the person, whose interests are protected, to be named as consignee which means that he will be the only one that can claim delivery of the goods. but, how about the possibility of the creation of an equitable pledge based on a straight bill of lading as long as the latter is not a document of title at common law? regarding the notion of equitable pledge, it is debatable whether it can legally exist or it is a concept absolutely irrelevant with the legal order. in fact, this dispute dates back to the middle of the twentieth. specifically, in 1952 paton wrote as follows: ‘’in contrast with a mortgage, a mere pledge cannot be created without the delivery of the possession of the goods. a contract to deliver creates only an equitable interest which may be defeated by the claim of a bona fide purchaser for value’’. in fact, paton appeared to advocate the idea of the equitable pledge by referring to the phrase ‘’equitable interest’’, a view that was adopted by a portion of legal professionals, such as lord templeman in maynegrain pty ltd v compafina bank, who spoke about the transfer of the pledge as conferring an ‘’equitable interest’’ on the pledgee. however, the aforementioned view was criticised by scholars, such as goode, who was of the opinion that the ideas of equitable possession and of equitable pledge are completely alien to law science. in agreement with goode’s standpoint is also the approach of blackburn j and the reasoning of courts in many cases, such as in dublin city distillery ltd v doherty. 8. sea waybill and straight bill of lading it is rather simple to be confused between the straight bill of lading and the sea waybill. the former is also found in the literature as non-order bill of lading. this could result in severe confusion. for instance, courts may stand in favour of qualifying a non-order bill of lading as sea waybill by virtue of the non-record of the word ‘‘order’’ on the face of the bill of lading. setting as single criterion whether the word ‘‘order’’ is written down or not, it may have practically significant consequences, which are not immaterial at all. finally, the judgment regarding the qualification of the document as sea waybill or bill of lading is of great importance, because answers to subsequent questions and further legal implications differ accordingly. for instance, is the consignee obliged to produce the document at the final stage of delivery or what about the rights of suit? these are just a few questions which are attributed to the nature and the qualification of each document and which is not trivial at all. 9. conclusion to sum up, the straight bill of lading is much more equivalent to the sea waybill rather than to the traditional bill of lading. the rafaela s might have approached the legal issue in question in a broad manner, but it did not seem to pave the way for subsequent cases, that dealt with the same problem. considering, therefore, that these instruments have much more identical legal status, it is obvious that, for the time being, the straight bill of lading provides the restricted extent of security as exactly the sea waybill. finally, it is not to be ignored that even the slight and seemingly insignificant distinction between sea waybills and straight bills of lading by virtue of the further legal implications. vasileios ziakas 18 references books aikens, r., lord r., bools, m., bills of lading, 2nd edn, informa law, 2006. boonk, h. and others (2003) english and continental maritime law: after 115 years of maritime law unification: a search for differences between common law and civil law, antwerp maritime law series. 2003. bridge, m.g., the sale of goods, 2nd edn, oxford university press, 2009. debattista, c., bills of lading in export trade, 3rd edn, bloomsbury professional, 2009. debattista, c., sale of goods carried by sea, 2nd edn, london: butterworths, 1998. schmitthoff, c., d'arcy,l., murray, c., cleave, b., schmitthoff's export trade: the law and practice of international trade, 10th edn, sweet and maxwell, 2000. treitel, g.h., reynolds f., carver on bills of lading, 1st edn, sweet & maxwell, 2001. journals dubovec, m., ‘the problems and possibilities for using electronic bills of lading as collateral’, arizona journal of international & comparative law, 23 (2), 2006, pp. 437-466. low, r., ‘replacing the paper bill of lading with an electronic bill of lading: problems and possible solutions’, international trade and business law annual, 5, 2000, pp. 159-271. luksic, b., ‘the bill of lading or the sea waybill’, zbornik radova pravnog fakulteta u splitu, 37(3-4), 2000, pp. 307-312. mcgowan, k., ‘the dematerialisation of the bill of lading’, hibernian law journal, (7), 2007, pp. 68-104. pejovic, c., ‘documents of title in carriage of goods by sea under english law: nature and possible future directions’, ppp god. 43 (158), 2004, pp. 43-83. journal of international trade, logistics and law, vol. 3, num. 2, 2017, 12-19 economic and legal aspects of air transport in turkey gisoo mihandoust, (msc candidate) istanbul commerce university, turkey oksan kibritci artar, (asst. prof. dr.) istanbul commerce university, turkey mustafa emre taşçı, (ph.d candidate) istanbul commerce university, turkey received: nov. 11, 2017 accepted: dec. 21, 2017 published: dec. 25, 2017 abstract: the aviation sector has highlighted the importance of economic and legal regulations in conjunction with the changes in the conditions of competition with the acceleration of globalization. the regulations in the aviation sector directly or indirectly affect the airline operators, which is critical as a result of its effects on the economic systems of the countries. legal responsibilities in terms of influencing passenger rights and competition law issues; has a natural impact on shaping aviation regulations, sector dynamics and competitive conditions which is effecting the dynamic structure of the sector. this study aims to examine the economic and legal aspects of air transportation carried o ut in turkey and to contribute to the literature as a result of the researches. keywords: aviation economy, aviation sector, carrier's legal responsibilities jel codes: k23, e22 1. introduction the aviation sector is one of the fastest developing sectors in the world and plays a pioneering role in international and intercontinental areas. the aviation sector has grown annually by an average of over 10% with the policies and measures implemented since 2003. this growth has also provided economic development by carrying billions of passengers with the purpose of vacation or business by scheduled airlines. airline transport has now become accessible for most people towards all destinations around the world quickly, comfortably and safely. airlines are vital to the global economy and are important for the integration of the united world economy. airlines are striving to reduce costs and improve service quality (ahipaşaoğlu & arıkan, 2003). air transport is a major global employer, depending on a focus by efficient service elements on passengers and integrated and balanced performance in aviation values chain (göktepe 2015). the increase in the demand for freight and passenger transportation creates economic benefits in terms of sustainability of global competition in the international area by affecting the distances that are burdened with it. the aviation sector is quite complicated by the fact that it has a dynamic, broad and rigid structure. provision of the security required for proper running of this structure constitutes an important part of the rules, national and international regulations for the sector. due to the international nature of the aviation industry, intergovernmental organizations that have been established since the beginning have required that the rules governing this structure be uniform, and some international agreements and additional standards have been established to achieve this goal. the rules with international character which are presented for the approval of all member states are important for the globalization and development of aviation (sirmen, 2014). 2. economic aspects of air transport in turkey air transport plays a key role in supporting an economy's long-term economic growth with a positive impact on productivity and economic performance, facilitating the integration of an economy into the global economy. there gisoo mihandoust, okşan artar, mustafa emre taşçı are over 67 billion of flying passengers on the global scale in the timeframe from the past to the present day. as of the end of 2015, there are 32.8 million commercial flights on approximately 52.964 routes between 17.370 cities. in other words, in commercial flights, the distance traveled in just one year is approximately 6.7 trillion kilometers. in iata (2016) report, it is announced that approximately an additional growth of 3.6% per year is predicted in the air transport over the next twenty years. the annual growth rate of 3.6% corresponds to approximately 3.1 billion new passengers in the next 20 years. the aviation sector in turkey has performed three times as much as the world average in terms of growth. while the global average growth rate of the industry over the past twelve years is around 5% and in turkey it is 15%. while employment in the sector in turkey was 65 thousand in 2003, it exceeded 187 thousand as of the end of 2014. in the last twelve years, the sector's total turnover has increased by 12 times to reach 26.6 billion dollars from 2.2 billion dollars. the airline industry continues its growth momentum with the increase in the number of airports, airplanes and passengers in turkey. while the number of active airports in turkey increased from 26 in 2003 to 55 in 2015, the number of passengers in domestic flights increased 9 times, reaching 97.5 million in 2015 and the total number of passengers using airline increased 5 times, reaching 181.4 million by the end of 2015. there are 13 airlines in the civil aviation sector in turkey, which are engaged in cargo transport or freight shipment. 422 aircrafts which was owned by airline companies, as of 2014 came to level of 489 in 2015 with an increase of 15.87%. 464 of these aircrafts are passenger and 25 are cargo aircrafts which have a seat capacity of 90.259 in passenger side and 1.759.600 tonnes of freight capacity at cargo side. according to the total number of passengers, turkey has risen to 13th place in 2016, while it constituted the 16th largest market in the world in 2015. according to iata estimates, by 2033, turkey is expected to be among the top 10 markets in the world by the total number of passengers. according to the figure i; world air transport grew by about 5% from the end of 2013 to the first quarter of 2015 (eu air transport report 2016). in the second quarter of 2015, world air cargo volume grew by 2% per annum in parallel with the decline in global trade and industrial production. source: world development indicators figure i: global air freight volumes domestic passenger and freight traffic has been continuously rising in turkey according to iata reports and the turkish domestic market is expected to grow by 5.8% over the next five years. in the next 20 years, it is estimated that the highest growth rate among the first 10 domestic markets will be in turkey with an average increase of 7% (iata report, 2016). the aim of the air transport activities is to provide the right service to the customer in the right place, at the right time and the right price. today, customers are becoming more selective with the developments in customer demand, needs and knowledge levels, and therefore service expectations are diversified (o’brien, jones, 2015). in turkey, the share of air transport that has remained at 2.5% level for many years has increased to 7.82% in domestic passenger transportation, considering the share of transportation between transportation types. in this development, the contribution of regional aviation policies, which started to be implemented in 2003, is inevitable. within the scope of the 2023 targets, it is foreseen that the share of passenger transport on domestic routes will reach to 14% (t.c. ulaştırma bakanlığı, 2009). the revenue structure of the airport varies according to whether the terminal and airport operators are the same or not, according to the group of the airport, the characteristics of the population where it is located, the services and economic and legal aspects of air transport in turkey activities provided in the airport and terminal, and the tax legislation of the country where it is located. according to all these factors, each airport has its own income structure (yağmur, 2015). the civil aviation sector develops accordingly with the increase in economic value, number of passengers and gross profit. in this respect aviation sector has a huge progression in last century which has been built on the most advanced technologies and has become an integrated part of world economy (milde, 2012). air transport also has a catalytic effect on the other sectors. 15.5 million direct and indirect employment opportunities have been created through the expenditures of international passengers traveling with air transportation (cento, 2013). appendix i shows the total freight traffic at the airports in turkey between the years 1980-2016 that covers cargo, post and baggage. there have been several studies indicating this issue in the literature of aviation economics such as; (vijver, et al. 2015) study analyzes the relationship between air passenger transport and regional development in the european nuts2-regions by granger causality analysis over the period 2002-2011. the result of the study shows that both directions of causality occur among the european urban regions. (obioma, et al., 2013) research examines the catalytic economic effect of air transport industry through economic development of global trade in nigeria. the paper shows that air transport industry plays an important role in the aspect of work and leisure around the globe. (ishutkina, 2009) study identifies the factors that help to describe the role of government in changing air transport industry and its impact on economic activity. the results of this study can help investment and policy decisions of air transportation industry in developing economies. (tam & hansman 2002) study describes the economic impact of air transportation in the united states. the dramatic increase in the use and characteristics of air transport since deregulation suggests that the nation has evolved to have a strong dependence on the air transportation system for regional economic and social structure. 3. legal aspects of air transport in turkey by air transport; there may be disputes in conjunction with different legal orders in terms of passengers, aircrafts, and realization of transport contract. in this context, more than one state has international authority. if there is no authority agreement between the parties, the plaintiff will evaluate between more than one international court and choose the law of the most advantageous court. due to the international nature of aviation, national courts frequently encounter with cases containing foreign elements. in this case, the international authority of the courts to handle the disputes on the aviation issue is on the agenda. this situation which is called as forum shopping is an undesirable development in international private law (fawcett, et. al, 2008). due to the technical developments, the necessity of taking precautions against sky hazards since the i. world war, states needed to take their own air space under absolute sovereignty of the state. thus, after the i. world war, international aviation regulations have been on the agenda. states, participating in the paris peace conference on civil aviation during the months following the first regular air services between paris and brussels on 22 nd of march in 1919 and between paris and london on 25th of august in 1919, documented the international public law issues on aviation that they agreed such as the sovereignty of states over their airspaces, international flight right and international record and restrictions, by the paris convention dated 13th of october in 1919, which is the first international civil aviation convention. the paris convention on civil aviation, which governs international public law, followed by 1926 madrid and 1929 havana convention, and these international public law rules remained in effect until the chicago convention was adopted on 17th of december in 1944 (shgm, 2017). transport contract is defined as a contract for the carriage of passenger or cargo by airline for a fee (kırman, 1990). the transport contract, in the literature, was compared to representation, service, warehouse (protection) and lease contracts until the 1950s; but these views were not effective. because in the transport contract, unlike the lease contract, the movement of the vehicle is in question; unlike the warehouse contract, the protection is not the primary act but the movement; unlike the service contract, the carrier is not under the order and control of the sender; unlike the contract of agency, fee is a primary element (ülgen, 1987). in the period of the law no. 6762, it is stated that it is similar to the exception contract (arkan, 1982). gisoo mihandoust, okşan artar, mustafa emre taşçı in the representation contract, the wage is not a compulsory element; representation may be made compromised or uncompromised (zevkliler, 2010). in fact, the history of representation shows that this contract is made free of charge, in the name of love, respect and friendship. however, in the ware transfer contracts, wage is an essential element. this contract is a perfect synallagmatic contract but not an imperfect synallagmatic contract. although agent, as a rule, is personally obliged to pay the debt within agency contract; the carrier is not personally obliged to pay the debt under the scope of transport contract (emiroğlu, 2003). time is not important for agency; while it is an essential component for service contract (çağlıan, 2017). in turkish law, there are debates about whether the transport contract is closer to the exception or the agency. the generally accepted view in the doctrine puts forward that the transport contract is among exception contracts, considering the importance of carrying properties to a certain destination (çağlıan, 2017). as a result of globalization and the legal regulations on airline transport, both passenger and cargo, which do not keep up with the times, the old warsaw convention is required to be reviewed (tarman, 2013). in order to modify the warsaw/hague system for addressing new requirements, in terms of provisions governing the responsibility of the carrier in particular, convention for the unification of certain rules of international carriage by air was adopted on 28 may 1999. the convention is also known as the montreal convention. the montreal convention entered into force on 26 march 2011 for turkey with 105 counterparts. in turkey, which is a party to the montreal convention, if turkish judge encounters a dispute due to carriage of passenger, burden and luggage by airway in the international arena, he/she will independently determine whether it is within execution area of the convention as per article 1/f.2 of the international private and civil procedure law (sözer, 2009). the execution area of the montreal convention is limited to the contracting states in terms of country and responsibility of the carrier undertaking the carriage of persons and goods on the basis of a carriage contract for a fee only, in terms of subject (tarman, 2013). carrier's liability is, as a rule, limited liability. if the carrier is held liable, he/she is obliged to pay the actual loss incurred and the upper limit of this payment has been set (article 22). in addition, according to the warsaw convention, it is foreseen that the carrier will be unlimitedly liable if certain circumstances arise and the liability will be unlimited (m.25), in particular if the damage occurs due conscious or gross negligence of him/her or his/her employees. with the hague protocol, the second sentence of article 20 of the warsaw convention was abolished so that one of the evidences of release entitled to the carrier was reduced and the provision of article 22, which sets the upper limit of the liability of the carrier, was amended and the limit of liability was increased. it is accepted that the carrier's employees can also benefit from limited liability with the addition of article 25. the conditions of the carrier's responsibility for damage to passenger (article 17) are also clearly stated in the contract. in order for the carrier may be held responsible for the damage caused by the death or injury of the passenger, the accident causing the death or bodily injury must occur when the passenger is inside the aircraft. the issue that needs to be addressed here is not if the accident occurred on the aircraft but if the accident occurred while the passenger was on the aircraft. based on the contract with the carrier, the passenger is deemed to be on board the aircraft, in the sense of article 17, from a boarding until getting off the aircraft. in order for the air carrier to be responsible for the damage as a result of death or bodily harm of the passenger, it is sufficient if the accident occurs while the passenger is boarding or getting off the aircraft (sözer, 2006). at this point, concept of "accident", in the 17th of the warsaw convention, is important. the convention did not define the concept of accident (berkley, 2000). an accident is described as an event that is specific and has an effect on the relationship from the outside during the course of a certain event and which is not anticipated for it (karp, 2000). since it is generally referred to as accident in the warsaw convention, carrier is responsible for the damages not only due to the accidents related to operation of the aircraft but also other accidents. for this reason, it is expressed that the relation of causality between the accident and the operation of the aircraft should not be s ought (ülgen, 1987). in doctrine, a distinction is generally made between accident or unexpected situations and compelling reasons. in the warsaw convention, what is in question is the events of the same nature with accident or unexpected situations. in this case, in the warsaw/hague system, the carrier will be held accountable for damages caused by events which constitute an accident or unexpected situation, but not be held accountable for damages caused by events constituting a compelling reason (ülgen, 1987). economic and legal aspects of air transport in turkey 4. conclusion the increasing importance of airlines in human life has intensified the interest of investor enterprises. the vast majority of enterprises that have indirect or direct economic impact in the sector are targeting new investments in the short and medium term ahead. in addition to these new investments, it is also seen that there are some plans such as incorporating some other existing businesses or making investments, renewal and expansions in various fields as laboratories and training halls within the enterprise. the aviation sector is one of the important elements of economic growth as a sector that provides indirect or direct value to many sectors outside itself. this rapidly growing sector also holds an important place in terms of employment in the world of crisis periods. aviation sector faced a tremendous change in turkey after 2003 and has experienced a significant growth especially in recent years. the aviation sector, which has such a worldwide impact and highly critical for investments, is naturally on the agenda from the legal point of view. aviation law should be established in accordance with international law and appropriate with national laws. this obligation is valid for 188 member countries and the member countries are obliged to notify all member countries if they have different practices. meaning of signing the international civil aviation convention (icao doc.7300) is to officially announce that international practices have been accepted. the international convention also imposes responsibilities within the scope of the countries at the same time. countries are also responsible for each other within these responsibilities. reason of the emergence of this responsibility is that aircraft of another member state, which will pass through the territories of many member states in a short span of time, bears the responsibility on behalf of its own state against sovereignty, security, peace and third persons. determining the responsibilities arising from the international convention by the national law is the way of determining chain of responsibilities and those responsible in this sense. it could be claimed that resolving the investment disputes through arbitrators is a combination where both private and public law gain ground, in the context of subject and legal contracts that provide basis for it. it can be emphasized that investment arbitrage, in the framework of such international conventions, is not a concept that can only be addressed in the context of private law and in particular public law. it is assessed that the contribution to the doctrine can be made by examining g private law public law over investment arbitration in a holistic way. references ahipaşaoğlu, s., arıkan i̇. 2003. seyahat i̇şletmeleri yönetimi ulaştırma sistemleri, detay yayıncılık, ankara, arkan, s. 1982. karada yapılan eşya taşımalarında taşıyıcının sorumluluğu, banka ve ticaret hukuku araştırma enstitüsü yay., ankara. berkley, b.j. (2000-2001). “warsaw convention claims arising from airline-passanger violence”, ucla journal of international law & foreign aff., 499. çağlıan, h. “taşıma sözleşmesi ve uygulanacak hukuk”, https://www.academia.edu/7230725/taşima_sözleşmesi_ve_uygulanacak_hukuk (18.06.2017) e. van de vijver, b. derudder, f. witlox, (2015). air passenger transport and regional development: cause and effect in europe, transport and sustainable development, ghent university, department of geography krijgslaan 281, s8, 9000 gent, belgium. emiroğlu, h., 2003. “roma hukuku’nda vekalet sözleşmesi (mandatum) ve hukuki işlemlerde temsil”, aühfd. fawcett, j., carruthers, j., north, p., 2008. cheshire, north&fawcett private international law, (ed.14), oxford university press. new york. göktepe, h. 2015. havayolu taşımacılığı sektörü ve rekabet hukuku, havayolu taşımacılığı ve ekonomik düzenlemeler, teori ve türkiye uygulaması, shgm yayınları, ankara. ishutkina, mariya a., (2009). analysis of the interaction between air transportation and economic activity: a worldwide perspective, thesis, massachusetts institute of technology, dept. of aeronautics and astronautics, p. 303-313. karp, j.r., (2000-2001). “mile high assaults: air carrirer liability under the warsaw convention”, journal air law & commerce, c. 66. gisoo mihandoust, okşan artar, mustafa emre taşçı kırman, a. 1990. hava yolu ile yapılan uluslararası yolcu taşımalarında taşıyıcının sorumluluğu, banka ve ticaret hukuku araştırma enstitüsü, ankara. kibritci artar, o., uca, n., taşçı, m. e (2016). the impact of the airline freight transportation on gdp in turkey, journal of international trade, logistics and law 2 (2), 143-148. milde, m., 2012., international air law and icao, (ed.2), the hague:eleven. nwaogbe obioma, r., wokili. h, omoke victor, asiegbu benjamin, (2013). an analysis of the impact of air transport sector to economic development in nigeria, iosr journal of business and management, vol.14, iss.5, pg. 41-48. o’brien l. jones,c. “do rewards really create loyalty?” harvard business review, 1995 https://hbr.org/1995/05/do-rewards-really-create-loyalty (06.07.2015) resmi gazete, 01.10.2010 http://www.resmigazete.gov.tr/eskiler/2010/10/20101001-1.htm (e.t. 19.06.2017) sirmen, k.s., 2014. “uluslararası havacılık davalarında forum non conveniens doktrininin uygulanmasında emsal karar: piper aircraft co. v. reyno davası”, auhfd, 63(1). sivil havacılık genel müdürlüğü, “ülkemizin taraf olduğu, uluslararası sivil hava taşımacılığı’nı düzenleyen çok taraflı anlaşmalar” http://www.legalisplatform.net/hukuk_metinleri/sivil%20havacilik%20cok%20tarafl%dd%20anlasmal ar.pdf (18.06.2017) sözer,b., 2006. “türk hukukunda ve uluslararası hukukta havayolu ile yük taşıma sözleşmesi”, yeditepe üniversitesi hukuk fakültesi dergisi, 3(1), i̇stanbul. t.c. ulaştırma bakanlığı, 2009. türkiye ulaşım ve i̇letişim stratejisi hedef 2023, ankara. tam, ryan, hansman, r. j. (2002). impact of air transportation on regional economic and social connectivity in the united states, the massachusetts institute of technology, cambridge, massachusetts, usa. tarman, z.d., 2013. “montreal sözleşmesi’nin yetki ve tahkime i̇lişkin hükümleri”, türkiye barolar birliği dergisi, 107. ülgen, h. 1987., hava taşıma sözleşmesi, banka ve ticaret hukuku araştırma enstitüsü, ankara, 1987. yağmur, v., 2010. “uluslararası hava meydanı i̇şletmeciliği ve türkiye’deki durumu üzerine bir araştırma, sabiha gökçen havaalanı örneği”, gazi üniversitesi fen bilimleri enstitüsü i̇nşaat mühendisliği, yüksek lisans tezi, ankara. zevkliler, a., gökyayla, k.e., 2010. borçlar hukuku özel borç i̇lişkileri, 11.ed., turhan kitabevi yay., ankara. https://ec.europa.eu/transport/sites/transport/files/2016_eu_air_transport_industry_analyses_report.pdf (october 2017) https://www.iata.org/about/documents/iata-annual-review-2016.pdf (september 2017) http://web.shgm.gov.tr/documents/sivilhavacilik/files/pdf/kurumsal/raporlar/2015_faaliyet_raporu_en.pdf (november 2017) javascript:void(0) https://ec.europa.eu/transport/sites/transport/files/2016_eu_air_transport_industry_analyses_report.pdf https://www.iata.org/about/documents/iata-annual-review-2016.pdf http://web.shgm.gov.tr/documents/sivilhavacilik/files/pdf/kurumsal/raporlar/2015_faaliyet_raporu_en.pdf economic and legal aspects of air transport in turkey appendix i: total freight traffic in turkey (1980-2016) freight(tonne) year total domestic international 1980 75 442 32 231 43 211 1981 95 068 44 017 51 051 1982 92 279 40 062 52 216 1983 98 404 39 356 59 049 1984 121 568 42 091 79 477 1985 133 082 47 254 85 828 1986 153 349 50 856 102 493 1987 188 489 63 573 124 916 1988 226 813 73 088 153 725 1989 270 983 93 900 177 083 1990 301 403 99 549 201 854 1991 245 123 72 843 172 280 1992 363 992 96 554 267 438 1993 461 836 135 300 326 536 1994 491 750 151 440 340 310 1995 576 920 171 552 405 368 1996 652 565 182 476 470 089 1997 791 780 212 000 579 780 1998 725 910 209 488 516 422 1999 686 014 217 556 468 458 2000 796 627 226 356 570 271 2001 763 156 171 411 591 745 2002 880 133 181 198 698 935 2003 931 191 188 936 742 255 2004 1 123 108 262 647 860 461 2005 1 249 555 315 858 933 697 2006 1 346 989 373 055 973 934 2007 1 546 025 414 192 1 131 833 2008 1 644 014 424 555 1 219 459 2009 1 726 345 484 833 1 241 512 2010 2 021 076 554 710 1 466 366 2011 2 249 474 617 835 1 631 639 gisoo mihandoust, okşan artar, mustafa emre taşçı 2012 2 249 133 633 074 1 616 059 2013 2 595 316 744 027 1 851 289 2014 2 893 000 810 858 2 082 142 2015 3 072 831 871 327 2 201 504 2016 3 076 914 857 335 2 219 579 source: general directorate of state airports authority, general directorate of civil aviation authority journal of international trade, logistics and law, vol. 9, num. 1, 2023, 143-150 143 the mediator role of starting new business in the relationship between logistics performance and growth cansu karabulut istanbul ticaret university, turkey mustafa emre ci̇velek istanbul ticaret university, turkey received: feb 17, 2023 accepted: april 23, 2023 published: june 01, 2023 abstract: economic growth refers to the enchancement in per capita income or purchasing power and this process of development. the mai n feature of economic growth is that continues progress by emergence of new source of growth when necessary. in addition to changes in the sources of economic growth, the indicators that explain economic growth are also changing. recent recearches show that gross domestic product ( gdp) per capita is accepted as one of the main indicators of growth. logistics performance index (lpi) which has a direct and indirect impact on economic growth, is a world bank indicator that examines a country’s logistics performance in six sub-dimension. in order to indicate the importance of economic growth and logistics performance, this study investigates the mediator role of starting new business in the relationship between logistics performance and gross domestic product per capita. the aim of the research is to analyze 76 countries based on the data of 2010-2012-2014-2016-2018 according to the data available at the world bank. as a result of analyses, the mediation effect of starting new business on the relationship between logistics performance was not established. even if no starting new business, the improvement in logistics investments directly affects economic growth. even with existing logistics investments, it contributes to economic growth by increasing efficiency, increasing the capacity and cost of existing companies. in this case, starting new business does not have an mediator role. keywords: logistics performance index, score-starting a business, gdp per capita 1. introduction the fact that many variables that contribute to the economic development process are analysed through literature studies shows that the interest in the economic development process continues. the framework of economic development has not been fully drawn as a result of the theoretical studies conducted and ongoing theoretical studies explains that many parameters have an ongoing contribution to economic growth. economic growth is a process of enhancement production capacity and the economic resources. in recent and much research, gross domestic product (gdp) is accepted as one of the indicators of economic growth (çelebi, civelek, & çemberci, 2015). in this study, gross domestic product per capita (gdp per capita) is considered as an economic indicator parameter. gdp is the economic measure of the market value of products produced domestically in a period. gdp per capita is obtained by dividing the gross domestic product (gdp) by the population of the country. gross domestic product per capita is an important indicator for determining the average living standards of nations and measuring their economic well-being (oecd, 2009). logistics performance, another parameter in the study, has been a new premise used to analyze the interrelationship between economic growth and gdp. improvement in logistics performance has both indirect and direct contributions to economic growth. it is observed that the economic development process of countries accelerates with the improvement of logistics performance; therefore, there is a linear relationship between logistics performance and economic development levels of countries (sanchez, tomassian, & perrotti, 2014). with the improvement of logistics performance, the country's development accelerates and establishment of new industries in cansu karabulut & mustafa emre ci̇velek 144 regions where logistics services are improved and intensified as well as other impacts of economic growth (zhang, 2002). at the same time, starting new business becomes easier as the way of doing business becomes easier and because it provides capital abundance with economic growth. the aim of this study is to investigate the mediating role of starting a new business in the relationship between logistics performance and economic growth, to evaluate the interrelationships between parameters and to measure the degree of its effect. 2. conceptual background logistics is the process of providing, planning, implementing, and controlling the flow of products, services, and information between the starting point of production and the end point of consumption. logistics performance is the criterion of quality and competency of logistics activities that ensure that products and services are delivered to the buyer on time and with the content intact. one of the most important studies used to measure the logistics performance of countries is the logistics performance index published by the world bank every two years since 2007. undoubtedly, the regions and countries where logistics activities are developed are becoming centers of attraction for industries with the qualification to continue production with less inventory cost as possible, to react quickly to changing demands and customizations, and to shorten delivery times. therefore, it facilitates the decision of individuals and businesses to start a new business to participate in the economy in these regions and/or countries. logistics services take place as a driving force in the economy as it provides sectoral links within the economy and globalization of the economy. development of the logistics industry; it contributes to the country's economy by increasing the trade volume by providing new employment areas and thus generating income, positively affecting investments, especially foreign direct investments, and has a positive effect on economic growth. in this context, the logistics sector has a critical role in social and economic development. economic growth refers to the increase in production, production capacity, and therefore country’s national income level. gross domestic product, which is one of the essential indicators, is a measure that gives information about the growth and development status of countries. in the environment of globalization and increasing competition that comes with it, logistics performance is one of the most crucial factors for countries to achieve economic growth and develop the current economic growth and to gain a place in international markets by maintaining their competitiveness. 2.1. logistics performance index logistics performance is a measure of the quality and competence of logistics activities that ensure that products and services are delivered to the buyer on time and with their contents intact as desired. intensifying globalization and competition have made logistics activities and thus logistics performance an important element for international trade and national economies. countries need to have low logistics costs and high logistics services to increase their trade performance on a global scale and to ensure their international competitiveness. (devlin & yee, 2005). the logistics performance index (lpi) is a tool to evaluate the logistics performance of countries, to identify the areas of opportunity and challenges of logistics activities, and to enable the logistics performance of 160 countries to be compared with each other by conducting surveys with global freight forwarders and carriers in countries (world bank, 2022). logistics performance index has six subdimenson namely customs (the efficiency of customs and border management clearance), infrastructure (the quality of trade and transport infrastructure), ease of arranging shipments(the ease of arranging competitively priced shipments), quality of logistics services (the competence and quality of logistics services—trucking, forwarding, and customs brokerage), tracking and tracing (the ability to track and trace consignments), timeliness (the frequency with which shipments reach consignees within scheduled or expected delivery times) (world bank, 2022). lpi has the effect of improving and guiding cooperation between policy makers and the private sector in the development and improvement of trade and logistics services, and in the determination and implementation of priorities that will provide competitive advantage both regionally and internationally. the multidimensional relationship between national and international trade and logistics is in deep connection with the development and implementation of plans and policies, regulations that will ensure global harmony by developing infrastructure, taxation, private sector and trade. the mediator role of starting new business in the relationship between logistics performance and growth 145 in the research based on the analysis of the economies of the developing countries, the lpe dimensions have shown the positive effect of the countries on the international trade and reveal the importance of the countries in the economic development (marti, puertas, & garcia, 2014). there are also significant differences in the logistics performance of countries with high national income and countries with low-income levels. while high-income countries are at the top of the logistics performance index rankings, the inadequacy of logistics activities is an important obstacle for developing countries (arvis, et al., 2014). hoekman and nicita (2010) evaluated the quantitative impact of the qualitative improvements in lpe on the economy and stated that if low-income countries increase their lpe to middle-income countries, their trade will increase by around 15 percent (hoekman & nicita, 2010). countries with high logistics performance index values are also seen to be leading countries in world trade; therefore, the logistics performance index plays an important role in explaining the interaction between international trade and logistics. increasing the scope and competencies of logistics activities is very important both indirectly by increasing the activities of individuals to starting a business and directly contributing to the development of national economies by attracting foreign investments to the country and increasing trade. 2.2. score-starting a business starting new business measures the number of procedures, time, cost, and minimum paid-in capital required to establish and operate a small to medium-sized limited liability company in a major city (world bank, 2023). starting a business, logistics performance and economic growth have inter-relations: increasing logistics performance and improving infrastructure contribute to economic growth by facilitating the process of establishing a new business. as economic growth increases, domestic and foreign capital investments increase. as capital investments increase, more investments are made to improve logistics performance and as a result of the investments, it becomes easier for individuals and/or businesses to start a business. 2.3. gdp per capita investments in the logistics sector lead to an increase in the efficiency, reliability and service quality of logistics capacity. this leads to lower logistics costs, shorter transfer times and causing the industry to grow. in this case, economic growth occurs spontaneously, as it will increase productivity and competition. the capital provided by logistics investments contributes to economic growth in many respects: investments in the logistics sector increase the demand for related goods and services, providing economic vitality and growth, effective logistics systems directly save time and money and ensure efficient use of resources, having better logistics infrastructure attracts foreign investors directly to the country,low logistics costs accelerate industrial and commercial activities, intensify economic activities and increase production activities (chu, 2012). therefore, with the increase in logistics investments, economic growth increases and the increase in the economy increases the national income and provides an increase in logistics investments with mutual effect. in the study, gdp per capita is discussed as a measure of economic growth. the increase in gdp is referred to as economic growth, and the factors that ensure economic growth are also the main factors that enable the country's production possibilities curve to shift outwards. increasing production and cheaper production costs increase the country's exports by increasing its competitiveness in international markets. thus, the increase in logistics performance increases the export potential of the country after domestic economic developments, increasing foreign exchange earnings and economic growth, thus increasing gdp per capita as inter-relation. 3. hypotheses development 3.1. the effect of logistics performance index on score-starting a business logistics activities are a service activity area that has a very important strategic place in modern business administration and starting a new business process. regions and/or countries where logistics infrastructure and other sub-dimensions are improved are encouraging for both national and international investors with the decision to establish a new business, its process, and its cost-reducing effect. effective and efficient logistics activities affect the decision and process of starting a new business, as higher customer value can be achieved by lessening the time and cost of establishing a new business, and by creating an efficiency advantage, and businesses can take a step forward cansu karabulut & mustafa emre ci̇velek 146 compared to their competitors in the sectors in which they operate. improved logistics performance makes the regulatory environment more conducive to the establishment and operation of the business. depend upon the extant literature the following hypothesis is constructed: h1: logistics performance index has a positive effect on score-starting a business 3.2. the effect of score-starting a business on gdp per capita the procedural structure, duration and cost of new business establishment processes are one of the most important factors that determine the investment environment and are one of the reasons that directly affect the investment decision. therefore, it is an important fact that new business establishment processes should be improved and facilitated in order to increase domestic and foreign direct investments to stabilize and improve economic growth. starting a business and ease of doing business is an international instrument that corresponds to a change in behavior not only to motivate national investors but also to attract foreign investors. improvements in the business establishment process provide economic growth by attracting domestic and foreign investments, while increasing economic growth positively affects the gross domestic product per capita and human well-being. eifert (2009) in the data set he created on national income, business environment and investment rates of 90 countries; it has been determined that the improvements made in the ease of doing business process lead to faster economic growth and an increase in investments (eifert, 2009). in the study conducted by yaşar and yaşar (2017), the hypothesis that countries with higher real income rank higher in the ease of doing business index was investigated, and it was determined that the ease of business establishment and doing business differed according to the income group of the countries (yaşar & yaşar, 2017). depend upon the extant literature the following hypothesis is constructed: h2: score-starting a business has a positive effect on gdp per capita 3.3. the effect of logistics performance index on gdp per capita civelek et al., 2015 analyzed the relationship between the six sub-dimensions of logistics performance and the gross national product in their study and showed statistically that the improvement in the two sub-dimensions of logistics performance (the efficiency of customs and border management clearance and the quality of trade and transport infrastructure) directly affects the gross national product (uca, civelek, & çemberci, 2015). sanchez et al.2014 emphasized the four-way effect of infrastructure improvements, which is one of the sub-dimensions of logistics performance, on economic growth: operating costs, efficiency, accessibility, and general welfare level of the country's population (sanchez, tomassian, & perrotti, 2014). sanrı et al, 2022 examined the relationship between logistics performance, competitiveness and economic growth for oecd countries and determined that there was a significant relationship between these three variables. for this reason, the competitiveness levels and logistics performances of countries that will ensure economic growth should not be evaluated separately (sanrı & pişkin, 2022). for countries to achieve international competitiveness and perform better on a global scale, they need to make performance improvements to reduce logistics costs and keep logistics costs low with improved logistics performance (devlin & yee, 2005). the interrelationship of logistics performance and economic growth, hence gdp per capita, has been extensively studied in the literature: transportation infrastructure investments have a positive impact on economic growth (aschauer, 1989), by comparing the logistics infrastructures of sub-saharan african countries and developing countries, it has been concluded that infrastructure investments contribute to economic growth (boopen, 2006), when the data of 69 countries are examined, it is seen that logistics performances affect economic growth positively (bozma , başar, & aydın, 2017). depend upon the extant literature the following hypothesis is constructed: h3: logistics performance index has a positive effect on gdp per capita 3.4. the mediator role of score-starting a business in the relationship between logistics performance index and gdp per capita the intermediary role of score-starting a business (ssb) between logistics performance and gdp per capita is interrelated with the other two parameters. with the increase in gpd per capita by force of the economic growth of the country, investments in logistics investments increase and the ssb process becomes easier in terms of time and money with increasing logistics investments. while stability increases in the country where logistics performance and the mediator role of starting new business in the relationship between logistics performance and growth 147 economic growth are maintained, the country continues to attract foreign direct investment by becoming a center of attraction, and in this case, new business establishments decrease in time, procedure, and cost. therefore, increasing logistics investments is of critical importance especially for developing countries. countries that can establish a business more easily and produce at more affordable costs with increasing logistics performance are accelerating economic development and becoming more competitive in international markets. the effect of increasing gross domestic product on the general price level of the country plays a strengthening role in the competitiveness of countries. with the increase of the country's exports, the gdp increases, and the country invests more in logistics activities. the increase in the welfare level of persons facilitates the establishment of a new business both psychologically and in terms of time and cost, with the effect of trust in the country. with government incentives, procedures are reduced and business establishment processes are facilitated. depend upon the extant literature the following hypothesis is constructed: h4: score-starting a business has a mediator role on the relationship between logistics performance index and gdp per capita 4. research method the baron and kenny approach was used to conduct the mediator analysis. when the below mentioned circumstances are true, a variable, in the opinion of baron and kenny, acts as a mediator (baron & kenny, 1986): the mediator variable changes as the independent variable changes. when the mediator and independent variables are analyzed simultaneously, the effect of the independent variable on the dependent variable is reduced or eliminated. changes in the mediator variable lead to changes in the dependent variable. figure 1. conceptual model the conceptual model for the study is displayed in figure 1. the hypotheses are tested using hierarchical regression. regression models are as follows among dimensions which are logistics performance index (lpi), score-starting a business (ssb) and gdp per capita (gdp): cansu karabulut & mustafa emre ci̇velek 148 model 1: gdp = β0 + β1.lpi + ε (h3) model 2: ssb = β0 + β1.lpi + ε (h1) model 3: gdp = β0 + β1.lpi + β2.ssb + ε (h2 and h4) 5. measures and sampling logistics performance index (lpi), score-starting a business (ssb) and gdp per capita (gdp) were used. it was unnecessary to assess the validity and reliability of the scales because secondary data were used. in this study, data from 76 countries for the years 2010-2012-2014-2018 are analyzed 6. analysis results initially, baron and kenny’s method require significant relationship among the variables in the research model (civelek, 2018). for this reason, pearson correlation coefficients were obtained. as indicated in the table 1, the relationships among variables are found as statistically significant. table 1. correlation coefficients lpi ssb gdp lpi 1 ssb ,390* 1 gdp ,741* ,412* 1 * correlation is significant at the 0.01 level r and r2 values of the three models are shown in table 2. table 2. model summaries models r r2 adjusted r2 standard error of the estimate model 1 0,741 0,549 0,548 16257,91592 model 2 0,390 0,152 0,150 9,74613 model 3 0,753 0,567 0,565 15954,34961 table 3. anova tables models f sig. 1 regression 460,274 ,000 2 regression 67,915 ,000 3 regression 246,739 ,000 in table 3, anova test results for the models are shown. anova results proved that the models are statistically significant. the mediator role of starting new business in the relationship between logistics performance and growth 149 table 4. hypotheses results relationship model 1 model 2 model 3 lpi → gdp 0.741* 0.684* lpi → ssb 0.390* ssb → gdp 0.145* note: regression coefficients are standardized. *p<0.01 sobel test was performed (sobel, 1982) for evaluation of the results obtained from baron and kenny method. as shown in table 5, sobel test results are significant. tablo 5. sobel test sonuçları sobel test statistic p lpi  ssb  gdp 3.55416021 0,00 7. conclusion findings in table 4 demonstrates positive and significant relationship between lpi and ssb (βmodel2= 0.390, p< 0.01). therefore, h1 (logistics performance index has positive effect on score-starting a business) was supported. h2 (score-starting a business has positive effect on gdp per capita) was also supported (βmodel3= 0.145, p< 0.01). h3 (logistics performance index has positive effect on gdp per capita) was supported (βmodel1= 0.741, p< 0.01) and h4 (score-starting a business has a mediator role in the relationship between logistics performance and gdp per capita) was not supported (βmodel3= 0.684, p< 0.01). the reason is that after the inclusion of the mediator variable into the model the effect of lpi on gdp did not disappear and the value of the β coefficient does not decrease. it was therefore concluded that ssb do not play mediator role between lpi and gdp. this result shows that even if no starting new business, logistics performance ultimately affects growth, it contributes to growth dynamically. as a result of analyses, the importance of logistics performance is once again recognized and the positive effect of logistics performance on growth supports previous studies which by (uca, civelek, & çemberci, 2015), (çelebi, civelek, & çemberci, 2015). this study has shown the direct and strong impact of logistics performance on growth. this means that no investment in logistics infrastructure is idle and its contribution to the country's growth is very important. this study has an important limitation that can be addressed in future research: the data that constitute the source of the research belong to the data of the world bank for the years 2010-2012-2014-2018. the data for 2020 are not included in the study data because the global covid-19 pandemic in 2020 has deeply unsettle and changed all logistics activities and economies of countries. therefore, 2020 data were not included in the study due to the concern that the results of the research would be distorted if they were included in the analysis. analysis can be improved by including 2022 data in similar studies to be conducted in the coming years. references arvis, j.-f., saslavsky, d., ojala, l., shepherd, b., busch, c., & raj, a. (2014, 12 4). connecting to compete 2014 : trade logistics in the global economy--the logistics performance index and its indicators. world bank. retrieved from world bank: https://openknowledge.worldbank.org/handle/10986/20399 aschauer, d. a. (1989). is public expenditure productive. journal of monetary economics, 23(2), 177-200. baron, r., & kenny, d. (1986). the moderator-mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations. journal of personality and social phychology, 1173-1182. boopen, s. (2006). transport infrastructure and economic growth: evidence from africa using dynamic panel estimates. the empirical economic letters, 5(5), 401-414. bozma , g., başar, s. i̇., & aydın, s. (2017). lojistik performansının ekonomik büyüme üzerindeki etkisi. the international new issues in social sciences, 5(5), 401-414. chu, z. (2012). lojistics and economic growth: a panel data approach. the annals of regional science, 87-102. cansu karabulut & mustafa emre ci̇velek 150 civelek, m. e. (2018). yapısal eşitlik modellemesi metodolojisi. i̇stanbul: beta. çelebi, ü., civelek, m. e., & çemberci, m. (2015). the mediator effect of foreign direct investments on the relation between logistics performance and economic growth. journal of global strategic management, 1721. devlin, j., & yee, p. (2005). trade logistics in developing countries: the case of the middle east and north africa. the world economy, 435-456. eifert, b. p. (2009). do regulatory reforms stimulate investment and growth? evidence from the doing business data, 2003-07, working papernumber 159. hoekman, b., & nicita, a. (2010). assessing the doha round: market access, transactions costs and aid for trade facilitation. the journal of international trade & economic development, 19(1), 65-79. marti, l., puertas, r., & garcia, l. 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(2022, 12 4). world bank. retrieved from https://lpi.worldbank.org/about world bank. (2023, 3 14). starting a business. retrieved from world bank: https://archive.doingbusiness.org/en/data/exploretopics/starting-a-business yaşar, e., & yaşar, m. (2017). i̇ş yapma kolaylıkları: farklı gelir gruplarındaki ülkeler arasında bir karşılaştırma. uluslararası afro-avrasya araştırmaları dergisi, 2(4), 101-112. zhang, w. j. (2002). regional economic development and modern logistics. market, 1(2), 7-9. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 162-167 162 election of the head of the national capital authority (nusantara) andrian thanzani universitas 17 agustus 1945 surabaya received: october 21, 2022 accepted: november 28, 2022 published: december 01, 2022 abstract: the long journey regarding the transfer of ikn has reached the present, namely during the time of president joko widodo that in midmarch 2022 the start of construction (ikn) in north panajam paser regency, east kalimantan, which is targeted for 2024, will begin the gradual relocation until 2045. the head of the authority ibu kota negara nusantara (ikn) and its representatives were officially inaugurated on march 10, 2022. the head of the nusantara ikn authority and its representatives are directly elected by the president of the republic of indonesia. this is by article 5 paragraph (4) and article 9 paragraph (1) law of the republic of indonesia number 3 of 2022 concerning the state capital. this direct appointment is problematic among the public and academics. it is considered that there was been a decline in democratization that is not by the principles contained in article 18 paragraph (4) of the 1945 constitution of the republic of indonesia. keywords: ikn, election, head of authority 1. introduction indonesian is a democratic country that follows to the notion of constitutionalism, the presence of the notion of constitutionalism began when the constitution was used as a law in running a country. constitutionalism regulates the actualization of the rule of law in the relationship between the individual and the government. constitutionalism provide the conditions that can promote peace and prosperity, with the separation of government authorities that have been determined previously. the enactment of the constitution becomes a legal basis based on the highest jurisdiction or understanding of sovereignty that is believed by one state, if the state believes in the concept of people's sovereignty then the source of legitimacy is the people.(pery rehendra sucipta, 2016). this has been stated in article 1 paragraph (2) of the 1945 constitution of the republic of indonesia, namely "sovereignty is in the hands of the people and implemented according to the constitution". the law will only exist in society and there is no society without a law governing them. that is one of the maxims of legal science(michael, 2016). indonesia as a legal state that upholds democratization is a political declaration of the indonesian nation. the provisions relating to the election of state leaders and leaders at the regional level, namely regional heads, are a fact that the 1945 constitution of the republic of indonesia is the constitution to be the most democratic codified law. the elections for regional heads are carried out democratically through direct elections. this is stated in article 18 paragraph (4) of the 1945 constitution of the republic of indonesia, namely "governor, regent, and mayor respectively as heads of provincial, district and city governments are democratically elected." referring to article 18(4) of the 1945 constitution of the republic of indonesia, which was subsequently strengthened by article 56 of law no. 32 of 2004 on regional governments (act no. 32 of 2004), which states: principles of universality, freedom, confidentiality, honesty and fairness a democratically elected pair of candidates and deputy regional heads almost all regions in indonesia began with the promulgation of law no. 32 of 2004, and regional director elections are currently taking place at the state level , and by law at the city/district level. the preparation of the state director election process suggests that such a thing has become a national consensus. (aziz, 2011) election of the head of the national capital authority (nusantara) 163 the case is different with the election of regional heads in the new state capital later. through the law of the republic of indonesia number 3 of 2022 concerning the state capital, hereinafter referred to as law no. 3 of 2022 which was approved by the indonesian goverment and the house of representatives (dpr) in january 2022, and regulates the relocation of state capitals. the president emphasized that the new national capital will not only be meaningful as a representation of the identity of the indonesian nation but also be a sign of the nation's progress. the new capital city which is located in the center of indonesia is expected to manifest a balance of development and equal economic rights. (hadi et al., 2020) the government has stated that nusantara will be used as the name of the state capital which is located in east kalimantan province, precisely in kab. panajam paser utara. (khair, 2022), judging from the current series of processes for relocating the state capital, it can be seen that the executive power seems to be very dominant in the planned relocation of the capital city. in this case, the president represented by the national planning and development agency (bappenas) first reviewed to determine the location of the new capital city, excluding legislative institutions, namely the regional representatives council1 (dpd), the people's representative council (dpr)(ferry hidayat, 2019). therefore, the relocation of the capital city will have an impact on the position of various state institutions. previously for indonesia, the relocation of the national capital was not something new. history in indonesia has recorded that since independence, indonesia has experienced several relocations of its capital city. the relocation of the state capital was not without reason, but at that time due to the unstable political situation of the country because it was still during the physical war against the dutch military aggression who wanted to re-occupy indonesia. after the physical war that took place was over, on august 17, 1950, the state capital was moved back to jakarta the long journey of relocating ikn has reached the present, namely during the time of president joko widodo in mid-march 2022 the construction of the national capital of the nusantara in kab. panajam paser utara, prov. east kalimantan and it is targeted that in 2024 the relocation will begin in stages until 2045. the transfer of ikn has several reasons: first, there is about 57 percent of the population lives on the island of java. second, inter-island economic distribution of gross domestic product at the national level. third, the availability of water resources in the java hemisphere, especially in dki jakarta and east java. fourth, land conservation is spread over the island of java. fifth, the development of population migration is very large in dki jakarta. sixth, the increasing burden of jakarta so that there is a reduction in the area's carrying energy and the amount of national loss. nusantara was chosen directly by president joko widodo because it is well known and internationally iconic. nusantara is a unified concept that accommodates pluralism and expresses the reality of indonesia. this plan should take over the city of jakarta, the city is already very dense, polluted, prone to floods and traffic jams with catastrophic effects, especially earthquakes, now the country is slowly sinking, this is the result of research from all parties(salsabila & nurwati, 2020). the national capital of the nusantara, which is herein after referred to as ikn, has a central role as well as a symbol of a country to be able to display the identity of the nation and the state. therefore, the development and relocation of a new capital city need to be based on the growth of a ready-made city development concept and the sustainable needs and goals of a nation. the planning view and the concept of ikn development are designed as a meaningful review of development in a new location. according to article 5 paragraph (4) of law no. 3 of 2022 nusantara capital is headed by the head of an authoritative agency who has the same position as a minister, appointed, appointed, and removed by the president. referring to the article, finally caused various kinds of problems that were present in the community, one of which was the incompatibility of article 5(4) of the ikn act with article 18(4) of the 1945 constitution. this was due to the abolition of democratic election for regional leaders. what happens is a direct appointment by the president. the policies of government agencies are considered detrimental to the current democratic system in our country, as the heads of these agencies and their representatives are directly elected by the president in consultation with the dpr. the disparity in the status of the state capital government then became an issue in various discussions among politicians, legal scholars and scholars of government science, as the indonesian nation had maintained its authority in the region throughout the journey, only by batam as the batam authority agency. (bob), whose designation is for the development of industrial areas, and labuhan bajo-flores which is intended for tourism development. responding to the constitutional problems regarding the election of the head of the present authority, it is necessary to conduct a study on the election of regional heads at ikn nusantara which will become the new capital city of andrian thanzani 164 indonesia. through this study, it will be able to provide answers to the problems regarding the suitability of the election of the head of the ikn authority body with democratic principles and as stipulated in article 18 paragraph (4) of the 1945 constitution of the republic of indonesia. based on the previous explanation, so the researcher intends to carry out research to recognize what the election of the head of the ikn authority agency is like. in research, there must be benefits that are needed so that the benefits of this research are: (1) theoretical benefits, later from this research can be used as a reference or add an understanding for the growth of science, precisely in the aspect of constitutional law, which is especially related to the mechanism of moving the capital city. countries to the nusantara, (2) practical benefits, for researchers by carrying out this research, researchers gain knowledge, knowledge about the suitability of the election of the head of the ikn authority body according to the 1945 constitution of the republic of indonesia. 2. method in the preparation of this journal, it is included in the study of normative law, which examines the validity of the election of the head of the ikn nusantara authority body according to the 1945 constitution of the republic of indonesia. the approach used is using the legislation approach, case approach and facts approach. the technique of collecting data is using a literature study. the method of data analysis with qualitative descriptive techniques is to describe the results of the study first after that it is matched with existing theories after it is analyzed. it is important to produce objective research results. (michael, 2020) 3. research result 3.1. moving the state capital to the nusantara jakarta as the center of the indonesian government is the pinnacle of the implementation of state administration which is also the capital city of indonesia. the capital city is a city that is projected as the administrative center of government for a country. usually, the area of the national capital is physically used as an office center and a gathering place for government leaders(yahya, 2018). therefore, the capital city of the country has a very important role in every implementation of the wheels of government. jakarta as the nation's capital has also been named the city with the most populous population in indonesia. the dense population in jakarta can be used as one of the reasons for the relocation of the nation's capital city. since the leadership of president soekarno, the discourse of moving the nation's capital has begun to emerge. president soekarno's reason for planning the relocation of the nation's capital was to achieve equitable development so that various kinds of development plans did not look centralized. during the leadership of president soeharto, this discourse re-emerged because jakarta was no longer able to represent the nation's capital city and thus needed a new area to build a new state capital. (herdiana, 2022). in any system of power transfer, the discourse of transferring state capital is always at the forefront. it was only under the leadership of president joko widodo that this discourse finally started to become a reality. the relocation of the capital, one of the mega-projects finally implemented by president joko widodo, is said to be subject to existing regulations. it took only about 42 days for the house of representatives (dpr ri) to approve the national capital act on january 18, 2022, resulting in law no. 3 of 2022. the ikn (nusantara) area has an area of about 256,142 hectares, the ikn (nusantara) area has 51 administrative areas at the ward/village level, most of which are in the archipelago. for example, 7 kelurahan/villages are in muara jawa subdistrict, 2 kelurahan/villages are in loa kulu subdistrict, 5 kelurahan/villages are in loa janan subdistrict, 21 kelurahan/villages are in samboja subdistrict, 15 subdistricts/villages are in sepaku subdistrict, and i kelurahan/village in penajam district. as a region has residents or residents, the same is the case with ikn (nusantara), based on scientific studies after development, the number of people will be in the range of 1.7 1.9 million people(nicholas ryan aditya, 2022). which consists of state civil apparatus at each state ministry, tni, polri, business actors, private workers, and the community. the limited number of residents of the capital city (nusantara) is useful to prevent population density like in jakarta and other big cities so that population control and urban planning can run more optimally. the state capital (nusantara) will later have form of government the form of a regional government that has special characteristics equivalent to the province and its location is used as an administrative area for the state capital of indonesia. the area that is mentioned becomes an area whose nature is special, namely yogyakarta and aceh, while the special ones are in jakarta and papua (hidayah & michael, 2020). this is stated in article 1 paragraph (2) of law election of the head of the national capital authority (nusantara) 165 no. 3 of 2022. regarding the government in ikn (nusantara), has been stipulated in article 1 paragraph (9) of law no. 3 of 2022 concerning ikn which states "the government of the special capital region of the nusantara, hereinafter referred to as the nusantara capital authority, is the implementer of the preparation, development, and relocation of the state capital, as well as the organizer of the regional government for the special capital of the nusantara." 3.2. election of the head of the national capital authority (nusantara) article 18 paragraph (4) of the 1945 constitution of the republic of indonesia states: "the governor, regent and mayor shall be democratically elected as the heads of provincial, district and municipal governments, respectively.". according to the above theorem, the leadership of the provincial government is exercised by the democratically elected governor. as a country that believes in the concept of democracy derived from the theory of popular sovereignty as stated in article 1 paragraph (2) of the 1945 constitution of the republic of indonesia and since the beginning of independence, it has been recognized by the republic of indonesia many times since the beginning of its independence. the nation's founding fathersthe principle of democracy means that everyone's rights are respected, having an opinion, having a certain ideology, having a certain identity, respecting any opinion that comes to mind. (michael, 2020) one of the fundamental and always means of implementing people's sovereignty in the region is the regional head election (hereinafter referred to as pilkada). at the beginning of the reform period, referring to the law of regional government act no. 22 of 1999 of the republic of indonesia (act no. 22 of 1999), pilkada is held by the district people's representative committee (dprd). finally in 2005, it was the first time in our country that, according to the republic of indonesia law no. 32 of 2004, an attempt was made to elect regional leaders by way of universal suffrage by the people at the provincial or municipal/government level. regarding regional governments (act 32 of 2004) (suharizal, 2012). essentially, the word "democracy" in article 18(4) of the republic of indonesia's 1945 differs when it comes to the election of president and vice president under article 6a of the 1945 constitution of the republic of indonesia. indonesia, which declares that both are elected in parallel by the people through direct mechanisms. this illustrates that article 18 subsection (4) gives a way for legislators to decide how the system should be utilized to elect regional leaders(ahmad gelora mahardika & sun fatayati, 2020). this has a purpose as a form of legal respect for the variety in terms of traditions and cultures of the population between various regions. this matter is also in line with the provisions of article 18d of the 1945 constitution of the republic of indonesia that legalizes elements of regional government in special and special forms and recognizes the integrity of customary law citizens. this is different from the election of the head of the national capital authority of the nusantara (ikn) and his deputy officially inaugurated on march 10, 2022. this inauguration is based on presidential decree no. 9 concerning the appointment of the head of the national capital authority agency and deputy head of the national capital authority of the archipelago for the leadership period 2022-2027 (maya citra rosa, 2022). this is based on article 5 paragraph (4) of law no. 3 of 2022. regarding the process of appointing the head of the national capital authority agency and his deputy, it is stated in article 9 paragraph (1) “the nusantara capital authority is led by the head of the nusantara capital authority and assisted by a deputy head of the nusantara capital authority who is appointed, appointed, and dismissed directly by the president after consulting with the dpr.” unlike other regional leaders who are directly elected by popular vote, ikn's regional leaders (heads of government agencies) are elected by the president through a direct nomination mechanism. this seems inconsistent with the nature of democracy as stated in article 18 paragraph (4) of the 1945 constitution of the republic of indonesia. in constitutional court judgment no.97/puu-xi/2013, the basic idea for the formed by the provisions of article 18 paragraph (4) of the 1945 constitution of the republic of indonesia at that time was the mechanism for selecting regional heads which was established by each it is determined by the growth and conditions of the people in the region. the legislature has the freedom to decide the electoral mechanism that the people want in pilkada, so the people can choose whether to use the mechanism through the mechanism of direct election by the people or through a representative mechanism that operates by the dprd. the intention is to adapt to the dynamics of national development so that they can choose the democratic mechanism desired by the community. this is an open norm provision of the legislature and is strongly related to respecting and protecting the constitution about the diversity of customs and cultures of the population in various regions. some regions tend to carry out a direct andrian thanzani 166 election mechanism by the people and there are also regions that tend to accept the indirect election mechanism from the people. both the indirect election system (representative democracy) and the direct election mechanism (direct democracy) can also be categorized as democratic systems. based on the decision of constitutional court no: 97/puu-xi/2013, it can be concluded that indirect elections or direct elections by the people can also be part of democracy. however, with the condition that the election is carried out by applying the principles of a democratic general election, namely: direct, general, free, secret, honest, and fair. even so, it is even stated in the constitutional court decision no. 072–073/puuii/2004 that it is the authority of the legislative body in this case (dpr) to determine how the pilkada should be carried out directly or indirectly. in fact, in accordance with the background of the review of the requirements for regional head elections in the 1945 constitution of the republic of indonesia, the legislators can decide on the mechanism for the election of regional heads that differs according to their respective regions. if the pilkada is held directly in jakarta, it does not mean that it has to be the same in yogyakarta, as well as in papua and other regions. this matter must be adjusted to the diversity of the indonesian population, both in terms of customs, population figures, and levels of readiness(janedjri m. gaffa, 2012). this is because democracy can be interpreted as a democracy by means of representation, or direct democracy, or it can be meant to be accepted by all people through acclamation, it is not even a mechanism that does not lack democratic values(sulardi, 2014). therefore, from the ratification of law no. 32 of 2004, the election of governors, regents and mayors will only be conducted in a direct mechanisms only, but can also be carried out in other ways such as direct democracy by the people, representative democracy by dprd or by acclamation. based on the description above, it is clear that there has been a democratization setback in the election of the head of the nusantara ikn authority body. direct appointment by the president also creates a conflict between article 9 (1) of law no. 3 of 2022 and article 18 (4) of the 1945 constitution of the republic of indonesia. 4. conclusion based on this explanation, it can be concluded that the relocation of the state capital is not something new in indonesia. indonesia has several times changed the position of the state capital from bukit tinggi, yogyakarta, jakarta to the most recent being the relocation of the national capital of the archipelago. the transfer of ikn to the archipelago has had regulations set out through law no. ri. 3 of 2022. unlike the case with regions that had previously been the state capital in the form of a regional government, ikn nusantara will later take the form of an authority agency at the ministerial level. the ikn authority agency headed by the head of the ikn authority will be tasked with accelerating the development and administration of local government at ikn nusantara later. in article 9 (1) of the republic of indonesia law no. 3 of 2022 stipulates that the head of the ikn authority shall be directly elected and dismissed by the president. this is certainly a problem in society because it is considered that the election does not reflect a democratic attitude and is in conflict with article 18 (4) of the 1945 constitution of the republic of indonesia. the meaning of democracy in article 18 (4) of the 1945 constitution of the republic of indonesia is stipulated in the constitutional court verdict no: 97/puu-xi/2013 direct elections by the people or indirect elections can also be part of democracy. provided that the elections shall be held in accordance with the principles of democratic universal elections, namely: direct, general, free, secret, honest, and fair. based on this decision, the election of the head of the ikn authority as described in article 9 (1) of law no. 3 of 2022 is considered not to reflect the attitude of democracy in article 18 (4) of the 1945 constitution of the republic of indonesia. based on the results of the discussion and conclusions the researcher therefore, submits several suggestions, including: 1. in formulating a statutory regulation, in this case the dpr, so as not to rush so as not to create a vague or even contradictory meaning in an article in the law. 2. the 1945 constitution of the republic of indonesia has handed over flexibility in the election of regional heads either by direct mechanism or by means of representation by the dprd. however, this must not forget the democratic principles adopted by the indonesian people. election of the head of the national capital authority (nusantara) 167 references ahmad gelora mahardika, & sun fatayati. 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(2018). pemindahan ibu kota negara maju dan sejahtera. jurnal studi agama dan masyarakat, 14(1), 21. https://doi.org/10.23971/jsam.v14i1.779 journal of international trade, logistics and law, vol. 2, num. 2, 2016, 135-141 free movement of natural persons: north-south conflicts of economic interests saif uddin ahammad bangladesh energy and power research council, bangladesh abstract: the establishment of the general agreement on trade in service (gats) is one of the major achievements of the uruguay round of trade negotiations. all the trades in services fall within the gats through four modes of delivery under article i:2 of gats. among the modes, the liberalization of mode 4: movement of natural persons which relates the removal of restrictions on workers travelling abroad temporarily, upon which developing countries have comparative advantage, remains one of the least negotiated issues of the wto, while the other 3 modes upon which the developed countries have dominance have been liberalized substantially. this study elucidates some logical arguments that mode 4 is the victim of the north-south conflict of economic interests. besides, this study furnishes arguments how liberalization of mode 4 can be economically beneficial for both north and south. the structural weakness in articles, schedules and annexes of gats entailing mode 4 needs to be restructured so that developing countries are able to participate meaningfully in the world trade in services and see their economic interests are protected equitably with the developed countries so that the economic interests of both developed and developing countries in trade in services can become mutually supportive. keywords: gats, natural persons, north-south, liberalization, economic interests. 1. introduction in recognition of the ever-increasing importance of trade in services for the growth and development of the world economy, the establishment of the general agreement on trade in services (gats) is one of the major achievements of the uruguay round of the trade negotiations. since 1980, world trade in service has been growing faster and has recently become most dynamic segment of international trade (wto, 2013).in 1999, the value of cross-border services amounted to us$1350 billion (gats, 2003) the export of commercial services has become highly significant for both developing and developed countries as it contributes 50% and 70% of their respective gdp (mukherjee, 1999). however, the industrialized countries now dominate most commercially tradable services, which accounts for around 70% of the total tradable services of the world (unctad, 2002). although trade in services plays significant role in global trade, it has until recently received only a little attention from the global trading community (islam, 2004). indeed, the continuous growth of trade in services demands for orderly governance through a mutually agreed legal framework (islam, 2006).according to the preamble of gats, the global trading partners have mutually agreed upon to strive for achieving progressively higher levels of liberalization of trade in services, aimed at promoting the interests of all participants and facilitating the increasing participation of developing countries in trade in services through strengthening their domestic services capacity (gats: annex 1b). besides, in the agreement particular importance was given on the serious difficulty of the least developed countries in terms of their special economic situation, trade and financial needs. in principle, all service sectors and all measures affecting such trade falls within gats by the following four modes of delivery under article i.2: mode 1cross-border supply of services, mode 2consumption abroad, mode 3commercial presence and mode 4trade by means of temporary presence of natural persons (mukherjee, 1999). among them, the liberalization of mode 4: movement of natural persons which relates the removal of restrictions on workers travelling abroad temporarily on fixed term work contracts, upon which developing countries have comparative advantage remains one of the least negotiated issues in the discussions of wto (bhatagar, 2002). 136 saif uddin ahammad however, the other 3 modes of services upon which developed countries have dominance have been substantially liberalized (bhatagar, 2002). in fact, mode 4 is the victim of the north-south conflict of economic interests. this essay will try to demonstrate some logical arguments in support of why the mode 4 is a victim of north-south conflict of economic interests. then this will provide arguments how the liberalization of mode 4 can be economically beneficial for both north and south. finally, this essay will put forward some recommendations for the wto to reform the gats for the liberalization of mode 4. 2. methodology this research will implement the analytical doctrinal methodological approach. the doctrinal approach examines primary legal documents in order to draw a logical conclusion regarding the state of the law (hutchinson and duncan, 2012). it involves the complex step of reading, analyzing and linking new information to the known body of law (hutchinson and duncan, 2012). this research will examine the present status and constraints of liberalization of mode 4: movement of natural persons to determine whether the interests of developing countries are protected equitably along with the developed countries in trade in services. to pursue the present status and constraints of the liberation of mode 4 this study will also conduct the review of the following documents: 2.1. primary documents the key relevant gats article that this study will review are as follows: gats article iv which deals with the increasing participation of developing countries, article vi which deals with domestic regulation, article xix which deals with the negotiations of specific commitments, article xx, which deals with the schedules of specific commitments , article xvi, which deals with market access, article ii which deals with the most-favoured-nation treatment. 2.2. secondary materials this study will review and evaluate different relevant secondary materials. primacy will be accorded to materials published in peer reviewed journal articles. besides, wto and world bank reports will be reviewed 3. negligence of mode 4 and the priority of economic interests of developed countries in gats negotiations one important annex for the developing countries among the eight integral annexes appended to the gats is the annex on movement of natural persons supplying services, which establishes that members may negotiate specific commitments applying to the temporary category of all natural persons (mukherjee, 1999). however, the liberalization of the movement of natural person under mode 4 of trade in service remains one of the least negotiated issues of trade policy among the 144 members of the world trade organization (wto) (bhatagar, 2002). the issue of liberalizing the movement of labour under mode 4 of delivery of services, upon which the developing countries have comparative advantage, remains mostly unresolved in the gats negotiations. however, only commitments for the entry of mainly higher category of personnel have been undertaken, thus absolutely overlooking the natural advantage of developing countries in movement of low-skilled and un-skilled personnel (mukherjee, 1999). the other 3 modes of services upon which the developed countries have absolute dominance, have been liberalized substantially. multiple annexes and subsequent ministerial decisions on commitments in the sectors of financial services (article xi) and telecommunication (article xvi), upon which developed countries have greater economic interests, depict a clear preference of the gats negotiations for measures promoting the unrestricted movement of capital impacting their services and service suppliers with sheer negligence to the issue of movement of natural persons (rafiq, 2004). 4. partial liberalization of movement of personnel and the fate of developing countries all services come under the purview of gats except services supplied in the exercise of government authority, which are provided neither on a commercial basis nor in competition with other service providers (gats, 1994). free movement of natural persons: north-south conflicts of economic interests 137 this exception seems to be a great relaxation for the developing countries to serve essential public interests. however, in practice, during 1980s onwards world bank compelled many developing countries to privatize and deregulate many of their enterprises and services of vital public sectors, such as: healthcare, road communication, telecommunication, ports, power plants and water plants as a conditionality of getting loans (islam, 2004). this lending policy of world bank, dominated by the us and other developed countries led to the opening of new opportunities for various professional service providers, such as: lawyers, accountants, financial advisers, doctors and engineers to offer their specialized services around the globe. developed countries are in a better position than the developing countries in terms of investible resources for human development and advanced technology to produce better professional service provider. in fact, developed countries with their resources, skilled workforce and latest technology can provide all services in every sector all over the world and thus, can easily encroach the capacity of developing countries and ldcs to deliver and regulate most their own services (islam, 2004).on the contrary, most developing countries and ldcs have comparative advantage in exporting labor-intensive services of semi-skilled and un-skilled workers (islam, 2004).although gats has recognized labour as a factor integral to trade in services in the annex on movement of natural persons, the mobility of labour under paragraph 2 of the annex has been carefully kept beyond the purview of gats (islam, 2004). the commitments in gats mostly guarantee the entry of higher-level personnel in the professional, managerial, skilled and technical categories. the partial liberalizing approach in the provisions of gats ultimately facilitates the developed countries and mncs overwhelmingly in exploiting the most advantage of liberalizing the category of higher-ranking personnel. thus, ‘gats commitments virtually sealed the fate of developing countries’ comparative advantage in exporting labour in service.’(islam, 2004). 5. contradictions among different relevant provisions of gats and the north-south conflict not only para 2 but also para 4 of the annex on movement of natural persons, which denotes the discretionary power of the members in applying measures to regulate the entry of natural persons into their territory in the name of protecting integrity, visa procedures and discipline is the clear deviation from the commitments guaranteed to the developing countries and ldcs in the other provisions of gats (gats, annex 1b). it militates against preamble and the article iv of gats, which accentuate the commitments of providing necessary support to the developing counties and ldcs in strengthening their domestic service capacity, efficiency and competitiveness as well as liberalization of market access in favour of them to the sectors of their export interest (gats, 1994). in case of cross border movement, the semi-skilled and unskilled labourers of south face restrictions from the north on the pretext of sovereignty and immigration law, while the workforce of the skilled and professional services enjoy the flexibility of entry requirements (islam, 2004).the flexibility of entry for the skilled and professional services, implies that these categories are less threatening to the sovereignty issue of north, while imposing restrictions on the entry of unskilled labourforce of south in the name of sovereignty issue is a clear sign of double standard attitudes of the north. it is, indeed, perplexing how the north can draw a conclusion that some categories of services are more threatening than other categories only on the basis of their skills. in fact, under the disguised and vague entry requirements, the north is restricting the unskilled and semi-skilled labourforces from entering into their territories. moreover, as developing countries do not have sufficient skilled and professional workforce to export to the developed countries and on the contrary, they have to import skilled workforce from developed countries, mostly demanded by the widespread mncs, positioned in the vital sectors of developing countries as a result indiscriminate privatization and deregulation of their service sectors prescribed by the world bank and other international lending institutions dominated by developed countries. the skilled workforce of developed countries can also enjoy the liberalized mode 3: commercial presence, in their entry into developing countries demanded by the mncs and many international organizations. the process ultimately economically benefits the north and their skilled professionals at the expense of the ordinary workers of the south (islam, 2004).this conflicting and irrational 138 saif uddin ahammad treatment of the north with the unskilled labourforce of developing countries and ldcs undermines the rights of the south to non-discrimination in the global labour market. 6. how liberalizing mode 4 can be mutually supportive for north and south? at present, mode 4: movement of natural persons only accounts for less than 2 percent of the total value of trade in services (world bank, 2004). a recent study estimates that a mere 3 percent increase in developed countries’ intake of temporary workers from developing countries could increase world income by over $150 billion per annum and the gains from such liberalization would be shared by both developed and developing countries (whalmsley and winter, 2001). moreover, winters (2003a), in his study demonstrates that in 2001, developing countries earned $70 billion dollar as foreign remittance, which is around 40% more than all development assistance and significantly more than net debt flows to developing countries.if mode 4 is liberalized it will also relieve them to a greater extent from being heavily dependent on world bank and other international lending institution with stringent conditionalities and interests payment for financing their vital infrastructure development and mitigating balance of payment crisis. ‘developed countries face a declining ratio of workers to retirees and an increasing scarcity of lower-skilled labor.’ (world bank, 2004). demographers have shown that many developing countries are facing acute shortage of workers due to the gradual increase of ageing population, for instance: a large number of people in japan are greying so quickly that the country will need to import over 600000 workers annually until 2050 to keep its population stable (bhatagar, 2002).in an inter-dependent globalized world on the basis of recardian principle of comparative economic advantage, the surplus workforce of developing countries tend to move to the developed countries to replenish the vacuum of labour shortage in different sectors of developed countries, not at the expense of wages and employment of the local workforce, but to move the wheels of the overall economies of the developed countries forward with the fulfillment of workforce in all sectors. if this movement of natural persons can be made unrestricted, it can ultimately boost the total prosperity of the world, benefitting both developed and developing countries. surplus workers typically move from the areas of low productivity (developing countries) to areas of higher productivity (developed countries) leading to a rise in world output. the originating developing countries are also immensely benefited from the effects of temporary labour movements: firstly workers gain valuable experience and skill and secondly, inflow of huge remittance (bhatagar, 2002). 7. recommendation for the liberalization of mode 4 the structural weakness in articles, schedules and annexes of gats should be reformulated to ensure proper functioning of multilateral trade liberalization in which developing countries and ldcs are able to participate meaningfully to see their interests are reflected equitably as promised in gats. some recommendations with a view to reformulating gats and making it more functional, rational and binding are as follows: the obligations set on the developed countries through gats article iv to undertake necessary measures for creating a level playing field for the developing countries and ldcs remain elusive (mukherjee, 1999).in this article, it is stated that the industrialized countries of wto shall facilitate developing countries to strengthen their services capacity, efficiency and competitiveness (gats, annex 1b).the other provisions included in this article are the liberalization of market access in sectors and modes of supply of export interest to the developing countries. as there is no implementation mechanism to enable the developing countries for better participation in trade in service, the aim of this article has virtually been ignored in practice (islam, 2006). there should be more binding provisions in this article requiring developed countries of making specific commitments of providing adequate resources and technical supports in conformity with the provisions of article iv of gats to the developing countries to enhance the skills and efficiency of their human resources so that they can compete at global level. at the same time, there should be more specific and binding provisions in article iv requiring developed countries to liberalize their market access to the supply of labour force from developing countries. free movement of natural persons: north-south conflicts of economic interests 139 article xix of gats requires members to enter into successive rounds of negotiation within stipulated time with a view to achieving a progressively higher level of liberalization and promoting the interests of all participants on a mutually advantageous basis and this article also entails the commitments of providing flexibility for individual developing countries to liberalize their service sectors in line with their development situation (gats, 1994).the doha ministerial declaration requires members to submit initial request and offers for specific commitments within stipulated time frame(islam, 2004).if developing countries and particularly ldcs are pressured without giving enough time and flexibility for higher level of liberalization, they may be forced to make unfavourable commitments without making appropriate cost-benefit analysis, detrimental to their national interests. however, there should be obligatory provisions in article xx of gats: schedules of specific commitments requiring the developed countries of making specific commitments for liberalizing their service sectors for mode 4: movement of natural persons, especially for the movement of semi-skilled and un-skilled workforce from developing countries and ldcs. if no standards and specific provisions are available entailing accountability and precise obligations of the members, depending on their level of development and capacity in gats, developed countries are not duty bound to give priority to ldcs’ export of unskilled and semiskilled persons nor can ldcs claim market access of its services, including mode 4: movement of natural persons to the developed countries as a matter of right (islam, 2004). article vi of gats deals with the domestic regulations of the members, which brings disciplines in the qualification and licensing requirements, procedures and technical standards with a view to ensuring that they do not constitute unnecessary barriers to trade in services (islam, 2004). however, ultimately the level of protection depends on the desire of the members despite the prevalence of necessity test. this apparent inadequacy of domestic regulations of gats, in turn, can legitimize external barriers to trade (islam, 2004). the requirement of qualification and necessity tests should be universally harmonized under the supervision of international labour organization and should not be unnecessarily complicated to restrict the movement of laborforce of developing countries. according to gats article xx, members are required to create specific obligations in those service sectors that are expressly specified in the commitment schedules of the members (gats, 1994). the nature and extent of specific commitments depends absolutely on the choice of the members (islam, 2004).there is flexibility for each member to determine the level of obligation of the gats provisions on a sector-by-sector basis through negotiations. even members can choose not to make any commitments in a particular sector and can structure their commitments in a manner enabling them to discriminate between foreign and domestic service providers and limit the degree of market access. the generalization and flexibility of obligation of implementing commitment schedules on a sectorby-sector basis further facilitate the developed countries to totally or mostly overlook the mode 4 of services and specially limit the natural movement of un-skilled workforce from developing countries and ldcs to the developed countries. in the provisions of xx of gats, there should be more stringent and specific obligations on the developed countries requiring them to include specific commitments of liberalizing mode 4: movement of natural persons in their schedules of the specific commitments. market access (article xvi) obliges a member to treat services and service suppliers of other members to stick to the terms and conditions agreed and specified in its schedules of commitments (islam, 2006) ‘market access commitments do not affect the right to regulate services and do not oblige members to permit the entry of unlimited numbers’ (islam, 2006). the mncs have the necessary means to enter foreign markets to take over key service industries by forcing developing countries to provide irreversible access to their market(islam, 2006). there should be specific provision entailing some obligations on the developed countries to facilitate greater market access of the labourforce of the developing countries. most favoured nation (mfn) is a principle of non-discrimination, which requires each member to accord immediately and unconditionally to services and service suppliers of any other member no less favourable than it accords to like services and service suppliers of any other country (gats, article ii). however, the unconditional nature of mfn obligation is tempered by number of exceptions (gats article ii), which permit differential and 140 saif uddin ahammad discriminatory treatments listed in the annex of article ii of gats and the exception cannot last longer than 10 years in principle (islam, 2006).the scope and duration of mfn exemptions should be clearly articulated so that the specific and genuine requirements of the developing countries and ldcs can be addressed. the10 years of exemptions especially in terms of natural movement of persons should be based on the genuine economic needs and the level of development of the members and should not be indiscriminately offered to the developed and advanced developing countries at the same level as offered to the lower developing countries and ldcs. the time limit of mfn exemptions warrants further extension, considering the genuine economic and trading plight of the lower developing and ldcs keeping in conformity with the preamble and article iv of gats with a view to providing special and differential treatment to them. the provisions of the flat use of the notion of ‘developing countries’, which include countries of diverse economies from oil producing saudi arabia, newly industrialized china to the poorest ones, such as: kiribati and bangladesh is not really a useful category of granting exemptions/concessions (islam, 2005). government of immigration receiving countries may have political and economic motivations to avoid making a migration-mfn commitment, as many of them have done in trade in goods (broude, 2010). most importantly the spirit of the annex on movement of natural persons supplying services under the agreement is lacking force and commitment (gats, annex 1b). the paragraph 4 which stipulates, ‘the agreement shall not prevent a member from applying measures to regulate the entry of natural persons, into, or their temporary stay in its territory…’ weakens the spirit of mode 4: movement of natural persons and is lacking enforceability. thus, it seems it is formulated to give supports to the protectionist countries against the mode 4. what circumstances will constitute the logic of applying measures to regulate the entry of natural persons should be clearly explained. in fact, any measure that unnecessarily and intentionally restricts the free movement of natural persons from developing to developed countries will ultimately hamper the expansion of the total volume of trade in service and the ultimate victims of which will be the poor people of lower developing and ldcs. so, there should be obligatory provisions to truly liberalize the movement of natural persons. 8. conclusion the structural weakness in articles, schedules and annexes of gats entailing mode 4: movement of natural persons needs to be restructured so that the developing countries and ldcs are able to participate meaningfully to see their interests are reflected equitably. most commitments to improve their capacity and address the development needs, specially the liberalization of mode 4: movement of natural persons remain unfulfilled due to its resorting to the ‘best endeavor approach as opposed to mandatory approach in the relevant provisions which warrant to be further restructured. in fact, wto will have to translate its its soft and glossy rhetoric into hard rules of international trade (islam, 2006) if mode 4: ‘movement of natural persons’ is not liberalized, the un-skilled and semi-skilled workforce of developing countries on which they have comparative advantage will be deprived of realizing benefits from trade in services. the service sectors of developing countries will be over-saturated with the supply of many additional workforces. the wages will decline and workers and the countries will be burdened with many disguise and unemployed youths and their productivity will be wasted. thus, the total prosperity of the world will decline. then the question of equity and human rights arise with the liberalization of mode 4. in fact, any restriction to the liberalization of labour will make international human rights and multilateral trade regime mutually conflicting (bravo, 2009). in an inter-dependent globalized world, the mindset of the members of wto should change from competition to cooperation and from unilateralism to pragmatic multilateralism with a view to promoting the economic growth of all trading partners with special focus on the development of developing and the least developed countries as a matter of equity. both developed and developing countries can mutually be benefitted to a great extent through liberalizing mode 4: movement of natural persons, especially, paving the way for easy and unrestricted access of the semi-skilled and un-skilled workers of developing countries to the relevant service sectors of developed countries. free movement of natural persons: north-south conflicts of economic interests 141 gats will have to go a long way to make the economic interests of both developed and developing countries in trade in services mutually beneficial and supportive through restructuring its provisions towards more functional and rational with emphasis on equity as well as binding on member states. references bhatagar, pradip, liberalising the movement of natural persons: a lost decade? (escap, 2002). islam, m rafiqul , ‘pressing issues of global free trade in services’ (2004) 21 law in context 251, 252 islam, m rafiqul, international trade law of the wto, (oxford university press, 2006). mukherjee, neela, ‘gats and the millennium round of multilateral negotiations: selected issues from the perspective of the developing countries’ (1999) 33(4) kluwer law international 87. whalmsley, tl and la winter (2001), ‘an analysis of the removal of restrictions on the temporary movement of natural persons’ mimeo, university of sussex. broude,tomerbroude, ‘the most-favoured nation principle, equal protection, and migration policy’ 24 georgetown immigration law journal 553, 560. wto: annex 1b, general agreement in trade in services, preamble. wto: annex 1b, general agreement on trade in services, annex on movement of natural persons supplying under the agreement. gats: facts and fiction, 2003. unctad, secretariat (2002) wto symposium on assessment of trade in services: service performance in developing countries’ geneva: united nations. winters, alan, 2003a, ‘the economic implications of liberalizing mode 4 trade’ in aadityamatto and antonia carozaniga eds., moving people to deliver services, oxford university press and world bank. wto: trade in service division, ‘general agreement on trade in services: an introduction’ (2013). world bank (2004), global economic prospects: realizing the development promise of the doha agenda, 144. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 153-161 153 the surge of crm software for marketing purposes during the pandemic edwin camilo hernandez rodriguez istanbul ticaret university turkey evrim i̇ldem develi̇ istanbul ticaret university turkey received: april 02, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: in this study the surge of customer relationship management (crm) management software for marketing purposes during the pandemic will be explained through the scientific research and in-depth interview method. the definitions of the customer relationship management, its types, functioning processes, its new features and its working process will be explained, along with the relevance it has gained during the coronavirus (covid-19) pandemic. an in-depth interview will be carried out with the marketing director of the us based company protera technologies. the interview allows exemplifying the usage for marketing process of an it company of their crm platform, the reasons behind its usage and its benefits. the importance of search engine optimization (seo) is going to be covered in this study along with the differences between inbound marketing and outbound marketing. data analytics mechanisms are going to be part of this study. a general understanding of the way that crm applications operate is going to be further explained. by making use of the in-depth interview academic method, a case study of an american it company is going to be explained, and out of this study, a proposed inbound marketing scheme is going to be proposed based on the case study. keywords: customer relationship management, analytics tools, e-commerce, analytical crm, inbound marketing jel codes: m3, m31, m37 1. introduction the present article is intended to clarify and facilitate the understanding of the working process of crm applications for marketing purposes nowadays and the relevance it has gained during the coronavirus (covid-19) pandemic. this study is based on literature research and the exemplification of the modern implementation of this sort of technologies by the marketing department of a particular us company. different types of crm platforms, its terminology and features are going to be explained briefly in order to provide a better understanding of one of the most used technologies in the marketing industry nowadays. the working flow of a marketing department and its usage of this tool and decision-making process are going to be further explained through an in-depth interview and the answers will be provided by a marketing expert. this insight will be of great usage for those interested in learning the practical usage of crm applications to excel their business and marketing strategy, while at the same time gather up to date strategies to implement and apply to those interested in the usage of these technologies. in the article titled exploring the benefits of customer relationship management (dalili & beheshtifar, 2018) says that crm platforms are the ways in which a firm stablishes communication with its customers, that it goes beyond the simple gathering of information of a customer but it is a mechanism that uses technology to enhance the performance of a company and improves its quality of customer service and support thanks to the data that it is able to gather. this study is going to be of great use to exemplify the benefits that using a crm platform can bring to any firm and its broader impact. edwin camilo hernandez rodriguez & evrim i̇ldem develi̇ 154 in the work titled challenges of developing effective customer relationship management (agwaye j. e., 2020), it is mentioned that during this study in order to understand the benefits of making use of crm platforms to maximize the output for any company that makes use of these technologies. a couple of online sources are going to be part of this study in order to better clarify terms regarding the customer relationship management industry. one of them is going to be detailed research made by (sirk, 2021) in 2021 for the website crm.org. thanks to this site, there are going to be clear and understandable explanations of the customer relationship management industry, its types, differences, specifications, advantages and different leading companies offering their crm platforms. the work titled contributions of crm applications to company performance by duran & ekinci, 2020 is also going to be part of this research due to its correlation with the topic and the relevant insights that this can provide. in this article, duran and ekinci explain that crm tools are meant to strengthen the relations with the customer, to improve the levels of loyalty and profitability. crm tools also improve the levels of productivity in a company according to duran´s work. predictions and stats from grand view research are going to clarify the value of the crm industry in the world economy, its market value, revenues and forecast for the upcoming years. a chart from this investigation center will be shown in the further pages. regarding the implementation of marketing strategies, a real-life example of a company that makes usage of the crm platform hubspot is going to take place in the form of an in-depth interview. in this, the working process to transform a lead into a sale or to stablish better relations with a costumer are going to be explained. finally, the coronavirus (covid-19) pandemic is going to be briefly summed and the general situation of the crm markets are going to be explained. specifically, the effects of the pandemic are going to be based on athens, greece, the city in which this study took place. the effect of the pandemic on the marketing industry is going to be briefly explained. here the emphasis will be made on the impact that it has had on the levels of usage of crm platforms by companies around the globe in order to improve their sales or gather data from new customers. 2. data and methodology the research method used for this study is mixed, making use of secondary sources and the literature review method and also collecting primary data via in-depth interviews. the data produce will be qualitative. the steps followed are firstly the recollection of secondary data and revision of the state of the art while making use of the literature review; second, there was a recollection of statistics from previous sources as secondary sources and a case analysis focused on one particular it company that makes use of a crm platform for marketing purposes. thirdly there will be an explanation on how to conduct a marketing strategy based on the collected data. the last part includes the findings and suggestions for those interested in implementing crm strategies to excel their operations. 3. crm definition in literature crm is the acronym of a customer relationship management platform; it is a tool that centralizes a customer or client information -dataand its interactions with a firm, in order to provide better services, improve operations, retention, loyalty and convert leads into sales (sirk, 2021). these applications have gained momentum during the previous years and nowadays have become one of the caterpillars of any marketing department and it is seen as an essential tool in order to centralize the information of the customers of a company. these tools allow a company to track the interaction with its customers and the information is turned into quantitative data that are measurable thanks to the analytic tools that are embedded in modern crm platforms (kampani & jhamb, 2020) the types of customer relationship management platforms are different, as these tools are designed according to a specific target that a company might have. some crm platforms are focused on gathering information or data from its customers, some are focused on converting leads into sales, others are mainly focused on improving the communications with its team members or customers and others are mainly centered on improving quality of service. the necessity for companies to implement this kind of software has increase in the past decade due to its potential to improve operations and obtain revenue (jabbari & tohidi, 2012). the surge of crm software for marketing purposes during the pandemic 155 figure 1 (grand view research , 2022) (grand view research , 2022) mentioned in the 2021 report that the crm industry is the fastest growing software technology currently. the economical market that these platforms are sharing is growing on a daily basis and it is providing with more marketing tools in order to centralize the communications of a company. 3.1. centralization of communications the process of centralization of communications has become a major role player for the crm industry as nowadays some companies are replacing their internal communication software’s with crm tools. this allows the firms to keep track of every interaction between a customer and a company and leads to improve in different sectors like quality of service, increases retention of the customers, increases sales and allows to propagate easily the marketing campaigns of a firm via newsletters, landing pages etc. the global economy, the liberal market, globalization, the spread of the mass consumption culture has led to the increase of the usage of crm platforms to centralize customers data, to increase revenue (agwaye j. , 2020). some of these platforms integrate nowadays the possibility to stablish communications and sales directly via the crm system, bringing unification in the operations and the marketing process. an example of the analytics and reporting feature of the popular crm application hubspot can be seen in figure 2. edwin camilo hernandez rodriguez & evrim i̇ldem develi̇ 156 figure 2 (hubspot crm, 2022) 4. types and kinds of crm platforms crm systems or platforms are often divided into two categories, open-source crm platforms and ready to use crm platforms; or already predesign with customized templates for the user (duran & ekinci, 2020). these kinds of platforms can be further differentiated by two other categories; based on their installation crm systems and based on their functionality crm platforms this last one has a wider level of differentiation and categories, as crm applications are nowadays different according to the marketing target a company might pursue (al-homery, asharai, & ahmad, 2019). the previous categories can be further dived into on-premise and cloud based, as for crm applications based on their installation, and operational, analytical or collaborative, as for the crm platforms based on their functionality (deshpande, 2021). e-commerce offers different benefits to companies like cutting the prices of the communications process, improve brands positioning, generating revenue and improve the relations that it has with its customers (kampani & jhamb, 2020). applications that differ by their functionality can vary in wide range of possibilities, as nowadays crm applications evolve at the same pace that the information technologies advance. by their functionality, crm systems can be operational, analytical -which has a series of sub-categories, including descriptive, diagnostic, predictive and prescriptive analytical crm systemsand collaborative (sirk, 2021). these categories are going to be briefly explained in order to have a prior knowledge on the subject before the analysis of a real-life example of a firm using a specific type of crm to excel their business operations. 4.1. operational crm systems operational crm platforms are generally cloud based and they have the feature of combining the sales, interactions and communications of a firm with its customers, making it a widely preferred alternative for companies (deshpande, 2021). operational crm systems have the capacity of service automation, allowing task to be handled more efficiently (sirk, 2021). some companies that offer these kinds of systems include hubspot, zoho, really simple systems crm, accelo, pipedrive, among others. 4.2. analytical crm systems analytical crm systems are focused mainly on tracking the data produced by a customer’s interaction with a company. this data is transformed automatically into stats and figures that can be used by a company to track sales, customer service, performance and errors in the pipeline. these systems also work as a guidance for it companies in gathering knowledge on customer acquisition. (xu & walton, 2005) the surge of crm software for marketing purposes during the pandemic 157 1. analytical crm platforms are divided into a wide variety of types. these include descriptive analytical, diagnostic analytical, predictive analytical and prescriptive analytical systems. even though these systems possess a lot of benefits, they are not fully implemented on most companies and only a few vendors offer these features thoroughly. (xu & walton, 2005) 2. descriptive analytical systems are focused on analyzing the current and previous data of a customer in order to give clear insights and metrics about the current status of the operations. 3. diagnostic systems are focused on registering the errors and irregularities during previous marketing campaigns. 4. predictive systems use particularities of descriptive and diagnostic systems in order to predict the possible outcomes of a marketing campaign. 5. prescriptive systems are mostly focused on giving recommendations for the user on how to lead certain campaigns according to the preexisting data (kampani & jhamb, 2020). 4.3. collaborative crm systems collaborative crm systems are focused on sharing customers data among the team members of the platform in order to improve the operations and communications with third parties or other partner companies (deshpande, 2021). these platforms allow the companies that make use of collaborative crm platforms to have the data centralized and accessible to different participants or users of the platform. this platform combines social media channels, email campaigns and other communications platforms in order to improve productivity and intercommunication (sirk, 2021). 5. sampling the data collected was based on previous findings by the grand view research and their statistics regarding their prospects for the crm industry, along with the case study based on the company protera technologies and in particular its marketing department. 6. reliability and validity of the study this study was carried out using the methodology of in-depth interview. for this reason, it is important to mention the significance of this and its validity. the work of berry (1999), explained the relevance of this process. this method it is now used vastly in the academical sphere due to its capacity to extract big amounts of data from the interviewed (berry, 1999). the main goal of a in-depth interview is to achieve broad knowledge on one particular aspect or topic (berry, 1999). in this format of interview, there are mainly open questions that allow the participant to express holistically his point of view or his knowledge in one particular area. it is important to mention that this is a qualitative method and it targets a small group of people in order to extract their points of view in a particular subject. (boyce & neale, 2006) for this reason, it is appropriate to interview experts on certain areas. there are several types of in-depth interviews and these differ according to the methodology used, if the interview is carried out as a structured interview, as a diary interview, as an ethnographic interview or informal without structure interview (berry, 1999). for this study, a structure interview was carried out along with a questionary. as this method can provide more information than other data collecting methods like surveys, (boyce & neale, 2006) it is the preferred mannered to gather direct data from an expert in this study. 7. problem statement there is a lack of a step-by-step scheme on how to approach communications with new prospects via crm applications. this study aims to provide an easy-to-follow step by step marketing communications process via a case study and a graphic proposal to better guide the final user. 8. limitations of the study some of the limitations of this study included the fact that those interviewed where in different locations along with the difficulty to stablish a method that could be implemented on every sort of company no matter their type and, edwin camilo hernandez rodriguez & evrim i̇ldem develi̇ 158 finally, the privacy regulations of companies to disclose their personal data, for this reason, there is no specifical data disclosure of the companies that participated in this study. 9. in-depth interview and case analysis in order to explain the way an international it company makes use of a crm platform for their marketing department; this research made use of an in-depth interview to clarify the steps taken in the highest level of marketing management. there were asked a total of 12 questions via the virtual meetings application teams as the participant was located in the united states. the participant selected for this study was jamessina hille, the marketing director of protera technologies, a us it company based in chicago that is focused on migration of a company’s data and sap applications to the cloud. the interview was conducted during a 30 minutes time. out of the 12 questions, that were focused mainly in the type of crm application that the company uses and its reasons of selection, the fifth question “could you explain what are the steps that the company uses on the crm platform to transform communications with clients into sales?” is going to be explained in detail as it gives a clear example of a case study and offers a marketing strategy applicable for any organization. the marketing director at protera explained the process that they follow in order to transform their communications with clients into sales. the company makes use of several channels of communication but one of the main sources to obtain leads are via online forms. these forms are generated via landing pages; these landing pages normally lead the user to download an asset. once the form is completed, the user downloads the asset and all that information -the contact record and a company recordis stored on the crm, in this case the company makes uses of hubspot. the company also makes use of paid ads that also link the landing pages generated with hubspot; these too contain the forms mentioned before. after this, the company contacts the interested lead and, if the costumer is interested, they have a meeting, following this meeting, the lead is contacted by the sales department of the company and that is how they convert interactions into sales via forms. the sales department of the company can contact the interested leads via hubspot, emails them, arrange meetings, tracks their movement of the costumer on the company’s website, see the result of the meeting and act accordingly. the marketing expert explained that the company makes use the most of the reporting feature of hubspot, along with the forms feature, now that thanks to those tools, they manage to gather all the relevant information that they need in order to convert interactions into sales. the following graphic, figure 3 provides a step-by-step process of their costumer communications via hubspot followed by the mentioned company. the surge of crm software for marketing purposes during the pandemic 159 figure 3. (hernandez rodriguez) the previous graphic explains the suggested digital marketing approach to stablish effective communications with prospects. important level of work has to be done on the first step in order to attract a prospect. the communication asset must be informative and useful for the final user, the quality of the content is a key point at this stage. on the second step it is important to make use of the analytics tools of the crm of usage in order to evaluate the work possibilities that there can be with the prospect lead. nowadays modern crm platforms offer different visualization modules, the user can visualize the leads information in a couple of steps, making possible to visualize where the lead comes from, the number of clicks he had on certain site, what parts of that site the lead researched, etc. if the lead is not aligned with the company’s business profile, the marketing team can easily discard the profile and continue to contact the most suitable ones. this information is of great value for the marketing team, as it allows them to prepare the right method and message to deliver to the prospect in the following step. the third step is of critical relevance, as it is in this step where the marketing team of a company presents its initial pitch to the interested party. the message should be effective enough to guarantee a response rate that can be measurable and, if the lead is not responsive it needs to receive a certain number of follow ups. if the lead is not responsive it is not recommendable to proceed with this, as it can damage a company’s digital presence. if the lead is responsive, it is a good practice to invite him/her to an online meeting to explore the viability cooperation. according to the work line of the company, a physical meeting can be a good strategy to close a cooperation deal. once the prospect has accepted further cooperation, the lead can be transferred to the sales team in order to close the cooperation agreement. in this stage, the sales department can make use of the data generated and stored on the crm through all the communications process. this can generate an easier and smoother transition between the first and last contact with a lead. 10. findings (results) on the basis of the literature consulted and the in-depth interviews conducted, it can be said that a structured method must be implemented in order to conduct effective communications while making use of a crm platform. particularly, the implementation of landing pages to offer downloadable assets to the target public and advertise this kind of content is proposed as an ideal marketing campaign in order to approach and gather new data and increase the data base of prospects for a company. making use of the analytics tools and centralize the communications via the crm is another proposed methodology for the interested parties. the structure proposed on figure 3 is another scheme that is suggested for marketing teams interested in standardizing their communication strategies with its prospects. step two would be of great help for any organization prior contacting any lead. advertising landing pages and including forms has proven to be an effective strategy for companies to gather new leads, hence it is highly recommended in this study. as the concept of search engine optimization (seo) gathers momentum in the marketing sphere, companies are flocking into crm tool that provide with more characteristics than before in order to centralize and drive more traffic to their websites or content (nursel & utku, 2010). it is necessary to consider that even the search engine is a kind of software that collects information and data bits form other websites (nursel & utku, 2010) for that reason, it is necessary to drive traffic to a companies website via quality content, that way, users will benefit from the final product and companies can acquire quality leads. 11. conclusion and suggestions edwin camilo hernandez rodriguez & evrim i̇ldem develi̇ 160 marketing directors or managers should implement the previous e-commerce strategies while making use of crm applications in order to acquire better results in their external communications. these kinds of applications have also proven to be an effective mechanism to replace internal communications systems like saps or other kind of software (kampani & jhamb, 2020). even though the coronavirus (covid-19) pandemic has brought a change in the way that companies conduct their business and an all-digital way of conduct operations is encouraged, leaving open the window for real-life meetings with prospects give a higher rate of lead response and level of interest. the material offered via landing pages, let it be brochures, e-books, guides, articles, etc. must always be of the highest quality that the company is able to generate, as this is the first message that the lead (customer) will receive and it is the decisive item that separates the beginning or the premature end of business with a prospect. if companies are interested in performing inbound marketing, which is the kind of marketing that attracts leads by offering them valuable content (zlatko, 2015), the main approach of companies should be focused on stablishing a work scheme based on the steps proposed above making use of the crm tools available nowadays. if companies are interested in implementing seo (search engine optimization) they should focus their efforts on promoting their business via inbound marketing strategies and deliver quality content to their prospects while making use of crm applications that specifically target their business objectives. no every crm system may be appropriate for any company; hence, the right tool must be carefully selected in order to achieve the goals of the company. centralizing the marketing operations of the company on the crm application is, nowadays, possible and recommendable as the information generated in the platform can be easily be displayed on graphics and stats for the further usage of the interested parties of the organization. the proposed scheme used in the previous chart is a practical and simplify marketing strategy that can be easily implemented by any marketing team interested in inbound marketing and obtaining new leads organically. each organization may need to adapt the proposed system in order to attain better results; nevertheless, the previous model displayed on figure 3, is a practical guide that can be implemented no matter the size of the organization. specially emerging business and startups can benefit from this model. for further studies on inbound marketing, seo, crm applications and analytic tools, the reader can refer to the different sources mentioned in this study but in particular could be useful the work of zlatko, b. (2015), titled inbound marketing a new concept in digital business, the work of nursel, y. titled what is search engine optimization: seo? procedia social and behavioral sciences, 487-493. another source that can be useful for those interested in the usage of crm applications for inbound marketing operations and for further studies on the topic of this paper is the series of crm and marketing courses of hubspot, available at their website and mentioned in parts of this study. references agwaye, j. e. (2020). challenges of developing and managing effective crm (customer relationship management) in manufacturing. university of wisconsin, platteville. dalili, a., & beheshtifar, m. (2018). exploring the benefits of customer relationship management. specialty journal of knowledge management . sirk, c. (2021). retrieved from crm.org: https://crm.org/crmland/crm-vs-cms duran , c., & ekinci, y. (2020). contributions of crm applications to company performance. pressacademia. agwaye , j. (2020). challenges of developing effective crm. challenges of developing and managing effective crm (customer relationship management) in manufacturing . wisconsin platteville. deshpande, i. (2021). tool box marketing. retrieved from what is customer relationship management (crm)?: https://www.toolbox.com/marketing/crm-marketing/articles/what-is-customer-relationship-management-crm/ kampani, n., & jhamb, d. (2020). analyzing the role of e-crm in managing customer relations: a critical review of the literature. journal of critical reviews. hernandez rodriguez, e. c. (n.d.). step by step on marketing communications. istanbul commerce university . the surge of crm software for marketing purposes during the pandemic 161 al-homery, h., asharai, h., & ahmad, a. (2019). the core components and types of crm. pakistan journal of humanities and social sciences. tohidi, h., & jabbari, m. (2012). the necessity of using crm. procedia technology. xu, m., & walton, j. (2005). gaining customer knowledge through analytical crm. industrial management & data systems, 955-971. berry, s. r. (1999). collecting data by in-depth interviewing. education-line. boyce, c., & neale, p. (2006). conducting in-depth interviews: a guide for designing and conducting in-depth interviews for evaluation input. pathfinder international . grand view research . (2022). customer relationship management market report, 2030. www.grandwievresearch.com. hubspot crm. (2022). resources: report & customize . retrieved from https://www.hubspot.com/products/marketing?q=cache%253a4cgulxuwynsj%253ahttps%253a%252f%2 52fwww.hubspot.es%252f%252b&cd=1&hl=es&ct=clnk&gl=gr&hubs_content=www.hubspot.com/&hubs_c ontent-cta=nav-software-marketing zlatko, b. (2015). inbound marketing a new concept in digital business. international scientific conference of the romanian-german university of sibiu, 27-34. nursel, y., & utku, k. (2010). what is search engine optimization: seo? procedia social and behavioral sciences, 487-493. jabbari, m., & tohidi, h. (2012). the necessity of using crm. procedia technology, 514-516. journal of international trade, logistics and law, vol. 4, num. 2, 2018, 45-52 45 cryptocurrencies in the new economy anı bulut istanbul commerce university, turkey received: november 10, 2018 accepted: december 12, 2018 published: december 15, 2018 abstract: developments in internet-based payment platforms employing the blockchain technology known as “cryptocurrencies” contributed their integration in the official payment systems. because of the growing interest in cryptocurrencies, it is necessary to review existing cryptocurrency research literature and determine areas for future studies. this study gives an up to date summary of accessible literature on cryptocurrencies according to their subject of issues, theories, methods, and findings and provides direction for future research. a systematic literature review was carried out to examine accessible academic and reliable publications between 2010 and 2018. based on results research limitations for individual, organizational, ecosystemic and discourse approaches are identified and the study concluded that there are still insufficient and uncovered issues related to the cryptocurrencies notably from a legal and regulatory point of view. keywords: digital currency, cryptocurrency 1. introduction after the global financial crisis in 2008, interest on digital currency has revived (chuen, 2015). developments in internet-based payment platforms employing the blockchain technology known as “cryptocurrencies” contributed their integration in the official payment systems. use of digital currency allows faster, more flexible, and more innovative payments in financing goods and services compared to payment systems that are based on fiat currency. digital currency is an electronic medium of exchange, unit of account, and store of value. given the interest in digital currency this research article focuses on cryptocurrency. a subset of a digital currency, cryptocurrency is a special class of digital currency and a form of programmable money which uses cryptographic algoritms in digital currency transactions for siber security and control platforms along with digital money supply. one of the most well well-known cryptocurrencies, bitcoin uses a very complex cryptographic algorithm that requires a connected peer-to-peer network of computers to conduct computationally expensive mathematical processes (velde, 2013). utilization of cryptographic currencies (“decentralized digital currency” or “cryptocurrency”) and open source software constitute decentralized consensus systems (dcs), which are based on peer-to-peer mechanism instead of central authority and depend on cryptography for consensus of network by verification (glaser et al., 2015). despite of the increasing interest in bitcoin and growing of decentralized consensus systems it is very complicated for the mainstream financial institutions and public to accept and have an insight on them for further use. bitcoin, cryptocurrency, dcss are discussed broadly and widely in both financial instituons and regulators because of its distinctive and reformative new methods in monetary transactions (brunnermeier, 2008). this brings the need to identfy the cryptocurrency research limitations and to specify issues that have been addressed by reviewing existing academic literature. this study is divided into three parts: in the first part research questions are given, the second part consists of the results and answers to the research questions the third part is summary of the study. anı bulut 46 2. literature review this study is based on a systematic literature review (slr) to reach an understanding of a notion or something of an interest by defining, surveying and combining the findings of all relevant academic studies addressing targeted queries (baumeister et al., 1997). there were two main steps followed: query and selection to identify the articles for the review. these steps were taken to determine state of intelligibility of cryptocurrency from generally accepted accesible sources of academic and public knowledge. study of tsukerman 2015 was about the state of bitcoin regulation. consumer confidence and people trust in bitcoin were necessary elements for regulators. trust was examined at institutional level in zarifis et al.2015 study which offered insights on consumers perspective such as which aspects reinforce trust, which degrease trust and why. sas et al.2015 showed a user-centered approach and argued that cryptography areas to the exploration of bitcoin has been limited and that a richer understanding of the issue of trust informed by bitcoin users was important. lustig et al. 2015 use “power of algorithms to direct human action and to impact which information is considered true as concept to examine the culture of users of bitcoin, a crypto-currency and payment platform. mai et al.2015 study emphasized impact of influential users on social media for bitcoin performance stating that community members differ in the frequency, volume, type, and quality of digital content they generate and consume, i.e influential people, such as opinion leaders, have disproportionate influence on others largely because they have greater exposure to mass media than their followers. hur et al. 2015 study aimed to find the degree to which the participation of a bitcoin user is dependent on the speculative opportunities in the bitcoin market and in this way tested bitcoin’s competence against traditional currency. glaser et al. 2014 addressed different standpoint emphasizing users' intentions when changing their fiat currency into a digital currency and users’ interest regarding whether digital currencies is driven by its appeal as an asset or as a currency. georgoula et al. 2015 study, on the other hand, used twitter user sentiments to show positive correlation of twitter sentiment ratio with bitcoin prices. an organizational approach adopted by andrychowicz et al. 2016 study, designed an online protocol for playing a lottery, in a completely decentralized way that is secure even if no trusted third party is available to be used as a replacement for the online gambling sites. connolly et al.2015 compared organization adopters of bitcoin from nonadopters according to their it-readiness, innovativeness and social media presence. the study of ingram et al. 2015 focused on resilience of a new firm in an emergent field with limited resources and without a formal structure in case of extreme events that such entrepreneurial firms rely on their collective identity in forming resilient responses compared to mature firms characterised by formal structures and some slack resources. ingram et al. 2016 addressed new firms’ use of collective resources to build legitimacy arguing that local entrepreneurs seeking mainstream legitimacy behave like subsidiaries while simultaneously distinguishing themselves from the broader bitcoin community as they seek legitimacy. kazan et al.2015 study examined companies’ digital business models within the bitcoin network and suggested that companies within the bitcoin network exhibits six generic digital business models which are in turn driven by three modes of value configurations with their own distinct logic for value creation and mechanisms for value capturing. studies like chan et al.2017, d’alfonso et al. 2016, elbahrawy et al.2017, hayes 2015, hileman et al. 2017 analyzed cryptocurrencies statistically with historical data, market capitalization, number of users, and sectoral structure which gave insight about cryptocurrency market. other studies like chiu et al.2014, kondor et al. 2014, sompolinsky et al. 2018, tomaš et al.2015, zohar 2015 were related with cryptocurrency transactional structure, volume of transactions, payment network that provide information about the impact of cryptocurrency on economy. cusumano 2014, glaser et al. 2015, van alstyne 2014, villarreal et al.2016 approached from a different point of view that question the reality, existance and true value of the crptocurrencies while giving insights about other technological structures related with them. cryptocurrencies in the new economy 47 studies like spenkelink 2014, meiklejohn et al. 2016, harwick 2016 brought perspectives about social and industrial impact, challanges, adoption of cryptoccurrencies. the study of polasik et al. 2016 argued market, economy, characteristis, and technological structure of bitcoin as an innovation. studies of brito et al. 2016, chuen et al. 2015, rosenberg 2011 were comprehensive views for crptocurrencies, bitcoins and altcoins giving contextual information about their characteristics and structures. morisse 2015, narayanan et al. 2017, yli huumo et al. 2016, oshodin et al. 2016 gave information about the academic literature of bitcoin and cryptocurrencies. figure 1. underlines the issues for each approach of research topics. issues grouped under individual approach are user sentiment, intentions, behaviour, content and consumer trust that based on cryptocurrency’s utility experienced by individuals. the study of georgoula et al. 2015 measured the sentiment ratio of twitter users concerning bitcoins on a daily basis and found that measurements of collective mood based on the appropriate sentiment analysis can help to predict short-run movements in the value of bitcoins. user intensions discussed in the study of glaser et al. 2014 were used as a variable for bitcoin volume traded at the exchange and within the bitcoin system. the results showed that new bitcoin users rather use it as an asset than as a currency and the correlation between the bitcoin volume traded and the number of payers for goods or services was negative. tsukerman 2015 study examined user behaviour in a way that its use for unlawful activity which did not require an institutional (and subpoenable) intermediary which in turn created the popular imagination that bitcoin is associated with online black markets, unsavory characters, and risks to consumers from hackers. hur et al. 2015 stated that the dominant view for bitcoin’s role of a legitimate currency was in question so the nature of bitcoin was speculative but not as strong as being the sole reason in participating in bitcoin market. mai et al. 2015 used the user-generated content and argued that the vocal minority and the silent majority exhibit distinct relationships with bitcoin performance, in terms of both transaction volume and returns. under trust issues lustig et al. 2015 used concept of power of algorithms to direct human action and to impact which information is considered true to examine the culture of users of bitcoin. zarifis et al. 2015 studied trust in business to consumer transactions carried out using digital currencies such as bitcoin. sas et al. 2015 explored the specific trust challenges raised by the bitcoin technology. under organizational approach andrychowicz et al. 2016 study constructed protocols for secure multiparty lotteries using the bitcoin currency, without relying on a trusted authority. the cryptographic “secure multiparty computation (mpc)” protocols are one of the most advanced types of multiparty protocols that can be performed digitally. connolly and kick 2015 study used organizations’ adoption to bitoin issue and compare bitcoin adopters and nonadopters according to their it readiness, innovativeness, and social media presence. resilient behaviour by firms is examined in ingram et al. 2015 study. ingram et al.2016 study developed theory around legitimacy in a decentralised system and explained how a bitcoin entrepreneur, while part of the larger bitcoin community, distinguishes itself from the collective in order to be seen as legitimate among a new set of stakeholders. kazan et al. 2015 examined value creation by a firm and showed that value chain and value network driven business models commercialize their products and services for each value unit transfer, whereas value shop driven business models commercialize through subsidized and revenue generating users. also value chain and value network driven bitcoin business models had the capabilities to create market entry barriers by leveraging their value delivery architectures and value stakeholder networks against prospective bitcoin rival firms. for ecosystemic approach the studies grouped under economy issues were chan et al.2017, chiu et al.2014, d’alfonso et al. 2016, hayes 2015; studies under sociology issues were cusumano 2014, glaser et al. 2015, tomaš et al.2015, villarreal et al.2016, zohar 2015; studies under ecology and system issues were elbahrawy et al. 2017, kondor et al. 2014, spenkelink 2014, sompolinsky et al. 2018, van alstyne 2014; studies under industry were harwick 2016, hileman et al. 2017, meiklejohn et al. 2016, polasik et al. 2016. for the discourse approach issues under comprehensive view studies of brito et al. 2016, chuen et al. 2015, rosenberg 2011 gave detail contextual information about cryptocurrencies, blockchain, and bitcoin; studies of anı bulut 48 morisse 2015; narayanan et al. 2017; yli huumoet al. 2016, oshodin et al. 2016 under literatural view were literature reviews for digital currencies, bloackchain, cryptocurrencies, and bitcoin. from the studies based on the results it was concluded that the studies relating to ecosystem and system issues are mostly examined. doi/idt was the highest used model with the studies of connolly et al.2015, polasik et al. 2016, and spenkelink 2014. chiu et al. 2014 study used economic theory to understand the fundamental economic trade-offs and address relevant policy issues. hur et al.2015 study adopted perspective on technology acceptance and its two primary components: network effects and switching costs. they examined the existence of network effects within bitcoin and its strength against conventional currency. lustig et al.2015 study described algorithmic authority as the legitimate power of algorithms to direct human action and to impact which information is considered true. they used this concept to examine the culture of users of bitcoin, a crypto-currency and payment platform. polasik et al. 2016 study used both the theory of networks externalities and diffusion of innovations theory. the combination of these two theories were to assess the early success of bitcoin. according to the study of rosenberg 2011, modern cryptography had its basis in complexity theory and theory of computation. tsukerman 2015 study discussed the creation of a new theory of digital property based on blockchain technology that the advent of the blockchain as a trustless public ledger that allows for rivalrous digital property warrants a new theory of property as an information communication and storage system. villarreal et al.2016 based their work on social exchange theory (sext) and analyzed bitcoin from the standpoint of fiat money. zarifis et as. 2015 study’s model followed the theory of reasoned action where beliefs lead to actions thus trusting beliefs lead to trusting intentions and finally trust related behaviours. with regard to the results of the theories used or mentioned in studies most of the literature reviewed were not followed a theory. therefore following studies on cryptocurrencies may utilize this gap for further researches. table 1. shows the research methods applied according to the studies’ authors. studies of brito et al., 2016, chuen et al. 2015, cusumano 2014, harwick 2016, rosenberg 2011 were context driven. they did not follow any specific research method but mostly presented characterization of the study subject, or in a form of collective of academic journals, or were practice-based which means providing historical examples of the subject issue. andrychowicz et al. 2016 used transactions in the actual bitcoin system for prototype implementation and constructed protocols which could be used in real life as a replacement for the online gambling sites for secure multiparty lotteries using the bitcoin currency. connolly et al.2015 study used qualitative, categorical analysis to understand the current state of bitcoin adoption. chan et al. 2017 study used statistical analysis in terms of log likelihood values, information criteria, goodness of fit tests, probability plots, quantile plots, plots of two important financial risk measures, back-testing using kupiec’s test and dynamic volatility and the data were the historical global price indices of cryptocurrencies which were obtained from the bnc2 database from quandl. chiu et al. 2014 study developed general equilibrium monetary model for quantitative analysis and based their model on the alternating market formulation to study frictions that give rise to the usage of money while still keeping the distribution of balances analytically tractable. d’alfonso et al. 2016 compiled a quantitative analysis and made simplifying assumptions to assist with the creation of a 5-year predictive model for the price of each cryptocurrency. they compiled a monte carlo simulation to project the impact of various events occurring within a single time-series simulation. data for qualitative research collected through interviews with industry professionals. elbahrawy et al.2017 study’s statistical analysis focused on the market share of the different cryptocurrencies and was based on the whole history of the cryptocurrency market between chosen years. cryptocurrencies in the new economy 49 table 1. methods applied in cryptocurrency researches other studies include empirical modeling (georgoula et al., 2015 glaser et al. 2014), taxonomy (hileman et al. 2017, glaser et al. 2015), qualitative analysis with literature review (yli huumoet al. 2016, tsukerman 2015, tomaš et al. 2015, oshodin et al. 2016, narayanan et al. 2017, morisse 2015), qualitative analysis with framework zarifis et al. 2015, sas et al. 2015). results showed that mostly qualititive methods applied in the studies. researchers used mostly data gathering (historical data, surveys, interview and case studies), empirical modeling, regression analysis, statistical analysis and literature review. anı bulut 50 mai et al. 2015 study investigated the predictive power of social media metrics for bitcoin returns, as well as their dynamic relationships. data of the research was collected from social media data which were for a short time period and also the language was mostly in english language. glaser et al. 2014 study was about the users’ intentions when changing a domestic currency into a cryptocurrency like bitcoin and had also limitations for the timing of data. considering the users around the world the language and the data length for empirical researches would have made considerable difference on the results. study of kazan et al. 2015 was about how bitcoin firms create and capture value through digital business models. however business models or cases for business models to be investigated was limited. study of ingram et al.2016 was about how a new firm uses legitimacy in one community as a scaffold to build legitimacy in a different community, with different norms, and the role of the technology in facilitating this. however because of the anonymity of the users there were also several number of unidentified firms which is also the same limitation for ingram et al. 2015 study and valid for the individual issues. the study of spenkelink 2014 was about the factors influencing adoption and one of the datas which its model based on was opinion of multiple experts. as in the case under organisational issues number of experts for cryptocurrencies are also limited. villarreal et al.2016 study examined bitcoin sociologically and empirically with regard to its global exchange, consumption, and institutionalization. however results were limited to english-speaking respondents, and although these respondents may be situated all over the world. 5. conclusion this study gives an up to date summary of accessible literature on cryptocurrencies but can not cover all the literature about cryptocurrencies so far since sources of information are limited to selected academic or expert community. there are still insufficient and uncovered issues related to bitcoin (or the cryptocurrencies) from a legal and regulatory point of view. the roles of parties in cryptocurrencies are not covered enough because of its anonymity also their social structure is not clear. we can also expect in the future researches of consumer protection rules, because of the complexities in understanding how cryptocurrencies work and the eventual risks that arise for consumers or end users. these areas need to be covered for future reseaches. references andrychowicz, m., dziembowski, s., malinowski, d., & mazurek ł. 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"bitcoin: under the hood," commun. acm vol: 58 n 9. microsoft word 04_ makale(oguzhan_ozcelik).docx journal of international trade, logistics and law, vol. 1, num. 2, 2015, 67-74 recommendations for foreign trade companies established in turkey on making charter party marine bills of lading in accordance with letter of credit-l/c method ömer özkan, ph.d. istanbul commerce university, turkey oğuzhan özçelik, (phd candidate) kırklareli university, turkey abstract: this study discusses how charter party marine bills of lading should be made in accordance with the letter of credit-l/c method. in an l/c, in order that the obligation of payment of the applicant (issuing) bank and of the confirming bank, if any, against the beneficiary can continue, exporting companies are required to prepare documents in accordance with the ucp 600, isbp 745 and terms of documentary letter of credit and present them properly (complying presentation). in order to prepare appropriate documents, it is essential for the exporting companies to act according to the three important criteria (letter of credit requirements, ucp 600 and ispb 745) prevailing in this regard. since competence of complying presentation requires a certain level of expertise, the exporting companies established in turkey have experienced difficulties in terms of how to prepare documents and could not get benefit from payment obligation undertaking of the applicant bank and of the confirming bank, if any, due to the presentation of discrepant documents, getting export prices late, and payment of extra fees/commissions. due to trade property, importing company’s demands and the conditions required by the legislation of the country where the exporting company is established, exporting companies are required to prepare many types of documents. in this study, the common mistakes that exporting companies in turkey made in preparation of the charter party and the other types of b/ls are analyzed, the basic and critical features of the charter party b/ls, in particular, are considered and different and common parts compared to other bill of ladings are evaluated and how they can be organized properly according to letter of credit payment is shown. keywords: letters of credit, charter party, bill of lading (b/l), discrepancy, complying presentation 1. introduction foreign trade has been carried out when one of buyer or seller parties have been in a different country. while the goods 1 and documents 2 are transferred from the vendor to the buyer, money transfer is expected to take place from buyer to vendor. in respect of the transfer of the goods, it should be decided how the type of delivery of the goods, subject to trade (incoterms), and accordingly its logistics and customs clearance would be. the transfer of document and money must be treated differently from domestic trade in just the same way as the transfer of goods. an agreement should be reached between the parties detailing many operational factors such as the method of payment and the determination of the diversity, quality and quantity of documents. how a document will be transferred from the vendor to the buyer changes according to the method of payment. for example, the transfer of document regarding the methods of payment against documents (documentary collection) and l/c3 will be performed through the banks whereas remaining payment methods are performed through the buying and selling companies. the below flow chart summarizes and illustrates foreign trade operations. 1 in this study, goods and objects were used in the same meaning. 2 document is the plural of the word "documentary " and used in the meaning of documents used in foreign trade. 3 letter of credit (l/c) and documentary credit (d/c) were used in the same meaning. 68 ömer özkan, oğuzhan özçelik foreign trade flow chart: transfer of goods and documents (customs clearance, logistics processes, incoterms) the seller (exporter) buyer (importer) money transfer (payment terms) exporting companies are obliged to fulfil two basic necessities as the preparation of goods and documents in foreign trade flow. although invoice and export customs declaration are sufficient in order to export goods in turkey, any foreign trade operation performed with only these two documents has not been in existence. the main reason for this is that suppliers have requested exporters to prepare some extra trade-related documents. there are many reasons for this claim in question. some of these are: the documents related to the goods to be imported, and required by the legislation of the country where importer firms are located (ce certificate, halal certificate, certificate of origin, etc.) the documents prepared for the purposes of providing exemption from import customs duties in the country where the importing will be performed (a.tr etc.) fully importer company’s requests originated or flow chart originated documents (loading notice, shipment advice, inspection certificate, packing list etc.) the mode of transport related documents (marine bill of lading4, cmr5, airway bill of lading, etc.) or documents related to the foreign trade flow chart (invoice, customs declaration, etc.) exporting companies have prepared some of the documents by themselves, that partly mentioned above and they have some of them prepared to the institutions and organizations that they purchased the service, due to the nature of the work. for example, while exporting, companies prepare some documents on their own, and these documents include invoice, packing list, shipment notice etcetera. they also have carrier companies executing transport service, and these companies prepare the transport documents such as b/l, cmr, air way b/l. similarly, superintendence report has been prepared by the enterprise that performs this task. whether exporting companies prepare some of the necessary documents themselves or they have an enterprise from which they purchased any service, and the latter prepares the other part of documents, undoubtedly, exporting companies are responsible for the correct preparation of all documents ultimately, relevant to foreign trade. in case the method of payment is a letter of credit-l/c, the preparation of documents in compliance with both conditions of l/c, ucp 6006 and isbp 7457 issued by icc, that is to say, preparation without discrepancy (complying presentation), is extremely important so that the obligation of payment of the applicant bank and of the confirming bank, if any, against the beneficiary (exporting company) could continue. 4 the english equivalent of marine bill of lading is bill of lading so, b/l abbreviation will be used in the rest of the study 5 it is the transport document prepared for international highway transportation of goods. 6 uniform customs and practice for documentary credits, ucp 600, (icc publication no. 600 are rules that apply to any letter of credit-l/c) 7 international standard banking practice – isbp(icc publication no. 745 is a comprehensive guide to handling and examining trade documents under documentary credits) recommendations for foreign trade companies established in turkey on making charter party marine bills .... 69 as noted above, exporting companies in turkey have had issues regarding the proper presentation of documents, and have presented discrepant documents approximately in the ratio of 70 percent (gul, 2010:50). according to the records of a public bank, exporting companies presented discrepant documents in approximately 72 out of every 100 operations between the years of 2006 and 2015. one of the main reasons why this study is needed arose at this point. in spite of the fact that exporting companies are required to prepare many documents, this study emphasizes how charter party b/ls should be made in compliance with letter of credit-l/c method; common and different sides of the document in question with marine bills of lading and the issue was tried to be explained with examples. with the intent of determining the mistakes that exporting companies have made during the presentation of the document(s), a survey was conducted to the letter of credit services of 10 commercial bank stationaries in turkey, at which letter of credit transactions have been performed. in this way, the issues on which, exporting companies have mostly experienced contradiction in terms were identified, and the subject-related detailed explanations were given at the further stages of the study. the issues such as the contradictions in terms (incomprehensibility) that were experienced by beneficiary companies in turkey in respect to preparation of other documents; mistakes they often make, and how other documents should be prepared so as to be presented properly were considered as the topic of other studies. 2. parties to a letter of credit-l/c and the review of documents 2.1. parties to a letter of credit –l/c although letter of credit –l/c is a way of payment preferred in international trade, any legal status blocking its use on domestic trade in turkey hasn’t been in existence. there isn’t any legal status blocking its use in domestic trade in turkey. even although rare, it has sometimes been preferred in domestic trades8. before buyer and seller deciding letter of credit–l/c, they are expected to constitute seller and buyer agreements between themselves especially in large amount trades. not allowing to constitute seller and buyer agreement as supplementary or integral part in the text of the letter of credit (letter of credit opening) can’t change the truth of that the texts of letter of credit have been constituted of the agreements in question, since the texts of letter of credit include a lot of elements such as, unit price, type of delivery, latest date of shipment, the documents needed to be prepared. letter of credit –l/c method is applied essentially in case exporting companies feel doubt against importer companies on making payment or as required by the laws of the country9. in the payment method in question, after accrediting while importer company is connected irrevocably to letter of credits until the exportation date of letter of credits according to article 3 of ucp 60010, exporting company is free whether to use or not the letter of credit accredited in favour of itself. since the party giving instructions to the bank to issue a documentary credit is an importer company, importer company is called “applicant”. the concept of applicant is used in banking technique and international trade in particular for the party giving instructions, and varies depending on the type of payment. for example, for the inception of operations in documents against payment, the party giving instruction of collection11 against documents is the exporter, the applicant party in this type of payment is the exporter, not importer. since the issue of a documentary credit constitutes a matter in favour of exporter, exporting company is called “beneficiary”. beneficiary can be defined as obliged company for proper presentation (complying presentation) so that obligation of payment of applicant bank and if any, of confirming bank against beneficiary company can continue in letter of credit-l/c method and also for fulfilment of presentation (honour), in other words, fulfilment of payment. 8 it has been derived from data of operating public bank in turkey 9 algeria has obliged only letter of credit-l/c method regarding foreign trade 10 ucp 600 art. 3: “… if a letter of credit is not defined as irrevocable, the letter of credit in question is irrevocable…” 11 uniform rules for collections icc issue no.522 art.3/a/i. 70 ömer özkan, oğuzhan özçelik applicant/issuing bank is the bank preparing the text of credit opening with the instruction of supervisor and transmitting it to any of advising bank, confirming bank or nominated bank through swift12 system. it is also the bank which conducts the examination of documents13. as per article 7 of ucp 600, provided that the stipulated documents stated in the l/c are presented to the issuing bank, the issuing bank must honour the presentation. as well as confirming bank might be advising bank, that is to say, beneficiary’s bank, it may also be another bank established in a third country. it is mostly seen in practice that confirming bank is exporter’s bank. the main reason for this is that a bank with which the beneficiary was in business relationship before, is under the obligation to pay, and because of that it places trust to beneficiary. just as the confirming bank, applicant bank is obliged to honour complying presentation as well14. however, majority of commercial banks that act as confirming bank in turkey, do not pay beneficiary unless complying presentation was credited by accounts of confirming bank through the applicant banks15. in order that a confirming bank could add a confirmation to the letter of credit, content of text of letter of credit should be approved by the confirming bank and credit line16 should be existed between the applicant bank and the confirming bank. article 12 of ucp 600 clarifies the nominated bank in the following way: “as long as the nominated bank is not the confirming bank, it is not obliged to honour complying presentation, but it enters into obligation provided it notifies to beneficiary that it will honour or purchase the document (negotiation)”. in other words, the most important point that separates the nominated bank from the confirming bank or the applicant bank in regard to obligation to pay; the nominated bank should specify first its acceptance of this role to the beneficiary in an explicit way, and only by then it undertakes to honour and negotiate under the l/c terms and upon the timely presentation of credit conform documents. it has been observed that the nominated bank and negotiation bank are the same banks for its overall turkey’s application17. as well as the concept of negotiation bank hasn’t been included in ucp 600, negotiation has been defined in article 2 of ucp 600. according to article 2 of ucp 600, it was declared that “negotiation means that purchasing policies and/or documents under complying presentation (taken over by another bank from the nominated bank of policies) on business day of the nominated bank needed to be paid or previously paying advance to beneficiary by the nominated bank or approving to be paid”. the definition of negotiation made by ucp 600 implies that actually nominated bank and negotiation bank can be used in the same meaning. the definition of "account bank" can be made for reimbursing bank. opening account, one another of all banks issuing the letter of credit one another, located in different continents and geographies might not be possible or practical. depending on the request of the bank that accredits while payment for this reason, it is expected to use an account correspondent, and this bank that is an account correspondent is called as reimbursing bank (kütükçü, 2013:559). while reimbursing bank has not any obligation on complying honour, provided it makes a payment commitment under the scope of article 9 of urr 72518, and sends a swift message with this content, in this case, it becomes obliged for honouring the payment request(s)/claim(s). 2.2. document examination the document presented by beneficiary that needed for complying presentation in letter of credit transactions should not be contradicted with the conditions included in the text of credit opening, ucp 600 and isbp 745. ex-officio review of the document presented and determination of whether it is discrepant or not are performed by applicant bank or if any, confirming bank, and, if any, the nominated bank informing beneficiary obviously on entering into payment obligation. apart from that, the beneficiary’s bank, whose task is only to advise (advising bank), examines the document depending on the instruction of beneficiary. 12 society for worldwide interbank financial communication is a communication network that has been used only by banks and financial institutions throughout the world. 13 ucp 600 article 7. 14 ucp 600 article 8. 15 it was obtained from the results of the survey that was conducted to the letter of credit services of 10 commercial banks stationary in turkey, having operations of letter of credit. 16 it is some kind of special corresponding bank’s agreement or relationship. 17 it was obtained from the results of the survey that was conducted to the letter of credit services of 10 commercial banks stationary in turkey, having operations of letter of credit 18 uniform rules of international chamber of commerce for reimbursings, regarding letters of credit (icc issue no. 725). recommendations for foreign trade companies established in turkey on making charter party marine bills .... 71 while the rules regarding how document will be reviewed have been explained in ucp 600, the detailed explanations on the issues causing hesitations frequently have been given in isbp 745. isbp 745 is much more specific, and more satisfactory in many respects than isbp 681, which is its previous version. despite the fact that the article 14 of ucp 600 has included the general expressions on how documents need to be made under the heading of "standard for review of documents”; both ucp 600 and isbp 745 include detailed applicant provisions on how the documents such as, invoice, insurance policy, transport documents, etc., will be constituted. for example, while on one hand, the article 22 of ucp 600 includes the basic provisions on which parties and how will sign charter party b/l, and how the documents will be prepared, on the other hand, isbp 745 refers to both the article 22 of ucp 600 and also includes the detailed explanations to overcome the problems encountered in practice, in the g articles related to charter party b/l. in addition, for a proper preparation of charter party b/l, only article g of ispb 681 and article 22 of ucp 600 would not be sufficient, also the other articles of both issues prepared mutually in respect to preparations of document will be needed to be taken into account (for example, ucp 600/article 14). in the light of the above mentioned explanations, a review in respect of compliance of charter party b/l included in the documents presented while accrediting will be fulfilled in respect to article 22 of ucp 600 primarily, all g articles of isbp 745 and specific to other applicant articles prepared mutually on preparation of document and letter of credit. 3. preparation of complying charter party b/ls through examples 3.1. general properties of charter party bill of lading the charter agreements whether voyage charter or charter party, drawn up between the person chartering ship (charterer) and owner of ship (owner) handles affrighting in sea trade (ülgener, 2010:29). bill of lading is a valuable paper representing directly item and prepared as written by captain or captain's agency with qualification of carrier or representative of carrier (ülgener, 2010:497). as well as marine bill of ladings have been made under various names such as, liner b/l, port to port b/l, multimodal b/l, marine b/l, ocean b/l; a bill of lading made in scope of a charter agreement is called as charter party b/l. as well as charter party b/ls have a special importance in letter of credit-l/c method, their approvement while accrediting is only possible by permission of text of credit opening, in other words, applicant bank. according to özalp’s opinion, the main reason for this is that charter party b/ls have been yielded from an agreement constituted from the articles decided between charterer and owner and this agreement in question has priority in case of dispute of parties. for example, in the case of non-payment of freight ship, owner can seize the property. due to the fact that importer, applicant bank, if any, bank in charge and confirming bank are unaware of the details of this agreement, an article of the agreement may work against buyer. kütükçü summarized this situation as follows: as well as the terms of charter party agreement constituted between owner and charterer might be complex, its probability of including terms opposed to buyer or seller increases risks. the articles of the agreement in question might include terms opposed to all parties of letter of credit comprising banks on any issue including transfer of property of good. this case causes banks not to accept charter party b/ls unless they take part in terms of the letter of credit. 3.2. comparison of charter party bill of lading and other marine bills of lading in the framework of ucp 600 and isbp 745 it is an important issue for complying presentation to determine if a bill of lading is charter party bill of lading or marine bill of lading. because charter party b/ls structurally differ from other marine bills of credit. that's why it was mentioned in different articles of ucp 600 and isbp that how charter party b/ls and other marine bills of lading would be prepared properly. as mentioned before, how charter party b/ls should be prepared, has explained in the articles g of ucp 600/22 and isbp/745. first of all, as in the case of other marine bills of lading, the rule of no matter how it is called is valid for charter party b/ls19.even if the name of the document presented while accrediting is port to port b/l, multimodal b/l, marine b/l, ocean b/l etc.; taking part of the expressions such as “to be used with charter parties” on bill of lading is sufficient for the document to be evaluated as charter party b/l. 19 ucp 600 art. 22/a and isbp 745 art g2 ve g3. 72 ömer özkan, oğuzhan özçelik herein another significant distinguishing point is that the names of the bills of lading referred to as gencon b/l or tanker b/l etc. is not sufficient to evaluate the document in scope of charter party b/l. this issue has been detailed in article g/3 of isbp 745 as follows: “no matter how referred to, unless a transport document including a code or form name generally associated with charter party bills of lading, includes another symptom/registration or reference associated with for example, “congenbill” or “tanker b/l” charter party; it is not a charter party oriented symptom/registration or reference just due to this reason”. in summary, in order that bill of lading could be evaluated in the scope of charter party b/l; it should have number references such as, “freight payable as per charter party” or “charter party contact no:123…” or it should include such expressions like “to be used with charter parties”. one of the significant differences of charter party b/ls from other bills of lading is that these bills of lading in question has been signed by owner or charterer and their agents. that is to say, regarding the bill of lading including a record or symptom indicating that it is liable to a charter party according to article 22 of ucp 600, no matter under which name the bill of lading in question is made; it can be signed by captain or an agent, of which name is expressed, on behalf of captain; owner or an agent, of which name is expressed, on behalf of owner; charterer or an agent, of which name is expressed, on behalf of charterer. for example, provided the document has been prepared by the agent of owner, x transportation ltd, it should add annotation just below the signature in the document, as “signed by x transportation as agent for the owner” etc. indicating who and which title signed the document. whereas all of other marine bills of lading could be signed only by captain or an agent, of which name is expressed, on behalf of captain; carrier or an agent, of which name is expressed, on behalf of carrier. charter party b/ls can be grouped basically as received bill of lading and shipped bill of lading just like other marine bills of lading. received bills of lading are the ones indicating generally with printed expressions that goods were received to load in cases of that the ship to be loaded has not landed to port or not convenient for loading and the ones, on which necessarily board notation should be written after loading. shipped bills of lading are the ones indicating generally with printed expressions that goods have been loaded (shipped on board) and not require any additional loading record. thus, all bills of lading should have a content proving that goods have been loaded on ship. differing from other marine bills of lading, charter party b/ls aren’t required to include carrier’s company information according to article 22 of ucp 600 and article g of isbp 745. one of the main reasons is that in the event of damage to load during the journey when marine bills of lading other than charter party b/l are matters, since carrier company’s name is lack of on bill of lading, it is impossible to detect the party responsible for damage. whereas, regarding charter party b/ls, the content of charter party agreement constituted between owner and charterer allows detection and discrimination of responsible for damages occurred during journey, loading and unloading. the most basic and critical aspects in the preparation of charter party b/ls are given above, and some common mistakes which are made in the process of preparing both charter part b/ls and other types of b/ls are presented in the table below in the light of the data gathered from surveys which are conducted with 10 commercial banks that have resident and credit transactions in turkey. table: the mistakes that have been frequently made by companies established in turkey in preparation of charter party b/l and other types of b/ls, the problems originated from these mistakes and suggestions for correction. recommendations for foreign trade companies established in turkey on making charter party marine bills .... 73 letter of credit’s requirement mistake made on charter party b/l presented trouble it causes and correction suggestion 46 a: + full set20 charter party bill of lading consigned to xxx bill of lading’s consignee section: although requirement of bill of lading obliges b/l to be prepared “to the name” with statement of “consigned to”, it was prepared “to the order of xxx”. (this is a type of mistake which concerns the charter party b/ls and other types of b/ls as well.) while it is possible to endorse the back of the document when prepared as payable to order, instead, endorsing the back of the document prepared as to the name is not suitable. it must be exactly the same with letter of credit’s requirement. 46 a: + full set charter party bill of lading consigned to order and blank endorsed bill of lading’s consignee section although it was written to the order, back of it wasn’t endorsed. (this is a type of mistake which concerns the charter party b/ls and other types of b/ls as well.) exporter being in good’s contractor status should prove that it transferred its right on good by blank endorsed. if ıt wasn’t endorsed, importer company would suffer problems in terms of proof of ownership when clearing goods from customs. 46 a: +full set charter party bill of lading……freight payable as per charter party contract. because of that the type of delivery is exworks or group including f, phrase of “freight collect” was written on document, or due to type of delivery is group including c or d, phrase of “freight prepaid” was written on document. (this type of mistake is particularly associated with charter party b/ls.). whether freight has been paid or not, specifying that on the document will contradict with letter of credit’s requirement. without specifying any phrase regarding freight, the phrase of “freight payable as per charter party contract” should be included just as in letter of credit’s requirement 46 a: + full set charter party bill of lading… + full set insurance document…. the date of issuing of insurance policy was later than the date of shipping of goods included in b/l. (this is a type of mistake which concerns the charter party b/ls and other types of b/ls as well.) due to the fact that insurance policy requires to secure the risks that could happen during journey of goods, date of insurance policy should be not later than shipping of goods included in b/l (it means insurance policy will be functional after shipment of goods) conclusion bills of lading are in the transport documents that have been prepared by the organizations providing services to exporting companies. the carrier companies that took over transportation in turkey make bills of lading according to the flow of work, as mostly unaware of the rules of cp 600 and isbp 745.this situation leads to presentation of reserved document and accordingly, late received or missing export proceeds. in addition, in the cases, the bills of lading made while accrediting, are required to be made again, it was seen that most company established in turkey considered that as additional service and they requested extra fees from exporters for making new document. in order that the bills of lading in question could be prepared properly, exporting companies are required to prepare the instructions constituted with in the related articles of letter of credit’s requirement, ucp 600 and isbp 745, intended for carrier companies. in this study, it was mentioned on how beneficiary should prepare charter party b/l in scope of complying presentation and mistakes frequently made in specific to turkey. the following issues has been considered to be subjects of another studies; how other documents are required to be prepared according to the method of letter of credit-l/c and their critical properties; the risks that exporting companies confronts due to presentation of reserved document; reserve costs that they have to suffer; additional costs such as, swift and the documents review fees, the amount of interest losses due to late received export proceeds. 20 the concept of full set means comple set and indicates that all originals of document should be presented. full set does not include the copies of a document. 74 ömer özkan, oğuzhan özçelik references collected docdex decisions 1997-2003 (2004), icc product no. 665e collected docdex decisions 2004-2008 (2008), icc product no. 696e collected docdex decisions 2009-2012 (2012), icc product no. 739e collyer, g. (2011). the guide to documentary credits. kent: institute of financial services comentary on ucp 600 (2007), icc product no. 680e international standard banking practice (icc issue no.745) icc banking commissions opinions 2009-2011 (2012), icc product no. 732e kütükçü, y. (2013). “ucp 600 ve isbp 745’e göre akreditif metni ve belgeler”, ankara: international chamber of commerce özalp, a. (2012). “akreditif ve standby l/c rezerv konuları”, i̇stanbul: turkmen bookstore reisoğlu, s. (2009). “türk hukukunda ve bankacılık uygulamasında akreditif”. ankara rodrigo, t. (2011). ucp 500 to 600: a forward movement: elaw journal: murdoch university electronic journal of law, volume 18, number 2. uniform rules for collections (icc issue no. 522) uniform customs and practice for documentary credits, ucp 600, (icc publication no. 600) uniform rules for bank-to-bank reimbursements under documentary credits (icc issue no. 725) ülgener, m.f. (2010). çarter sözleşmeleri. i̇stanbul: der issues journal of international trade, logistics and law, vol. 3, num. 2, 2017, 26-35 the relations between foreign trade and income inequality: turkey 1980-2014 sabri öz, (phd) istanbul commerce university, turkey received: july 18, 2017 accepted: oct. 02, 2017 published: dec. 01, 2017 abstract in the world, it is seen that foreign trade is the most important factor together with free capital flow in open economic order. along with the development of foreign trade, many parameters in the domestic economic order of nations have interacted. the measurement of the open economic order, the indices for determining the level and the changes in the parameters which are used, is gaining importance in terms of being able to produce macro level policies on a national basis. in the study, the indices used for foreign trade were determined, and an econometric analysis was carried out to show the changes in the related indices in terms of income distribution. the analyzes revealed that the kuznets curriculum was not correct after the 2001 crisis. foreign trade volume is also supported by this data. keywords: income inequality, foreign trade, foreign trade policy, gini, kuznets. 1. introduction after the formation of the industrial society in particular, the economic system has been the scene of working on the efficient use of resources and productivity. after the development of the nation states, theories have arisen that every country needs to produce the most productive product in its own territory and that other products must be supplied from other fields that can be produced more efficiently. whether or not this theory has been realized, the development of the information society and globalization seem to have quickly swept the whole world. an economic understanding has developed that is involved in open economics governance, whether through productivity theory or from globalization-based developments. at the beginning of the twenty-first century in this framework of economic stuation, the issue of income distribution has become more and more important than never been before. even in agrarian societies since the beginning of economic life, the most important problem is expressed in many literature that it is the matter of equitable reproduction of already produced. while it is not in the first years of the industrial society, especially in the case of the great depression 1929, states seem to have a say in the distribution of income with an interventionist approach. it is the governmental policies of the effecting state which is expressed as secondary income distribution to income distribution. there are different policies that will affect the economic order by the government. the most important of these is undoubtedly fiscal and monetary policies. beyond fiscal and monetary policies, however, health policy, education policy, industrial and defense industry politics, as well as foreign trade policy are also an important factor. with the intervention of the government by different politics, the distribution of income from time to time narrowing (adversely affected) or expansion (positive impact) is the that the issue.1 in the next section, which will focus on both income distribution and foreign trade measurement indices, and than focusing on after the turkey's 24th decisions in 1980 modeling a lineer or nonlineer regression model in econometric analysis. in the conclusion section, the information gotten via the analysis and the results obtained in the literature will be evaluated. 1 ömer aksu, gelir ve servet dağılımı, i̇.u. yayınları, yayın no: 3698, i̇stanbul, 1993, s. 13-14. sabri öz 2. income inequalıty and foreign trade indices income distribution is used qualitatively with the concept of justice. it is more accurate to use the notion of inequality when the measurement is entered into the work based on the latent quantity.2 in this context, it is seen that most sources in the literature, especially tüi̇k (turkstat), use the gini coefficient to measure income distribution inequality. the turkstat p80 / p20 ratio is presented statistically as a table in household income surveys. there are also other indices for the income inequality. as indicators of foreign trade, three different index trends and temporal periods are important for comparison. while foreign trade deficit is the most important among these, foreign trade ratio and foreign trade volume indicators are important indicators. these indices are discussed separately below. 2.1. income inequality indices when examining income distribution in terms of measurement, it is also necessary to mention the income distribution types. there are four types of income distribution; individual income distribution, functional income distribution, sectoral income distribution and regional income distribution. while the regional income distribution reveals the inequalities arising from the distribution of the income obtained in the regions, the sectoral income distribution also expresses the inequality in the inter-sectoral distribution of the income generated in the sector. total income (gross domestic product, gdp) generated in a country in the individual income distribution gives a measure of the inequality between the income to be earned per capita and the income actually earned, while the functional income distribution is related to the share of the variables in the production factors. the earliest income distribution inequality measurement in turkey was in 1963. this study was carried out by the dpt (state planning organization) on regional income distribution inequality. it is an uncommon fact that regional studies have been carried out for turkey, which is an agricultural society. comparisons have also been made on the basis of territorial distribution and sectoral income distribution inequality.3 it is important to know the type and methodology of this work. in this context, the study will focus on individual income distribution. moreover, individual income distribution could be defined as by turkstat: “the distribution of the income between individuals or households is in the foreground. income inequalities in the individual income distributions are determined according to the amount of income of individuals or households. moreover, it is also possible to classify the income by socio-economic groups, occupations, sectors, regions and education status. individual income distribution is a good indicator not only for economic but also for social inequalitiy.” 2.2. lorenz curve and gini coefficient the lorenz curve is a curve that lies below the full equilibrium line (utopian, y = x line) and shows the shares of the cumulative population with respect to the cumulative income. the size of the area between the lorenz curve and the full equilibrium line indicates, by order, how good or bad income distribution inequality is. since, gini could be calculated as the ratio of the area between y=x and lorenz curve over the whole triangle area under y=x; gini would be between 0 and 1, as gini approaches to 0; means a decrease in inequality, and vice versa justice and inequality are certainly different concept; as inequality is diminishing, justice can be considered as a measure of justice until it is found to be better. 2 sabri öz, “türkiye’de 1980 sonrası maliye politikaları ile gelir dağılımı ve sosyal adalet i̇lişkileri”, basılmamış doktora tezi, i̇stanbul üniversitesi, çalışma ekonomisi ve endüstri i̇lişkileri, 2017, s. 41. 3 tuncer bulutay, serim timur, hasan ersel, türkiye’de gelir dağılımı – 1968, sevinç matbaası, ankara, 1971, s. 17. the relations between foreign trade and income inequality: turkey 1980-2014 2.3. p80/p20 ratio the ratio of p80 / p20 indicates that the richest hill is the twenty percent, and the low-income twenty percent is the value of society. it is preferred that this ratio is low. the comparison from years to years is important in terms of expressing that the income gap between the poorest and the richest are opening or closing. the fact that this rate is rising is accepted as an indication that poverty is deepening. 2.4. other indices different quantitative measures such as theil index, dalton index, atkinson index, kuznets coefficient and various poverty measures are used for income distribution inequality measurement. the kuznets coefficient is the interpretation of the gini coefficient in terms of sectoral income distribution. as in gini, the kuznets coefficient is between 0 and 1. the kuznets coefficient applied for a two-sector economy is equal to zero if the sectoral average is equal to the country average. if the total production is done by one sector and the share of this sector in employment is very insignificant, the value of the coefficient is 1.4 since the gini coefficient is used in the study, the above indices will not be mentioned separately. there is a principle in the literature regarding the criteria to be used for measuring income distribution inequality. one of these principles, the pigou-dalton transfer principle, should not lead to an increase in inequality of income transfer from a poor person to a wealthy person, or at least bring about a reduction in income, and a wealthy impoverished income transfer should not lead to a reduction in inequality. in addition to pigou-dalton, there are principles of income independence, population, symmetry and separation.5 2.5. foreign trade indices the aim of the turkstat is to compare and evaluate foreign trade data and to discuss four different indices. these indices can be calculated for both imports and exports, and the final index is calculated together for the two factors. the first three indices are expressed as quantity index, unit index and unit quantity index. the last index is shown as foreign trade upper limit. foreign trade advances; export unit value index to the import unit value index. the fact that the value of foreign trade is above the value of one hundred means that foreign merchandise sells cheaply according to the base year and sells them cheaply, which shows that there is a situation favoring the country. if foreign trade is small by hundredths, then it means that the country is selling cheaply and getting expensive, which is a contrary situation.6 the indices to be used in the study will be indices which are subject to economic classification and that cover both imports and exports. these indices are expressed as foreign trade volume, foreign trade degree and foreign trade ratio. these indices are explained one by one below. 2.6. foreign trade volume foreign trade volume refers to the total value of imports and exports made in one year in one country. this value is also referred to as "transaction volume" in some literature reviews. for the foreign trade, incoterm (import and export type), in which both import and export values will be taken by all other organizations, especially oecd, has been expressed. according to this definition, standardization has been achieved by taking fob (free on board) for export and cif (cost freight and sales including insurance) for import.7 when it is indicated with foreign trade volume (ftv), export (x) and import (i) the equation would be as follows: ftv = x + i. 4 devlet planlama teşkilatı, “gelir dağılımı ve politikaları”, yedinci beş yıllık kalkınma planı özel i̇htisas komisyonu raporu, ankara, 1994, s. 8. 5 coşkun can aktan, i̇stiklal yaşar vural, “gelir dağılımında adaletsizlik ve gelir eşitsizliği: terminoloji, temel kavramlar ve ölçüm yöntemleri”, yoksullukla mücadele stratejileri, hak-i̇ş konfedarasyonu yayınları, ankara, 2002, s. 14. 6 tüi̇k, “dış ticaret endeksleri”, (çevrimiçi), http://www.tuik.gov.tr/pretablo.do?alt_id=1054, 10 mayıs 2017. 7 tüi̇k, “metaveri”, (çevrimiçi), http://www.tuik.gov.tr/indir/m_t_metaveri/dte_mv.pdf , 3 mayıs 2017. http://www.tuik.gov.tr/indir/m_t_metaveri/dte_mv.pdf sabri öz in terms of foreign trade volume, the contribution of the country to globalization is also a measure of significance. if the volume of foreign trade is zero, the country is managed with a closed economy concept. 2.7. foreign trade deficit within the scope of acceptance of imports and exports above, the value obtained by extracting imports from exports is expressed as foreign trade deficit (or surplus). if ftd used for foreign trade deficit, the equation would be as follows: ftd = x – i foreign trade deficit is mainly a very important part of the current deficit in terms of countries. because, foreign exchange is the biggest source of foreign trade comes from. the remainder consists of exchange rate differences and capital flows not covered by imports and exports. on the one hand, it is regarded as an index showing the effect of the net capital flow on the country, which is one of the two important factors brought by the open economy. if this value is zero, it means, import and export values are equal for this country. 2.8. foreign trade ratio the foreign trade ratio is also usually known as the foreign trade indice is calculated by the ratio of exports over imports value. by showing the foreign trade ratio with the ftr, the equation would be as follows: ftr = x / i this rate is actually the ratio between what you sell and what you buy for a country. the desired value for balance of that countries economy is near 1. it takes values higher than zero and when foreign trade deficit conditions are in the range of 0-1, whereas foreign trade surplus would be occured if the ratio is greater than 1. these definitions have been examined in the following section, which analyzes the change from 1980 to 2014 by gini, including 1979. 3. analysıs of turkey after the 24 th of january decisions turkey has become a turning point with important decisions taken on january 24, 1980 (known as the 24th of january decisions) in 1980. following these resolutions, the military revolution took place on september 12, 1982 until the formation of the new constitution. after 1982, it is seen that the decisions of 24th of january, have been applied consistently with the motherland party (anavatan partisi). for turkey, the discontinuities and transformations of 1987 and 1994, as well as the great crisis of 2001, are of special importance.8 foreign trade indices, as well as income distribution fluctuated, as fluctuations have shown and ended with structural transformations in the policies of the state. the data obtained by turkstat for the period under review is a limited amount in terms of gini. the number of data obtained for the analysis is rather insufficient for the 1980-2001 period. the gini values will be incorporated into the analytical and predicted values that are handled with a different approach. these values are data derived from the industry sector data derived by the texas institute of inequality (with the analysis of enstitute of households income inequality called ehii). this data is available in the thesis entitled as the relationship between income distribution and social justice in post-1980 fiscal policies in turkey for calculation and acquisition".9 in table 1 below, the calculated trade values and gini for the variables defined above are given together. in the study, linear regressions were made with a single index, assuming that gini is considered as a dependent variable, and that it is the only independent variable that can be used every time there is a small number of data. however, import and export data do not have a separate correlation with gini. similarly, foreign trade deficit (balance) and foreign trade index (x / i) do not form any correlation. likewise, the logarithmic values of these variables were also looked at and found to be meaningless. however, it is seen that there is a strong correlation between the foreign trade volume and the gini coefficient by means of the linear regression. the results of this analysis are given below. the relationship between gini and foreign trade volume shows a change in gini values over the period 19792001, with an increasing distribution of gdp, along with an income distribution inequality in the disability below 8 gülten kazgan, türkiye ekonomisinde krizler (1929-2009), i̇stanbul bilgi üniversitesi yayınları, 4. baskı, 2013, s. 21. 9 öz, a.g.e., s. 55. the relations between foreign trade and income inequality: turkey 1980-2014 0.45. looking at the period of 2001-2014, gini should continue to deteriorate according to the kuznets curve for turkey that has not fulfilled the requirements of the industrial society while the gdp is increasing. however, it seems to have reversed the situation in particular in the period of 2001-2006 and the gini coefficient values are beginning to improve, that is, the inequality has begun to decrease. assuming that the 2001 crisis was an important turning point, the analysis was reexamined in two parts, 1980-2001 and 2002-2014. table 1: foreign trade and gini indices values for turkey during 1979-2014 years export, x imports, i ftd ftv ftr gini x-i x+i x / i 000, usd 000, usd 1979 2 261 195 5 069 432 -2 808 236 7 330 627 0.45 0.51 1980 2 910 122 7 909 364 -4 999 242 10 819 486 0.37 0.52 1981 4 702 934 8 933 374 -4 230 439 13 636 308 0.53 0.51 1982 5 745 973 8 842 665 -3 096 692 14 588 639 0.65 0.50 1983 5 727 834 9 235 002 -3 507 168 14 962 836 0.62 0.52 1984 7 133 604 10 757 032 -3 623 429 17 890 636 0.66 0.51 1985 7 958 010 11 343 376 -3 385 367 19 301 386 0.70 0.51 1986 7 456 726 11 104 771 -3 648 046 18 561 497 0.67 0.50 1987 10 190 049 14 157 807 -3 967 757 24 347 856 0.72 0.47 1988 11 662 024 14 335 398 -2 673 374 25 997 422 0.81 0.47 1989 11 624 692 15 792 143 -4 167 451 27 416 835 0.74 0.49 1990 12 959 288 22 302 126 -9 342 838 35 261 413 0.58 0.50 1991 13 593 462 21 047 014 -7 453 552 34 640 476 0.65 0.51 1992 14 714 629 22 871 055 -8 156 426 37 585 684 0.64 0.52 1993 15 345 067 29 428 370 -14 083 303 44 773 436 0.52 0.52 1994 18 105 872 23 270 019 -5 164 147 41 375 891 0.78 0.49 1995 21 637 041 35 709 011 -14 071 970 57 346 052 0.61 0.46 1996 23 224 465 43 626 642 -20 402 178 66 851 107 0.53 0.45 1997 26 261 072 48 558 721 -22 297 649 74 819 792 0.54 0.45 1998 26 973 952 45 921 392 -18 947 440 72 895 344 0.59 0.46 1999 26 587 225 40 671 272 -14 084 047 67 258 497 0.65 0.46 2000 27 774 906 54 502 821 -26 727 914 82 277 727 0.51 0.47 2001 31 334 216 41 399 083 -10 064 867 72 733 299 0.76 0.47 2002 36 059 089 51 553 797 -15 494 708 87 612 886 0.70 0.44 2003 47 252 836 69 339 692 -22 086 856 116 592 528 0.68 0.42 2004 63 167 153 97 539 766 -34 372 613 160 706 919 0.65 0.40 2005 73 476 408 116 774 151 -43 297 743 190 250 559 0.63 0.38 sabri öz 2006 85 534 676 139 576 174 -54 041 498 225 110 850 0.61 0.43 2007 107 271 750 170 062 715 -62 790 965 277 334 464 0.63 0.41 2008 132 027 196 201 963 574 -69 936 378 333 990 770 0.65 0.41 2009 102 142 613 140 928 421 -38 785 809 243 071 034 0.72 0.42 2010 113 883 219 185 544 332 71 661 113 299 427 551 0.61 0.40 2011 134 906 869 240 841 676 105 934 807 375 748 545 0.56 0.40 2012 152 461 737 236 545 141 84 083 404 389 006 877 0.64 0.40 2013 151 802 637 251 661 250 99 858 613 403 463 887 0.60 0.40 2014 157 610 158 242 177 117 84 566 959 399 787 275 0.65 0.39 the output obtained for the linear regression of income distribution inequality and foreign trade volume for turkey after 1980 and after is as follows. the location and magnitude of the 2001 crisis in these 36 data periods is a major break point. in addition, the periods 1979 2001 and 2002 2014 were considered separately. table 2. gini vs foreign trade volume for turkey 1979 – 2014 correlations giniftv i x ginipearson correlation 1 ,692** ,690** ,694** sig. (2-tailed) ,000 ,000 ,000 n 36 36 36 36 ftv pearson correlation ,692** 1 ,999** ,998** sig. (2-tailed) ,000 ,000 ,000 n 36 36 36 36 i pearson correlation ,690** ,999** 1 ,996** sig. (2-tailed) ,000 ,000 ,000 n 36 36 36 36 x pearson correlation ,694** ,998** ,996** 1 sig. (2-tailed) ,000 ,000 ,000 n 36 36 36 36 **. correlation is significant at the 0.01 level (2-tailed). table 3. variables entered/removeda model variables entered variables removed method 1 ftvb . enter a. dependent variable: gini the relations between foreign trade and income inequality: turkey 1980-2014 b. all requested variables entered. table 4. model summary model r r square adjusted r square std. error of the estimate 1 ,692a ,479 ,464 ,0247492 a. predictors: (constant), ftv table 5. anovaa model sum of squares df mean square f sig. 1 regression residual total ,019 ,021 ,040 1 34 35 ,019 ,001 31,282 ,000b a. dependent variable: gini b. predictors: (constant), ftv table 6. coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) ftv ,524 1,789e-10 ,006 ,000 ,692 92,404 5,593 ,000 ,000 a. dependent variable: gini table 7. outputs of lineer regression 1979-2001 correlations giniftv ginipearson correlation sig. (2-tailed) n 1 23 -,797** ,000 23 ftv pearson correlation sig. (2-tailed) n -,797** ,000 23 1 23 *. correlation is significant at the 0.01 level (2-tailed). sabri öz table 8. the outputs of lineer regression of 2002-2014 correlations giniftv ginipearson correlation sig. (2-tailed) n 1 13 ,937** ,000 13 ftv pearson correlation sig. (2-tailed) n ,937** ,000 13 **. correlation is significant at the 0.01 level (2-tailed). table 9. variables entered/removeda model variables entered variables removed method 1 ftvb . enter a. dependent variable: ginib. all requested variables entered. table 10. model summary model r r square adjusted r square std. error of the estimate 1 ,937a ,878 ,867 ,0139738 a. predictors: (constant), ftv table 11. anovaa model sum of squares df mean square f sig. 1 regression residual total ,016 ,002 ,018 1 11 12 ,016 ,000 79,391 ,000b a. dependent variable: gini b. predictors: (constant), ftv table 12. coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) ftv ,480 3,294e-10 ,011 ,000 ,937 44,959 8,910 ,000 ,000 a. dependent variable: gini the relations between foreign trade and income inequality: turkey 1980-2014 in the first part of the study, it was stated that the government formed secondary income distribution by affecting/changin/applying different economic and social policies. fiscal and monetary policies were also emphasized as the main factor. in many sources foreign trade policies are taken out of the scope of fiscal policies. one of the most important factors in the distribution of income is foreign trade policies. changes in foreign trade affect income disparity inequality positively or negatively. depending on the efficiency principle, a statutory regulation that will prescribe the good operation of the land will bring intervention to the agriculture sector by the state. this will cause a change in the life style and disposable income of the household. during the years of 2000’s, financial support based on agriculture was increased in turkey. this is why household incomes of farmers are affected. the importation of some of the agricultural products to be consumed in the country will be affected by the level of income for the sector producing the same agricultural products and accordingly the income distribution. in recent years, turkey's imports of food, especially meat, have affected the income of agricultural and livestock sector representatives who are interested in the same products, as well as the change in expenditure items and income of the other households (mainly expense). in such a case, a sector with reduced income will be reflected in the distribution of individual income as well as the distribution of sectoral income. in turkey, the development in foreign trade was mainly realized by the implementation of the january 24th decisions including the post-1980 neo-liberal approaches. findings in the analysis show that for the period of 2001 2014, the growth of foreign trade volume and gini value affect the decrease of inequality. especially in the first six-year period (2001-2007), the decline in gini value was not confirmed by the kuznets theory.10 similar cases are seen in different literatüre review.11 an increase in total international trade volume as of foreign trade volume, can also affect income distribution. at that point, it is useful to study in two separate stages, developing countries and developed countries. because it (increase in total international trade volume) has a negative effect on developing countries, it can affect the inequality reduction in developed countries. the fact that the international trade for the world is increasing causes a negative effect on the global inequality.12 this fact is important for this study as it is important that different effects are emerging in terms of countries with different levels of development and also that fiscal policies are factors outside the effects on income distribution. it is not wrong to say that social justice is affected in the same parallels as it affects income disparity inequality positively or negatively. this is because negative impacts of income distribution inequality are more likely to be caused by low income groups in developing countries. according to stolpersamuelson teory, open economy would causes to get a balance at the production factors and prices13. however, it differs about the level of the developement of the countries, and actually causes a negative affect, so that would not create an internalization of the externalities14 and hence, no positive affect would be occured in the income inequality and also social justice.15 4. conclusion as a clear finding, as a dependent variable of gini coefficient values, are not correlated with imports, exports, foreign trade deficits and foreign trade ratio but are strongly correlated with foreign trade volume. while analyzing the 1980-2014 period in the study, when the analysis was carried out in two parts before and after the crisis period of 2001, which can be considered as the domestic crisis of turkey, it shares the same view with the kuznets curriculum 10 sabri öz, “dış ticaret ve gelir dağılımı”, (çevrimiçi) http://www.sabrioz.com/yayinlarim/disticaretvegelirdagilimi.pdf, 22 ekim 2016. 11 cem dişbudak, bora süslü, “kalkınma ve bireysel gelir dağılımı: kuznets hipotezi türkiye i̇çin geçerli mi?”, akdeniz i̇.i̇.b.f. dergisi, sayı 18, 2009, s. 146. 12 satheesh aradhyula, tauhidur rahman, kamuran seenivasan, “impact of international trade on income and income inequality”, american agricultural economics associating annual meeting, university of arizona, portland, august 2007, p. 36. 13 m. faysal gökalp, ercan baldemir, gonca akgün, “türkiye ekonomisinde dışa açılma ve gelir eşitsizlikleri i̇lişkisi”, i̇.i̇.b.f. dergisi, celal bayar üniversitesi, cilt 18, sayı 1, manisa, 2011, s. 88 14 nazım öztürk, kamu maliyesi, ekin yayınları, bursa, 2015, s. 44. 15 gökalp, a.g.e., s. 102. sabri öz during 1980-2001 but especially first six years of second part period namelly 2001-2007, when the gini value decreased in particular, it does not have the same findings with kuznets. this is due to the level of developing country of turkey. as indicated the sectors of expanding the government income, would also be important factor for the changing direction of gini coefficient value. as gini and hence income inequality decreases, social justice would be affected positively. as its own level of developing country, the increase in foreign trade volume is expected to have positive effects on income distribution and social justice for turkey especially after 2001. as an advice for subsequent studies, for a developing country it should be handled with the kuznets and the level of income distribution for different countries. also, should be chequed out the indicies of that countries may have different correlations other than linear equations. as a developing country, turkey, sghould increase its foreign trade volume and give additional kredits for both export and import operations, and hence as a fiscal policy it should be increased by foreign trade expenditures. gaining more data by coming years the analysis should be carried on. references aradhyula, satheesh, tauhidur rahman, kamuran seenivasan, “impact of international trade on income and income inequality”, american agricultural economics associating annual meeting, university of arizona, portland, august 2007. aksu, ömer, gelir ve servet dağılımı, i̇.u. yayınları, yayın no: 3698, i̇stanbul, 1993. aktan, coşkun can, i̇stiklal yaşar vural, “gelir dağılımında adaletsizlik ve gelir eşitsizliği: terminoloji, temel kavramlar ve ölçüm yöntemleri”, yoksullukla mücadele stratejileri, hak-i̇ş konfedarasyonu yayınları, ankara, 2002. bulutay, tuncer, serim timur, hasan ersel, türkiye’de gelir dağılımı – 1968, sevinç matbaası, ankara, 1971. devlet planlama teşkilatı, “gelir dağılımı ve politikaları”, yedinci beş yıllık kalkınma planı özel i̇htisas komisyonu raporu, ankara, 1994. dişbudak, cem, bora süslü, “kalkınma ve bireysel gelir dağılımı: kuznets hipotezi türkiye i̇çin geçerli mi?”, akdeniz i̇.i̇.b.f. dergisi, sayı 18, 2009, ss. 142-159. gökalp, m. faysal, ercan baldemir, gonca akgün, “türkiye ekonomisinde dışa açılma ve gelir eşitsizlikleri i̇lişkisi”, i̇.i̇.b.f. dergisi, celal bayar üniversitesi, cilt 18, sayı 1, manisa, 2011, pp. 1-4. kazgan, gülten, türkiye ekonomisinde krizler (1929-2009), i̇stanbul bilgi üniversitesi yayınları, 4. baskı, 2013. öz, sabri, “türkiye’de 1980 sonrası maliye politikaları ile gelir dağılımı ve sosyal adalet i̇lişkileri”, basılmamış doktora tezi, i̇stanbul üniversitesi, çalışma ekonomisi ve endüstri i̇lişkileri, 2017. öz, sabri, “dış ticaret ve gelir dağılımı”, (çevrimiçi) http://www.sabrioz.com/yayinlarim/disticaretvegelirdagilimi.pdf, 22 ekim 2016. öztürk, nazım, kamu maliyesi, ekin yayınları, bursa, 2015, s. 44. tüi̇k, “dış ticaret endeksleri”, (çevrimiçi), http://www.tuik.gov.tr/pretablo.do?alt_id=1054, 10 mayıs 2017. tüi̇k, “metaveri”, (çevrimiçi), http://www.tuik.gov.tr/indir/m_t_metaveri/dte_mv.pdf , 3 mayıs 2017. http://www.tuik.gov.tr/indir/m_t_metaveri/dte_mv.pdf journal of international trade, logistics and law, vol. 8, num. 2, 2022, 183-190 183 prevalence, causes and treatment of the criminal offense of theft according to the criminal legislation of the republic of kosovo alban kryezi ukshin hoti university, prizren, republic of kosovo received: october 25, 2022 accepted: november 30, 2022 published: december 01, 2022 abstract: the constitution of the republic of kosovo determines that the right of property is guaranteed and arbitrary deprivation of property is prohibited. crime against property includes the acts of misappropriation of another's property by violence, acts of damage to another's property without legally justifiable motives, changing the property of another without his permission or knowledge, etc. this paper tries to give a general illustration on the crimes committed against property, the forms of commission and the punishments carried out according to the relevant laws. through this investigation, an attempt is made to give a clearer meaning of the term theft from a professional and social perspective. to achieve the required results a questionnaire consisting of several questions was used, most of which contained alternatives with the possibility of multiple choices. the questionnaire is distributed and monitored online. the research method is quantitative through which the data will be interpreted in such a way as to obtain numerical values about the various aspects related to the act of theft. the frequency of thefts in kosovo takes a numerical value above eighty percent of all surveyed cases. acts of illegally taking the property of another individual in the republic of kosovo are more pronounced during the summer season. the material goods that are most often stolen in the republic of kosovo are coins and gold. technological devices and household appliances, especially mobile telephones, are the second most stolen category in kosovo. in kosovo, even personal cars are subject of theft in a smaller percentage. fewer thefts in the republic of kosovo are committed on domestic animals. thieves in kosovo commit the act of illegally taking another's property in most cases secretly and the most frequent places in which the act of theft is committed in kosovo are private houses or apartments. most of the theft cases in kosovo do not have a perpetrator discovered by the kosovo justice authorities. the main cause of theft in kosovo is the lack of suitable economic conditions and the financial crisis. keywords: theft, property right, stolen property, perpetrators 1. introduction criminal offenses represent a large corpus of classification, which differ from each other in many aspects, but still remain the same at the same point: each of them produces the injured party. this paper tries to give a general illustration on the crimes committed against property, the forms of commission and the punishments carried out according to the relevant laws. further, the paper tries to shed light on one of the branches of criminality against property, that of theft. through this investigation, an attempt is made to give a clearer meaning of the term theft from a professional and social perspective. an attempt is also made to reveal the phenomenon of theft as statistical data, based on the most common and frequent aspects related to it, such as the number of cases of theft, causes of theft, time, method of theft, etc. in order to create a general overview of the negative phenomenon of theft in kosovo, a questionnaire consisting of several questions was used, most of which contained alternatives with the possibility of multiple choices. eighty-nine randomly selected individuals were submitted to the questionnaire. the questionnaire was composed of seven questions, two of which were single-choice, while the other five had the possibility of answering with more than one alternative. the questionnaire is distributed and online-monitored. the data obtained will be interpreted in a quantitative way to give a numerical value about the various aspects related to the act of theft. through this work, an attempt is made to verify the following hypotheses: alban kryezi 184 h1: theft in kosovo is a phenomenon that belongs to the average frequency, in most cases it is done in or around houses or flats in a secret way, during which act mostly material goods such as money and gold are stolen and its perpetrators in most cases they are not discovered, and therefore they do not receive the punishment they deserve. h2: theft in kosovo is more widespread during the summer season, while citizens think that the difficult economic conditions are the main incentive for individuals to commit acts of theft. through this work, an attempt is made to make a valuable contribution, among the contributions made in the field of justice, which would be a point of reference and a source of motivation for the creation and continuation of many future researches on the same topic or topics others which directly or indirectly have to do with the elaboration in question. through the research work, an attempt is made to provide updated statistics on the crime of theft in kosovo that can serve as useful information to be used for studies in the field of law, psychology, philosophy, social sciences and the academic world in general. 2. crime against property regarding the protection and guarantee of the right to property, the constitution of the republic of kosovo determines that this right is guaranteed and arbitrary deprivation of property is prohibited. (constitution of the republic of kosovo, 2008). institutional efforts and society's commitment to respecting this right are characteristics or features that prove how democratic the state is in general. at the same time, the security and respect of this right is also an element among several important elements of a legal state. the right of ownership is inviolable, which in human relations creates mutual rights and obligations and that this right serves the good of the individual or society in general (zejneli, 2007). crime against property is a notion that is used to explain any type of act that is undertaken with the purpose of damaging another's property (halili, 2007). this includes the acts of misappropriation of another's property by violence, acts of damage to another's property without legally justifiable motives, changing the property of another without his permission or knowledge, hiding the property of another knowingly and without reason, etc. the abovementioned notion includes a much wider meaning of illegal actions against someone else's property than those mentioned and under whose umbrella several types of criminality against property are classified. for each of the above-mentioned acts, certain arbitrations and punishments have been foreseen in many countries of the world, including the republic of kosovo. in kosovo, the punitive actions against the person who commits crimes against the property of another individual are clearly defined in the criminal code of the republic of kosovo. depending on the type of crime against property, the punishments determined by this legal act vary from imprisonment of the person who committed the crime and was found guilty, from several months to several years. 2.1. general understanding of theft as one of the subtypes of criminality against property theft is one of the subtypes that are part of the category of crimes against the property of others. "the crime of theft is a more frequent crime and when we talk about crimes against property, it is thought about the phenomenon of theft or taking a foreign object for the purpose of appropriation. this form of criminality against property dominates almost everywhere in the world" (halili, 2007, pp. 207-208). a similar notion about theft was given by latifi (2014) who says "theft is called a crime committed (completed) from the moment, when the owner or possessor is deprived of possession of the property (thing) and the subject of the crime throws it into his hand (takes it) property-thing) and can enjoy or dispose of it freely as if it were his property..." (pg. 443). the protective object of the criminal offense of theft and its forms is movable property and that this property must belong to another person in order for this criminal offense to exist. according to the legal-criminal rules, the lost thing is not the subject of a criminal offense because the owner does not have the same thing (salihu et.al, 2014). regarding when the taking of foreign property is considered a criminal offense, salihu (2014) clarifies that if the taking of foreign property is done with the purpose of appropriation, then it is a criminal offense of theft. so according to what we understand above, theft is an illegal act, which places two different subjects in front of each other: the thief or the person who committed the act of theft and the stolen or the victim against whom the theft was committed. for both of these subjects, there are certain legal provisions that determine the treatment of the case of theft from the point of view of both parties, the compensation for the damage, the deserved punishment, the regulation of the legal relationship between the two subjects, etc. theft, in fact, is a very widespread negative prevalence, causes and treatment of the criminal offense of theft according to the criminal legislation of the republic of kosovo 185 phenomenon all over the world. according to the statistics of the independent institute for statistics the global economy in 2016 theft was present in most countries of the world. according to these statistics, denmark, sweden, uruguay, australia and grenada were the five countries with the highest number of thefts in the world calculated per hundred thousand residents. referring to the same statistics, jamaica, burma, nepal, kenya and senegal had fewer cases of theft per hundred thousand inhabitants. from the general overview of the above statistics, we can draw a logical conclusion which says that the scale of the economy of a country is not a powerful influencer of the mass manifestation of the phenomenon of theft within that country. 2.2. types of theft according to the criminal code of the republic of kosovo in the criminal code of the republic of kosovo, there are four types of theft: theft in general, aggravated theft robbery and theft in the nature of robbery (criminal code of the republic of kosovo, 2019). based on this legal act, general theft includes the definition and consequences as: “1. whoever takes the property of another person valued at fifty (50) eur or more with the intent to unlawfully appropriate it for himself, herself or for another person shall be punished by a fine and by imprisonment of up to three (3) years. 2. if the value of the stolen property taken is less than fifty (50) eur, the perpetrator shall be punished by a fine or by imprisonment of up to six (6) months" (criminal code of the republic of kosovo, 2019, article 313). for aggravated theft, among other things, the code provides: “1. whoever commits theft, as provided for in paragraph 1. of article 313 of this code, shall be punished by a fine and imprisonment of three (3) to seven (7) years if: 1.1. the offense was committed by breaking, passing, penetrating into locked vehicles, buildings, rooms, boxes, trunks or other locked premises through the use of force or the removal of obstacles with the intent to appropriate movable property; 1.2. the perpetrator acted in a particularly dangerous or brazen manner; 1.3. the perpetrator exploited a situation created as a result of fire, flood, earthquake, or any other disaster; 1.4. the perpetrator took advantage of the incapacity or any other grave condition of another person” (criminal code of the republic of kosovo, 2019, article 315). for theft in the nature of robbery, the criminal code defines: "1. whoever, surprised in the commission of theft and with the intent to retain possession of the stolen property, uses force or serious threat to attack the life or body of another person shall be punished by a fine and imprisonment of three (3) to ten (10) years. 2. when the offense provided for in paragraph 1. of this article is committed by the perpetrator acting as a member of a group or while in possession of a weapon or dangerous instrument, the perpetrator shall be punished by a fine and imprisonment of five (5) to twelve (12) years. 3. when the offense provided for in paragraph 1. of this article is committed by the perpetrator acting as a member of an armed group or the offense results in grievous bodily injury, the perpetrator shall be punished by a fine and imprisonment of seven (7) years to twelve (12) years. 4. when the offense provided for in paragraph 1. of this article results in death, the perpetrator shall be punished by a fine and imprisonment of not less than ten (10) years or lifelong imprisonment” (criminal code of the republic of kosovo, 2019, article 316). as for the last form of theft discussed here, that of robbery, the criminal code defines: “1. whoever, by the use of force or serious threat to attack the life or body of another person, appropriates the movable property of such person with the intent to obtain an unlawful material benefit for himself or herself or another person shall be punished by a fine and imprisonment of three (3) to twelve (12) years. 2. when the offense provided for in paragraph 1. this article involves a stolen object of a value exceeding five thousand (5,000) eur, the perpetrator shall be punished by a fine and imprisonment of five (5) to twelve (12) years. 3. when the offense provided for in paragraph 1. of this article is committed by the perpetrator acting as a member of a group or while in possession of a weapon or dangerous instrument, the perpetrator shall be punished by a fine and imprisonment of seven (7) to twelve (12) years. 4. when the offense provided for in paragraph 1. of this article is committed by the perpetrator acting as a member of an armed group or the offense results in grievous bodily injury, the perpetrator shall be punished by a fine and imprisonment of seven (7) to fifteen (15) years. 5. when the offense provided for in paragraph 1. of this article results in death, the perpetrator shall be punished by a fine and imprisonment of not less than ten (10) years or lifelong imprisonment” (criminal code of the republic of kosovo, 2019, article 317). alban kryezi 186 3. the phenomenon of theft in kosovo 3.1. frequency of thefts in kosovo among the discussed questions that have been tried to be answered is that of finding out how frequent or how widespread the phenomenon of theft is in kosovo. out of the eighty-nine respondents, eighty-four of them have answered the question if they have faced the phenomenon of theft as a victim, whether they personally, their other close or distant relatives, or members of their society. of this number, seventy-seven have affirmed that they have faced the phenomenon of theft at least once, being the victims. of them, only seven have stated that they were not victims of theft, neither they personally, nor their family circle or their company. expressed as a percentage, the above data are read as 86% of the respondents have experienced in one way or another case of theft, and 8% of them have not been victims of the phenomenon of theft. the same respondents were also asked about the frequency of the occurrence of theft based on factors with longer time distances such as the seasons of the year. only five of them do not participate in the answer. fifty-one respondents think that summer is the favorable season for the perpetrators of this criminal offense to take action, regarding the question in which season of the year the phenomenon of theft is most widespread. on the other hand, thirty-three of them think that winter is actually it is the season that is used more by thieves to commit this illegal act. expressed as a percentage, it means that a little more than half, or about 57%, have chosen summer, while the other 37% have chosen winter. while 6% have stated that they do not know. 3.2. type of property stolen in kosovo in the flow of the questions of this research, there was also that of trying to find out which are the material goods or property possessions which are more often the focus of the perpetrators of the act of theft. from seven alternatives with multiple choices, these were the obtained results: 27% of them declare that among the most stolen things are gold and money or monetary wealth. 20% of respondents think that technological devices and household appliances are also among the things that attract thieves to steal them through illegal means, in this case through theft. the third most stolen material goods according to 14% of the questionnaire participants are mobile phones. of them, 6% have declared cars as one of the targets of theft attacks, and 4% of them have chosen domestic animals as one of the assets that were stolen from them by the perpetrators of this crime. the respondents had the space to express their free opinion also about other stolen things that are not listed in the list and based on the answers received from 2% of them it results that the other less expressed things that are stolen in kosovo are: work. tools, bikes, hunting gear and cigarettes. figure 1: presentation of the percentage of material goods most attacked by thieves money 27% gold 27% vehicles 6% telephones 14% other technological/ household appliances 20% domestic animals 4% others 2% prevalence, causes and treatment of the criminal offense of theft according to the criminal legislation of the republic of kosovo 187 3.3. the manner and place of committing the crime of theft in kosovo the participants in the questionnaire were also asked about the ways in which the theft took place, with special emphasis on the ways of approaches to the object desired to be stolen. among the different alternatives, the participants also gave different opinions, but the results of which were easy to interpret due to the large percentage differences. of them, more than half or about 55% say that the way in which the act of theft took place is about entering the house secretly and without making noise, so that it is not distinguished from other individuals in the vicinity. about 37% of the respondents stated that the theft experienced by them happened in the absence of their presence in the environment where the theft was committed. of them, only 4% say that the theft happened in their presence, but in a secret way, not being able to distinguish the act or its perpetrator. from these collected statistics, only 3% of the respondents testify that they have experienced theft under duress or the threat of weapons. and a little more than 1% of them have declared about other ways of theft cases in which they have been victims. regarding the country where the theft took place, more than half of them or over 67% have stated that the theft was committed in the premises of their private homes or private apartments. all the other presented alternatives have had a much lower percentage of votes compared to the above-mentioned alternative. in more detail, about 13% of the respondents declared that the act of theft happened to them on a public road, without detailing whether they were frequented roads or on roads with less traffic. about 12% of them declared that the theft happened to them while they were in school, public transport or in any other frequented public space. six percent of them claim that the theft happened to them in a vehicle. three % of the respondents gave the same answer in the answer or independent opinion space, arguing that the theft against them happened in the spaces of animal farms, in animal stables and similar. through the above questions, respectively the given alternatives, an effort has been made to create a more accurate overview of the ways and places in which the citizens of kosovo, whether they personally, their families, or members of their society have been victims of acts of theft. 3.4. the causes of theft according to the citizens of kosovo in the penultimate section, the participants were asked to answer one question which, unlike the others, belonged to a hypothetical context, where they had to use general thinking to reflect on the most frequent causes that force an individual or a group of individuals to commit a theft. the question contained four multiple alternatives and a space for the expression of free opinion, and the result obtained from the participation of about 88 respondents was as follows: about 29% of the participants in the vote think that the main reason which is the incentive for undertaking the act of theft are the difficult economic conditions that our country is facing for several years now. according to them, to replace the financial lack, certain individuals think of using criminal methods such as theft. among them, 27% consider the use of drugs or alcohol as an incentive for committing the act of theft, in the absence of money to supply these items of dependence. of them, 24% consider that the lack of education, that is, the lack of a professional education, is a trigger of negative behaviors in society, including the act of stealing other people's property. of the respondents, 19% think that the reason why people steal is the lack of will to have an honest and legal financial source such as work. in this case, the respondents think that thieves use easier ways to get rich financially as they consider that they are lazy to follow a path of enrichment in which the property of another individual is not damaged. contrary to all the above-mentioned answers, 1% of the respondents, expressed in quantitative numbers, two of the respondents mention the negative influence of society, as well as the theft treated as a mental illness as a trigger of the act of theft. according to them, being accompanied by someone who is an attacker or an unjust and illegal appropriator of someone else's property brings negative impact and consequences on the individual, inspiring him in the negative context to become part of such criminal violations, whether by acting in independently, or acting in organized communities. and the last of this section is the hypothesis of having a mental illness, visible or physically invisible, which in some way forces the individual to commit theft, because it forms in him a kind of dependence without the action of which the person experiences psychic stress and feels inner emotional unfulfillment until the individual does not act on it. alban kryezi 188 figure 2: tabular presentation of the influencing causes of theft 3.5. the frequency of the arrest of the perpetrators of acts of theft in kosovo last but not least is to discuss the frequency of convictions against those who have successfully committed theft. in simple words, this discussion tries to find out how many of the theft cases the perpetrators were caught and received the deserved sentence. out of the eighty-nine respondents, eighty-three of them answered the question in question. among the options: the thieves were caught by law enforcement, the thieves were not caught by law enforcement, and i don't know, forty-six of them have stated that the thieves were not caught by law enforcement agencies and that of the same have either not been discovered and are unknown, or are known but for unclear and unknown reasons have not been caught, and such continue to be freely carried around the neighborhoods of different settlements. of this number, eighteen of them have stated that the perpetrators of the act of theft have been caught by the state authorities and that they have either been punished for the crime committed or they have not been punished for what they have caused to the property of another. and in the end, nineteen of the respondents have stated that they have no knowledge of the fate of those who attacked and illegally appropriated their property. they declare that they have no knowledge about the arrest or non-arrest of such individuals and beyond that they do not know either the cause or the outcome of the event afterwards. figure 3: tabular presentation of data on the arrest of thieves 29% 27% 24% 19% 1% 0% 5% 10% 15% 20% 25% 30% 35% difficult economic conditions drug or alcohol addiction lack of education laziness to work others 18 46 19 1 11 21 31 41 51 61 71 81 the thieves have been arrested the thieves have not been arrested i do not know the thieves have been arrested the thieves have not been arrested i do not know numerical data 18 46 19 prevalence, causes and treatment of the criminal offense of theft according to the criminal legislation of the republic of kosovo 189 4. conclusions from the data obtained through the questionnaire, this research has provided answers and a general framework about some of the features of the phenomenon of theft in kosovo. the obtained results have been statistically interpreted and from them a general view has been drawn regarding the acts of theft that occur in the republic of kosovo, respectively the main aspects of this phenomenon. my research has revealed that theft is a widespread phenomenon in kosovar society, punishable by the criminal code of the republic of kosovo. in fact, it has been experienced at least once by more than half of the respondents, which dictates the frequency of theft in kosovo to take a numerical value of over eighty percent of all surveyed cases. acts of illegally taking the property of another individual in the republic of kosovo are more pronounced during the summer season. this can be justified by the fact that during the summer, people tend to be away from their homes and in constant motion creating a more favorable environment for thieves, without the presence of other people to commit theft. such a thing would be more difficult during the cold winter season because most people are inside their homes or places most of the time, which makes it more difficult for a thief to break into their property intended without being noticed by others. my research supports a similar theory given by carbone-lopez (2012) who claims that the frequency of crimes, with special emphasis on theft, is greater during the summer months compared to the winter months. among the material goods that are most often stolen in the republic of kosovo are coins and gold. this can be explained by the fact that even small amounts of each of them capture large monetary values, which makes it easier to transport them without being noticed, since they fall into the hands of thieves. technological devices and household appliances, especially mobile telephones, are the second most stolen category in kosovo. speaking of telephones, such a thing can be justified by the fact that they are among the most used technological devices at the moment by all age groups of society, which makes this technological component present in almost all possible spaces from where thieves they can commit the act of theft. in kosovo, even personal cars are subject of theft in a smaller percentage. the reason for the lower frequency of attacks on this category may be related to the size of the cars, which are larger compared to the above categories. fewer thefts in the republic of kosovo are committed on domestic animals, for the simple reason that, unlike in the past decades, today the number of owners of domestic animals, especially cows, horses and the like, is much smaller, which means that these animals are rarely found by thieves. thieves in kosovo commit the act of illegally taking another's property in most cases secretly, when there is no one else in or around the area designated for theft. a very small percentage of theft cases in kosovo are committed through direct threats with firearms or other means of violence. such a thing can be argued with social views about the use of weapons, which is not expressed in kosovar society, compared to other countries in the balkans, especially albania, where this form of theft is many times more widespread. the most frequent places in which the act of theft is committed in kosovo are private houses or apartments that citizens use for living and keeping personal belongings. they make up over sixty percent of the total number of thefts in our country. this can happen for the reason that thieves see various theft opportunities there without being noticed by any ocular witnesses. secondly, the theft is also expressed on the street where about fourteen percent of the thefts from the total number of them happen precisely in the public spaces used for walking. after this, public facilities such as schools, offices, etc. are listed. public transport and animal farms represent the places least attacked by the perpetrators of the crime of theft. the first can remain as such in order not to produce witnesses who may be numerous in public transport spaces and the second can be explained by the fact that the number of stables or animal farms in kosovo is quite small. the study also has given an insight into the fate of those who commit theft in kosovo. it seems that most of the theft cases in kosovo do not have a perpetrator discovered by the kosovo justice authorities. more than half of the thefts committed in kosovo remain unsolved and their perpetrators uncaught and unpunished. only twenty percent of the general cases of theft in kosovo are discovered and clarified in detail while their perpetrators are caught and sentenced with the deserved legal sanction. this paper has also shed light on the opinion of the citizens of the republic of kosovo about the causes that can lead to the creation of an individual with a criminal precedent of theft. they think that the main cause of theft in kosovo is the lack of suitable economic conditions and the financial crisis that has been going through our country for some time now, followed immediately by the use of drugs and alcohol, which are listed as the second reason that alban kryezi 190 motivates individuals. social to commit acts of theft against the property of others. the lack of education, followed by the lack of will to work and earn honestly and legally are the third, respectively the fourth cause, that leads individuals to commit theft. according to the citizens of the republic of kosovo, society has the smallest influence. only one percent of the respondents considered that the reason for the thefts in kosovo is the negative impact that the society of wrong values has on the individual. and the smallest reason that can encourage someone to commit theft are psychological reasons, where theft appears as a mental illness related to fixation and compulsion disorder. bearing in mind that my work is not without flaws because it is a drop of water in the ocean among the many knowledges in the field of law, i wish that every reader considers open the possibility of enriching such a topic with even more information. valuable and treated in depth. i also hope that my work will serve as an interpretable basis on which many other studies of the same or similar topic will be built. references carbone-lopez, k. (2012). seasonality and crime. oxford bibliographies. new york: oxford university press. retrieved on 2022, august 28. available at: https://www.oxfordbibliographies.com/view/document/obo9780195396607/obo-9780195396607-0130.xml global economy. (2016). theft rate country rankings. retrieved on 2022, august 28. available at: https://www.theglobaleconomy.com/rankings/theft/ halili, r. (2007). criminology (fifth edition). pristina: university of pristina. code no. 04/l-082 criminal law of the republic of kosovo. (2012). pristina: office of the prime minister retrieved on 2022, august 28 from the official gazette of the republic of kosovo. available at: https://gzk.rks-gov.net/actdetail.aspx?actid=2852 constitution of the republic of kosovo. (2008). pristina: office of the prime minister retrieved on 2022, august 26 from the official gazette of the republic of kosovo available at: https://gzk.rksgov.net/actdetail.aspx?actid=3702 latifi, v (2014). criminalistics detection and evidence of crime (eighth edition). pristina: university of pristina. salihu, i. (2014). criminal law special part (second edition). pristina: fama college. salihu, i. zhitija, h. & hasani, f. (2014). commentary on the criminal code of the republic of kosovo (first edition). pristina: deutsche gesellschaft für internationale zusammenarbeit (giz) gmbh. retrieved on 2022, august 27. available at: http://jus.igjk.rks-gov.net/485/1/komentari%20%20kodi%20penal%20i%20kosoves.pdf zejneli, v. (2007). criminal law special part. tetovo. journal of international trade, logistics and law, vol. 3, num. 1, 2017, 1-10 service quality measurement model in urban public transportation: the case of iett özüm asya kaynarca, (msc) istanbul commerce university, turkey i̇smail ekmekçi, (prof.) istanbul commerce university, turkey received: jan. 14, 2017 accepted: jan. 23, 2017 published: june 1, 2017 abstract: iett, which manages land public transportation of istanbul, serves to the customers in a broad area. so, measurement and assessment of its services is vital for urban transportation and life quality in istanbul. for such reasons, it is necessary to evaluate its performance, determine level of quality and find areas for improvement. for such purposes, service quality measurement model (sqmm) is established and implemented by iett in 2012. sqmm defines service quality and its boundaries, and determines methods to measure service quality at every contact point with customers according to eight main categories, which are availability, accessibility, information, time, customer care, comfort, security, and environmental impact, of en 13816 standard. en 13816 standard is based on service quality loop and evaluation of services from customer and operator perspective. all contact points are inspected implicitly and explicitly according to en 13816 standard. analytic hierarchy process (ahp) is applied to assign weights of main criteria in each contact point and weights of each contact point with respect to total score. in this study, scope, criteria and methodology of sqmm, audit mechanism produced as an outcome of the model, and gains are put forward in this study. keywords: en 13816, service quality, service quality measurement model, public transportation, transportation 1. introduction evaluation of service quality of public transportation is a recent approach, as publications in this topic have appeared in last fifteen years (redman et al., 2013) some governments strive to increase service quality of public transportation in order to make public transportation attractive (paquette et al., 2012). improvements in public transportation services affect customer satisfaction and individuals’ life quality (ettema et al., 2011). performance measurement tools have become essentials for public transportation organizations, which aim to form strategic objectives in order to enhance their services continuously (eboli and mazzula, 2012). public transportation is one of the main issues of the metropolis. as development of cities is directly proportional to the development of public transportation systems, it is obvious that cities with developed public transportation systems are more advantageous than others. furthermore, development of public transportation increases mobility of people living in that city. increased mobility ensures that individuals can access the opportunities in a city more easily. hereby, cities become more vivid both socially and economically. another major problem of big cities is traffic congestion. public transportation has crucial importance in preventing traffic congestion. traffic congestion problem can be solved by an improved public transportation system and decreasing private car usage. public transportation should become more attractive in order to decrease private car usage. public transportation may become more attractive by increasing service quality. ensuring service quality is related not only to the conformity to standards but also to meeting customer expectations. to measure expectations and compare them with realized service level, there is need for a model. 2 özüm asya kaynarca, i̇smail ekmekçi measuring and evaluating iett’s public transportation services are crucial for transportation system and city life of istanbul. so, service quality measurement model (sqmm) is by iett to determine quality level, assess performance and discover improvement opportunities. iett aimed to describe contact points with customers, define quality standards in these points, and measure, track and improve performance within the scope of sqmm. 2. service quality in public transportation it is easier to describe quality for goods while production quality may be defined as suitability for required properties (metters et al., 2003). on the other hand, it is hard to improve quality for services, since services are built notionally and they may have details, which are hard to be predicted (parasuraman et al., 1985). deciding whether a service quality is good or not, is related with ensuring customer satisfaction at contact points during services production processes (fitzsimmons and fitzsimmons, 2008). increasing population and car ownership, especially in metropolis, propose concerns about traffic congestion and pollution. also, when public transportation is considered, the way public transportation affects the structure of society and lifestyles should not be overlooked. because of such reasons, it is important to take further steps, which decrease private car ownership dependency and encourage public transportation usage. the most important and widely accepted management system is en 13816 standard, which defines service quality in public transportation. 2.1. en 13816 service quality standard in public transportation en 13816 standard, constituted by european committee for standardization (cen) in 2002, contains service quality standards in public transportation. en 13816 standard is a guide to determine public transport service quality level and defines eight main criteria in 3 levels. with this standard, public transportation services supplied by different organizations from different locations and conditions can be evaluated by the same criteria and the level of service quality is revealed (cen, 2002). the main purpose of en 13816 standard is to develop quality approaches towards to public transportation and to focus on customer need and expectations. this standard is guidance for definition of service quality in public transportation, setting aims, ensuring measurement and choosing appropriate measurement method (cen, 2002). public transportation service quality criteria reflect customers’ service perception and gather in eight main criteria: availability, accessibility, information, time, customer care, comfort, security, and environmental impact. availability and accessibility categories evaluate general frame of service quality; category of environmental impact defines environmental impacts to the society. other categories define service quality elaborately (cen, 2002). while supplied service has being evaluated, the following criteria should be considered (cen, 2002): • customer (both implicit and explicit) expectations about service quality of public transportation should be identified. • political, financial, technical, legal and other constraints should be considered. • current service quality levels and potential improvement areas should be identified. • objectives should be determined while considering expectations, constraints, areas for potential improvement, existing performance and raw data should be translated into measurable criteria. • performance should be measured. • corrective actions should be taken. • customer perception should be evaluated to constitute a basis for action plans. • action plans should be arranged and implemented in order to decrease differences between sought & perceived quality and delivered & perceived quality. service quality measurement model in urban public transportation: the case of iett 3 3. iett in istanbul public transportation system urban public transportation in istanbul, where more than 14,5 million people live, is carried out by land, railway and waterborne transportations (tuik, 2016). land transportation has the greatest share in modal split in istanbul, followed by railway and waterborne transportation (figure 1). figure 1 modal split of public transportation in istanbul source: iett, 2016 general directorate of istanbul electric, tram and tunnel establishments (iett) is a public body, which supplies public transportation services under the istanbul metropolitan municipality. iett serves its customers by buses, brt, nostalgic tram and tunnel. iett carries 3.8 million passengers daily on 725 routes with its in-house 3 thousand buses and additional 3 thousand buses that are owned and operated by private operators and regulated by iett (iett, 2016). iett carries 8.34% of land public transportation in istanbul by its brt system and %7,51 by its regular buses. also, private buses that are regulated and supervised by iett, carries 22,21% of land public transportation. in all, iett’s share in land public transportation is 38% and its share in whole public transportation is 29,43% (iett, 2016). figure 2 modal split of land public transportation in istanbul source: iett, 2016 18% 77% 5% railway land waterborne 8% 8% 14% 8% 18% 17% 27% iett bus iett brt private bus company 1 private bus company 2 minibus taxi & jitney shuttle 4 özüm asya kaynarca, i̇smail ekmekçi 4. iett service quality measurement model measurement and assessment of iett’s services, which cover a vast area, are crucial istanbul’s public transportation system and city life. for that purpose, service quality measurement model (sqmm) is established and implemented in order to evaluate iett’s performance, determine quality level of its services and find areas for improvement. sqmm, which is developed by iett in 2012, defines service quality and how to measure it at every contact points with customer on a basis, which is based on eight criteria of en 13816 standard, and sets boundaries. en 13816 standard grounds on service quality loop and assessment of operations from both of customers’ and operators’ point of view. within the scope of ssqm, each contact point is audited implicitly and explicitly regarding to en 13816 standard. analytic hierarchy process (ahp) is used in order to determine weights of main criteria for each contact point and weights of each contact point with respect to total score. 4.1. analytic hierarchy process (ahp) ahp, developed by thomas l, saaty in 1971, is a multi-criteria decision making method, which uses qualitative and quantitative criteria by deriving scale values from pair-wise comparisons and ratings (ho, 2008). it is a simple decision making tool for solving complicated, unstructured and multi-dimensional problems. main aim may constitute of many different sub-specifications on different levels. the ultimate goal is to choose the best alternative with respect to main aim, which is at the top of the hierarchy (ünal, 2011). there are specifications, which contribute to main aim, on the lower levels of the hierarchy. steps of implementation of ahp are as followings (zahedi, 1986): 1. build hierarchy of factors, which affects the goal 2. prioritize specifications on different level by pair-wise comparisons 3. calculate and normalize the greatest eigenvalue and eigenvector of priorities of specifications in order to prioritize factors at the bottom level 4. conduct sensitivity analysis in order to find out how much each priority affects the main aim. hierarchical structure of ssqm is built by using hierarchical structure of ahp (figure 3). figure 3 hierarchical structure of ssqm source: iett, 2015 ssqm score is obtained in two steps. on the first step, score of questions of sub-criteria for an audit point is calculated as percentage. each question can only have two values: 0 or 1. total score for sub-criteria is normalized by hundred. on the second step, how much a main category affects score of an audit point is determined by ahp. 5 point likert scale is used for scoring process (iett, 2015). pair-wise comparisons for main categories are made by experts. then, the weights are obtained by normalizing the pair-wise comparison values. general score of sqmm consists of performance measurement score and customer satisfaction survey score. according to 2015 ahp values, 68% (19% from open inspections, 34% from secret inspections, 15% from software indicators) of general score comes from performance measurement and 32% of general score comes from measurement of customer satisfaction (table 1). sqmm general score performance measurement open inspection audits criteria secret inspection audits criteria software indicators satisfaction measurement service quality measurement model in urban public transportation: the case of iett 5 table 1 pair-wise comparison, normalization and weights of main categories sqmm main categories o p e n i n sp e c ti o n s e c re t in sp e c ti o n s o ft w ar e i n d ic at o rs s at is fa c ti o n m e as u re m e n t n o rm al iz a ti o n o p e n i n sp e c ti o n s e c re t in sp e c ti o n s o ft w ar e i n d ic at o rs s at is fa c ti o n m e as u re m e n t w e ig h ts open inspection 1,00 0,44 1,14 0,85 0,19 0,15 0,17 0,26 19% secret inspection 2,29 1,00 1,71 1,08 0,43 0,34 0,25 0,33 34% software indicators 0,87 0,58 1,00 0,35 0,16 0,20 0,15 0,11 15% satisfaction measurement 1,17 0,93 2,88 1,00 0,22 0,31 0,43 0,30 32% total 5,33 2,95 6,74 3,28 100% source: iett, 2015 4.2. performance measurement performance measurement consists of open inspection, secret inspection and software indicators. open inspection and software indicators measure the organization’s performance directly, whereas secret inspection measures the organization’s performance from the customers’ point of view. because of this reason, the model is built in a way that secret inspection affects sqmm general score more than the others. performance measurements are realized on monthly basis (iett, 2015). 4.2.1. open inspection each of the contact points, involved in open inspection process, are audited from all possible aspects. inspections are planned before the realization of field study and data came from the field are analysed to obtain results (iett, 2015). the points involved in the open inspection process are below: • bus • bus stop • main station • ticket sales dealer • ticket sales counter • automated ticket sales machine • chief of main station • travel card office • lost and found office • web-site • tunnel system • brt station • nostalgic tram • brt bus these points are audited periodically. number of inspections is determined according to number of contact points. for some points, 100% inspection is made, while sampling method (with 95% significance and 5% tolerance) is used for others (iett, 2015). 4.2.2. secret inspection each of the contact points, involved in secret inspection process, is audited within the frame of mysterious customer method. the most important point is that audits are realized from customers’ point of view secretly. similar with open inspection process, secret inspection process also consists of planning of field study, implementation of field study, analysing data and obtaining results (iett, 2015). in addition to these steps, audit scenarios are prepared in 6 özüm asya kaynarca, i̇smail ekmekçi secret inspection. audit scenarios consist of three steps; pre-trip, trip and post-trip. customer experience is measured and evaluated within scenarios from end to end (iett, 2015). secret inspection scenarios are listed below: • brt system • inter-route • nostalgic tram • tunnel system • travel card office • call center • request & complaint • web-site • journey planner “mobiett” • journey planner “how can i go there” • lost and found office • social media • main station in secret inspection process, 100% inspection is made for some points, while sampling method (with 95% significance and 5% tolerance) is used for others (iett, 2015). preparing suitable scenarios for each contact point and asking proper questions within these scenarios are critical factors for success of the secret inspection scenarios (iett, 2015). 4.2.3. software indicators software indicators, prepared by expert focus groups, are the key indicators that affect iett’s service quality directly. software indicators are: • ratio of giving service uninterruptedly, • level of service of call center, • ratio of calls answered on time, • regularity, • punctuality, • loss trip ratio (iett, 2015). 4.3. satisfaction measurement the most used method for measurement of service quality in public transportation services is customer satisfaction surveys. satisfaction measurement within the scope of sqmm consists of customer satisfaction survey (css). css, which is implemented once in a year, is prepared according to en 13816 standard. css measures how customers perceive iett, their expectations from iett and their satisfaction about iett (iett, 2014). as satisfaction measurement is done once in a year, this yearly score is used for whole months while calculating monthly sqmm score (iett, 2015). 4.3. iett sqmm practice iett implemented pilot study of sqmm in 2012 and launched sqmm fully in all contact points in 2013. in application, firstly contact points are defined. subsequently, number of open and secret inspections is determined. 100% inspection is made for some points, while sampling method (with 95% significance and 5% tolerance) is used for others. then, pair-wise comparisons of criteria are done and their weights are determined by using ahp. criteria weights are multiplied with inspection scores in order to obtain open and secret inspection scores. inspection criteria evaluated in 5-point scale. pair-wise comparison tables, which are obtained after evaluation of criteria, are normalized to find out weights of each contact point within open and secret inspection processes. service quality measurement model in urban public transportation: the case of iett 7 figure 1 iett sqmm flow chart source: iett, 2015 the weights of open and secret inspection points and software indicators are shown in the tables below (table 2&3). table 2 pair-wise comparisons of open inspection points open inspection b u s b u s s to p m a in s ta ti o n t ic k e t s a le s d e a le r t ic k e t s a le s c o u n te r a u to m a te d t ic k e t s a le s m a c h in e c h ie f o f m a in s ta ti o n t ra v e l c a rd o ff ic e l o st a n d f o u n d o ff ic e w e b -s it e t u n n e l s y st e m b r t s ta ti o n n o st a lg ic t ra m b r t b u s bus 1 2,45 3,00 3,46 3,46 3,87 3,87 2,45 4,47 2,45 2,24 1,73 2,00 0,41 bus stop 0,41 1 0,58 0,82 0,82 1,00 1,00 0,58 3,16 0,58 0,82 0,32 0,82 0,22 main station 0,33 1,73 1 2,45 2,45 2,45 2,45 1,73 3,16 1,73 1,41 0,58 2,45 0,26 ticket sales dealer 0,29 1,22 0,41 1 1,73 1,73 0,82 1,22 2,24 1,73 0,58 0,29 0,58 0,26 ticket sales counter 0,29 1,22 0,41 0,58 1 1,00 2,45 1,22 2,24 0,58 0,58 0,29 0,58 0,26 automated ticket sales machine 0,26 1 0,41 0,58 1 1 1,73 1,22 2,24 0,33 0,58 0,26 0,58 0,26 chief of main station 0,26 1 0,41 1,22 0,41 0,58 1 1,00 2,24 1,22 0,58 0,45 0,58 0,26 travel card office 0,41 1,73 0,58 0,82 0,82 0,82 1 1 2,45 1,73 1,00 0,41 0,82 0,26 lost and found office 0,22 0,32 0,32 0,45 0,45 0,45 0,45 0,41 1 0,33 0,45 0,20 0,45 0,20 web-site 0,41 1,73 0,58 0,58 1,73 3 0,82 0,58 3 1 1,00 0,41 0,82 0,29 tunnel system 0,45 1,22 0,71 1,73 1,73 1,73 1,73 1 2,24 1 1 0,26 1,73 0,45 brt station 0,58 3,16 1,73 3,46 3,46 3,87 2,24 2,45 5 2,45 3,87 1 3,87 0,41 nostalgic tram 0,5 1,22 0,41 1,73 1,73 1,73 1,73 1,22 2,24 1,22 0,58 0,26 1 0,26 brt bus 2,45 4,47 3,87 3,87 3,87 3,87 3,87 3,87 5 3,46 2,24 2,45 3,87 1 total 7,85 23,5 14,4 22,8 24,7 27,1 25,2 20 40,7 19,8 16,9 8,89 20,1 4,78 source: iett, 2015 defining contact points determining number of audits implementation of audits forming pairwise comparison for main categories determining weights of main categories calculating scores for open and secret inspection 8 özüm asya kaynarca, i̇smail ekmekçi table 3 normalization of open inspection points normalization b u s b u s s to p m a in s ta ti o n t ic k e t s a le s d e a le r t ic k e t s a le s c o u n te r a u to m a te d t ic k e t s a le s m a c h in e c h ie f o f m a in s ta ti o n t ra v e l c a rd o ff ic e l o st a n d f o u n d o ff ic e w e b -s it e t u n n e l s y st e m b r t s ta ti o n n o st a lg ic t ra m b r t b u s w e ig h ts bus 0,13 0,1 0,21 0,15 0,14 0,14 0,15 0,12 0,11 0,12 0,13 0,19 0,1 0,09 14% bus stop 0,05 0,04 0,04 0,04 0,03 0,04 0,04 0,03 0,08 0,03 0,05 0,04 0,04 0,05 4% main station 0,04 0,07 0,07 0,11 0,1 0,09 0,1 0,09 0,08 0,09 0,08 0,06 0,12 0,05 8% ticket sales dealer 0,04 0,05 0,03 0,04 0,07 0,06 0,03 0,06 0,05 0,09 0,03 0,03 0,03 0,05 5% ticket sales counter 0,04 0,05 0,03 0,03 0,04 0,04 0,1 0,06 0,05 0,03 0,03 0,03 0,03 0,05 4% automated ticket sales machine 0,03 0,04 0,03 0,03 0,04 0,04 0,07 0,06 0,05 0,02 0,03 0,03 0,03 0,05 4% chief of main station 0,03 0,04 0,03 0,05 0,02 0,02 0,04 0,05 0,05 0,06 0,03 0,05 0,03 0,05 4% travel card office 0,05 0,07 0,04 0,04 0,03 0,03 0,04 0,05 0,06 0,09 0,06 0,05 0,04 0,05 5% lost and found office 0,03 0,01 0,02 0,02 0,02 0,02 0,02 0,02 0,02 0,02 0,03 0,02 0,02 0,04 2% web-site 0,05 0,07 0,04 0,03 0,07 0,11 0,03 0,03 0,07 0,05 0,06 0,05 0,04 0,06 5% tunnel system 0,06 0,05 0,05 0,08 0,07 0,06 0,07 0,05 0,05 0,05 0,06 0,03 0,09 0,09 6% brt station 0,07 0,13 0,12 0,15 0,14 0,14 0,09 0,12 0,12 0,12 0,23 0,11 0,19 0,09 13% nostalgic tram 0,06 0,05 0,03 0,08 0,07 0,06 0,07 0,06 0,05 0,06 0,03 0,03 0,05 0,05 5% brt bus 0,31 0,19 0,27 0,17 0,16 0,14 0,15 0,19 0,12 0,17 0,13 0,28 0,19 0,21 19% total 100% source: iett, 2015 pair-wise comparisons, given in table 2, are normalized and weights of these points are obtained as given in table 3. in a similar way, pair-wise comparisons for secret inspection scenarios and software indicators are formed and, then, weights are obtained by normalization. after evaluation of open and secret inspection points according to main criteria, pair-wise comparisons of each criterion are formed according to main categories of en 13816. the weights of main categories of en 13816 are calculated by ahp for each inspection point. these weights are used in order to get score of each contact point. even though ahp has a consistent system within itself, the validity of results is dependent on consistency of pair-wise comparisons, which are made by the decision makers. ahp suggests a process for measurement of such consistency. with this process, it is possible to test consistency of pair-wise comparisons of criteria. if calculated consistency ratio is smaller than 0.1, it means that decision makers’ comparisons are consistent. if calculated consistency ratio is greater than 0.1, it means that decision makers’ comparisons are inconsistent or there is a calculation mistake. under such condition, the study should be done again. some of the inspection points may not require evaluation that involves all of the eight main categories of en13816. for such inspection points, pair-wise comparisons are made and weights are calculated only for relevant main categories. for example, only seven main categories are involved in the tunnel system inspection. pair-wise comparisons, normalization and weights for tunnel system (open inspection) are shown in table 4. table 4 pair-wise comparisons, normalization and weights of en categories for tunnel system (open inspection) tunnel system (open inspection) in fo rm a ti o n s e c u ri ty c u st o m e r c a re a c c e ss ib il it y c o m fo rt a v a il a b il it y e n v ir o n m e n ta l im p a c t n o rm a li z a ti o n in fo rm a ti o n s e c u ri ty c u st o m e r c a re a c c e ss ib il it y c o m fo rt a v a il a b il it y e n v ir o n m e n ta l im p a c t w e ig h ts information 1,00 0,59 1,35 0,72 0,98 0,76 1,32 0,13 0,12 0,15 0,11 0,12 0,13 0,14 12,8% security 1,69 1,00 1,69 1,23 1,60 1,18 1,85 0,21 0,20 0,19 0,20 0,20 0,20 0,19 19,8% customer care 0,74 0,59 1,00 0,55 1,02 0,71 1,55 0,09 0,12 0,11 0,09 0,13 0,12 0,16 11,7% accessibility 1,40 0,81 1,83 1,00 1,22 0,86 1,20 0,18 0,16 0,21 0,16 0,15 0,15 0,12 16,1% comfort 1,02 0,63 0,98 0,82 1,00 0,68 1,23 0,13 0,13 0,11 0,13 0,12 0,12 0,13 12,3% availability 1,32 0,85 1,40 1,16 1,47 1,00 1,58 0,17 0,17 0,16 0,18 0,18 0,17 0,16 17,0% environmental impact 0,76 0,54 0,64 0,83 0,81 0,63 1,00 0,10 0,11 0,07 0,13 0,10 0,11 0,10 10,3% total 7,93 5,00 8,89 6,30 8,11 5,83 9,73 100% source: iett, 2015 service quality measurement model in urban public transportation: the case of iett 9 inspection scores are obtained for 14 inspection points as a result of open inspections. an inspection point’s general score is calculated by multiplying inspection score by weights obtained from ahp. an example of score calculation of tunnel system (open inspection) is given in table 5. table 5 evaluation of tunnel system according to en categories tunnel system (open inspection) score weight weighted score information %97 %13 %13 security %.96 %20 %19 customer care %100 %12 %12 accessibility %100 %16 %16 comfort %100 %12 %12 availability %100 %17 %17 environmental impact %100 %10 %10 total %100 %99 source: iett, 2015 open inspection general score is obtained by multiplying weight of each inspection point by score of each inspection point. an example of such calculation for open inspection is given in table 6. such calculations are also made for secret inspection and software indicators. table 6 general evaluation of open inspection open inspection score weight weighted score bus %91 %14 %12 bus stop %81 %4 %3 main station %70 %8 %6 ticket sales dealer %85 %5 %4 ticket sales counter %90 %4 %4 automated ticket sales machine %92 %4 %4 chief of main station %85 %4 %3 travel card office %60 %5 %3 lost and found office %93 %2 %2 web-site %91 %5 %5 tunnel system %99 %6 %6 brt station %82 %13 %11 nostalgic tram %98 %5 %5 brt bus %90 %19 %17 total %100 %86 source: iett, 2015 sqmm general score is obtained by multiplying scores of open inspection, secret inspection, software indicators and css by their weights. 5. conclusion iett aimed to make its public transportation services comparable in an international environment by implementing sqmm. as a result of sqmm, which is based on en 13816, iett is able to compare its level of service quality with not only its past level of service quality but also other public transportation organizations. with the help of regular inspections, iett can determine how far it is from its target level and explore areas for potential improvements. as the model is being implementing on defined periods, seasonal follow-up of performance is possible. also, it allows executives to watch the organization from large scale. due to flexibility of criteria, it can be 10 özüm asya kaynarca, i̇smail ekmekçi adapted to improvements in the organization. recording results also can it possible to make investigation towards to the past. the model is customer oriented. customers’ needs and requests are prioritized with the help of secret inspection process. evaluation of monthly performance results is a good example of agility of management. performance targets of contact points are evaluated and updated annually. so, specific, measurable, achievable, realistic and time-limited targets are set for each point. then results are reported and in case of failing the target, reasons of such events are reported. so we can say that the model involves “management by objectives” approach. the improvements, which are implemented as a result of sqmm since 2013, helped to the improvement of iett. also, sqmm inspections simultaneously contributed to improvements in customer satisfaction. references eboli, l., mazzula, g., 2012. performance indicators for an objective measure of public transport service. european transport, 51, 1-21. en 13816, 2002. transportation logistics and services public passenger transport service quality definition, targeting and measurement. european committee for standardization (cen), brüksel. ettema, d., gärling, t., eriksson, l., friman, m., olsson, l. e., fujii, s., 2011. satisfaction with travel and subjective well-being: development and test of a measurement tool. transportation research part f: traffic psychology and behaviour, 14(3), 167-175. fitzsimmons, j.a., fitzsimmons, m.j., 2008. service management: operations, strategy, information technology. mcgraw-hill/irwin, 537, boston. ho, w., 2008, “integrated analytic hierarchy process and its applications: a literature review”, european journal of operational research, 186, s. 211-228. i̇ett i̇şletmeleri genel müdürlüğü, 2014. müşteri memnuniyeti araştırması sonuç raporu. i̇stanbul. i̇ett i̇şletmeleri genel müdürlüğü, 2015. hizmet kalitesi ölçüm modeli el kitabı. i̇stanbul. i̇ett i̇şletmeleri genel müdürlüğü, 2016. i̇stanbul’da toplu ulaşım. [retrieved on 10.10.2016]. http://www.iett.istanbul/tr/main/pages/istanbulda-toplu-ulasim/95 metters, r., metters, k.k., pullman, m., 2003. successful service operations management. south-western, 374, abd. paquette, j., bellavance, f., cordeau, j. f., laporte, g., 2012. measuring quality of service in dial-a-ride operations: the case of a canadian city. transportation, 39(3), 539-564. parasuraman, a., zeithaml, v. a., berry, l. l., 1985. a conceptual model of service quality and its implications for future research. the journal of marketing, 49, 41-50. redman, l., friman, m., gärling, t., hartig, t., 2013. quality attributes of public transport that attract car users: a research review. transport policy, 25, 119-127. türkiye i̇statistik kurumu (tui̇k), 2016. adrese dayalı nüfus kayıt sistemi sonuçları. [retrieved on 01.10.2016]. https://biruni.tuik.gov.tr/medas/?kn=95&locale=tr ünal, ö.f., 2011. analitik hiyerarşi prosesi ve personel seçimi alanında uygulamaları. uluslararası alanya i̇şletme fakültesi dergisi, 3(2), 18-38. zahedi, f., 1986. the analytic hierarchy process a survey of the method and its application. interfaces, 16(4), 96108. microsoft word 05_.makale(medina braha).docx journal of international trade, logistics and law, vol. 1, num. 2, 2015, 75-84 angel investment and kosovo’s early-stage market: a promising opportunity? medina braha, (phd candidate) university of prishtina, kosovo republic abstract the purpose of this paper is to analyze whether angel investment (ai) may serve as a suitable tool for the early-stage market of kosovo. the activity of the business angel (ba) has experienced significant development lately, and moreover, supplementary attention by policymakers all over europe and beyond. as a result, the ba community in europe has published the start-up investor manifesto in may 2014 aiming to adopt policies and actions towards the rise of entrepreneurship and innovation through the creation of 1.5 million new jobs in europe by 2017. in addition, the manifesto foresees enlargement of cross-border activity of bas, including the emerging markets lying outside eu borders. based on its increasing capacity and attention paid to, and on the fact that over 98% of registered kosovar businesses are micro enterprises, ai may appear an appropriate instrument in advancing country’s early-stage market. therefore, this paper intends to answer this interrogation by simultaneously studying the scientific arguments as well as best practices regarding ai both in developed and emerging markets. accordingly it aims to provide a model on how the ai market could be developed in kosovo. key words: business angel investment, early-stage market, entrepreneurship, funding 1. introduction this paper investigates how angel investing (ai) could potentially benefit the early-stage market of kosovo. the analysis is made based on four sources of knowledge with regard to the activity of the business angel (ba), namely based on review of scientific works, study of up-to-date ba best practices (primarily from bas operating in usa and eu), other review of other researches made from organizations such as eban, oecd and the world bank, and the author’s own knowledge built from personal research as well as direct observation of and communication with bas during the two-year period that she has been part of eban. as a result, this study considers the opportunity to identify and propose a model for enhancing ba activity in kosovo. the first part of this work provides a brief introduction on what ai is and shortly describes how bas function and get organized. section two talks about the ai market and explains difficulties associated with the visibility of this market in its entirety. the role of ai investing, the early-stage market of kosovo, and the importance of the former for the latter are discussed in the third section of this paper. finally, the last part consists of conclusive remarks and recommendations on how kosovo could develop and potentially benefit from its ai market. 2. angel investing angel investing is an activity which has been performed for decades, and perhaps even centuries. despite the fact it started to be conducted long time ago, primarily in usa and europe, ai is a very young and unexplored research field. bas are typically people with high net worth and significant business experience, who invest their individual funds as well as their business and managerial experiences in early-stage enterprises (scheela et al., 2012). they tend to generally focus on those looked-for investments which are too large to be ensured by family or friends and too little to be enough attractive for venture capital providers or any other formal financing institution. “a business angel is an individual investor (qualified as defined by some national regulations) that invests directly (or through their personal holding) their own money predominantly in seed or start-up companies with no family relationships. business angels make their own (final) investment decisions and are financially independent.” (eban online glossary, 2016). 76 medina braha bas take high-risk investment and require fast-growing enterprises and, as other investors, their investments too are organized in portfolios. nevertheless, their main characteristic is that they invest much more than their funds. once having selected a deal, a ba provides mentorship to the entrepreneur based on the former’s business experiences and successes. thus, know-how is provided as well. in addition, the entrepreneur gets introduced with ba’s network which is, generally, both of high volume and quality. therefore, for a new entrepreneur this social capital often appears to be more valuable than cash itself (oecd, 2011). bas are also known to intensively share knowledge among each-other in order to enhance their decision-making quality, and hence, select more promising entrepreneurs to invest in their ideas as well as mentor more effectively the selected enterprises (smith et al., 2010). in other words, bas seem rather having a sharing approach. besides investing individually, group investing among bas has gained increased popularity lately. however, according to mason and harrison (2013) scholars seem to ignore this alteration trend of how bas get organized. the structure of such groups can start from an informal cluster (containing just a few privately assembled bas), up to a formally structured network, known as business angels network (ban). bans are an excellent form of synergy in the ai market, since they assemble funds, knowledge, skills, experiences and networks as well as reduce their members’ investment risk. moreover, bans are more easily accessible for entrepreneurs and their power increases compared to individual ba with regard to both greater investment efficiency and economical and political influence although such integration into ba groups has resulted in drop of investments up to £50,000 (crowdfunding is expected to fill this gap anyway), they keep on assembling additional capital (mason and harrison, 2013). an increasing in popularity joint-investing method used more intensively by bas recently is the co-investment fund. as an investment mechanism a co-investment fund is mainly a product of a public-private partnership between bas and public money managers, i.e. state/government, with the intention of jointly funding early stage ventures (eban, 2014a; 2015a). especially governments of developed economies are paying more and more attention to this form of investment and are deciding to co-invest with bas since such investment aims to increase the funds available to high-potential entrepreneurial ideas. 3. angel investment market lack of data is one of the main challenges experienced when conducting research in the field of ai for two main reasons. firstly, bas have traditionally kept confidential their investment activity. they are individual investors who usually deal personally with their angel activity, from finding potential deals and through the whole process until the exit stage. a second reason of the data absence is the non-standardization of definitions. angel investment, business angel, investor, informal investor all are often used interchangeably, complicating data analyzing between different studies (oecd, 2011). estimations indicate there are around 75000 bas in europe (for comparison it is estimated that there are around 250000 bas in u.s.) who invest about €4 billion in total a year (oecd, 2011). regarding the number of bans, eban (2014d) reported an average increase of 17% over the past 10 years to 431 bans in europe in 2013, with estimated investments – by the approximately 28000 ban members – of €5554 million. most of the ba activity within the eu is concentrated in uk, france, germany, and the netherlands (eban, 2014a: 2015a). overall, the ba activity is continuing to experience expansion in the traditional markets as well as evolving trends in emerging ones. according to harrison and mason (2010), the invisible part of ai market is by far the major part of it. to what extent the market is more or less visible is in itself unknown and differs per country. as a consequence, this raises the need for more consistent scientific research in ai. however, attempts for progress in this regard are notable, accompanied by appearance of real data research compared to research based solely on market surveys. finally, an intensive use of other research reports such as those produced by eban, oecd, and the world bank is of great value. angel investment and kosovo’s early-stage market: a promising opportunity? 77 figure 1. visibility of the angel market source: harrison and mason (2010) table 1 illustrates the visible and estimated market of bas for usa, europe, uk, and canada as well as their respective vc market. in line with harrison and mason’s (2010) arguments, data presented in this table illustrates the enormousness of estimated ai invisible market. according to this data, the largest visible ai market, that of uk, is merely 12% whereas all other markets score less than 10% in this estimation. such magnitude of discrepancy may have numerous implications with respect to unused potential of ai market both in terms of research possibilities as well as share of practical knowledge and successes. in addition, there is always a risk of overseeing many important issues when carrying out such estimations. the present techniques of estimating the whole market size fluctuate immensely and are “more art than science” (oecd, 2011). table 1. angel investment and venture capital markets visible ai market as share of total market in 2009 (usd million) estimated ai market in 2009 (usd million) total vc* market in 2009 (usd million) u.s. 469 (3%) 17700 18 275 europe 383 (7%) 5557 5 309 uk 74 (12%) 624 1087 canada 34 (9%) 388 393 *includes all stages (seed, start-up, early, expansion, and later) of vc investments. source: oecd (2011). financing high growth firms: the role of angel investors 4. angel investing’s potential for kosovo’s early-stage market role of angel investing the crucial importance of bas for an ecosystem lies in that they narrow the capital gap between formal investment (bank, vc etc.) and informal investment (savings, family and friends etc.), especially when taking into account that this gap was widened during the latest financial crisis. the world bank (2013) defines this gap in funding between what family and friends are able to provide and what vcs and private equity firms are willing to invest, to be between $50000 and $1 million. this gap is also known as the valley of death in the sense that many businesses cease to exists exactly due to lack of funds falling in this range. similarly, oecd (2011) classifies bas in the group of informal investors together with founders, family and friends, whereas venture capital funds are regarded as formal investors. visible market (bbaa, ban) rest of visible market invisible market 78 medina braha figure 2. financing gap source: adapted from oecd (2011) financing high growth firms: the role of angel investors and the world bank (2013). creating your own angel investor group: a guide for emerging and frontier markets. in addition to softening the valley of death, bas invest in higher-risk projects and wider range of innovations compared to vcs (oecd, 2011; the world bank, 2013). furthermore, bas appear to be less vulnerable to business cycles and the total ai market in usa and europe is estimated to be larger than that of vcs (oecd, 2011). ai results in also contributing to employment. research in u.s. indicates that start-ups funded by bas generated around 4.1 jobs per deal or about 274800 new jobs in 2012 (sohl, 2012). it is important to highlight that, especially in emerging markets, diaspora community plays a significant role. “diaspora communities are a source of pride and financial resources for many emerging economies and an important population for angel groups to consider when seeking members” (the world bank, 2013, p.33). it should, however, be noted that bas also require relatively high standards in return for their funds from entrepreneurs who pitch them. in broad lines, in compensation to their investment, bas expect practically executed business models, skilled entrepreneurs able to build an effective team, satisfying return on their investment through high-growth ventures, and – a very important aspect often neglected by entrepreneurs – successful exits. exists usually include management buyout (mbo) or selling their shares to other bas or vc companies. only occasionally exits end up in initial public offering (ipo). according to mason and stark (2004), bas pay more attention to the investor-entrepreneur fit than vc fund managers do. correspondingly, sudek (2006) identifies bas’ top criteria in taking an investment decision as being the lead entrepreneur’s enthusiasm, quality of management team, trustworthiness of entrepreneur, and exit possibilities. social capital is a distinctive feature of bas and one of the main benefits entrepreneurs receive from this type of funding. besides being valued by entrepreneurs as being sometimes even more important than the funding itself (oecd, 2011), research on french enterprises suggests that entrepreneurs may be affected by bas even when they have no contractual agreement yet due to the trust they have in bas’ accumulated explicit and tacit knowledge and experience (certhoux and perrin, 2013). further, festel and kratzer (2012), by focusing their investigation on the high-tech industry, based on bas’ very active being in such industry, argue that ba investment model appears to have growing start-up activity potential, above all at research establishments and universities. overall, kerr et al. (2010), based on their research of 87 high-tech and low-tech american companies, conclude that ba’s package of input to the start-up appears vital for the survival and overall success of that enterprises. furthermore, bas themselves claim they enormously enjoy this way of investing – offering more to the entrepreneurs in addition to their funds – and like contributing to their ecosystem (rose, 2014). additionally, ai is also considered to be more sustainable. kerr et al. (2010), find that u.s. angel-funded start-ups experience greater probability in surviving and having a faster growth; their performance improvement reaches an average increase of 30-50%. on the whole, the results suggest that the bundle of inputs angel investors provide has large and significant impact on the success and idea and seed stage (<$50k) founders, family, friends seed and early stage ($50k-$1m) business angels early and late stage (>$1m) business angels, venture capital, private equity, banks “v al le y of d ea th ” informal investors angel investment and kosovo’s early-stage market: a promising opportunity? 79 survival of start-ups. accordingly, the overall influence of bas has seen increasing trends, from an expansion of ai activity to more attention received by media which was almost inexistent a decade ago. moreover, the total amount of capital provided by bas has constantly exceeded the total amount invested by vcs, namely it is estimated they invest about $190 billion annually in early-stage ventures in 29 countries (megginson, 2004). a recent empirical research of ai impact on ecosystem is done by moreno (2014) in cooperation with eban. the study analyzes ai effects on four variables – assets, employment, ebitda, and revenues. the impact of ai on ecosystem resulted beyond expectations. on average assets grew 156.5%, employment more than tripled, and revenues had a consistent increase of 150%. regarding ebitda, the sample start-ups did not achieve break-even within the analyzed time period. these results might to some extend be associated with the necessary period of at least 5 years following which bas are generally able to exit investments. therefore, observation of an extensive period is needed in order to be able to state when ebitda will reach positive figures. moreno (2014) suggests that eu public policies should incentivize enterprises funded by ai and advocates that the benefits emerging by angelfunded enterprises pay off efforts to encourage ai. table 2. impact of angel investing (cumulative growth) 3 years after initial investment observations employment revenue assets ebitda final sample 1665 231% 150% 157% -64% industry it 617 214% 429% 237% 87% manufacturing 162 169% 114% 70% -130% wholesale and retail trade 131 239% 158% 163% -49% scientific r&d 127 158% 137% 83% -61% media 119 521% 228% 125% -393% source: moreno (2014) the economic impact of angel investment unveiled. in fact, the interaction between bas and the ecosystem is reciprocal in the sense that both benefit from each other’s pluses. for instance, from the perspective of support to the american rural entrepreneurial community, henderson (2002) suggests that rural support networks use various assistances within their ecosystem such as bans, incubators and any other kind of technical-aid-delivering organization. furthermore, berger and udell (1998) argue that vcs tend to invest more in enterprises which have already received ba funding previously to applying for a vc funding. alongside having experienced significant development lately, ai has also won supplementary attention by policymakers all over europe (lerner, 1998; oecd, 2011; cses, 2012; the world bank 2013). tax incentives available in many countries such as belgium, france, germany, the netherlands, and uk have been functional for many years and are continuously getting sophisticated (eban, 2014b; 2015b). co-investment funds have also started to become a more regular investment mechanism in many european countries. besides, financial support to bas in covering (some) operational costs has emerged as another governmental stimulus. as a result, the ba community in europe published the startup investor manifesto in may 2014, aiming to support policies and actions towards the rise of entrepreneurship and innovation through the creation of 1.5 million new jobs by 2017. the manifesto foresees also enlargement of ba cross-border activities, including emerging markets lying outside eu. public support was initially from a supply-side perspective, then evolved to funding bans, and later, after bans progressed as commercially-oriented organizations, government support advanced to co-investment funds (mason, 2009). 80 medina braha ai has not received attention only in its traditional, primarily developed, markets; it has currently rather become quite popular in many emerging markets both in number and amount of investment as well as in creation of bans. estonia is such an example where its single functioning ban (estban) exceeded significantly all other european bans in performance and was the driving force of reaching an annual average investment of roughly €1.9m per ban (eban, 2014d). bas in emerging economies believe that both policymakers and investors are able to significantly advance the investment climate and are interested to organize in ba groups so as to benefit from knowledge and experience sharing (scheela et al., 2012). patricof and sunderland (2005) claim that start-ups are usually the rapidly growing potential ventures of emerging markets and, taking into account the high risk they bear, they are most likely left over to bas since vcs and other investment organizations (even in advanced u.s. market) prefer some successful background before providing funding to a particular company. with regard to assistance bas think governments could provide scheela et al. (2012) identify four directions – entrepreneur education, promotion, and financing; more reliable public information; more advanced financial and legal institutions; and improved public governance chiefly by low corruption and political stability. on the other hand, patricof and sunderland (2005) identify capitalization, commitment from companies, investment activities, linking with diaspora, linking with pure commercial markets, investment skills, and technical assistance as necessary actions to be taken in order to develop an equity or equity-like capital pool available to high-growth enterprises of emerging markets. kosovo’s market the market of kosovo is characterized with a business structure vastly dominated by smes. based on the number of registered businesses in kosova business registration agency in 2013, the percentage of micro, small and medium business is 98.39%, 1.36% and 0.2%, respectively. table 3 shows in more detail the structure of kosovar businesses. table 3. number of businesses in kosovo (2013) category micro small medium large total range of employees 1-9 10-49 50-249 above 250 enterprises 126277 1743 261 60 128341 % of total enterprises 98.39% 1.36% 0.20% 0.05% 100% employees 214427 27685 24378 57034 323524 % of total employees 66.28% 8.56% 7.54% 17.63% 100% average 2 16 93 951 source: kosova business registration agency these businesses face many financing difficulties, including, as shown in figure 3, the second highest lending interest rate in the region (the world banka, 2016), and in the majority of cases the collateral is many times higher than the loan amount. the central bank of kosovo (2014) reports also high existing interest rates in kosovo’s financing market, i.e. a lending interest rate of 12.1% for 2013. angel investment and kosovo’s early-stage market: a promising opportunity? 81 figure 4. regional lending interest rates (%) source: data obtained from world bank online database “indicator: lending interest rate” (2016) and figure is processed in excelsheet in addition, the impression exists that banks operating in kosovo are moving towards high-paid individuals and larger firms as part of their continuous efforts to reduce risk. as a consequence, these strategies of banks are deepening even further the funding shortage for smes aiming to develop their activity in kosovo. it is important to highlight here that kosovo is still underdeveloped what implies it is challenged by numerous issues associated with its situation such as corruption, ineffective governance, poor law enforcement, inadequately educated entrepreneurs and so on. finally, the number of financial institutions is relatively limited. table 4 presents the types and number of financial institutions operating in kosovo. even in a small economy such as kosovo’s more variety in finance sources might be expected to contribute towards enriching the market and fueling the entrepreneurship activity and, as such, the current structure of the financial industry could be considered to have an array of areas in need for advancement. table 4. financial institutions in kosovo (2013) type of financial institutions number of financial institutions commercial banks 9 insurance companies 13 pensional funds 2 financial accelerators 39 microfinance institutions 17 source: central bank of kosovo annual report (2014) based on the abovementioned, this paper argues there is space for creating and developing alternative financial instruments accompanied by the need of advancing further the entrepreneurship culture in the country. an effective operating ai market is advocated to have potentials of contributing in that respect. the following section suggests some strategies on how kosovo could develop a functioning model for its early-stage market with regard to angel funding. 5. recommendations and conclusive remarks based on its role, increasing capacity and attention paid to, and on kosovo market’s conditions, this study suggests that ai might be an appropriate instrument to advance the country’s early-stage market. this paper proposes a three82 medina braha dimensional model on how the ai market could be developed in kosovo which, to the author’s knowledge, is the first of its kind for the kosovo early-stage market. firstly, governmental support is considered of significant importance (lerner, 1998; mason, 2009; oecd, 2011; cses, 2012; scheela et al., 2012; the world bank 2013; eban, 2014b; eban, 2015b). in addition to recognizing the immense need for overall governance improvement and for recovery of earlier mentioned defects such as corruption and poor law enforcement, a two-way assistance through fiscal incentives on ai and co-investment funds with bas is suggested. the fiscal incentives are expected to attract foreign bas, especially now that they have started to expand their activity cross-borderly (eban, 2014c). based on the important role diaspora community can play in the ai market (patricof and sunderland, 2005; the world bank, 2013), fiscal incentives are expected to also attract investments from kosovo diaspora which is considerable in size and may get motivated to start acting as ba in its motherland. on the other hand, co-investment funds aim to increase the funds available to high-potential entrepreneurial ideas (eban, 2014a; eban, 2015a). further, such funds is expected to contribute towards a better management of public money – an issue of a particular concern in the case of kosovo – since the co-investment fund is driven by a business approach rather than serving as a subsidy. the investment decisions are made by bas or a fund manager appointed and supervised by bas, limiting the possibilities of fund allocation based on corruption and nepotism. the second dimension of the model advocates use of the entrepreneurial ecosystem by bas. the bilateral collaboration between bas and ecosystems is illustrated earlier in this study (for example. berger and udell, 1998; henderson, 2002; mason, 2009; festel and kratzer, 2012; moreno, 2014, ross, 2014). based on that logic, numerous ba-ecosystem interrelations could potentially appear beneficial for kosovo’s market too. economic development agencies, business plan competitions, incubators and accelerators, other formal and informal investors, all represent potential co-workers within the ai activity. even governmental grants can indirectly be used by bas. on one hand, bas can encourage their portfolio companies to apply for grants. on the other, they can facilitate the deal selection process through targeting companies which have previously won grants since winning a grant may be considered an indicator of successful operation of a certain enterprise. thirdly, this work claims there is a need for promoting the angel activity to successful local business people and investors in order to encourage them to enter into ai. pretty much consistent with patricof and sunderland’s (2005) proposed program for assisting entrepreneurship in developing countries, here too actions such as technical assistance, diaspora input, and business community professional development are considered a necessary step towards a better-functioning kosovo ecosystem. the ai concept is very new in kosovo’s market, and hence, awareness campaigns are considered to be necessary in this stage. awareness campaigns may include seminars, conferences and workshops delivered to the business community. compliant with earlier works (smith et al., 2010) presented here highlighting the sharing approach bas possess, the european ba community is fairly cooperative, from eban as an institution to individual bas. generally, this community’s mission, among others, is to support emerging markets by sharing best practices. this support is provided by means of attending organized events as panel members, key speakers, jury members (in investor-pitching events) and so on. actually, the european and the american ba communities are paying increased attention to those markets nowadays (scheela et al., 2012). particularly eban sustains through technical facilities such as statutes for bans, establishment of professional standards, and research and network opportunities. finally, this paper is considered a starting point in the scientific analysis of ai in kosovo. there is space for additional models and theories in this topic. therefore, future research work is expected to contribute further towards building a functional ai market in the country. references berger, a. n., & udell, g. f. (1998). the economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. journal of banking & finance, 22(6), 613-673. angel investment and kosovo’s early-stage market: a promising opportunity? 83 central bank of kosovo (2014). annual report 2013. retrieved from http://www.bqkkos.org/repository/docs/2014/cbk%20ar%202013-english.pdf certhoux, g., & perrin, a. (2013). business angels' practices in the screening stage: a study of knowledge transfer to the entrepreneur. 13rd euram conference. cses (centre for strategy & evaluation services) (2012). evaluation of eu member states’ business angel markets and policies. final report. framework service contract for the procurement of studies and other supporting services on commission impact assessments and evaluations. interim, final and ex-post evaluations of policies, programmes and other activities eban (2013). activity report. retrieved from http://www.eban.org/wp-content/uploads/2014/05/activityreport-2013.pdf eban (2014a). compendium of co-investment funds with business angels. retrieved from http://www.eban.org/compendium-of-co-investment-funds-with-business-angels-2014/#.vunpxtj97iu eban (2014b). compendium of tax outlook in europe: a business angels perspective. retrieved from http://www.eban.org/wp-content/uploads/2015/05/compendium-fiscal-2014-v1.pdf eban (2014c). startup investors manifesto. retrieved from http://www.eban.org/wpcontent/uploads/2014/09/15.-startup-investors-manifesto.pdf eban (2014d). statistics compendium. retrieved from http://www.eban.org/wp-content/uploads/2014/09/13.statistics-compendium-2014.pdf eban (2015a), compendium of co-investment funds with business angels. retrieved from http://www.eban.org/2015-compendium-of-co-investment-funds-with-business-angels/#.vnps8rz97iu eban (2015b). compendium of tax outlook in europe: a business angels perspective. retrieved from http://www.eban.org/2015-compendium-of-fiscal-incentives/#.vnp5klz97iu eban (2015c). guidebook on “fostering business angel activities in support of sme growth”. retrieved from http://www.eban.org/fostering-business-angel-activities-in-support-of-sme-growth/#.vnps97z97iu eban (2016). “online glossary”. retrieved march, 10, 2016 from http://www.eban.org/glossary-page/ european investment fund (2014). european small business finance outlook. working paper 2014/24. festel, g., & kratzer, j. (2012). the founding angels investment model-case studies from the field of nanotechnology. journal of business chemistry, 9(1), 19-29. harrison, r.t. and mason, c.m. (2010). annual report on the business angel market in the united kingdom: 2008/09. department of business, innovation and skills, hm revenue & customs et al. henderson, j. (2002). building the rural economy with high-growth entrepreneurs. economic review-federal reserve bank of kansas city,87(3), 45. kerr w.r., lerner j., schoar a. (2010). the consequences of entrepreneurial finance: a regression discontinuity analysis. harvard business school, working paper 10-086. lerner, j. (1998). “angel” financing and public policy: an overview. journal of banking & finance, 22(6), 773-783. mason, c. m. (2009). public policy support for the informal venture capital market in europe a critical review. international small business journal,27(5), 536-556. mason, c. m., & harrison, r. t. (1997). business angel networks and the development of the informal venture capital market in the uk: is there still a role for the public sector. small business economics, 9(2), 111-123. mason, c. m., & harrison, r. t. (2008). measuring business angel investment activity in the united kingdom: a review of potential data sources. venture capital, 10(4), 309-330. mason, c. m., botelho, t., & harrison, r. (2013). the transformation of the business angel market: evidence from scotland. available at ssrn 2306653. mason, c., & stark, m. (2004). what do investors look for in a business plan? a comparison of the investment criteria of bankers, venture capitalists and business angels. international small business journal, 22(3), 227-248. maxwell, a. l., jeffrey, s. a., & lévesque, m. (2011). business angel early stage decision making. journal of business venturing, 26(2), 212-225. mckaskill t. (2009). an introduction to angel investing: a guide to investing in early stage entrepreneurial ventures. breakthrough publications, australia. megginson, w. l. (2004). toward a global model of venture capital?. journal of applied corporate finance, 16(1), 89-107. 84 medina braha moreno, l. (2014). the economic impact of angel investment unveiled. presented at eban annual congress on the 19th may 2014 in dublin. retrieved february, 05, 2016, from http://www.eban.org/research-the-economicimpact-of-angel-investment/ oecd (2011). financing high growth firms: the role of angel investors. oecd publishing. patricof, a. j., & sunderland, j. e. (2005). venture capital for development. transforming the development landscape: the role of the private sector, 74-84. rose, d. s. (2014). angel investing: the gust guide to making money and having fun investing in startups. john wiley & sons. san josé, a., roure, j., & aernoudt, r. (2005). business angel academies: unleashing the potential for business angel investment. venture capital, 7(2), 149-165. scheela w., isidro e., jittrapanun t., trang n.t.t., gunawan j., (2012), business angel investing in emerging economies: policy implications for southeast asia. submitted to: kauffman foundation’s international research and policy roundtable, liverpool uk. smith, d. j., mason, c. m., & harrison, r. t. (2010). angel investment decision making as a learning process. research paper. sohl, j. (2012). the angel investment market in 2012: a moderating recovery continues. center for venture research, 25. sudek, r. (2006). angel investment criteria. journal of small business strategy, 17(2), 89. swedish agency for growth policy analysis (2013). business angel, co-investment funds and policy portfolios. report 209/055 the world bank (2013). creating your own angel investor group: a guide for emerging and frontier markets. world bank. license: creative commons attribution cc by 3.0 the world bank (2016). “indicator: lending interest rate”. retrieved january, 25, 2016, from http://data.worldbank.org/indicator/fr.inr.lend microsoft word 7.makale (akbar ismanjanov).docx journal of international trade, logistics and law, vol. 3, num. 1, 2017, 77-85 � regulatory inconsistencies resulting in expropriatory measures: the duty of the state to warn, or duty of investor to be aware? akbar ismanjanov, (llm, phd) westminster international university in tashkent, uzbekistan received: apr. 4, 2017 accepted: may 4, 2017 published: june 1, 2017 abstract: regulatory inconsistencies of the host state, often based on the widely or vaguely construed rules, giving a way to expansive interpretation of the investor’s actions as misconduct. this allows for the regulator to impose expropriatory measures as a remedy to an alleged misconduct, distancing from responsibility for misapplication of the rule behind the ambivalent legal framework. the key question with regard to the considered problem, is whether its a state duty to inform, or investor’s duty to be aware of all possible consequences, pursuant to the principle of 'prudent investor'. complexity of the issue necessitates to tackle the problem in multifaceted way, with application of the complex of fair and equitable treatment (fet) standard constituents, as transparency, legitimate expectations, requirements for consistent, stable and predictable framework. keywords: foreign direct investment law, indirect expropriation, regulatory measures, transparency international irregularities inherent to the administrative systems, often being the result of application of the inconsistent laws and regulations, adopted without detailed elaboration or broadly formulated. these rules giving a way to ambivalent and unequivocal interpretation of the rule of law. this renders the regulatory authority the power to qualify the act of the investor as a breach, entitling to invoke expropriatory measures against the alleged misconduct. the obvious problem with the considered issue is that the actions of regulator does not reach the point of acting ultra vires over the rule in question. it’s not excluded that such inviolability of the state may be envisaged by the legislative or higher executive authority of the state in designing the law aimed to regulate foreign investment. at this point, such intentional disorder may be even desirable for the state, striving to distant from potential claims behind the unequivocal regulatory framework. instances of intentional ambiguities were early signified in the joint venture law of the people republic of china with its implementation regulations, that was giving a right to exercise considerable discretion in identifying appropriateness of the technology invested in joint venture by foreign investor.i the complexity of the problem suggests to examine the applicable legal framework in foreign investment law, under the independent international standards, either based on treaty or customary international law. the peculiarity of the matter is in presence of the rule in question in the national legal order, which requires consider the legal practice scrutinizing the municipal law. the key question with regard to the considered situation is who should bear the responsibility over the consistent regulations resultant in negative consequences on the side of investor? since the position of the state on the matter is predefined by liability of the investor for allegedly wrongful application of the rule, the due regard to the fairness requires to examine the possibility of application of independent legal order. the obvious problem there is that the dependence on national law in the case of application of regulation is inevitable that is being the source for rights 78 akbar ismanjanov � and obligations of regulator. reliance on national law when the matter concerned the sovereign ability to be bound by the treaty is prominently exemplified in yukos case held according to the uncitral rules of arbitration with biggest arbitration award, that was initially considered as a victory of shareholders and largest one gml in particular.ii however, in 2016 the hague district court set aside than decision based on non-ratification by the russian federation of the energy charter treaty, which was required to perform pursuant to the national constitution.iii the primacy of the national law in subjecting of the state to the international legal order was exemplary in this regard. although it is known that non-signature state to the treaty can became the ‘real party’ to the agreement by the common intention of the signatory and non-signatory parties known from in dornod.iv however, in the case if it’s done purposefully, for instance the attempts to transfer the national investment to a foreign company for the purpose of obtaining bit protection, it can be qualified as an abuse of process. seeking international remedies for pre-existing domestic dispute precluded the exercise of jurisdiction by icsid in transglobal case.v viable resemblance of the considered situation with the cases having lack of transparency urges to extrapolate its rulings with regard examined problem. the landmark cases of this category are known for instance, as proceeding with transaction without authorization of investor in mafezzini v spain,vi or interference of regulatory authority with the contract rights of third party, led to the failure of investor’s local partner to fulfil the contact, serving a basis for the investor’s activity in cme v czech republic.vii one of the distinctive features of these cases is the active position of the state, and possibility to distinguish the cause and effect relation of the state’s action with the consequences on the side of investor. however, obvious problem of the cases with inconsistencies, that it is the investor who under the improper rule is being a person who committed wrong. herewith the burden of responsibility over the application of the rule is shifted to the investor. situation is aggravated by unwillingness of the regulator to define the correct model of conduct, not excluding the purposefulness of that, for reserving the right to alter the required model of conduct with regard to the activity of every particular investor. some recall to the considered measure can be found in the tecmed v mexico, where the replacement of the unlimited license on operation of landfill with the license of limited duration, that was resultant in lack of coherence, ambiguity and transparency in relation with investor.viii in lg&e v argentina, the fet standard, required from the host state’s consistent and transparent behaviour, free of ambiguity that involves the obligation to grant and maintain a stable and predictable legal framework necessary to fulfil the justified expectations of the foreign investor.ix there is no doubt on the close connection of transparency with legitimate expectations on the side of investor, and potentially non communication of the proper mode of behaviour or absence of instructions for unequivocal rule can be qualified as acting not transparently. this affects the legitimate expectations of the investor, who relied on the adequate effect of the rule in question, in the case if its application substantially differs from ordinarily expected by the investor. the tribunal in crystallex found that arbitrariness and lack of transparency and consistency lead to the violation of legitimate expectations on the side of investor.x the difficulties for the investor in seeking the remedy on the grounds of legitimate expectations, is associated with its dependence on representations made from the side of the state, reasonably relied by the investor. in metalclad v mexico, state has assured that the investor had all necessary permits to operate the landfill,xi more or less clear representations based on somewhat an active role of the investor. while in considered situation we have passive role of the executive body, expressed in qualification of the conduct of investor as a wrongful, based on the inconsistent rule or regulation. another problem concerned legitimate expectations is that the reliance of investor based on the inconsistent law, may be futile in creating specific legitimate expectations, because it is widely uncertain what to rely on. in mamidoil the failure to obtain necessary permits hindered appearance of legitimate expectations and lead to the rejection of fet protection, as the absence of permits precluded rising of legitimate expectations.xii although, regulatory inconsistencies resulting in expropriatory measures: the duty of the state to warn, or duty of investor to be aware? 79 � � � granting the permits in the future, subject to the placement of bond and payment the taxes has been found as giving rise to legitimate expectations on the side of investor which requires the clarity of representations. the tribunal was sceptical on the possession of the right to permit by the investor, due to laying the matter of granting and withdrawal of licenses in the regulatory competence of the state. the mtd v chile can be exemplary in illustrating the regulatory inconsistencies where its application resulted in failure of the project of planned residential community due to inconsistencies with zoning regulations.xiii the state was found liable for ‘inconsistency of action between two arms of the same government vis-à-vis the same investor’. although it was given a proper recognition to the investor’s duty to inform itself on the country’s law and policy in principle,xiv tribunal recognized the duty of the state to apply the policies consistently, independently, and hence the act of approval of investment project by the state authority that was contrary to the urban policy of the government has breached the fet standard.xv with this regard the presence of the state’s duty of consistency outweighed the duty of investor to acknowledge itself. this is pointing on higher significance of this obligation being shortcut to the effect of fet, and also outlawing the conflicting decisions of the state authorities resulted in stagnation of the investment projects. protection under the fet is being effective even when the issue of major concern over the responsibility for the inconsistent law is being difficult to establish, or it’s may be out of the jurisdiction of the tribunal. while the rule in question may be properly applied causing the adequate effect to the legitimate expectations of the investor, often the problem is also concerned the exorbitant application of the rule. while it is so, it’s plausible to consider the application of ‘procedural propriety’ enabled in middle east cement v egypt, where the seizure and sale of the ship in the auction went without proper notification of the owner.xvi the course taken by the tribunal may be instrumental for enabling the fet standard in the case of violation of procedural order in the process of application of the rule. in tecmed v mexico one of the factors that led to the violation of fet standard was the absence of notification of the claimant on its intention that deprived the investor from taking the legitimate actions to question of the act.xvii although widely construed rule may preclude the procedural violation, however the unreasonable action taken by the regulatory authority can be scrutinized by the tribunal under independent standard, even when such notification is not required by the national law. similarly the “due process can be without even special reference covered, at least in part, by the requirement of ‘full protection and security’ and by the rule of ‘fair and equitable treatment”.xviii assessment of exorbitant application of the rule is being hindered by the limitations on scrutinizing of decision making. as emphasized by tarcisio gazinni, “investment tribunals are not meant to review or assess the exercise of regulatory powers by the host state. quite the contrary their task is strictly limited to determining whether the host state has violated any of the limits imposed by the relevant bit.”xix the tribunal in s.d. myers v canada was categorical in this regard, findings that “tribunal do not have an open-ended mandate to second-guess government decision-making”.xx the argument that the delving into decision making as such can be immaterial for the question of liability is having its merits, however there are instances when reasoning behind the process played a key role in defining the liability, through the analysis of the intentions served as a cause for actions. in situation when the reasons given to the investor was not corresponding to the actual motivation of the state as in bayindir v pakistan, it entailed finding the state acting under the bad faith,xxi resulted in the breach on the side of the state. the good faith sourced in customary international law was instrumental in screening the conspiracy of the state in relation to the investor, however the breadth of standard raising the question on its interrelation with other 80 akbar ismanjanov � constituents of fet. in saluka v czech republic the expectation that the state will implement its policies bona fide was included the obligation to not manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination.xxii obviously, overarching nature of bona fide can be non-conflicting and correlated with constituents of other applicable standards of treatment. flexibility of the concept signifies that mala fides can strengthen the question on violation of fet,xxiii but essentially not substantial for its recognition.xxiv as it was emphasized in occidental v ecuador, the objective requirements over the consistency and transparency as constituents of fet does not depend on acting of the respondent in a good faith.xxv regarding the inconsistency of the application of regulations, there’s not much of a doubt on possibility for the investor to trigger of the petition mechanism under the national law, existent in administrative procedures of the majority of jurisdictions, as well as making the act subject to the judicial review. “under some international instruments and domestic legislation, other states or affected persons may enforce a state’s duty to protect through the quasi-judicial or judicial procedures”.xxvi it’s presumed that administrative law of the host state will be determinative in procedural aspects of this claim. although, it may be treated as subjecting the case to the national legal order, while the goal to achieve the balance of party’s interests insists in application of independent standard. in the case when inconsistent law was intentionally designed to take advantage of undefined or not fully defined rule, departing from national legal order is having special reasonableness, with subjecting the matter to the international treaty and customary international law. incompliance of the actions of investor with the national law can be qualified by the state as questioning the legitimacy of the investment, in the case of presence of ‘investment under national law’ clause in the bit or investment contact. the estimation of the magnitude of misconduct is necessary by the tribunal, as perceptions of regulator of this matter may be exaggerated. in tokeo tokeles v ukraine, the minor procedural inconsistencies and incomplete registration, from the view of international tribunal does not entail disqualification of the investment from being such. the grounds for its ruling the tribunal found in the objectives of bit, which was aiming the promotion of investment, rather than putting the investor under the undue scrutiny or disqualification by minor errors. in some extent, the fact of the registration of enterprise by the state as valid entity played in favour of that outcome. this causes a question on potential possibility for the state to be precluded from the denial of lawfulness of investment, based on the entry and establishment. it can also find some recall in the provisions of international law contending that unilateral acts and statements and conduct by the state may be a source of obligations based on the principle of estoppel.xxvii regarding the actions of investor over the inconsistent regulations, the question appears whether the investor can also be liable for alleged misconduct based on the duty to care. the attempts to develop a sort of ‘reasonable man’ standard, was prominent in international investment law practice, in the context of qualification for the protection under this ground. the methanex v usa was prominent by reference to concept of ‘prudent investor’ who could have foreseen the future changes of law, in the prospective law banning the methanol.xxviii without prejudice to the concept of prudent investor, the shift of the burden of circumspection to the investor is raising concern. being alien to jurisdiction, investor may have inherent lack of awareness with all aspects and procedures of national law. this requirement can be overly demanding under the obligation to analyse the forthcoming not yet existent law, in varying levels of publicity to legislative process across the jurisdictions. moreover, such analogy of reasonable man test, having its obvious state cantered inclination in the foreign investment setting. the concept of prudent investor can be contrasted with the duty of state to prevent any likelihood of improper interpretation of the regulation, in detriment to the investor, emphasized in metalclad v mexico.xxix in this case having regulatory inconsistencies resulting in expropriatory measures: the duty of the state to warn, or duty of investor to be aware? 81 � � � the reference to the ‘transparency’ requirement on nafta, art 102(1),xxx the duty of the state to warn was established as the requirement that “once authority become aware of any scope for misunderstanding of confusion in this connection, it is duty of the state to ensure the correct position is promptly determined and clearly stated so that investor can proceed with all appropriate expedition in the confident belief that they acting in accordance with all relevant laws".xxxi herewith the duty of the state to add clarity whenever there’s actual or potential place for the ambiguity is clearly established. the ambiguity of the rule, upon which the state didn’t act for its elimination, can potentially overturn the inviolability of the regulator over the inconsistent rule. such an extended responsibility of the regulatory authority is also supported by its jurisdiction, whose duty to implement the law and ensure its correct application in the area, based on its assigned competence in its subject matter. feedback in application of laws is essential elements in governance, urging that whenever the law is faulty to the condition that needs reconsideration, it necessitates the regulatory authority to communicate it to the body enacted the law with acknowledgement of defects, for the purpose of its amendment or annulment, based on inter-state horizontal coordination of activity within the state institutions. the interstate dispute settlement under the eu iia, provide the basic remedy can be considered as withdrawal of inconsistent provisions negatively affected on the investor.xxxii the responsibility for the absence of clarifications can be substantially raised by the change of regulatory framework. in occidental v ecuador in relation to the claim over the inconsistent practice of the state authorities in reimbursement of vat, the violation have been caused by the important change of the legal framework on the investor and unsatisfactory and thoroughly vague clarifications from bodies in duty.xxxiii the important factor in considered case was that the alternation of legal framework prevented the entitlement of investor to the envisaged benefits. “meeting the investor’s central concern of legal constituency, stability, and predictability remain a major, but not the only ingredient of an investment-friendly climate in which the host state in turn can reasonably expect to attract foreign investment.xxxiv this requirement is also embodied in bit practice, as "each party shall maintain in its territory a legal framework apt to guarantee to investor the continuity of legal treatment, including the compliance, in good faith, of all undertaking assumed with regard to each specific investor”.xxxv “stability is not only a concern for the investor but also a key component for states to attract foreign investments”. xxxvi the criteria of ‘stability and predictability’ of the legal framework seems feasible as being concerned with overall effect of the law on the investment, rather than particular point of reference. with this respect the crucial question appears as to whether the state obliged not to alter the legal business environment under which the investment has been made, in order to meet the requirement of stability and predictability under the international law. the requirement to maintain stable and predictable legal framework may have far reaching implications, in the case of being treated as obligation ‘not to alter’ the legal framework similar to the widely replicated stabilization clause having controversy over its homogeneous effect. the more pragmatic approach can be in association of the state’s duty to refrain from taking the drastic turn in legal framework of the investor, rather than limiting the power to legislate. the essential nature of legislative function supported by the principle of state sovereignty under the customary international law is supporting that position. in the context of the law making, the tribunal in parkerings v lithuania, stated that while it is ‘prohibited for a state to act unfairly, unreasonably or inequitably in the exercise of its legislative power’, ‘there is nothing objectionable about an amendment brought to the regulatory framework existing at the time an investor made its investment’. xxxvii obviously the necessary balance can be maintained in the case of legislative practice followed reasonable and equitable legislative measures towards the investor’s regulatory climate. however, the obligation to provide stable and transparent legal framework under the fet in the treaty is subject to the legal order of the host state. instable legal framework of the country in mamidoil, lead to the inability to create the same level of legitimate expectations as in other jurisdictions.xxxviii 82 akbar ismanjanov � in procedural level detecting the exorbitant and inconsistent application of the rule is possible when there is an occurrence of using a remedy not foreseen by the rule of law in question. in quiborax, revocation of mining concessions by bolivia due to customs and tax irregularities as a result of the audit, was conflicting with the national mining code that only foreseen the annulment instead of revocation. the state abrogated revocation with annulment of concessions to remedy the problem, however in eyes of the tribunal the strategy to legalize the revocation by annulment breached the fet. moreover, the absence of notification on audit and not providing access to information on that, was found as incompatible with the due process, and also qualified as arbitrary and discriminatory under the both international law and national law of the host state.xxxix in copper mesa arbitrariness of taking out of the due process in adoption of the resolutions terminating the permissions was found as not related to the regulatory measures and essentially expropriatory.xl however, the measure cannot be arbitrary if it’s reasonably related to a rational policy of the state emphasized in electracabel.xli in philip morris case the 80/80 regulation increasing the size of the anti-health warnings to 80%, and the single presentation regulation (spr) established requirements to the graphic, complying with which necessitated to change of the brand, that investor treated as intellectual property violation. the regulations wasn’t found expropriatory with regard to the philip morris’s investment, and fet claim was rejected in absence of arbitrariness and breach of legitimate expectations.xlii inadequate response based on the proportionality test can be instrumental in signalling on the inconsistency in application of the law. invalidation of licenses in khan resources, that although did not breached the mongolian law, in tribunals view haven’t been significantly reasoned by law. the proportionality analysis allowed for the tribunal to define that invalidation was not an appropriate penalty for the case even if the alleged violation would occur. this let the tribunal to find it as a denial of the due process in law.xliii even upon improper response on the application of law, the position of tribunal was in necessity to remedy the situation by the state. herewith, after invalidating the license, mongolia had to reregister the license as there was no significant reason for violation the application requirement.xliv the inadequate response from the regulatory authority to the investor’s act, over the inconsistent law that has affected the activity of investor can have its resemblance with creeping expropriation. however, in considered case the regulatory measures may not come as multiple and coordinated, that lowering the chance to outlaw the measures. under the inconsistent law it’s rather comes as a single act, that may although be enough to paralyze the activity of the investor. this suggests the tribunal to take more selective and flexible approach in distinguishing the acts of the regulator. sensitivity of the issue is reasoned by potential possibility for the regulatory measure to remain within the bona fide regulatory action of the state, however being expropriatory as of fact. possibility of regulatory measures to be essentially expropriatory was specially signified in the tecmed v mexico.xlv the importance of the tribunal to be guided by the ‘sole effect’ doctrine is gaining special importance here, that allow to scrutinize the actions of the state, which are not expropriatory but having similar impact on the investor as of ultimate result.xlvi the potential defence of the state over the inconsistent regulation may come in the form of positioning the body as applying the law, while the problem is in designing the law, hence reference to another body for the purpose of responsibility, based on division of competences of the state bodies. however, the principles of attribution coming out of the concept of ‘unity of state’ under the international law, insisting on responsibility of the state for all its bodies, of all levels and regions.xlvii contrary the position of the state can also be in reference to the regulatory authority that is improperly applied the rule, and hence acted beyond its powers. referring back to the rules of regulatory inconsistencies resulting in expropriatory measures: the duty of the state to warn, or duty of investor to be aware? 83 � � � attribution under international law, the acting of its organ ultra vires and beyond the scope given by unequivocal rule or contravenes instruction cannot immunize the state from responsibility.xlviii although it’s not excluded that action of the non-public entity may not be attributable to the state as termination of the lease agreement by anr, which was found not attributable to poland, due to separate legal personality and exercise of operational autonomy.xlix hence inconsistency of law giving the grounds for the regulatory authority to interpret the act out of its scope, or procedural instructions, or conflicting with the law of higher hierarchy, cannot prevent overall state responsibility under the international law. as supported by spp v egypt, where the state was precluded from finding the acts of official body as null and void, due to allegedly being contrary to the inalienable nature of the public domain, and not being taken in accordance of the procedural rules under the national law, was found as give a way to legitimate expectations.l without prejudice to reasonableness of the prudent investor to consider the host state law before investing, obviously state needs to take into account, that this creates the grounds for violation of legitimate expectations on the side of investor.li this is supported by the duty of state to take the measures to protect the rights and legitimate interest of the investors, to whom the law can cause a misinterpretation supported by mdt v chile.lii otherwise inconsistent norms may serve for the state as a tool to invoke expropriatory measures against the investor, whenever it finds it's necessary, possibly as a contra measure, or more detrimentally as a predesigned intention to expropriate. traditional contradiction in rights of the state to regulate and right of the investor to be protected, in the context of duty of the state to warn, and duty of the investor to be aware of, can be considered as corresponding rather than contradicting, that can be enabled through the assistance, cooperation. in the case of ambivalence it may be plausible for the investor to exercise the due diligence, and when possible to take the steps to preclude the potential adverse effect of the norm in proactive manner, whether it is newly adopted or preexisting law. as it was mentioned in parkering v lithuania, ‘an investor’s right to have legitimate expectations protected is contingent on those expectations being reasonable in light of the circumstances and on the investor having exercised due diligence.’liii according to oecd principles for private sector participation in infrastructure, the private investor’s observance of commonly agreed standards of responsible business conduct is necessary.liv potentially the lack of actions from the investor to act upon the requirement of the legal framework could shift the responsibility on the investor. denial by dominican republic of environmental license application to the investor corona and absence of response for the consideration, led to the state’s response that investor itself delayed the process by omitting documents and multiple changing of the project.lv icsid lacked jurisdiction due to three years limitation period of the bit in this case, which tells that the final outcome of this case is yet to come. similarly in another completed case, warnings given by the ministries on necessity to obtain additional permits and disregard of that by the investor, led to the dismissal of the clams by the tribunal against oman on the lack of merits.lvi conclusion nowadays in foreign investment jurisprudence it is possible to distinguish the approach in outlawing inconsistencies of regulation based on ambivalent legal framework with considering the host state as faulty for adoption and implementation of these regulations. with all merits of the concept of ‘prudent investor’, it’s barely possible to expect it in non-transparent and ambivalent legal framework. in the range of cases tribunals didn’t supported the claims of violation by the investor of regulatory framework due to its insubstantial nature not threatening the purpose of investment. lack of coordination or governmental bodies are subject to the rules of attribution of international law that prevent reference to division of competences among various state authorities to escape liability. the obvious lack of catching points in the cases with inconsistent regulations, in situation when regulatory actions are lacking to attain the threshold of expropriatory measures, are insisting in more complex approach in tackling the problem. the broader scope and flexibility of fet standard of treatment, comprising expansive range of criteria 84 akbar ismanjanov � allowing to invoke against inconsistencies in laws and regulations, enabling relevant ones in accordance with the facts of every specific case. violation of such a criteria as coherence and consistency supported in mtd v chile, with requirement to maintain stable and predictable framework in example of lg&e v argentina, or the transparency and legitimate expectations supported in spp v egypt, that were upheld even without a treaty guarantee of fet, offers a viable instruments to ensure protectability of the investment against the inconsistencies of regulatory framework and expansive application of regulations of the host state. references ������������������������������������������������������������ i richard j. goossen, technology transfer in the peoples' republic of china: law and practice (martinus nijhoff 1987) 10 ii yukos universal limited (isle of man) v. the russian federation, uncitral, pca case no. aa 227 iii the russian federation v veteran petroleum limited, yukos universal limited and hulley enterprises limited, c/09/477160 / ha za 15­1, 15­2 and 15­112. iv khan resources inc., khan resources b.v. and cauc holding company ltd. v. the government of mongolia and monatom llc, pca case no. 2011-09 v transglobal green energy, llc and transglobal green panama, s.a. v. republic of panama (icsid case no. arb/13/28) vi maffezini v spain, 16 icsid review-filj 248 (2001) vii cme v. czech republic, uncitral arbitration proceedings (award, 14 march 2003) viii tecmed v mexico, award, 43 ilm 133 (2004). ix lg&e v. argentina, icsid case no. arb/02/1 (award, 3 october 2006) x crystallex international corporation v. bolivarian republic of venezuela, icsid case no. arb(af)/11/2 xi metalclad v mexico 5 icsid reports 209 (2001) xii mamidoil jetoil greek petroleum products societe s.a. v. the republic of albania, icsid case no. arb/11/24 xiii mtd v chile, 12 icsid reports 6 xiv ibid, para 165 xv ibid, para 186 xvi middle east cement shipping and handling co. v. egypt, 7 icsid reports 2 (2002) xvii tecmed v mexico, award, 43 ilm 133 (2004), in para 162 xviii rudolf dolzer and christoph schreuer, principles of international investment law (oxford university press 2008) 162 xix tarcisio gazinni, ‘bilateral investment treaties’ in bilateral investment treaties in tarcisio gazinni, eric brabandere (eds), international investment law: the sources of rights and obligations (martinos nijhoff publishers 2012) 114. xx s. d. myers v. canada 40 ilm 1408 (2000) xxi bayindir insaat turizm ve sanayi a. s. v pakistan (case no. arb/03/29) xxii saluka v czech republic, iic 210 (2006). xxiii ibid xxiv mondev international ltd. v. united states of america 16 icsid review-filj 299 (2001) xxv occidental v. ecuador, london court of international arbitration (award, 1 july 2004) xxvi suzanne a. spears, ‘the quest for policy space in a new generation of international investment agreements’ (2010) 13(4) j of int econ law 1038 xxvii rudolf dolzer and christoph schreuer, principles of international investment law (oxford university press 2008) 19 xxviii methanex corporation v united states 44 ilm 1345 (2005) xxix metalclad v. mexico 5 icsid reports 209 (2001) xxx north american free trade agreement, 32 i.l.m. 289 and 605 (1993). xxxi metalclad v. mexico 5 icsid reports 209 (2001) xxxii angelos dimopoulos, eu foreign investment law (oxford university press 2011) 182 xxxiii occidental v. ecuador, london court of international arbitration (award, 1 july 2004) 320 xxxiv rudolf dolzer and christoph schreuer, principles of international investment law (oxford university press 2008) 148 xxxv italy jordan bit (1996), art 2(4). xxxvi lone wandahl mouyal, international investment law and the right to regulate, a human right perspective, (rutledge 2016) 19 xxxvii parkerings v lithuania, icsid review (2007) 22 regulatory inconsistencies resulting in expropriatory measures: the duty of the state to warn, or duty of investor to be aware? 85 � � � �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� xxxviii mamidoil jetoil greek petroleum products societe s.a. v. the republic of albania, icsid case no. arb/11/24 xxxix quiborax s.a. and non-metallic minerals s.a. v. plurinational state of bolivia (icsid case no. arb/06/2) xl copper mesa mining corporation v. republic of ecuador, pca no. 2012-2 xli electrabel s.a. v. republic of hungary, icsid case no. arb/07/1 xlii philip morris brands sàrl, philip morris products s.a. and abal hermanos s.a. v. oriental republic of uruguay, icsid case no. arb/10/7 xliii khan resources inc., khan resources b.v. and cauc holding company ltd. v. the government of mongolia and monatom llc, pca case no. 2011-09, award on the merits, para 319 xliv ibid, paras 350, 358. xlv tecmed v mexico, award, 43 ilm 133 (2004) xlvi ben mostafa, ‘the sole effect doctrine, police powers and indirect expropriation under international law’ (2008) ailj 292 xlvii articles on responsibility of states for international wrongful acts ilc 2001, art 4 xlviii ibid, art 7 xlix mr. kristian almås and mr. geir almås v. the republic of poland, pca case no. 2015-13 l southern pacific properties (middle east) ltd (spp) v. egypt 8 icsid rev 328 (1992) li rudolf dolzer and christoph schreuer, principles of international investment law (oxford university press 2008) 135 lii mtd v chile, 12 icsid reports 6 liii parkerings v lithuania, icsid review 22 (2007) liv oecd principles for private sector participation in infrastructure, no. 20. lv corona materials, llc v. dominican republic, icsid case no. arb(af)/14/3 lvi adel a. hamadi al tamimi v. sultanate of oman, icsid case no. arb/11/33 journal of international trade, logistics and law, vol. 3, num. 1, 2017, 51-61 contracts constituting barter system nurdan saka, (lawyer) istanbul bar association, turkey received: mar. 13, 2017 accepted: apr. 13, 2017 published: june 1, 2017 abstract: by the invention of money trading contract lost its popularity and left its place to sales contracts. sales contracts have maintained their place for centuries. however, while performing them some difficulties arisen since the interest has become effective in actual payment of sales contracts. the cost of the money has increased with the effect of interest and has caused great economic problems. the barter system has been invented in the economies of the developed countries as a result of big troubles and become a promising financing instrument. barter membership contract and barter contract, which is my thesis study, is an issue that is not regulated in turkish law and has not been studied much. this article is written to introduce the barter system and the contracts constituting this system. keywords: barter system, barter membership contract, barter contract 1. introduction money is the most common means of exchanging goods and services. this functional means was invented by lydian’s which dominated the west part of anatolia around 7th century b.c. for contributing the commercial activities. with the development of trade, the borders had also expanded and exchange system used in trade had become insufficient for the people. due to the problems arising from both parties believing its own goods is more valuable, unbalance between the exchangeable goods, indivisible character of the goods and inability to find anyone supplying goods, money had been invented. with the invention of money exchange contracts lost its popularity and left its place to sales contracts. sales contracts have maintained their place for centuries. however, while performing them some difficulties arisen since the interest has become effective in actual payment of sales contracts. the cost of money due to the effect of interest has increased and caused big economic problems. so the barter system has been invented because of the economic problems in the developed countries and become a promising financing instrument. while saying that barter system has overthrown the money as a financing instrument, a closer look at the issue uncovers that money needs to be in a barter system albeit functional. money is not used in a barter system as the provision of goods and services of the members provided in kind. however in order to keep the current account of the members easy and correct and to prevent injustices, the value of goods and services or debts of the members registered in terms of cash. this is a solution for the defective component of exchange. barter system based on money which is indispensable for commercial life has a very important role compared to the value of money in exchange system. for this reason, this study will briefly mention about the barter system and describe the legal qualities of the contracts constituting the system 2. barter system when we look at the word meaning of barter, in all usage the word means a contract between two parties that allows the exchange of a good with another without using money.1 classical barter system is the name of the system which a various number of members come together to satisfy their needs of goods and services without using money. 1 celal gürsoy, barter el kitabı, i̇stanbul, (1998), 2nd edition, l, göksu printing. 52 nurdan saka apart from the barter contracts, it is also possible to pay a certain amount of money together with the goods or services in the reciprocal trade agreements, corresponding to the value of the goods or services to be bartered, as well as the basis of mutual exchange of goods or services in the barter system.2 the barter system constitutes an organization company and members called barter organization company. regarding the functioning of the barter system, the first thing that needs to be mentioned is to become a member of the system it is possible with a barter membership contract. the barter system is introduced by the barter membership contract which is prepared by the barter organization company and which is usually printed and will be mentioned in detail below. before entering the system, a barter member delivers the documents requested by him or her to the organizer company. these documents may differ between barter companies. the organizer company usually demands some documents like specimen of signature, tax board, certificate of activity, written document showing the activity area of the company, supply notification form and demand notification form from the member company. the supply notification form contains information about the goods or services produced or sold by the member company. in the demand form; information about the goods or service requests that the barter member company has requested from the system but which the system does not see in the information operating system. 3 by means of this form, the organization company provides new members to the system and enlarges the system according to the goods or services that the member needs in order to facilitate the debtors' contribution to the system. in some of the barter contracts, the barter company is given time to fulfill the request of the claimant. this time can be changed between 9 to 12 months. if the barter company eventually fails to provide the goods or services that the member needs, the barter company is entitled to use the fund, which is called the member guarantee fund, to provide the goods or services needed elsewhere and to provide the barter company with the cost of the goods or services. the information on the supply and demand forms is added to the supply and demand lists of the organization company. these supplies and demands are shared on the internet by the organization company to let all members informed. thanks to this information flow, members of barter system can easily access to supply and demand, making it easy to shop. with the barter membership contract, a current account is created by the organizer company to the member who enters the system. thanks to this current account registration, member companies' liability-indebtedness status is determined in the system. the organization company sends the account statement related to the current account to the barter member at regular intervals and the member who receives the account statement may object to the organization company in written within the period specified in the membership contract. the barter member usually has the right to change the amount of the goods that it provides, but some barter companies could restrict this. the member of the barter who is going to make changes in the properties that he or she has presented must inform the organization company in this matter, otherwise this issue can be considered as the reason for the termination of membership contract.4 2 ayşe dilşad keskin, barter sözleşmesi, ankara, turhan kitapevi, 2004, p.11 3 burak arzova, barter i̇şlemleri, 2000, i̇stanbul, türkmen kitapevi, p.14 4 arzova, ibid, p.16 contracts constituting barter system 53 the barter member peer to peer communications with the member who provides the goods or services that he or she wants to buy in the barter system, and makes the deal. in barter system, members can freely determine the value of the goods or services that they agree on the exchange of goods or services. the member in the supply of goods or services can determine the price as he wishes and can decide on the market price. the barter member offering the goods or services receives a barter check at the transaction value from the buyer barter member in exchange to the credit of his or her account. barter members receive a sales authorization code from the organization company when they make this deal. transactions without this approval code do not correspond to the barter contract, but to a classical debts contract. because of this, it is important to pay attention to the sales authorization code, as the seller and buyer will not change the current account of the firm and will not be accepted as a barter contract, but my opinion is that transactions made without obtaining a sales authorization code will not always be considered as a classic debts contract. that is to say organization company is also aware of the transaction between these two barter members. the barter member should be considered as an affirmative confirmation of the organization company's contracts that the organization company does not give consent to the contracts they have made between them, but the transactions made to the current account of the members are not implied. otherwise, member companies may be suffered, and they may face the danger of termination of their contracts against the contract. at the flow of commercial life, i think that my opinion in this direction is fair because it will cause the transactions to become difficult because of the request of the written approval code for every transactions from organization company. the member who is a member of the barter system does not need to show a guarantee for acceptance of the membership. the obligation of the barter member to show guarantees varies depending on whether it supplies goods or service to the system or demands goods or services from the system. namely, if the system member is a creditor from the system because it supplies goods or services before the barter system, it can claim from the system without any guarantee as it has the purchasing credits up to the amount it can receive.5 this purchase credit given to the barter member by the barter firm to buy goods or services from the system when entering the system corresponds to the credit balance resulted from the sale made by the member in the barter system. 6 otherwise, in other words if there is a case where the member first requests the goods and services from the system, the barter system should provide guarantees as much as the purchase price. the credit limit given to the member of the system by the barter firm may be in the form of a real estate mortgage as well as a letter of guarantee issued by the barter member. the company which is a member of the barter system has to pay the debts to the system within the period specified in the membership contract. this time is usually one year, depending on the preference of the barter companies can be shortened or extended as well. if barter member can not pay its debt to the system on the date specified in the membership contract, the borrower will have to pay all debts to the organization company at once and in cash and with interest. however, in this case the conditions may be changed by several additional protocols between the parties. the interest of the debt can be deducted, commission can be decided not to be taken or installment possibility may be offered to the debtor company. apprehension of the provisions to be applied in this case is at the initiative of the parties in the framework of the regulations introduced by the general provisions. 3. barter membership contracts 3.1. definition of the barter membership contracts 5 türker yalçınduran, barter sözleşmesi, banka ve ticaret hukuku dergisi, issue 4, 2004, december, p. 144 6 arzova, ibid, p.16 54 nurdan saka barter membership contract is a contract between barter organization company and the candidate member company. the parties have a variety of rights and obligations while these are not included in our laws they remain as obligatory contracts under innominate contracts. the main purpose of the barter membership contract is; in terms of the candidate member company to benefit from the barter system by purchasing goods or services, and in terms of the barter organization company to find new members for the system and to operate the barter system accordingly. 3.2. rights and obligations of the barter organization the most important task of the barter organization company is to expand the barter system by finding new members to the barter system. the organization company serves to ensure that the system is a continuous, active and unblocked system, while offering members a variety of goods and services in the system. a current account is created by the organization company to the member signing the membership contract with the organization company and the control of this current account is provided by the organization firm. it is audited whether or not the borrower is responsible for the debts of the organization company by the contract, and the necessary measures are taken in adverse situations. the organization also has the obligation to regularly inform the members about the account status of the members. at the same time, the organization company also records the information of the goods or services offered by the members in the system so that the other members can easily access this information and benefit from the system as they wish. the organization company constantly updates the data on the goods or services offered to the system, which helps the members to correctly evaluate and use this information. according to this information it is clearly understood that the organization company is under the rights and obligations of having more than one business. 3.3. rights and obligations of the barter member when the rights and obligations of the barter member company, which is the other side of the barter membership contract, are examined; it will be seen that the most important contractual obligation of the member signing the barter membership contract is to pay the debt to the barter system during the time specified in the contract. the barter member company pays the debts to the system with barter contracts that contain various issues that the system members can make with the goods or services they have. although these barter contracts are purported as contract of sale or contract of work, it actually constitutes the barter contract. the barter system member also has the right to ask the organization firm to make new memberships in order to obtain the goods or services necessary for its operation. at the same time, this is the obligation of the organization company. the use of this right, which the barter system member has, ensures that the barter system is always active and up-to-date and that the system's trade volume is widened. the most basic function of the barter member’s right to request the presence of new members in the barter system is undoubtedly the convenience created by the system member for the payment of debts to the system. the barter member uses this right not only to pay the debt to the system but also to cover the need for goods or services from the system. in classical barter systems barter member company has to trade goods or services without using money in intersystem exchanges. in some of the new barter systems, the barter member company has the right to use money at the rates specified in the barter membership contract. another obligation of the barter member company is to contracts constituting barter system 55 comply with the rates determined in the barter membership contracts in the barter systems where the money is not used and in the systems that allow the use of the money and to comply with this law during the system purchase. 3.4. legal nature of the barter membership contracts in article 1 of turkish code of obligations, where the legal definition of the contract is made; it is stated that the contract will be established by mutually and appropriately disclosing the parties’ wishes. the most fundamental principle that governs contracts as it can be understood from this definition is the principle of mutual consent.7 with the most classical definition in order to establish contracts, two mutually and complying declarations of will will have to be found.8 contract is a proposal called on occasion and comes into being with this acceptance.9 it also means that anyone is free to sign a contract as someone wishes, as it is meant to mean that no one will be forced to contract as a rule.10 there are two main categories for whether or not they are regulated in the law of contracts. contracts that are clearly defined in terms of their elements and the way in which these elements are arranged are called unnamed contracts whose elements or arrangement of law are not regulated by law.11 however, it has also been stated that the law only requires that a contract be stated by the name, but that the contract is not sufficient for the contract to be accepted as a named contract, and that the law should contain substantive regulation.12 i agree with the assertion supported by mr. kuntalp by example, and i prefer to use the distinction between nominated or innominate contracts when discrimination is made according to whether they are regulated in the law of contracts. the barter membership contract and the barter contract, which are the subject of this article, have also emerged as a product of the above mentioned freedom of contract and freedom principle. barter membership contract is not included in our legislation and therefore it is included in the category of innominate contracts. however, it can not be said that the barter membership contract is a typical contract. there are different opinions about the contract and the quality of it in our country that has chance to be implemented. for this reason, i consider the barter membership contract to be an atypical contract. innominate contracts are contracts which are not included in our legislation but which are bound to be implemented as a consequence of the principle of freedom of contract and whose boundaries are determined by the application of the judgments of the parties.13 innominated contracts in general terms are not contracts, but contracts created by the wills of the parties. innominated contracts according to general acceptance categorised as combined, complicated, sui generis and incomplete contracts. mr. kuntalp distinguishes the innominate contracts as their own specific contracts and complicated content contracts because of the view that i have mentioned above.14 7 erdem erdenk, i̇stanbul 2008, legal yayınevi, i̇ş hukukunda i̇simsiz ( karma ve kendine özgü ) sözleşmeler, p.27 8 aydın zevkliler ve emre gökyayla, borçlar hukuku özel borç i̇lişkileri, 2016, ankara, turhan kitapevi, 16th edition, p.1. 9 hüseyin hatemi ve emre gökyayla, borçlar hukuk genel bölüm, 2015, i̇stanbul, vedat kitapçılık, 3rd edition. p.30 10 mustafa alper gümüş, borçlar hukuku özel hükümlerkısa ders kitabı, i̇stanbul, 2015, vedat kitapçılık, p. 3 11 erden kuntalp, karışık muhtevalı akit (karma sözleşme), 2013, ankara, banka ve ticaret hukuku araştırma enstitüsü, türkiye i̇ş bankası a.ş vakfı, p. 3 12 kuntalp, ibid, p.4, fahrettin aral, hasan ayrancı, borçlar hukuku özel borç i̇lişkileri, ankara, 2015, p.53, yetkin yayınları. 13 istanbul university, faculty of law, department of civil law, assistant professor saibe oktay, isimsiz sözleşmelerin geçerliliği yorumu ve boşlukların tamamlanması, i̇hfm, c.lv (1996) 14 kuntalp, ibid., p.13 56 nurdan saka according to the most common definition the complicated contract occurs in a manner in which the law envisages the various types of actors in a manner not envisaged by law.15 complicated contracts are also subdivided into subheadings, including contracts and combined contracts, which include double-handed, united, foreign acts. complicated contract is also called as a typical contract. as can be understood from this definition, it is a type of mixed contract in which one of the parties of the contract is usually under one obligation to act, in this case it is usually pecuniary debt, while the other is under multiple obligation of contract type.16 after i have made a brief description above, i have found that the contract closest to the barter membership contract is a complicated contract and is a combined contract of complicated contract types. the reason that leads me to this result is the barter system member and the barter organization company's acting responsibilities, which is the side of the barter membership contract. in the barter membership contract in which one of the parties as it is in the combined contract has more than one principal liability of the typical contracts, such as power of attorney, brokerage. the basic obligation of the member company is to pay a commission for membership subscription and barter contracts. 3.5. form of the barter membership contract as i explained the legal nature of the barter membership contract, i stated that barter membership is an atypical contract that is not regulated by the law of the membership contract and that it is a complicated contract which is a type of mixed contract from innominate contracts. a complicated contract is a contract created by bringing together elements of certain contracts in an unforeseen manner. it can be argued that the complicated contract is also subject to the likelihood that one of the elements brought together will be subject to the form. as barter membership contract is a complicated contract, it has been examined whether barter membership contract is subject to any kind of bargaining agreement in terms of whether it is subject to the barter membership contract and the typical contracts of membership contract. in the barter membership contract, the most important activity of the organization company is brokerage. the brokerage contract corresponding to this activity of the organization company and the regulations in article 520 of the turkish code of obligations were examined and it was seen that the ordinary brokerage contract was not subject to any form but the immovable brokerage contract was subject to written contract. another typical element of the barter membership contract is the organization activity of the organization company, in the interests of barter members, independently. it corresponds to the provisions of the contract of agency of this organization activity. it has been stated that the proxy agreement, which is regulated in article 502 of the turkish code of obligations, is not subject to any form. for this reason, we would like to state that the barter membership contract, the acts it contains in relation to the contract of attorney, does not bring any regulation on the barter membership contract. typical elements of the current account contract are also included in the barter membership contract. the current account contract should argue that the barter membership contract is among the essential elements of the act. the personal opinion regarding the subject is that the barter membership contract requires that the current account 15 haluk tandoğan, borçlar hukuku (özel borç i̇lişkileri), 1990, i̇stanbul, evrim basım, c. i/1, 6th edition, p.69 16 erdenk, ibid, p. 44 contracts constituting barter system 57 contract system is used and that the current account is kept in the barter membership contract but that the current account registration should be held by the organizational company rather than the current account relationship side in the current account of the barter membership contract makes the current account record of the barter membership contract atypical. for this reason, i am of the opinion that the subject matter of the current account contract must be adhered to when assessing the issue, and that the barter membership contract of the writing contract of the current account contract should not affect the barter membership contract. explanations that i have made about the form of the barter membership contract above, the immovable property activity of the organization company appears. for this reason, the contract name shall be subject to the written form requirement. 3.6. solution methods for disputes arising from barter membership contract barter is a contract with an unnamed name, which is not regulated in the contract of membership, and which causes both sides to borrow a debt. for this reason, it is necessary to first look at the way in which disputes are resolved in nameless contracts. the first place to apply for disputes related to an unnamed barter membership contract is the text of the contract itself. the text of the contract usually sets out a number of points that may be subject to disagreement, but the regulations in the text of the contract may be considered inadequate as it is not sufficient and may be invalid as it includes provisions contrary to the law. some of these reasons are inconsistent with the sanction of the general transaction or general ordering provisions. this and other similar reasons can lead to a contract gap in barter membership contracts. the barter membership contract of mixed nature also includes acts of typical contracts in accordance with a characteristic of complicated contracts. i accept that as a rule, the typical contracts can not be applied to the innominate contracts17, and i do not agree with the principle of loyalty to the contracts, i agree that the typical contractual provisions to the extent that it falls appropriately can be applied to settle any possible disputes. what should be noted here is how the typical contract elements are in accordance with the barter membership contract. while this assessment is being made, it is necessary to consider the similarity of the typical contract provisions to the provisions of the barter membership contract, and the benefit expected from the typical and atypical contracts, as well as the purpose of the matter and judicial decisions and contracts.18 although specific contracts can be applied to complicated contracts to the extent that specific provisions fall in place, how to implement this practice should be discussed. the opinion that i am closest to the views on the subject is the theory of individual application of the statutory provisions. because the use of the acts of the typical contracts that constitute the mixed contract will be taken away from the atypical contract. it would also be inconvenient for me to find the elements of the typical contract within the complicated contract and for the creation of a law to be disputed with these provisions. for this reason, i believe that the typical contract provisions appropriate to the settlement of this dispute must be applied to the dispute, taking into account the central dispute, in respect of the atypical nature of the mixed contract. the barter membership agreement also includes typical contracts such as a proxy agreement, a brokerage contract and a current account contract. provisions relating to these typical contracts 17 kuntalp, ibid, p.226 18 kuntlap, ibid, p.190 58 nurdan saka may be applied in accordance with the principle of individual application of legal provisions to disputes related to barter membership contract. the barter membership contract is a contract that burdens with debts to both parties. the contract is based on the performance of the debts and various disputes may arise during this process. typical disputes that will arise at the end of the debt will be resolved within the framework of the general provisions of the code of obligations. because barter membership is an innominate contract without special arrangement in the contract, but the general provisions of the code of obligations also apply to this contract.19 for this reason, it is possible to fill the vacancies in the contract with the special and general provisions of the code of obligations. if there is no direct or comparable provision in accordance with the theories referred to above in the barter membership agreement, the contractual space shall be filled by the judge by law. 4. barter contract while there are lots of opinions about the barter contracts, in my opinion barter contracts are contracts that the companies that are members of the system for every contract they make to pay their debts to the system. some authors refer to these contracts as individual contracts or tangible contracts.20 barter contract, as i mentioned above, is categorically defined within the barter system and is an independent contract within the system apart from the barter membership contract. barter contract is atypical contract which is complete with the approval code of the organization company, in which the exchange of goods or services between the members of the system and the payment made by the members to pay the debts to the system, without using money. the member who receives goods or services from the system with this contract does not have to pay the member of the system that has obtained his or her performance in person and can not pay the debts arising from this exchange. a member who provides goods or services to the system in a similar manner and which allows a member to benefit from such goods or services can not claim the right of receipt after the purchase himself or herself and can not claim the right to receive such money in the same manner. a member’s right whose performance constituted in the barter contract to claim is equal to the goods or service to be obtained from the system.21 as you can see, members of the creditors and borrowers who make a barter contract in the system face a unique reciprocity relationship. in addition to being fixed that the member who provides the system member has a right to receive the claim, the borrower can request the system to the system from any member of the system, not from the person who is acting as if it is in the typical contracts.22 in this way, members can be creditors in a barter contract while falling into the debtor position in another barter contract. 4.1. rights and obligations of the parties in the barter contract a member who wants to obtain goods or services from the barter system or who pays the debts to the system can supply the goods or services to the system and may contract with another system member who is in compliance with this demand. the most important condition for the barter contract to be made is to join the barter system with 19 kuntalp, ibid, p.222 20 belen, herdem, barter sistemi hukuki yapısı ve i̇şleyişi, i̇stanbul, 2007, p.7. 21 ibid, p.113 22 pieper, niklas, die rechtliche struktur bargeldloser verrechnunssysteme, unter besonderer berücksichtigung von barterclubs und letsystemen, berlin, 2002, pp. 117-118, belen, ibid, p.113. contracts constituting barter system 59 barter membership contract. members of the barter system may sometimes request a goods or service not included in the system to meet a requirement in the system. in this case, a single commodity or service will be purchased, but in order to meet the needs of the system members, the commodity or service is requested to be a member of the member system and the membership of this committee is terminated after the commodity or service needs are met. 23 as it is clear from the explanations, it is necessary to sign the barter membership contract and join the barter system to make a single barter contract. although barter’s contract is an innominate contract, the parties have to comply with the general provisions as they are in the classical code of obligations contracts. the parties to the barter contract must comply with these provisions in the barter membership contract and the barter contract,24 as they will not be able to make an innominate contract against the law, morality, personal rights and public order. since barter contract is not a typical contract, the rights and obligations arising from the contract of the parties will be determined first of all with the barter contract provisions between them. the main contract that must be considered before the provisions of the barter contract is the barter membership contract, which sets the system rules and the obligations of the parties in the barter system. since barter membership contract is a framework contract, it is necessary to observe the provisions of this membership contract in every barter contract. in addition to barter membership contracts, barter contracts that include typical contractual acts and barter contracts and corresponding parties to barter contracts may also be applied to non-contractual disputes when the contractual obligations of the barter contract are determined. for example, the barter contract with the provisions of the sales contract made within the system will be applied to the extent that the provisions of the contract of sale fall in accordance with the contract. similarly, a member who supplies goods to the system has the right to benefit from the provisions of the defamation clause against the defector. 4.2. legal nature of the barter membership the barter contract is an arbitrary contract type in which the barter system exchanges goods or services with each other in order to pay the debts of the members to the system. a member who wants to purchase goods or services from the barter system obtains the desired product by communicating with the member who provides the goods or service requested by the system. it is sufficient for the establishment of the contract to provide the approval code of the organization company so that the parties can comply with each other and acquire the quality of a barter contract. the approval code of the organization company allows us to treat the contract as a barter contract. this is because the barter organization company does not issue this approval code and is not a contract barter contract, it is a typical code of obligations contract.25 as can be understood from the above description of the barter contract, barter contracts are established with the parties’ wishes and the approval code of the organization company. after the barter contract is established, the member who requests the goods or services receives its demands from the system. the current account of the member who obtains the goods or services from the system is recorded as a debt record, while the account of the 23 aslan, sinan, barter i̇şlemleri ve muhasebesi, vergi sorunları, september 2004, issue 192, p.147 24 oktay, ibid, p.3 25 belen, ibid, p. 82 60 nurdan saka member who contributes the act is deducted. thus, the two sides are burden with debt. for this reason, the barter contract carries the character of a contract that generates debt as contract type. the barter contract is an innominate contract that is not regulated in the law like the barter membership contract. incomplete contract is with the definition of prof. dr. mustafa alper gümüş a contract that contains elements of a specific contract type enacted by law with one or more elements missing. when demonstrating the issue the author stated that the contract without constituting any charge (payment) in it is an incomplete contract, not a contract of work. the author further stated that for a contract to be considered as an incomplete contract, the legislator must have not established a contract with a missing element as a named contract, for example, if the contract is not a lease, there will be no incomplete contract.26 by this definition, i would like to state that i am convinced that the barter contract is close to the contract which is imperfect contracts under innominate contracts. because the barter contract sometimes involves the actions of a sales contract, which is a typical contract enacted by law, but with the characteristic of reciprocity inherent in the sale contract, the characteristic of reciprocity specific to the barter system, and the fact that the right of the member to receive the act is not money. for this reason, the typical contract of sale defined in the barter contract is incomplete contract with the reason that several elements of the contract can not be transferred. 4.3. form of barter contract under this heading, the form of the barter contract will be examined. the reason why i give a headline to the form of the barter contract is that it deals with a wide variety of goods and services exchanges. as a rule, the barter system can take advertising services that are not subject to the rules of the company system, as well as real estate exchange which is officially subject to purchase and sale as a rule. at this point, it give rise to the question of how the barter contract should be. as barter contract is a innominate contract, it is also a factor affecting the contract. as a rule, it is not possible to apply the provisions of the typical contract to the innominate contract, since it is not regulated in the laws, but as mentioned above it contains the missing elements of the contracts defined in the barter contract. for this reason, it is necessary to apply the above-mentioned barter contract to the extent that it conforms to the barter contract of the provisions enacted by law of the typical contract it contains. in this way, the barter contract will affect the typical contracts it contains. when determining the form of contract in innominate contracts, it is checked whether the typical contracts contain within the innominate contracts are subject to any form, and the most severe form of the typical contracts that are subject to the form is determined by the innominate contracts. to demonstrate in the light of this information, a member company that wants to acquire a movable property through a barter contract may complete the barter contract by agreeing with another member of the system that meets this demand and by obtaining a sales approval code from the organization company. in this barter contract for the exchange of movable commodities there is no condition for the establishment of the contract. on the other hand, when the barter contract is a real estate exchange, the parties will need to do so in accordance with the official written form. 5. conclusion barter membership contract and barter contract are atypical contracts arise from the barter system. as put in detail above, barter membership contracts especially diffentiated from atypical contracts by having current account 26 gümüş, p. 10 contracts constituting barter system 61 registration and its own proxy relationship. barter organization company’s brokerage activity in the barter membership agreement is largely in line with the typical arrangement. the barter contract is a type of contract in which the transactions are made between within member and system members are paying for their debts and money is not used. the non-use of money in the barter contract and the lack of a mutual debt-to-lender relationship to the contract are the most fundamental differences that distinguish the barter contract from the typical contract that resembles it. a unique reciprocity relationship by including exchange contract, contract of work and many other contracts remove it from typical elements and place it into the barter contract form. the barter system is a system that is highly ambitious and has a high potential for development, as it emerges as an alternative financing tool to the emerging economic monetary policy. legal arrangements related to international trade in turkey have made it possible for the barter system to expand and develop domestically, but researches have shown that the barter system has not yet caught the popularity in europe and america not in turkey. while there are various reasons for this situation, i believe that the standard variations in the quality of goods or services make trade in our country mostly on cash. i believe that the barter system can be regarded as a reliable place for itself and as a reliable financing model in the developing economic system. the name of the organization company must be able to operate the barter organization perfectly and make an effective effort to grow the company. all of the books and articles on the barter system emphasize this point. i believe that if the barter organization company fulfills its mission perfectly, possible disputes will decrease rapidly and the barter system will become a very important place in our country. the barter system can be a solution to the stagnating commercial life, or it can be used as a solution for the continuation of commercial life in countries where economic embargoes are applied. however, as i have pointed out above, all the positive aspects of the barter system i have mentioned depend on the existence of a reasonably well functioning system. references aral, fahrettin ve hasan ayrancı. borçlar hukuku özel borç i̇lişkileri. ankara. b.11. october. 2015. arzova, burak. barter i̇şlemleri. 2000, i̇stanbul, türkmen kitapevi. aslan, sinan. barter i̇şlemleri ve muhasebesi. vergi sorunları. september. issue 192.2004. belen, herdem. barter sistemi hukuki yapısı ve i̇şleyişi. i̇stanbul. 2007. erdenk, erdem. i̇stanbul 2008. legal yayınevi. i̇ş hukukunda i̇simsiz (karma ve kendine özgü) sözleşmeler. gürsoy, celal. barter el kitabı. 2nd edition. i̇stanbul. 1998. 1. göksu matbaacılık. hatemi, hüseyin ve emre gökyayla. borçlar hukuku genel bölüm. i̇stanbul. vedat kitapçılık. 3. b. 2015. keskin, ayşe dilşad. barter sözleşmesi. ankara. turhan kitapevi. 2004. kuntalp, erden. karışık muhtevalı akit (karma sözleşme). banka ve ticaret hukuku araştırma enstitüsü. türkiye i̇ş bankası a.ş vakfı. b.2. ankara. 2013. pıeper, niklas, die rechtliche struktur bargeldloser verrechnunssysteme. unter besonderer berücksichtigung von barterclubs und letsystemen. berlin. 2002 tandoğan, haluk, borçlar hukuku( özel borç i̇lişkileri). i̇stanbul. vedat kitapçılık, c. i/1. 2010 yalçınduran, türker barter sözleşmesi. banka ve ticaret hukuku dergisi. s.4. aralık. 2004. zevkliler, aydın. emre gökyayla. borçlar hukuku özel borç i̇lişkileri. turhan kitapevi. ankara. 2016 journal of international trade, logistics and law, vol. 9, num. 1, 2023, 77-87 77 the effect of supply chain responsiveness, flexibility, & quality on customer development arum widya laksmi paramitha trisakti university, indonesia wahyuningsih santosa trisakti university, indonesia triwulandari sd trisakti university, indonesia received: jan 31, 2023 accepted: march 24, 2023 published: jan 01, 2023 abstract: this study examines the impact of supply chain responsiveness, flexibility, and quality on a firm’s ability to attract, satisfy and retain its customers. moreover, mediating impact of logistics process responsiveness among operation system responsiveness, supplier network responsiveness, supply chain flexibility, supply chain quality, and customer development is examined as well. for this study we have used the quantitative approach, a survey-based method for data collection with a total of 155 questionnaires distributed to fmcg firms in jakarta with 119 usable responses retrieved. the effects of supply chain responsiveness, flexibility, and quality on customer development were analyzed using partial least squares structural equation modeling (sem-pls). the result confirmed the positive impact of supply chain responsiveness, flexibility, and quality on customer development. the finding also showed that the operations system responsiveness, supplier network responsiveness, supply chain flexibility, and quality drive the logistics system responsiveness. additionally, logistics process responsiveness partially mediated the effect of operations system responsiveness, supplier network responsiveness, supply chain flexibility, and supply chain quality on customer development. keywords: supply chain, responsiveness, flexibility, quality, customer development 1. introduction the impact of globalization has changed the business perspective in recent years causing increased pressure and dynamic competition (pundir et al, 2019). globalization demands the ability to adapt to changes in customer demand that always occur (shaharudin et al, 2018). the existence of dynamic and unstable customer demand makes the firm's supply chain must have the flexibility to meet customer needs. firms must be able to respond quickly to changes that occur. supply chain management defines as the integration of process supply and demand, sourcing raw materials and parts, manufacturing & assembly, warehousing & inventory tracking, order entry & order management, distribution, and delivery to the customer. a typical supply chain is described in figure 1. figure 1. typical supply chain the three main strategies in the supply chain are low cost, high quality, and improved responsiveness (delivery time and flexibility of product delivery). supply chain performance is an indicator of how well the supply chain fulfills its objectives since it indicates the supply chain’s ability to adapt to changing customer needs and lead to elevated arum widya laksmi paramitha & wahyuningsih santosa & triwulandari sd 78 performance (blome, 2013). supply chain performance which includes efficiency, flexibility, responsiveness, and quality has a positive impact on customer satisfaction and firm behavior. fast-moving consumer goods (fmcg) is an industry that is characterized by goods that are sold frequently, produced at high volume, and low cost (aljunaidi & ankrah, 2014). fmcg is typically consumed, bought rapidly, and sold in large quantities at low cost. these products are generally available in a variety of outlets including retail stores, grocery stores, wholesalers, and supermarkets (amr, 2019). as the products are used daily, have a short shelf life, and the products are bought frequently, the market is very large and competitive. the complexity and pressure in the supply chain can be seen in the fmcg industry where visibility becomes important for firms, with rapid growth over the last decades and the market expected to reach a value of $ 15,361.8 billion (cagr of 5.4% from 2018 to 2025) made fmcg industry as one of the important contributors to economic growth (amr, 2019). in indonesia, the sales value of the fmcg industry is more than 10 billion us dollars with a positive overall yoy change in the fmcg market value of seven percent in the third quarter of 2022 (agus mulyawan et al. (2022), kantar, (2022)). the focus of the fmcg industry itself is to create a supply chain that provides for customer needs most effectively and efficiently (tugande, 2020). the high frequency of fmcg requires the actors within the industry to produce and distribute their goods to their customers daily. the increased and changing demand nowadays puts pressure on the operations of fmcg companies. delivery time, distribution service level, and product variety are important attributes of a firm from a customer perspective (chopra & meindl (2016)). the level of customer value determines the success or failure of any firm. customer development is defined as the ability of a firm to attract, satisfy, and retain its customers. thus, one of the important goals for a firm is to develop customer development capabilities (amedofu et al., (2019)). in the fmcg industry, where tastes and preferences are changing from time to time, achieving customer satisfaction can be aimed by increasing product availability, delivery, innovation, and quality dimensions (sharma, 2015). the main purpose of this study is to examine the impact of supply chain responsiveness, supply chain flexibility, and supply chain quality on customer development in the fmcg industry. moreover, mediating impact of logistics process responsiveness among operations system responsiveness, supplier network responsiveness, supply chain flexibility, and supply chain quality will be examined as well. this research is imperative for businesses to develop operations systems, logistics processes, and supplier networks to respond to the changing taste, preferences, and demands of customers to attract, satisfy, and retain their customers. 2. literature review 2.1. supply chain performance good supply chain performance is defined as how to get the right products, to the right place, at the right time, and the lowest cost. eight supply chain performances were identified: quality, customer response, product development cycle time, supply chain integration, supply chain flexibility, supply chain agility, supply performance, and market performance (thekkoote, 2021). 2.2. supply chain responsiveness supply chain responsiveness is described as the promptness and the extent to which the supply chain can meet changing customer needs in relation to their demands as well as responding to other changes in a dynamic business environment (danese et al., 2013). supply chain responsiveness is categorized into three categories: operation system, logistics process, and supplier network responsiveness. operation system responsiveness is a firm’s capability to quickly adjust its operations systems to react swiftly to variations in the volume and mix of products demanded by customers. logistic process responsiveness is defined by the capability of a firm’s warehousing system, distribution, and outbound transportation system to meet customer demands. last, supplier network responsiveness is the capability of a firm’s major suppliers to respond and meet customer demands (thatte et al, (2013), al-hawajreh (2014)). the increasing supply chain responsiveness will bring benefits to firms and have a positive impact and lead to elevated in a firm’s performance in the long term such as achieving sustainable growth (rana, (2015)). 2.3. supply chain flexibility supply chain flexibility is described as the capability to reconfigure critical facilities to ensure competitiveness. operations management classifies supply chain flexibility as product flexibility, delivery flexibility, access flexibility, the effect of supply chain responsiveness, flexibility, & quality on customer development 79 and responsiveness to the target market (maaz, 2022). a flexible supply chain can lead to customer satisfaction and inventory minimization (lummus et al, 2013). 2.4. supply chain quality quality is defined as the ability of a product to meet or exceed the expectations and needs of consumers (aditya, 2020). quality as supply chain performance measurement is divided into process quality and product quality. process quality consists of the production system, storage conditions, traceability, marketing processes, and environmental aspects. there are six dimensions of product quality as follow: appearance, shelf-life, sensory properties, reliability, safety and health, and convenience (maaz, 2022). product quality has a positive impact on customer satisfaction and product purchase repetition (hendra (2022). 2.5. customer development customer development is a firm’s ability to attract, satisfy, and retain customers by providing goods to meet the demands of customers (amedofu, 2019). literature research reveals several studies that examine drivers of customer development empirically. the first one is amedofu et al. (2019) who examined supply chain management practices as drivers of customer development among start-up firms. their study confirmed the positive impact of supply chain management practices on the firm’s ability to acquire, satisfy, and retain its customers. meanwhile asamoah et al (2021), in their study explored operation system responsiveness and supplier network responsiveness as drivers of the logistics system responsiveness of firms. it was found that operation system responsiveness and logistics process responsiveness improved customer development. table 1. summary of empirical studies examined the driver aspects of customer development. author (year) title variable finding asamoah et.al (2021) the effect of supply chain responsiveness on customer development. operations system responsiveness, supplier network responsiveness, logistics process responsiveness, customer development operations systems responsiveness and supplier network responsiveness drives the logistics systems responsiveness of firms amedofu et.al (2019) effect of supply chain management practices on customer development and start-up performance customer relationship, supplier relationship, supply chain information sharing, supply chain information management, scm practices, customer development, start-up performance supply chain management practices had a positive and significant impact on customer development mappesona (2020) customer purchase decision model, supply chain management and customer satisfaction: product quality and promotion analysis product quality, product performance, product features, reliabilities, conformance, durability, serviceability, aesthetic, fit and finish, promotion, advertising, personal sales, sales promotion, digital marketing, public relations product quality and supply chain management systems have a significant effect on purchasing decisions tenreng et.al (2019) perceived service quality, supply chain collaboration, supply chain management as antecedents of loyalty, and customer satisfaction: exploring moderating role of wom supply chain management, supply chain collaboration, perceived service quality, wom, customer satisfaction, customer loyalty supply chain management practices and perceived service quality have an impact on increasing customer satisfaction which will increase customer loyalty. arum widya laksmi paramitha & wahyuningsih santosa & triwulandari sd 80 3. theoretical framework this study is guided by two theories: the resource-based view (rbv) theory and the dynamic capabilities theory (dct). the theoretical framework of the study proposes that supply chain responsiveness, supply chain flexibility, and supply chain quality positively influence customer development. 4. research model and hypotheses a research model is developed to examine the relationship between supply chain responsiveness (operation system responsiveness, logistics process responsiveness, and supplier network responsiveness), supply chain flexibility, supply chain quality, and customer development. it is proposed that the three-supply chain performance (responsiveness, flexibility, and quality) has a direct impact to attract, to satisfy, and to retain customers. the research model is presented in figure 2. figure 2. the conceptual research framework 4.1. relationship between operations system responsiveness with logistics process responsiveness a firm could deal quickly and effectively with sudden changes in the market if achieving responsiveness in the warehousing, transportation, and distribution processes (singh et al, 2019). this view is supported by the findings of qrunfleh and tarafdar (2013) who observed that flexible and responsive operations systems act as the basis for responsive logistics systems. therefore, it is hypothesized that: h1. operations systems responsiveness has a positive influence on logistics process responsiveness. 4.2. relationship between supplier network responsiveness with logistics process responsiveness. the flexibility and the quickness of firms in responding to changes in a dynamic environment depend not only on their internal operating systems but also on how responsive the firm’s main suppliers are (kim et al., 2013). this leads us to hypothesize that: h2. supplier network responsiveness has a positive influence on logistics process responsiveness. 4.3. relationship between supply chain flexibility with logistics process responsiveness logistics flexibility is the ability to customize activities such as storage, inventory, transportation, and delivery (yu, 2017). this view is supported by the findings of nagarajan (2013) who observed that logistics process responsiveness has a positive impact on supply chain flexibility. therefore, it is hypothesized that: h3. supply chain flexibility has a positive influence on logistics process responsiveness. the effect of supply chain responsiveness, flexibility, & quality on customer development 81 4.4. relationship between supply chain quality with logistics process responsiveness quality has an impact on the firms and their performance, the end effect being that firms will start to inject a quality management approach into their logistics vision (estampe, 2013). this leads us to hypothesize that: h4. supply chain quality has a positive influence on logistics process responsiveness. 4.5. relationship between logistics process responsiveness with customer development thatte et al (2013) found that logistics process responsiveness is the ability of a firm’s warehousing, transportation, and distribution system to quickly respond to changes in customer demand. this leads us to hypothesize that: h5. logistics process responsiveness has a positive influence on customer development. 4.6. relationship between operations systems responsiveness with customer development firms that can quickly vary their product variations, develop new products, or make product modifications based on observed changes in the business environment and customer demand trends will be able to attract more new customers (lamore et al., 2013). this view is supported by the findings of saenz et al. (2018) that suggest if the firms can quickly reconfigure their resources to produce goods with varying variety and volumes will have more chance to satisfy and retain their customers. this leads us to hypothesize that: h6. operations systems responsiveness has a positive influence on customer development. 4.7. relationship between supplier network responsiveness with customer development al-hawajreh and attiany (2014) found that a more responsive supplier network will create a higher level of competitive advantage for a firm. this leads us to hypothesize that: h7. supplier network responsiveness has a positive influence on customer development. 4.8. relationship between supply chain flexibility with customer development putra (2020) explained that supply chain flexibility affects retailer satisfaction. to increase satisfaction, firms should have the ability to provide products according to customer demands. this leads us to hypothesize that: h8. supply chain flexibility has a positive influence on customer development. 4.9. relationship between supply chain quality with customer development according to mappesona (2020) that product quality has a significant effect on customers’ purchasing decisions. in their research, hendra et al (2022) explained that product quality and price have a significant influence on customer satisfaction, and customer satisfaction has a significant influence on customer loyalty. this leads us to hypothesize that: h9. supply chain quality has a positive influence on customer development. 4.10. relationship between logistics process responsiveness as a mediator between operations systems responsiveness with customer development al-hawajreh and attiany (2014) explained that a firm’s operations system responsiveness capability will increase its capabilities such as delivery dependability. therefore, it is hypothesized that: h10. logistics process responsiveness mediates the influence of operations systems responsiveness on customer development. 4.11. relationship between logistics process responsiveness as a mediator between supplier’s network responsiveness with customer development in their study, al-hawajreh and attiany (2014) found that increasing a firm’s network responsiveness will increase its capabilities such as delivery dependability. this leads us to hypothesize that: h11. logistics process responsiveness mediates the influence of suppliers’ network responsiveness on customer development. arum widya laksmi paramitha & wahyuningsih santosa & triwulandari sd 82 4.12. relationship between logistics process responsiveness as a mediator between supply chain flexibility with customer development according to soon (2010) firms enhanced their flexibility with logistics networks to be responsive to their customers. one of the core flexibilities of the value chain can be defined from a logistics perspective. this leads us to hypothesize that: h12. logistics process responsiveness mediates the influence of supply chain flexibility on customer development. 4.13. relationship between logistics process responsiveness as a mediator between supply chain quality with customer development in their reviews, siddh et.al (2017) found that logistics and distribution influence agri-fresh food supply chain quality (afscq). this leads us to hypothesize that: h13. logistics process responsiveness mediates the influence of supply chain quality on customer development. 5. research methodology 5.1. measurement items the study examined the impacts of operations system responsiveness, logistics process responsiveness, supplier network responsiveness, supply chain flexibility, and supply chain quality on customer development. the indicators items used to measure the operations system, logistics process, and supplier networks responsiveness were adapted from asamoah (2021), supply chain flexibility was adapted from putra (2020) and yu (2017) meanwhile supply chain quality was adapted from hendra (2022) and maaz (2022). on other hand, measurement items for customer development were adapted from asamoah (2021). all items were measured with a 5-point likert scale and the measurement items used in the study are presented in the appendix. 5.2. data collection for this study, primary data has been collected. manufacturing firms in indonesia were the target of the survey. the researchers took into consideration only firms that registered with siinas. a list of 30.578 firms was generated from the database of registered firms, out of which nine manufacturing fmcg firms are selected for data collection based on market capitalization and the firm was or is the market leader in minimarket across categories. questionnaires were sent to the employees in selected firms. a total of 119 responses were obtained from the nine firms selected. adequacy of the number of responses received was established using power analysis (hair et al, 2018). within hair’s rule of thumb, the minimum sample size is 100–200 samples, meaning that the 119 responses obtained were sufficient for this study. 5.3. data analysis 5.3.1. demographic data based on fmcg industry products, it was observed that 51.3% of the respondents were from fmcg-personal care products, 20.2% of the respondents came from fmcg-non-personal care products, whilst 28.6% from fmcgpersonal care & food products. based on the department, it was observed that 52.1% of the respondent came from the logistics department, this is caused by the headcount of the logistics department is indeed the highest in manufacturing firms. it also observed that 42.9% of respondents have worked for more than five years, which means that most respondents are experienced, and based on their job title, 51.3% of the respondents are staff, this is due to the structure of a manufacturing company in the form of a pyramid (the lowest layer with the highest number of employees) so that the staff or admin level has the largest population. 5.3.2. measurement model results the method of statistical analysis of the data was selected and adapted to the research objectives. the statistical analysis of the data used in this study using the structural equation modeling (sem) method and the analysis tool used in this method is the smart pls 3.0 (pls) software. the pls-sem analyses are presented by first presenting the results for the measurement model which is followed by comprehensive structural model results. the model analysis was done by performing relevant tests to ensure they meet the appropriate thresholds as recommended (hair et al., 2019). all indicators are valid and meet the loading factor value > 0.5, which means that the indicators used in the effect of supply chain responsiveness, flexibility, & quality on customer development 83 this study are valid or have met the requirements. examining the internal consistency of the constructs revealed that all items had composite reliability above 0.6 as recommended. convergent validity was assessed by examining the ave and it was observed that ave values were greater than 0.5, which is indicative of acceptable convergent validity (hair et al., 2019). item loadings, composite reliability, and ave of constructs are presented in table 2. table 2. descriptive statistics and psychometric properties of research constructs construct items loadings composite reliability ave supply chain flexibility frp1 0.843 0.917 0.649 frp2 0.831 frp3 0.787 frp4 0.772 frp5 0.806 frp6 0.791 supply chain quality krp1 0.828 0.885 0.659 krp2 0.771 krp3 0.806 krp4 0.840 logistics process responsiveness pl1 0.770 0.877 0.588 pl2 0.694 pl3 0.794 pl4 0.806 pl5 0.766 customer development pp1 0.800 0.929 0.723 pp2 0.867 pp3 0.879 pp4 0.896 pp5 0.807 operation system responsiveness so1 0.803 0.914 0.639 so2 0.803 so3 0.816 so4 0.839 so5 0.800 so6 0.729 supplier network responsiveness sup1 0.857 0.913 0.678 sup2 0.821 sup3 0.859 sup4 0.762 sup5 0.816 5.3.3. structural model results after assessing the measurement model regarding the validity and reliability of the various constructs, the structural model results were assessed. the customer development construct can be explained by the operating system, supplier, logistics, flexibility, and quality variables of 0.584 or 58.4%, while the remaining 41.6% is explained by other variables arum widya laksmi paramitha & wahyuningsih santosa & triwulandari sd 84 outside the research model. the logistics construct can be explained by 0.597 or 59.7% by operating system variables, suppliers, logistics, flexibility, and quality, while the remaining 40.3% is explained by other variables outside the research model. the r square of constructs is presented in table 3. table 3. the r square of constructs constructs r square customer development 0.584 logistics 0.597 the path coefficients and the research model were examined to assess the research hypotheses. the results of the hypotheses tests are summarized in table 4. the results of the analysis revealed that nine of the thirteen hypotheses were supported. operations systems responsiveness, supplier network responsiveness, and supply chain flexibility had positive and significant effects on logistics process responsiveness as hypothesized. additionally, logistics process responsiveness, supply chain flexibility, and supply chain quality had a direct positive and significant effect on customer development. regarding the mediating role of logistics process responsiveness, it was observed that logistics process responsiveness mediated the effect of operations systems responsiveness, supplier network responsiveness, and supply chain flexibility on customer development significantly. however, logistics process responsiveness did not significantly mediate the effect of supply chain quality on customer development. table 4. results of hypothesized relationships hs hipotesis o p values decision h1 osr -> lpr 0.401 supported h2 snr-> lpr 0.205 0.012 supported h3 dcf -> lpr 0.248 0.012 supported h4 scq -> lpr 0.026 0.367 not supported h5 lpr -> cd 0.264 0.002 supported h6 osr -> cd 0.011 0.461 not supported h7 snr-> cd -0.100 0.162 not supported h8 scf -> cd 0.237 0.026 supported h9 scq -> cd 0.453 supported h10 osr -> lpr -> cd 0.106 0.005 supported h11 snr-> lpr -> cd 0.054 0.035 supported h12 scf -> lpr -> cd 0.065 0.060 supported h13 scq -> lpr -> cd 0.007 0.374 not supported 6. discussion the study was conducted to empirically explore the concept of supply chain responsiveness, supply chain flexibility, and supply chain quality and to examine how it influences the customer development capabilities of firms. operation system responsiveness has a positive and significant influence on logistics process responsiveness (osr coeff. is 0.401, with a p-value is 0.000). this is supported by ning (2019) who states that flexibility, speed, and agility in the transportation logistics strategy by providing customized products in the warehouse to meet customer demands. supplier responsiveness has a positive and significant influence on logistics process responsiveness (snr coeff. is 0.205, with a p-value is 0.012). the results of this study support research that has been conducted by chu and wang (2012) that found responsive suppliers thus provide a source of external capabilities that can be integrated into the company to increase the responsiveness of its logistics processes to meet changes in a dynamic environment. supply the effect of supply chain responsiveness, flexibility, & quality on customer development 85 chain flexibility has a positive and significant effect on logistics process responsiveness (scf coeff is 0.248, with a pvalue is 0.012). the results of this study support research that has been conducted by yu (2016) which states that logistics flexibility is a firm’s ability to adjust activities such as warehousing, transportation, and distribution. supply chain quality has no influence on logistics process responsiveness (scq coeff. is 0.026, with a p-value is 0.367). the logistics process responsiveness has a positive and significant influence on customer development (lpr coeff. is 0.264, with a p-value is 0.002). operation system responsiveness has no influence on customer development (osr coeff. is 0.011, with a p-value is 0.461). supplier network responsiveness has no influence on customer development (snr coeff. is -0.01, with a p-value is 0.162). the previous hypothesis said that operation system responsiveness and supplier network responsivenesss do not directly influence customer development, however, the process logistics responsiveness has direct effects on customer development. this means that even though the firm has a responsive operation system and suppliers. if the firm does not have responsive logistics, the product will not arrive quickly and precisely at the customer, which will ultimately affect the company's ability to attract, satisfy and retain customers. supply chain flexibility has a positive and significant impact on customer development (scf coeff. is 0.237, with a pvalue is 0.026). the results of this research support the results of research conducted by putra (2020) previously that supply chain flexibility affects retailer satisfaction. to increase satisfaction, flexibility in the supply chain is needed, namely having the ability to provide products according to customer demands. supply chain quality has a positive and significant influence on customer development (scq coeff. is 0.237, with a p-value is 0.026). the results of this study support the results of research conducted by mappesona (2020) which states that product quality has a significant effect on purchasing decisions. the logistics process responsiveness mediates a positive relationship between operation system responsiveness and customer development. the results of this study support research conducted by saenz (2018) which states that a firm's operating system is basically responsible for producing the volume and mix of products requested by customers, and delivered to customers in a timely, reliable, safe, and efficient manner. cost-effective to delight customers. the logistics process responsiveness mediates a positive relationship between supplier network responsiveness and customer development. these results support the results of research conducted by chavez (2017) which state that suppliers who are less responsive and inefficient tend to thwart the flow of goods through the supply chain to customers, which causes poor delivery performance and poor-quality customer service. the logistics process responsiveness mediates a positive relationship between supply chain flexibility and customer development. these results support the results of previous research by hartmann (2011) which stated that the flexibility of logistics service providers is a strong driver of all core dimensions of customer loyalty. for last, the logistics process responsiveness cannot mediate supply chain quality to customer development. 7. implications of the study the study provides insights that can guide managers seeking to maximize the supply chain responsiveness, supply chain flexibility, and supply chain quality capabilities of their firms, as well as the capability of their firms to attract, satisfy and retain customers. first, managers should put the greatest effort into enhancing the responsiveness of their logistics process as this has the greatest effect on customer development. managers should explore avenues for increasing the ability of their logistics systems as well as enhancing their transportation, distribution, and warehousing systems. second, managers should put the effort into enhancing the flexibility and the quality of their supply chain system as this has a direct effect on customer development. having an operating system that can quickly produce various product types and sizes and new products, as well as being supported by a logistics process that quickly delivers can improve customer development. in addition, improving the quality of the supply chain is also necessary for customer development. firms must ensure that the products they manufacture and distribute are of high quality, attractive and innovative to attract, satisfy and retain their customers. 8. limitations and future research directions there are some limitations of the study. this study only discusses three dimensions of supply chain performance (responsiveness, flexibility, and supply chain quality). this research also only specifically addresses the three dimensions of supply chain responsiveness. data collection is limited to fmcg firms operating in indonesia, so it is possible that the relevant situation occurring in fmcg does not reflect in another sector. future studies can also delve deeper into the other supply chain variables so that they can complement all aspects of supply chain arum widya laksmi paramitha & wahyuningsih santosa & triwulandari sd 86 performance toward customer development. future researchers are expected to be able to specifically discuss the dimensions of supply chain flexibility and quality so that other potential variables that can affect customer development can be identified. future researchers are expected to be able to examine other industrial sectors so that comparisons between industrial sectors can be carried out. references al-hawajreh, k.m. and attiany, m.s. 2014. the effect of supply chain responsiveness on competitive advantage: a field study of manufacturing companies in jordan. european journal of business and management, vol. 6 no. 13, pp. 151-162. asamoah, david, et.al. 2021. the effect of supply chain responsiveness on customer development. the international journal of logistics management vol. 32 no. 4, pp. 1190-1213. blome, c., schoenherr, t. and eckstein, d. 2014. “the impact of knowledge transfer and complexity on supply chain flexibility: a knowledge-based view”, international journal of production economics, 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management and customer satisfaction: product quality and promotion analysis. international journal of supply chain management, vol. 9, no. 1 : 592-599. rana, s.m.s., et.al. 2015. determinants of supply chain performance: a strategic point of view. international journal of supply chain management, vol. 4, no. 3: 94:92. pundir, a. k., jagannath, j. d., & ganapathy, l. 2019. improving supply chain visibility using iot-internet of things. in 2019 ieee 9th annual computing and communication workshop and conference (ccwc), pp. 156–162. shaharudin, m. r., rashid, n. r. n. a., wangbenmad, c., hotrawaisaya, c., and wararatchai, p. 2018. a content analysis of current issues in supply chain management, international journal of supply chain management, 7(5), 199-212. singh, r.k., kumar, p. and chand, m. 2019, “evaluation of supply chain coordination index in context to industry 4.0 environment”, benchmarking: an international journal, vol. 28 no. 5, pp. 1622-1637 tenreng, mariana., idrus, arifin., lalo, annas., badruddin, syamsiah., perceived service quality, supply chain collaboration, supply chain management as antecedents of loyalty and customer satisfaction: exploring moderating role of wom. international journal of supply chain management, vol.8, no.6, 412-418. thatte, a.a., rao, s.s. and ragu-nathan, t.s. 2013. “impact of scm practices of a firm on supply chain responsiveness and competitive advantage of a firm”, journal of applied business research, vol. 29 no. 2, pp. 499-530. thekkoote, ramadas. 2021. understanding big data-driven supply chain and performance measures for customer satisfaction. benchmarking: an international journal, 29(8): 2359-2377. appendix measurement items operations system responsiveness osr1: respond quickly to changes in product volume demanded by customers. osr2: respond quickly to changes in the type of product requested by customers. osr3: effectively speed up customer emergency orders. the effect of supply chain responsiveness, flexibility, & quality on customer development 87 osr4: reconfigure equipment to quickly cope with changing demands. osr5: reconfigure personnel to quickly cope with changing requests. osr6: modify processes to quickly address changing requests. logistics process responsiveness lpr1: respond quickly to unexpected changes in shipping requests. lpr2: adjust warehouse capacity to quickly cope with changes in demand. lpr3: varying transport carriers to quickly cope with changing demand. lpr4: accommodate special or non-routine customer requests quickly. lpr5: can shorten the delivery lead time if needed. supplier network responsiveness snr1: can change production volume in a relatively short time according to demand. snr2: can change production variations in a relatively short time according to demand. snr3: can quickly change capacities to meet our changing needs. snr4: always deliver orders on time. snr5: effectively expedite emergency orders. supply chain flexibility scf1: can manufacture products in various sizes according to customer demands. scf2: can manufacture various types of products according to customer demands. scf3: can produce new products and introduce them to customers quickly. scf4: can improve product quality quickly if there is a defect (damage) and complaints or feedback from customers. scf5: can shorten the delivery lead time if needed. scf6: can deliver orders to new destination points quickly. supply chain quality scq1: have interesting and innovative products. scq2: has a wide selection of products to offer. scq3: have information about the shelf life or expiry date of the product. scq4: has a certificate of quality management/good manufacturing process (gmp)/zero accidents. customer development cd1: our firm can attract new customers. cd2: our firm has discovered our niche customer. cd3: our firm has a validated customer base. cd4: our firm can acquire customers. cd5: our firm can retain customers. cd6: our firm has a growing referred customer base. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 203-215 203 unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context kadir aden university of djibouti, djibouti sadik aden dirir university of djibouti, djibouti received: april 22, 2023 accepted: may 18, 2023 published: june 01, 2023 abstract: the efficacy of environmental taxation in achieving global emission reduction and its impact on economic performance have been widely debated, in the context of sustainable development. however, the role of the judiciary system's effectiveness as a moderating factor has been largely overlooked in previous studies. the current study examines the impact of green taxation on trade performance from two perspectives: firstly, the individual effect of environmental taxation on trade, and secondly, the moderating effect of the judiciary system on the relationship between environmental taxation and trade, with a focus on japan. the study utilizes several factors, such as judicial independence, impartial courts, property rights protection, and legal enforcement of contracts, to represent the judiciary system. autoregressive distributed lag methodology is employed to analyze the data. the findings reveal that the introduction of environmental taxation reduces japanese trade both in the short and long run. however, the negative impact of environmental taxation on tr ade is balanced by the moderating effect of an effective judiciary system. the study suggests that the judiciary system can play a crucial role in mitigating the adverse effects of environmental taxation by ensuring that it is implemented equitably and efficiently, and by enforcing penalties on governments and corporations that violate environmental regulations. keywords: environmental taxation, judiciary independence, trade, c02 emission. jel: k32, q56, f18 1. introduction in general, environmental taxation (et) applies to all tax collected across multiple categories of energy, such as fuel, electricity-generation tax, and oil product consumption tax. lin (2019) asserted that charging the energy industry is an efficient strategy to conserve energy, decrease greenhouse gas emissions, and enhance environmental standards. unequivocally, from an idealistic point of view, carbon emissions (c02) can be scaled back using different approaches, including environmental-levied charges, which can incentivize the market to assimilate green technologies pathways and implement energy-saving measures, which is the primary source of co2 emissions, through enhancements to energy efficiency and further transitioning toward clean technology embracement (calderón et al., 2016). in regard to this, changes in such taxes possess the potency to be competent to advance the adoption of renewable energy which are optimal options of carbon curtailment by supporting the market toward green growth and enhance trade performance (danish & ulucak, 2020; aden, 2023). conversely, classical economic are apprehensive about taxation in general since they exert a contractionary effect on economic growth and trade activities. yet, evidence from current growth theories suggests that environmental laws, including tax legislation, are the principal factor of the move to low-carbon technology, which may provide a foundation for countries to build sustainable pathways (acemoglu, 2016). furthermore, profits from such initiatives could also provide extra funds to upgrade obsolete infrastructure, which requires more assets and generates intensified waste and pollution, as well as kadir aden & sadik aden dirir 204 to optimize workforce development, which is a critical component of long-term economic development and ecological consciousness if properly managed. the critical aspect of environmental taxes and state legislation has been addressed in previous studies (e.g., damania et al., 2003; castiglione et al., 2014). however, these studies have disregarded the moderating role of judicial factors. the structure of the judicial system is essential from an environmental perspective because it conveys the predominance of law and the resilience of the institutional system itself. normative execution, especially, the health of the juridical system and other law enforcement, should delineate the ability of the state to impose, administer, and oversee taxation system, and particularly green taxes. consequently, the scope of variation in the legitimacy of law implementation among nations is anticipated to have varying impacts on the effectiveness of environmental programs. for example, emerging, or previously transitioning nations may face hindrances in implementing environmental taxes due to inadequate rule of law or low compliance towards green taxation owing to a myopic legal system. in this context, this study focuses heavily on the interactive moderating role of the judicial health system in examining the impact of environmental taxation on growth, particularly on trade performance. similarly, rather than relying on a singular indicator of the effectiveness of the judicial system, this study employs a composite index that comprises four distinct factors to represent the overall state of the judicial health system. japan is a suitable case study since it ranks among the top three countries in asia and the top 25 in the world for environmental protection, according to the environmental protection index published by yale university in 2022. japan's strong performance can be attributed to its policies in energy efficiency, renewable energy, and waste management, making it an ideal case study. 2. literature review 2.1. c02 emissions and environmental taxation according to mcevoy research, a emissions tax is the optimal method to regulate greenhouse gas emissions. unequivocally, a myriad of scholars calls for improvement in environmental performance by imposing energy taxation since it will be a panacea parameter for all environmental degrading activities (see; hayashi, 2001; hao et al., 2021; banerjee & carrion2017; he, 2019). therefore, in order to advance environmental sustainability, policymakers worldwide should introduce carbon taxes on fossil fuels according to their carbon volume. nevertheless, barragánbeaud et al. (2018) underlined the benefits of employing emission trading as opposed to emission tax as the most suitable carbon charging mechanism when seeking the most effective strategy to address ecological problems. for instance, the case of mexico, carbon trading is thought to be more feasible politically and economically in terms of reducing greenhouse gas (ghg) emissions. zhang (2018) focused on the tourism-based economy and discovered that tax on emission policy might have a significant impact that could increase the value of low emissions transport options. in this regard, environmental considerations are increasingly on the global stage, and businesses are under pressure from a variety of sources, including regulators, funders, customers, and rivals, to conduct environmental r&d in order to safeguard the environment while still pursuing high profit (yenipazarli 2019). as result of this rising worry about climate change and the ongoing occurrence of unplanned natural disasters have pushed the government to enact tax reform that can stifle activities that harm the environment. studies by freire-gonzález and puigventosa (2019), and rodrguez et al. (2018) shift the spotlight to examine authorities’ strategy of employing tax overhaul to tackle environmental degradation. they argued that even if levying fees or taxing some activities could cause the economy to falter, it might have a long-lasting beneficial impact on the ecology. nonetheless, goulder (1995) contends that an emission tax is more anti-competitive than a labor tax given that it has a narrower tax base, a potential for double taxing (i.e., on both input material and final output), and its uneven distribution among energy supplies. moreover, gaskins and weyant (1993) asserted that the implementation of an environmental taxation would result in greater pricing distortions due to how much an emission tax or other climate action reform would impact costs paid by both purchasers and providers. indeed, the entire purpose of an environmental tax is to completely or relatively repair a perversion resulting from an earlier ecological externality. the results of reducing distortions by internalizing an environmental externality are adaptations in the market to a greater degree of allocative efficiency, nevertheless, such a bold move without green economy strategy formulation will undermine the country’s overall performance. 2.2. green taxation and macro-economic factors unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context 205 kohn (2000) studied the dilemma of whether environmental levies impact global commerce more favorably or more adversely. the author used a heckscher-ohlin-samuelson model with three countries. the results indicate environmental taxes raise the amount of commerce between any two nations when the tax is higher in the nation that exports (imports) the polluting good, absent pollution havens and three-country effects that reverse natural comparative advantage. the third country predicted tax effect may be reversed by the green tax, which can also have significant commerce consequences amongst nations by altering manufacturing prices. some studies (bento and jacobsen 2007;takeda 2007) endorse the presence of double returns for environmental taxation (et). in some circumstances, switching from traditional taxes to et not only addresses the adverse impact of certain externalities but also lessens the market-skewing impacts of taxation, hence enhancing welfare (ekins et al. 2011). the existence of various outcomes in green taxation is also transparent from economic expansion or fiscal austerity. a theoretical model presented by karydas and zhang (2019) enables the identification of the necessary conditions for greater development following an et. they discover, that, there is uncertainty regarding the effect of green tax change on growth, however, in the instance of switzerland, they demonstrate that when revenues from carbon taxes is utilized to offset capital taxes, there is a growth profit over the long term. yamazaki (2017) offers evidence that a carbon fee and dividend would not have a negative impact on employment. pereira (2017) demonstrate, for the instance of portugal, that it is feasible to design of a revenue, infused by green tax reform would deliver three benefits; achieving good environmental, employment, and fiscal outcomes. 3. methodology the study uses yearly time series data ranging from 2000 to 2020 with the regard to japan as a focus country. in the case of japan specifically, the country has implemented a range of environmental taxes, including taxes on carbon emissions, fuel, and waste disposal. these taxes have had mixed impacts on trade performance, with some sectors experiencing increased costs and reduced competitiveness, while others have benefited from the shift towards more sustainable practices. analyzing these impacts in more detail can help policymakers to identify areas where further support may be needed to ensure a smooth transition to a more sustainable economy, while still maintaining japan's position as a key player in global trade. within this context, the study uses trade (% of gdp) as a proxy for trade performance. next, environmental taxation is employed as an independent factor in order to evaluate the relationship between the independent variable with the dependent variable (trade). the data are gathered from the oecd data. further, several indicators for the japanese judicial system are selected as a moderating factor, including judicial independence, impartial courts, protection of property rights, and the legal enforcement of contracts. the data are extracted from the fraser institute economic freedom index. finally, we incorporated the co2 emission as a controlling variable. to proceed with the study, the paper performed autoregressive distributed lag (ardl). the model will be useful in predicting the long-term and short-term correlations between variables. it is particularly useful when dealing with small sample sizes and mixed-order variables, as it allows for the estimation of both shortterm and long-term effects of changes in variables. it can also be used examine the presence of a long-term equilibrium relationship between variables, which means that they have a long-term equilibrium relationship. next, the granger causality test is performed to capture the long-run and short-run dynamic relationship among the variables. it also helps in determining whether changes in one variable are likely to cause changes in another variable, or whether the relationship is bidirectional or spurious. kadir aden & sadik aden dirir 206 figure 1. the conceptual model of the study table 1. variables’ description variable abbreviation description measurement dependent tr trade performance trade (%gdp) moderating etx environmental taxation environmental tax energy/total/transport/pollution/resources %gdp independent ic impartial courts impartial courts (scores out of 10) jd judicial independence judicial independence (scores out of 10) lc legal enforcement of contracts legal enforcement of contracts (scores out of 10) pr protection of property rights protection of property rights (scores out of 10) controlling co2 co2 emission co2 emission (metric tons per capita) 3.1. econometric model for an empirical analysis of cointegration, we use the ardl technique. one benefit of the ardl technique is that it does not require equal levels of integration for each variable. it does not really matter whether a factor has a variable order of integration, order zero integration, or order one integration. this feature makes ardl superior to conventional cointegration techniques. due to the test's capacity to identify long-term relationships between variables is diminished when there are different orders of integration among variables, standard cointegration procedures become unstable. our model's general functional form is as follows: tr = ∫ (𝐸𝑇𝑋, (𝐼𝐶 ∗ 𝐸𝑇𝑋), (𝐽𝐷 ∗ 𝐸𝑇𝑋), (𝐿𝐶 ∗ 𝐸𝑇𝑋), (𝑃𝑅 ∗ 𝐸𝑇𝑋), 𝐶𝑂2) (1) we observe that tr is the trade performance, while the other indicators are the environmental taxation, impartial courts, judicial independence, legal enforcement contracts, property rights and co2 emission. once equation (1) is log-linearized, the below equation is generated: 𝑇𝑅𝑡 = 𝛽0 + 𝛽1𝐸𝑇𝑋𝑡 + 𝛽2(𝐼𝐶 ∗ 𝐸𝑇𝑋)𝑡 + 𝛽3(𝐽𝐷 ∗ 𝐸𝑇𝑋)𝑡 + 𝛽4(𝐿𝐶 ∗ 𝐸𝑇𝑋)𝑡 + 𝛽5(𝑃𝑅 ∗ 𝐸𝑇𝑋)𝑡 + 𝛽6𝐶𝑂2𝑡 + 𝑡 (2) in this equation, β_0 is the constant, and ε_t is regarded as the equation's error term. the parameters of β_1 through β_6 are the coefficients that are utilized to calculate the trade performance. additionally, it is possible to compute unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context 207 both the short-run and long-run coefficients simultaneously. the preceding model was developed in order to establish ardl bounds: ∆𝑇𝑅t =∝ 0 + ∑ ∝ 1 ∆𝑇𝑅t+ ∑ ∝ 2 ∆𝐸𝑇𝑋t-1 𝑝 𝑖=𝑡 + ∑ ∝ 3 ∆(𝐼𝐶 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ ∝ 4 ∆(𝐽𝐷 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + 𝑝 𝑖=𝑡 ∑ ∝ 5 ∆(𝐿𝐶 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ ∝ 6 ∆(𝑃𝑅 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ ∝ 7 ∆𝐶𝑂2t-1 𝑝 𝑖=𝑡 + 𝜆1 𝑇𝑅t-1 + 𝜆2 𝐸𝑇𝑋t-1 + 𝜆3 (𝐼𝐶 ∗ 𝐸𝑇𝑋)t-1 + 𝜆4 (𝐽𝐷 ∗ 𝐸𝑇𝑋)t-1 + 𝜆5 (𝐿𝐶 ∗ 𝐸𝑇𝑋)t-1 + 𝜆6(𝑃𝑅 ∗ 𝐸𝑇𝑋)t-1 + 𝜆7 𝐶𝑂2t-1 + (3) the ∝ parameters in the equation denotes the short-term relationship. on the other hand, the 𝜆 symbol represents long-term relationships. consequently, this approach tests the null hypothesis of no cointegration (𝜆1 = 𝜆2 = 𝜆3 = 𝜆4 = 𝜆5 = 𝜆6 = 𝜆7 = 0) or the alternatve hypothesis of cointegration (𝜆1 ≠ 𝜆2 ≠ 𝜆3 ≠ 𝜆4 ≠ 𝜆5 ≠ 𝜆6 ≠ 𝜆7 ≠ 0) based on the f-test. additionally, this f-test was developed based on the relevance of the lower and upper bound values, which were primarily expressed by (pesaran et al., 2001). as a result, this method aids in providing pertinent information regarding whether the elements are cointegrated. thus, if over a long period of time, the variables are cointegrated, an error correction model is used to estimate each variable's coefficient. the formula is shown below. ∆trt = 𝛾0 + ∑ 𝛿i ∆𝑇𝑅t-1 + ∑ 𝜙i ∆𝐸𝑇𝑋t-1 𝑝 𝑖=𝑡 + ∑ 𝜙i ∆(𝐼𝐶 ∗ 𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ 𝜙i ∆(𝐽𝐷 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ 𝜙i 𝑝 𝑖=𝑡 𝑝 𝑖=𝑡 ∆(𝐿𝐶 ∗ 𝐸𝑇𝑋)t-1 + ∑ 𝜙i ∆(𝑃𝑅 ∗ 𝐸𝑇𝑋)t-1 𝑝 𝑖=𝑡 + ∑ 𝜙i ∆𝐶𝑂2t-1 𝑝 𝑖=𝑡 + 𝜇𝐸𝐶𝑇t-1 + 𝜐t (4) in this model, the parameters μ, reflect the speed of adjustment, and ect stands for the error correction term. granger causality the purpose was to show the factors' causal linkages. to ascertain if there is a meaningful relationship between the indicators, the granger causality test proposed by granger (1969) was carried out. the strategy is explained in further context below: 𝑋𝑡 = ∑ (𝑎11,1x𝑡−1 + 𝑎12,1y𝑡−1) 𝑝 𝑙=1 + 𝜇𝑡 (5) 𝑌𝑡 = ∑ (𝑎21,1x𝑡−1 + 𝑎22,1y𝑡−1) 𝑝 𝑙=1 + 𝜖𝑡 (6) as illustrated in equation 5 and 6 p implies the order of the model, a_(ij,1) (i,j=1,2) denotes the coefficients expressed in the model, while μ_t and ϵ_t denotes the residuals. a causation linkage between x and y may be established using f tests, and the parameters can be computed using simple least squares. 4. empirical findings the statistical information guided the regulators' trend analysis throughout the course of the time span and allowed them to conduct a thorough investigation of the factors that impacted the reliant variables. the factors' statistical characteristics are shown in table 2. the percentage of trade performance ranges from 1.57% to 1.29%, with an average of 1.45%. with a kurtosis of 2.07% and a standard deviation of 0.09%, the distribution is negatively skewed. in japan, environmental taxation has an average value of 1.50%, with an upper limit of 1.68%, and a lower limit of 1.25 percent. additionally, the findings reveal a negatively skewed distribution for all the variables. the low standard deviation value for all the variables indicates that data are clustered around the mean. the correlating matrix is yet another key technique for obtaining inferences between elements before they are examined. in table 2 the results indicate that all the variables are negatively correlated with trade performance. except, co2 emission, and legal enforcement of contracts which demonstrated a moderate positive association with trade performance. table 2. statistics overview descriptive statistics kadir aden & sadik aden dirir 208 items tr etx ic jd lc pr c02 mean 1.459071 1.505714 1.066738 1.059800 1.001220 1.076069 0.968271 maximum 1.573236 1.680000 1.127312 1.121835 1.047664 1.164329 0.996005 minimum 1.291360 1.250000 0.973497 0.965747 0.960994 0.861558 0.934410 std. dev. 0.093035 0.147125 0.049019 0.053411 0.026183 0.085979 0.014988 skewness -0.658403 -0.338194 -0.465336 -0.400667 -0.003409 -1.080551 -0.291432 kurtosis 2.073231 1.652694 2.101906 1.706606 1.913195 3.255764 2.877512 jarque-bera 2.268771 1.988644 1.463634 2.025630 1.033542 4.143805 0.310393 observations 21 21 21 21 21 21 21 correlation matrix tr etx ic jd lc pr c02 ltr 1.000000 -0.780963 -0.727727 -0.771481 0.458750 -0.655961 0.204676 etx -0.780963 1.000000 0.955574 0.989628 -0.018160 0.894292 0.033125 lic1 -0.727727 0.955574 1.000000 0.970725 -0.025118 0.966325 0.157176 ljd1 -0.771481 0.989628 0.970725 1.000000 -0.024386 0.925605 0.034241 llc1 0.458750 -0.018160 -0.025118 -0.024386 1.000000 0.068147 0.127825 lpr1 -0.655961 0.894292 0.966325 0.925605 0.068147 1.000000 0.215124 lc02 0.204676 0.033125 0.157176 0.034241 0.127825 0.215124 1.000000 the outcomes of the df-gls, pp, kpss, and adf tests are displayed in table 3. after initial divergence, any variables that are not stationary at level turned stationary at i (1). this suggests that all of the factors under consideration are either i (0) or i (1), not i (2), and that none of them are i (2). it is noteworthy to mention unlike other tests the kpss test revealed that almost all the variables are stationary at level. table 3. unit root test variables (adf) (pp) (df-gls) (kpss) level tr -1.951 -2.071 -1.495 0.531** etx 0.988 0.578 0.499 0.609** ic -0.308 -0.291 -0.261 0.586** jd 0.001 0.150 0.081 0.600** lc -1.776 -1.524 -1.537 0.192 pr -0.886 -0.887 -0.826 0.552** unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context 209 c02 -2.809* -2.043 -2.638** 0.073 first difference tr -4.221*** -4.246*** -4.262*** 0.306 etx -5.854*** -5.854*** -5.745*** 0.220 ic -4.381*** -3.426** -3.391*** 0.125 jd -4.638*** -4.639*** -3.988*** 0.221 lc -2.900* -2.924* -2.992*** 0.436* pr -3.423** -3.283** -3.176*** 0.089 c02 -3.229** -3.125** -3.248*** 0.785 the autoregressive distributed lag test approach will help us evaluate the shortand long-run elastic qualities between components in order to develop successful policy measures. given this, the elements exhibit long-term connections and are systematically related, as indicated by the ardl boundaries projection in table 4. the fstatistics are notable at the 1% level with a 101.578 value and fall below the i (1) upper limit after considering causation and partial equilibrium correlations between variables. we shall thus move forward with the error correction and long-run estimate. table 4. ardl bounds testing estimates test statistic value k f-statistic 101.5782 6 critical value bounds significance i (0) bound i (1) bound 10% 1.99 2.94 5% 2.27 3.28 2.5% 2.55 3.61 1% 2.88 3.99 table 5 demonstrates that the adjustment error correction factor is quantitatively meaningful and negative (-1.608). this claim illustrates how quickly equilibrium returns after a shock to the long-run causal connection. according to the short-run and long-run results, most of the variables appear to have a significant association with the trade performance. starting with the long-run estimates we observe that protection of the property law and environmental taxation decreases by 1.35%, and 2.05% the japanese trade performance. for instance, a 1% increase of environmental taxation decreases by 1.35%, the japanese trade. however, the interaction effect of the judicial system compensates for such a negative effect. we observe that jd, lc cause a positive impact on the trade performance of japan. this implies a 1% increase in judicial independence, legal enforcement of the contract rises the japanese trade performance by 5.94% and 1.35% respectively. the table also shows that c02 emission have a long-run association with trade as both factors complement each other. finally, the impartial court uncovered insignificant influence on the japanese trade performance. although, a positive association can be noted in the short run for impartial court (1.66). table 5. ardl short-run and long-run estimation dependent variable: trade kadir aden & sadik aden dirir 210 selected model: ardl (2, 1, 1, 1, 1, 1, 1) short-run cointegrating form variable coefficient std. error t-statistic prob.* tr(-1) 0.177891 0.057973 3.068518 0.0373 tr(-2) -0.786158 0.111786 7.032679 0.0022 etx -2.160919 0.310825 6.952197 0.0022 etx(-1) -1.149192 0.200542 5.730431 0.0046 ic 1.664356 0.455244 3.655964 0.0217 ic(-1) -1.051753 0.560872 1.875210 0.1340 jd 1.954449 0.840540 2.325231 0.0807 jd(-1) 7.600689 0.913769 8.317959 0.0011 lc 0.881448 0.180782 4.875757 0.0082 lc(-1) 1.303086 0.213448 6.104929 0.0036 pr -1.223463 0.166994 7.326383 0.0018 pr(-1) -0.955369 0.155662 6.137474 0.0036 c02 3.220758 0.478940 6.724764 0.0025 c02(-1) 0.287770 0.277241 1.037977 0.3579 c -6.715302 0.669681 10.02762 0.0006 ect(-1) -1.608267 0.034021 47.27282 0.0000 long-run coefficients variable coefficient std. error t-statistic prob. etx -2.058185 0.186633 11.02795 0.0004 ic 0.380909 0.502874 0.757463 0.4909 jd 5.941262 0.558267 10.64234 0.0004 lc 1.358315 0.087436 15.53496 0.0001 pr -1.354770 0.182622 7.418421 0.0018 c02 2.181557 0.138222 15.78304 0.0001 c -4.175489 0.373826 11.16961 0.0004 to determine the causation between the variables and whether it exists, one can use the f-statistic, which assesses the pairwise granger causality. table 6 summarizes the causality association between the indicators as well as the orientation of connection, such as one-way or two-way causality. generally, the results of the test demonstrate a unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context 211 unidirectional relationship between trade performance and impartial courts and legal enforcement of contracts. this can be explained by the fact that when traders enter into contracts with each other, they rely on the legal system to enforce those contracts and provide a mechanism for resolving disputes. if the legal system is perceived to be biased or corrupt, traders may be less willing to engage in trade, which can have a negative impact on trade performance. certainly, when legal enforcement of contracts is effective, it can lead to increased trust and confidence among traders. this can encourage more trade and improve trade performance. strong legal systems can also help to ensure that contracts are honored, reducing the risk of default and enabling traders to plan for the future. finally, the remaining variables did not exhibit a significant causal relationship with japanese trade performance. table 6. pairwise granger causality variables f-statistic prob. note etx ≠> tr 0.08030 0.7803 no causality tr ≠> etx 0.92589 0.3494 ic ≠> tr 0.23522 0.6339 unidirectional tr≠> ic 5.72022 0.0286 jd ≠> tr 0.01394 0.9074 no causality tr ≠> jd 1.77448 0.2004 lc ≠> tr 6.21156 0.0233 unidirectional tr ≠> lc 2.48425 0.1334 pr ≠> tr 0.10586 0.7489 no causality tr ≠> pr 2.29282 0.1483 co2 ≠> tr 0.27452 0.6071 no causality tr ≠> co2 0.00368 0.9523 in order to ensure the integrity and dependability of our chosen model, the study thus makes extensive use of analytic statistical tests, the observations are provided in table 8. the outcomes indicate that its design is reliable because it passed all diagnostic evaluations. the results of all the diagnostic tests indicate that there are no problems with the model. for instance, the ramsey reset test has demonstrated that the model is not misspecified. the heteroscedasticity of the model is assessed using the breusch-pagan-godfrey test, harvey, and the arch test. the empirical findings show that heteroscedasticity is minor and unimportant. the residuals of the model are found to be normally distributed by the jarque-bera test. furthermore, the graph resides under the 5% level of significant constraints, which is another indication of the stability of the model according to the cusum and cusumsq plots (see figure 2). table 8. the diagnosis tests kadir aden & sadik aden dirir 212 test f. stat/prob remark heteroskedasticity test: breusch–godfrey 0.8046/ 0.6622 no problem of heteroscedasticity heteroskedasticity test: harvey 1.2057/ 0.4717 no problem of heteroscedasticity heteroskedasticity test: arch 2.3488/ 0.1449 no problem of heteroscedasticity ramsey reset test 1.3992/ 0.3221 the model is specified correctly jarque–bera (normality) 0.2542/ 0.8806 the model is normally distributed figure 2. cusum and cusumq 5. conclusion japan has long been recognized as a leader in environmental regulation and technology innovation, and the country has been actively working to improve its judicial system to enhance its competitiveness in international trade. japan has been an important player in international trade for decades, with a strong focus on exporting high-tech products and automobiles. however, in recent years, japan's trade performance has been somewhat mixed. in 2020, japan's exports declined by 11.1% due to the covid-19 pandemic, which led to decreased demand for japanese products in key markets such as the united states and china. however, the country's exports have since recovered, with a 21.4% increase in exports in 2021, driven in part by the global economic recovery and increased demand for japanese electronics and automobiles. in terms of its trade balance, japan has had a persistent trade surplus, meaning that the value of its exports has exceeded the value of its imports. however, this surplus has been declining in recent years, and in 2020, japan recorded a trade deficit for the first time in four years due to the pandemic. within this context, the effectiveness and efficiency of the judicial system can impact the ease of doing business in japan. if the judicial system is slow, opaque, and unpredictable, it can create barriers to trade by making it difficult for companies to resolve disputes and enforce contracts. this can reduce foreign investment and discourage international trade. on the other hand, a strong and transparent judicial system can increase confidence in the rule of law, encourage investment, and promote trade by providing a predictable and stable business environment. this can lead to a more vibrant economy, increased exports, and greater competitiveness in the global market. secondly, environmental taxation can impact trade performance by affecting the cost of production and competitiveness of industries. environmental taxes can incentivize companies to adopt cleaner production technologies and reduce their environmental impact, but they can also increase production costs, which can reduce competitiveness in the global market. however, if environmental taxes are structured appropriately and implemented in a way that promotes unraveling the relationship between environmental taxation and trade: the moderating role of judicial system within the japanese context 213 innovation and competitiveness, they can spur the development of new technologies and products that have a lower environmental impact, while maintaining or even enhancing competitiveness in international trade. accordingly, the current study investigated the impact of environmental taxation on japanese trade performance by using the judicial system as a moderating factor. the study consists of time series data from 2000 to 2020. additionally, the ardl model and granger causality test were employed in order to capture the long-run cointegration among the variables. based on this, the long-run results presented that the japanese independence, legal enforcement of contracts reduces the negative effect of environmental taxation on trade performance, whereas, c02 emission contribute favorably to trade performance. this indicates, an efficient and transparent judicial system can create a stable and predictable business environment, which can attract foreign investment and encourage international trade. japan's legal system has a reputation for being reliable and impartial, which can help to build trust between business partners and investors. this can lead to a greater willingness to enter into contracts and invest in japan, which can boost the country's trade performance. secondly, effective enforcement of contracts can provide greater certainty for businesses operating in japan, which can help to reduce transaction costs and increase business activity while balancing the effect of green tac. this can improve trade performance by facilitating greater engagement with foreign partners and reducing the risk of disputes and contract breaches. thirdly, the judiciary can provide a check on the power of the government, ensuring that environmental tax policies are not implemented in a way that violates citizens' rights or infringes on other legal principles. this can help to ensure that environmental tax policies are developed and implemented in a way that is consistent with legal and constitutional frameworks, thereby promoting both environmental protection and economic growth. finally, an effective judiciary system can help avoid any negative impacts on economic growth that may arise from a poorly designed or implemented tax system. furthermore, the protection of property rights and environmental taxation revealed a detrimental influence on japanese trade performance. this can be explained due to the fact that if the protection of property rights is overly strict or complicated, it can create unnecessary barriers to trade and discourage innovation. for example, overly strict patent laws or licensing requirements can make it difficult for foreign businesses to enter the japanese market, which can reduce competition and harm trade performance. secondly, environmental taxation can have a detrimental influence on japan's trade performance if it is perceived as overly burdensome to businesses or if it is not implemented in a way that encourages innovation and competitiveness. if environmental taxes increase production costs significantly, this can reduce the competitiveness of japanese products in the global market, particularly if other countries do not have similar taxation policies. this can reduce demand for japanese products, harm exports, and have a negative impact on japan's trade performance. in addition, if environmental taxes are not designed effectively, they can also discourage innovation and hinder the development of environmentally-friendly technologies. for example, if environmental taxes are set at a level that makes it difficult for businesses to invest in research and development, this can reduce innovation and harm japan's long-term competitiveness. finally, several policy implications can be extracted from this research. first, regarding the judicial system, policymakers may consider the importance of maintaining a stable and predictable business environment by continuing to strengthen the efficiency, transparency, and impartiality of japan's judicial system. this can involve increasing resources for the judiciary, promoting transparency and impartiality in legal proceedings, and reducing barriers to dispute resolution. additionally, policymakers may consider exploring new technologies and tools, such as online dispute resolution platforms, to improve the speed and efficiency of dispute resolution processes. second, policymakers may need to balance the need for environmental protection with the need for a competitive and innovative business environment. environmental taxes may be necessary to promote sustainability and reduce harmful emissions, but policymakers must design them in a way that minimizes their negative impact on businesses and trade performance. this can involve setting the tax rate at a level that incentivizes companies to invest in cleaner technologies while also ensuring that it does not significantly increase production costs or reduce competitiveness. additionally, policymakers may consider providing incentives, such as tax credits or subsidies, to businesses that invest in clean technologies or engage in sustainable practices. lastly, policymakers may consider the importance of promoting international cooperation and collaboration on environmental issues. this can involve participating in international climate agreements and working with other countries to develop common standards for environmental taxation and other policies. by working together, countries can create a more level playing field for businesses 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competitive pressure and emissions taxation. european journal of operational research, 276(2), pp.757-769. zhang, j. and zhang, y., 2018. carbon tax, tourism co2 emissions and economic welfare. annals of tourism research, 69, pp.18-30. journal of international trade, logistics and law, vol. 3, num. 2, 2017, 1-11 strategic global logistics management for sourcing road oil in the u.s. raj bridgelall, (phd) north dakota state university, north dakota, usa eunsu lee, (phd, cpim, cscp, gisp) new jersey city university, jersey city, new jersey, usa michael bell, (jd) new jersey city university, jersey city, new jersey, usa received: oct. 28, 2017 accepted: dec. 06, 2017 published: dec. 07, 2017 abstract: the demand for asphalt and road oil heavily leverages local supply because the product is a hot binder of aggregates that form the final mix needed to pave roads. this paper discusses the supply chain characteristics of crude oil feedstock by considering the overall logistics of sourcing heavy crude oil domestically, or importing it from international trading partners. heavy crude oil is a source of asphalt and road oil production. the study examines critical global and domestic logistics factors such as customs, regulations, security, environmental compliance, and natural events that will affect costs, schedules, and risks. the study provides a framework for decision-making in sourcing the feedstock. the study helps global logisticians and transportation managers improve strategic design and planning towards efficient sourcing. keywords: asphalt, road oil, bitumen, energy supply chain 1. introduction with a renewed focus on infrastructure revitalization and expansion to spur domestic job creation and economic growth, crude oil refineries in the u.s. are expecting a growing demand for asphalt and road oil (u.s. department of transportation, 2017). this expectation prompts an investigation into feedstock import options. the anticipated increase in demand could result in decisions to boost production in the midst of a feedstock supply scarcity. as expected, the price of asphalt increases sharply when supply does not keep up with demand (tyler rhodes, 2005). for the past decade, u.s. refineries have been upgrading their capacity to process more of the residuum from conventional crude oil distillation to meet growing demands for lighter, higher-value transportation fuel such as gasoline, diesel, and jet fuel (platts, 2012). the application of cokers has been a popular means of upgrading capacity. this technology produces more heat to further break down more than 80% of the residual asphalt and road oil, thereby producing greater yields of the lighter products. consequently, refineries have been producing less asphalt from the residuals. this paper discusses the supply chain characteristics of crude oil feedstock by considering the overall logistics of sourcing heavy crude oil which is source of asphalt and road oil production, domestically or importing it from international trading partners. raj bridgelall, eunsu lee, michael bell 2. supply chain characteristics supply chain design varies depending on the characteristics of a product (commodity), price, demand and supply, transportation network, including transportation modes and infrastructure capacity (bridgelall, et al., 2016). this section discusses the components of the supply chain. on a global scale, a natural resource scarcity has the greatest impact on commercial activities (bell, et al., 2012). 2.1. commodity asphalt and road oil are hydrocarbons composed of approximately 80% carbon and 15% hydrogen. the remaining 5% of material consists of oxygen, sulfur, nitrogen, and traces of various metals. asphalt is insoluble in water and is a natural byproduct of organic material from bacterial decomposition. it is found in large deposits as ‘tar lakes’ and ‘tar sands’ as well as in crude oil. the asphalt content in crude oil varies with its specific gravity. the american petroleum institute (api) developed a measure of the specific gravity of oil in units of api degrees (schenk, et al., 2006). the product will float on water if the api is greater than 10°, otherwise it will sink. higher api values represent less dense oils that yield greater volumes of lighter, higher-value products for the same amount of processing. the industry classifies oil with api gravity less than 10° as asphalt, 10° to 20° as heavy crude and above 33° as light crude. conventional oil has low viscosity. table 1 summarizes the api gravity and asphalt yield expected from each import source of the heaviest oils available in the western hemisphere. the analysis accounts for asphalt and road oil yield differences by adjusting the number of barrels needed to produce the same amount of asphalt. table 1. crude oil classification deposit name port of sale api gravity average (oapi) yield of asphalt and road oil (%) north dakota sweet (nds)bakken u.s. 40-43* 8.27*** western texas intermediate (wti) cushing, oklahoma 39.6 (37-42)* 3.0 cold lake blend (canada) edmonton, canada 22.0 33.6 maya-mexico cayo arcas, mexico 21.8 33.4 boscan-venezuela bajo grande, venezuela 10.1 70.0 western canada select (wcs) hardisty, canada 21.3* 33.9 note: mmbo: million barrels of oil; source of *: (turner, mason & company consulting engineering, 2014); source of **: (environmental canada, 2017); *** average between 1993 and 2016 (u.s. energy information administration, 2017). north dakota sweet (nds) can flow under high pressure and is somewhat lighter than the mainstream type such as western texas intermediate (wti). while both nds and wti produce relatively low asphalt and road oil yields, hydrocarbons extracted from the canadian oil sands produce greater yields of asphalt and road oil. sands mined from the first 250 feet below the surface will release hydrocarbon molecules when mixed with hot water. 2.2. price figure 1 summarizes the average annual landed cost per barrel of crude oil from selected countries in america and outside of the continental u.s. u.s. refineries paid less for crude oil from sources in the americas than from sources in the middle east. the figure compares the average annual landed cost per barrel for crude oil from the three largest oil-producing nations in the americas (venezuela, mexico, and canada) with that of the largest oil producing regions outside of the americas (persian gulf, saudi arabia). the price discount for oil from the americas approached 10% in recent years; however, the oil price per barrel is relatively high. thus the gap between crude oil price and discount rate becomes narrow. under such circumstances, strategic global logistics management for sourcing road oil in the u.s. u.s. refineries might import and purchase light crude oil instead of heavy crude oil (rapier, 2013). refinery managers expect that this price and discount trend will continue with increasing oil production levels in north america. 2.3. supply 2.3.1. domestic supply cushing in oklahoma has the largest oil storage facilities in the united states with tanks that can hold from 80,000 to 600,000 barrels of oil (philips, 2012). the major oil companies such as british petroleum (bp) and enbridge energy partners own most of those storage tanks. two varieties of heavy crude are generally available: western texas sour (wts) with api 30.2° and heavy louisiana sweet (hls) with api 36-40° (see table 1). when demand for asphalt and road oil weakens or when the price of oil is relatively low due to oversupply in cushing, asphalt and road oil producers will likely purchase western texas intermediate (wti), which has an api 39.6°. the reasoning behind such a decision is that the light crude oil is easier to refine and the shipping distance from texas is shorter than from north dakota, hence it is more cost effective. numerous pipeline carriers are available in the area to deliver purchased crude oil to facilities located near catoosa, oklahoma, which is approximately 65 miles east of cushing. figure 1: annual average discount for crude from the americas 2.3.2. international supply the united states is the third largest producer of crude oil, followed by saudi arabia and the russian federation (figure 2). the united states, canada, mexico, and venezuela, all in the western hemisphere, rank in the top ten of crude oil producers and account for 18% of the world production. the top 15 countries account for approximately 76% of the world’s production. oil producers in the united states, canada, united kingdom, india, argentina, australia, columbia, and australia are privately owned, whereas most other countries own their oil production entities. the u.s. oil production rate relative to its reserves is the highest in the western hemisphere as observed (u.s. energy information administration, 2011). combined, venezuela and canada have the largest proven oil reserves in the world, and can abe a stable source of supply to the western hemisphere for decades. the analysis herein focuses on comparing the logistics of purchasing heavy crude oil from the largest western hemisphere producers: canada, mexico, and venezuela. 0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 0 20 40 60 80 100 120 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 d is co u n t r a te (% ) u s $ p e r b a rr e l year mexico venezuela canada americas discount raj bridgelall, eunsu lee, michael bell figure 2: the 16-year average world oil production, 2000 2015 (bp global, 2016). 2.4. production capacity when assessing the performance of a refinery, throughput is one of the key performance indicators. throughput explains annual performance, which the markets predict, whereas the alternative measure of capacity varies depending on several factors such as labor, finance, electricity, physical flow, and transportation (figure 3). in 2015, the united states refined more than 16 million barrels per day, whereas canada, mexico, and venezuela combined refined 3.6 million barrels per day. the refinery throughput from canada, mexico, and venezuela is relatively unchanged. in contrast, u.s. refinery throughput increased steadily since 1985. the overall supply of asphalt has decreased continuously since 2006, immediately prior to the economic recession. while overall supply decreases, the total amount of asphalt oil remains. in 2013, u.s. refineries imported 7.3% of the total asphalt sourced (united nations, 2016). since 2013, the supply of asphalt and road oil production increased by an annual average of 2.87% (u.s. energy information administration, 2017). 2.5. demand the u.s. transportation sector consumed 125.3 million and 128.8 million barrels of asphalt and road oil in the year 2015 and 2016, respectively. after a consumption decrease in 2013 and 2014, there was a consumption increase of approximately 5-8 million barrels per day (united nations, 2016). as expected, consumption increases correlate with an increase in transportation funds for pavement and transportation infrastructure improvement. figure 4 shows asphalt and road oil consumption in 2014 in each u.s. state. california consumed 8.6 million barrels (15.97 trillion btu), which is equivalent to $926 million. hawaii and south dakota consumed more than half million barrels in 2014. however, the unit price per million btu in hawaii and south dakota was the highest in the nation by $21.78 and $21.15, respectively. strategic global logistics management for sourcing road oil in the u.s. figure 3: u.s. oil refinery capacity (bars) and u.s., canadian, mexican and venezuelan oil refinery throughput (lines), 1985-2015 (bp global, 2016). figure 4: asphalt and road oil consumption by state in 2014 raj bridgelall, eunsu lee, michael bell 2.6. transportation given its midcontinent location, oklahoma imports from latin america will arrive at the u.s. gulf coast and move north. importing crude oil from canada will cross the border and then move south. figure 5 illustrates a summary of the mode choices available, the approximate line-haul distances in miles, and costs in dollars per barrel ($/b) for pipelines or cents per ton-mile (¢/t-m) for truck, rail, and barge. the four northbound route options from venezuela and mexico include oil-tanker-vessels-to-barge (i.e. sea-barge), oil-tanker-vessels-to-cp railway-to-trucks-to-pipeline (i.e. sea-cp-tr-pl), oil-tanker-vessels-to-cn railway-totrucks-to-pipeline (i.e. sea-cn-tr-pl), and oil-tanker-vessels-to-pipeline (i.e. sea-pipeline). the five southbound route options from canada include pipeline-direct (i.e. pipe-direct), pipeline connection from edmonton, canada (i.e. e-pipe-pipe), pipeline connection from hardisty, canada (i.e. h-pipe-pipe), cp railway-to-trucks-to-pipeline (i.e. cp-tr-pl), and cn railway-to-trucks-to-pipeline (i.e. cn-tr-pl). a dilute is necessary to move heavy crude oil through long haul transport pipelines. diluents consist of naphtha, gas condensates, or light oils that reduce viscosity. the typical mix reduces the actual feedstock content to 70% of a barrel (wec, 2010). it is not necessary to add dilutes for mode options such as rail, trucks, and barges. however, if any of the intermediate movements involves pipelines, then the carrier must add dilute to transport the commodity, thereby increasing the tariff based on the additional volume of material transported. figure 5: transportation options (bridgelall, et al., 2016) 3. global supply chain perspectives several factors could potentially limit a company’s ability to import the desired crude oil feedstock on schedule. for example, importing from a foreign country could involve restrictions, quotas, and customs duties. if considered a hazardous material, the importer must be aware of the various rules and regulations governing their transport or otherwise risk heavy fines. in addition to customs and regulations, barriers may include the north american free strategic global logistics management for sourcing road oil in the u.s. trade agreement (nafta), pressures from environmental activists, concerns about the growing u.s. dependence on foreign oil, security aspects of transporting dangerous goods, weather conditions that can adversely affect some transportation options, and the availability of transport capacity. the next sections describe each of these areas that are factors in the importer decision-making process. 3.1. customs and regulations the world customs organization established an international harmonized commodity description and coding system (the “harmonized system”) that virtually all countries use to classify imported goods. based on the harmonized system, the usitc (office of tariff affairs and trade agreements) publishes a harmonized tariff schedule (hts) of the united states that lists the tariffs for all items imported. the tariff listed for crude oil is 5.25 cents per barrel for api below 25° and 10.5 cents per barrel for api of at least 25° (u.s. international trade commission, 2017). to qualify for the nafta duty-free rate, the supplier must provide a certificate of origin showing where the product was “wholly obtained or produced.” according to the online hts, there is no import duty on heavy crude or asphalt and road oil. this means that canadian heavy crude oil transported undiluted via rail qualifies for duty-free import. however, if mixed with diluents obtained from a non-nafta country, then the diluted crude oil will not qualify for duty-free import (cranker & andersen, 2011). alternatively, if heavy crude is not transported by rail, but by pipeline, then it must be diluted (stockman, 2013). for this reason, canadian oil producers tend to purchase diluents from chicago area refineries to prepare the oil for pipeline transport to the u.s. also, in analyzing customs and regulations related to transportation of heavy crude, we should allow for the possibility that higher demand for heavy crude by the u.s. may require supply from countries other than canada. in 2016, canada announced its intention to undergo an expansion of the trans-mountain pipeline, and the expectation that it would import 890,000 barrels per day of crude oil to asia pacific markets (mawji, 2016). while this planned expansion has met with some opposition from canadian provincial interests (williams, 2017), if it were to ultimately succeed then there would necessarily be less heavy crude supply from canada to the u.s. if the u.s. had to seek increased supply of heavy crude from a country such as venezuela, for example, then reduced customs and regulations costs related to nafta becomes irrelevant. lastly, u.s. importers of oil, generally, whether heavy crude or light crude, remain subject to state imposed restrictions on cross-state shipments of energy goods. for example, in 2014 minnesota legislators, working with a climate action group, “proposed a bill that would place a fee on every gallon of oil that moved through the state either by rail or pipeline.” (minnesota department of public safety, 2017). as various constituencies seek to promote healthier climate concerns and/or deter oil spill accidents, there is a possibility of increased state imposed regulation on oil transportation through the states. 3.2. free trade agreements and government legislation the 1993 north american free trade agreement (nafta) led to the elimination of all tariffs for trade among the unites states, mexico, and canada. the three nations of nafta form the largest free-trade area in the world, accounting for about one-third of the world’s gross domestic product (villarreal, 2012). nafta played a more farreaching role in mexico by spurring economic policy changes in the early 1990s to privatize seaports, railroads, and airports. these changes attracted a large amount of private foreign investment. as previously mentioned, to the extent that the majority of u.s. heavy crude supply is from canada and/or mexico, and is transported without diluents and by rail, then nafta is a big benefit to u.s. importers. when diluents must be added in order to transport heavy crude, there are associated fees, even when imported by the u.s. from a nafta country (see section 3.1, above). the mandatory oil import program (moip), started in 1959, capped the amount of foreign oil that the u.s. could import to 12.2%. the quota program disintegrated by 1969 because of rising oil prices and quota loopholes. in 1974, president nixon replaced the program with an import fee that is essentially an oil import tariff. although the u.s. has no centralized control of oil imports and exports, the government has long considered policies that would relieve the nation’s dependence on foreign oil. most recently, the obama administration promoted policies to raj bridgelall, eunsu lee, michael bell reduce oil imports by encouraging greater conventional crude oil production, increased production of bio-fuels, efficiency improvements, and alternative fuel vehicles (broder & frosch, 2011). we are too soon into the current trump administration to get a firm grip on whether or not such policies will be continued. however, given president trump’s stated goal of greater infrastructure building, we might assume that at a minimum he will favor increased crude oil production. but, the incentives must be there for u.s. oil refineries to invest in such production towards greater asphalt supply given the higher-value obtained from products such as gasoline, diesel and jet fuel. 3.3. import licenses the united states government does not require licenses for the import of crude oil (office of fossile energy, 2014). distilled petroleum products, on the other hand, requires import authorization from the u.s. department of energy. 3.4. federal energy regulatory commission pipelines are common carriers. the energy policy act of 1992 gave the federal energy regulatory commission (ferc) authority to regulate interstate pipeline transport rates and practices (congress, 1992). the regulations intend to establish equal service conditions and equal access for shippers. they cover product composition and tariff agreements between shippers and pipeline operators. the pipeline operators are responsible for delivering the agreed-upon batch quality to the consignee. specifically, carriers must restrict sediment and water content in pipelines to no more than 0.5% by volume (association of oil pipe lines and american petroleum institute, 2012). pipeline carriers can negotiate different rates with the shippers as long as they can demonstrate that they do not have monopolistic power (federal energy regulatory commission, 2009). most pipeline carriers provide storage and terminal services for fixed fees based on long-term contracts. fees may include other services such as crude oil heating, mixing, and blending. 3.5. security aspects the u.s. customs and border protection (cbp) leads a voluntary supply chain security program called customstrade partnership against terrorism (c-tpat). the program focuses on terrorism related security initiatives involving the supply chains of private companies. according to the cbp, participating companies are six times less likely to undergo a security related cargo examination. cn railway was the first railroad in north america to partner with cbp on this initiative (koerner, 2011). when dealing with supply chain security, the entire chain should be involved (melnyk, et al., 2013). each agency of the u.s. department of transportation (u.s. dot) regulates the transportation of hazardous materials for the modes that fall within their official scope of duties. the federal motor carriers safety administration (fmcsa), the federal railway administration (fra), the pipeline and hazardous materials safety administration (phmsa), and the u.s. coast guard (u.s. cg) regulate the transport of hazardous materials by road, rail, pipeline, and waterways, respectively. the hazardous materials table of title 49 cfr §172.101, the u.s. code of federal regulations (cfr), lists crude oil as a flammable liquid or a class 3 hazardous material (u.s. government publishing office, 2011). the associated united nations model regulations code is un1267 (petroleum crude oil classification), and is identified as a flammable substance (united nations security council, 2017). the fmcsa requires motor carriers to obtain a hazardous materials safety permit (hmsp) prior to transporting crude oil. the shipper is responsible for determining the hazardous material classification, placard requirements, employee training, and incident reporting. the carrier is responsible for obtaining and providing all of the required documentation, and for appropriately marking their vehicles. phmsa regulates interstate oil pipeline safety. states regulate pipelines that remain within their jurisdiction. phmsa regulations require that pipeline operators have a corrosion management program. this includes considerations for incorporating corrosion inhibitors and cleaning devices known as “pigs” to reduce the likelihood of internal corrosion. phmsa also establishes the maximum operating pressure requirements. this ceiling on pressure essentially implicates the minimum amount of dilutes needed to achieve a certain viscosity that would allow the liquid to be pumped at some specified speed. excessive pressure or undetected defects could result in costly spills. even as phmsa continues to levy millions of dollars in penalties for pipeline spills, a congressional research service report found that “the trend for incidents affecting only the environment or property has been generally rising over the last decade.” (parfomak, 2016). strategic global logistics management for sourcing road oil in the u.s. 3.6. environmental concerns the environmental protection agency (epa) is responsible for implementing and enforcing federal environmental laws. the u.s. coast guard and the minerals management service (mms) of the interior department implements and enforces environmental and safety laws related to offshore oil and gas production (caldwell, et al., 2009). the federal comprehensive environmental response, compensation, and liability act (cercla) imposes liability on anyone responsible for hazardous substance release into the environment. the amount of greenhouse gas released in the crude oil extraction process varies and depends on the process used. hazardous material released from the process could wipe out ecologically sensitive areas and food sources. for example, improperly disposed of well-waste can pollute rivers and streams, and sterilize farmlands for decades (thamke & preston, 2012). producing steam to release hydrocarbons from the oil sands emits huge amounts of carbon dioxide (natural petroleum council, 2012). the potential for spills from a fractured pipeline was one of the major reasons for the postponed decision on the transcanada xl pipeline construction. environmentalists and oil companies engaged in disputes about the corrosiveness of diluted asphalt and road oil (dilbit) used for transporting canadian oil. dilutes are usually natural gas condensate, naphtha, or a mix of other light hydrocarbons (association of oil pipe lines and american petroleum institute, 2012). weakened ship hulls pose risk and have been linked to disasters such as the millions of gallons released into the gulf of mexico and the prince william sound. when making decisions, the shipper should evaluate the level of these risks in selecting modes and carriers by examining their safety records, procedures, average age of vessels, and insurance coverage. lastly, many have noted that “the rapidly expanding domestic transport of crude by rail and barge is raising concerns after several derailments and explosions and a barge accident that spilled crude into the mississippi river” a few years ago (rector, 2014). 3.7. foreign-trade zone the smoot-hawley tariff act of 1930 created the free-trade zone (ftz) board and gave it the authority to approve applications for foreign-zone status. the act entitled each u.s. port of entry to at least one zone. congress amended the ftz act in 1950 to permit manufacturing in the zone. two years later, the ftz board issued new regulations that would allow companies to register for subzones wherever those may be located. the u.s. homeland security’s customs and border protection (cbp) directly oversees the ftzs. currently, all states have at least one zone and 45 states have at least one subzone (vance & heldebrand, 2012). since the early 1990s, the ftz board has approved over 80 refinery or petrochemical subzone applications. in 2011, crude oil accounted for 75% of the foreign goods that entered into an ftz (bolle & williams, 2012). ftz regulations allow refineries in a subzone to defer customs duties on crude oil until the refined product enters the u.s. for consumption. final products re-exported are not subject to customs duties. for example, exxonmobil is a registered ftz participant and does not pay duties on jet fuel refined from imported crude and then sold to airplanes bound for international destinations (vance & heldebrand, 2012). this is possible because according to the ftz rules, the aircraft has not formally entered the u.s. the ability to register a potential asphalt and road oil manufacturer as an ftz subzone may allow for future opportunities to transform the crude oil into duty free asphalt and other petroleum products for export to other countries or to other ftzs. this opportunity could include road and tarmac paving products sold to ports or airports that are located in ftzs. an “inverted tariff” structure of the u.s., ftz regulations provide additional opportunities for cost savings by reducing the tariff only to that portion of crude oil used to produce the exported product (bolle & williams, 2012). the rule also allows a company to claim the tariff on the final product sold in the u.s. if that amount is lower than the crude oil tariff. 4. conclusion this study developed and explored a framework for the decision-making process in sourcing feedstock for the production of asphalt by studying characteristics of the global supply chain and exploring how various factors affect costs, schedules, and risks. raj bridgelall, eunsu lee, michael bell the study examined several factors such as customs, regulations, security, environmental compliance, and natural events that will affect the costs, schedules, and risks. the decision to source from a particular country included nonprice factors such as cultural aspects, local practices, trade barriers, and business opportunities. even though this study is well positioned with soft factors such as environmental and legal issues considered in a broad approach, the study will be improved using quantitative methods. in the future, the study will expand using survey instruments or the delphi method to receive expert opinions. 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the mataram and majapahit kingdoms, the bengawan solo river was the center of civilization in java. the flow is functioned as a trade route and the water is used as a standard for drinking water and irrigation for agriculture and plantations. meanwhile, javanese people generally have a belief in several springs of the bengawan solo river as a sacred place with various rituals. the shift in the view of human relations to nature and reinforced by increasingly severe climate change forces humans to change habits that are detrimental to the balance of nature. ganges, yamuna and whanganui rivers in india and new zealand are designated as legal subjects with regard to environmental conservation and local wisdom. by looking at the legal precedents that occurred in india and new zealand as well as the degradation of the function of the bengawan solo which was originally a "source of life" to become a "source of disaster", then the determination of the bengawan solo river as a subject of international law can restore its function as before, : the center of civilization of the land of java. keywords: determining, river, subject of international law 1. introduction the river is the axis of life. in the river contained fresh fresh water and other sources of life that are needed not only by humans but by all other living things. for humans, the area flowed by the river is a fertile area so that because of that it is very easy to carry out agricultural activities and continue life. history records that rivers were the basis of the development of civilizations since ancient times, for example, the niil river in ancient egypt and the hoang ho yellow river the center of ancient chinese civilization. in indonesia, especially on the island of java, the bengawan solo river has become an integral part of the history of the indonesian nation. the people around the bengawan solo river formed a culture and preserve it to this day. the song “bengawan solo” by gesang martohartono in 1940 became the zeitgeist or “spirit of the times” of the asian nation after world war ii (syamsu, 2020). the splendor of bengawan solo is told in gesang's song lyrics, even the song “bengawan solo” became a nationalistic symbol and a legendary song (lucky ir., 2014). the longest river on the island of java flows as far as 548.53 km across the provinces of central java and east java has a very strategic role for the life of the people of java since ancient times. in the 13th century, when majapahit was at its peak, the bengawan solo river was a bustling transportation hub. it is proven that once gresik and tuban, which are still known as ujung galuh, became the place where large ships leaned. even the majapahit kingdom paid special attention to the bengawan solo river by issuing the canggu inscription in 1358 which lists the villages through which the bengawan solo stream passes as tax-free villages because of the crossing services that improved the village's economy (poesponegoro, 2008). in addition, during the dutch colonial period until now the agricultural and plantation sectors, especially in east java and central java, depended on irrigation from the bengawan solo river. even now the area traversed by the bengawan solo stream is almost entirely a food barn area. bengawan solo utilization is very large to sustain life on the island of java is in fact not accompanied by the maintenance of water quality. the hydrological data of the bengawan solo river region center throughout 2018-2019 showed the quality of polluted water on a light to heavy miftakhul shodikin 2 scale at six monitoring posts, including nguter post (wonogiri), bacem post (sukoharjo), pepe river post (surakarta), jurug post (karanganyar-surakarta border), kedungupit post (sragen), and bojonegoro post. even data from the bojonegoro environment agency said that water in bengawan solo was not suitable for consumption. polluted water contains many chemicals, pathogenic bacteria and diseases that are dangerous to humans. in addition, soil impregnated with polluted water will result in a decrease in soil fertility and damage the soil structure so that agricultural products from polluted water will have an impact on reducing the quality of agricultural production (baskoro adi prayitno, 2008). this is a domino disaster whose impact spills over everywhere. based on this, of course, it needs joint awareness and bold and revolutionary actions to protect the preservation of the bengawan solo river. regarding the development of law today, there is a development of the subject of law, namely nature, which is recognized as an entity that holds rights and obligations. rights are a basic need (michael, 2017). the countries of india and new zealand specifically in 2017 established the river as a subject of law through the establishment of a trial. these rivers are the ganges and yamuna rivers in india and the whanganui river in new zealand (rian adhivira prabowo *, 2020). the two legal precedents that occurred on the ganges and yamuna rivers and the whanganui river were new legal steps that initiated future legal habits. basically the law grows and develops with society along with its habits (rosana, 2013). so on this occasion the researchers will do a comparison by applying it to the bengawan solo river. so based on that, with this the author will carry out research is “the urgency of determining the bengawan solo river as a subject of international law”. where in this writing hopefully can contribute the uniqueness of the science of law tertutama in international law and can also contribute ideas so that it can become a material of scientific literature and reference material for legal practitioners, stakeholders and to all people who care about the preservation of nature. 2. research methods this legal research is included in normative legal research. normative legal research is a study to find and formulate legal arguments through analysis of problem issues (bachtiar and yanto, 2018). the approach used is historical and comparative. then, to this study using legal materials collection techniques that use medote inventory and categorization. while the analytical techniques used are prescriptive normative analysis techniques by interpreting, hermonisasii, systematization and legal invention by using deductive logic reasoning. 2.1. the ganges and yamuna rivers the ganges and yamuna rivers were designated as subjects of law through case rulings mohd. salim vs. state of uttarakhand & others (ahmad omar, 2017). the case was decided by judges rajiv sharma and alok singh, who declared the ganges and yamuna rivers to be living persons or legal entities, referring to articles 48 a and 51a (g) of the constitution of india as a solution to the problem of high pollution and protection of both rivers. the judge on this decision also rests on several facts and existing jurisprudence (salim and petitioner, 2017) the first case was in the case of jogendra nath nascak v. commission of income tax, calcutta which states that hindu gods are recognized as juristic entities who are able to control property and are taxed through their benefactors. judges also hold the right to the concept of juristic entity that has developed over time and the needs of human civilization. the shiromani gurdwara parbandhak committee, amritsar v. shri som nath dass & others. p. in the case said that if the law requires then the subject of law is very likely to be given to non-human entities (“mohd salim v. state of uttarakhand & others, no,126,” 2014). another point the judge referred to was that of moorti shree behari ji v. prem dass & others who claim that hindu gods can also be sued as forma-pauperis by their benefactors (rian adhivira prabowo *, 2020). the decision on the protection and recognition of the ganges and yamuna rivers was then followed by another decision, namely the expansion of the legal person, namely in the case of lalit miglani v. state of uttarakhand & others (“lalit miglani v. state of uttarakhand & others,” 2016) so that it also covers the entire surrounding ecosystem up to the gangotri and yamunotri glaciers which are the source of both rivers. based on the ruling, it can be stated that rivers, lakes, and also forests have the right not to be polluted, and any pollution is equivalent to harming humans (salim and petitioner, 2017) the panel of judges stated the situation of gangotri and yamunotri glaciers is increasingly concerning due to the consequences of human activities and the drastic decline in environmental quality. the urgency of determining the bengawan solo river as a subject of international law 3 in addition to being important as a storage source of clean water, these two glaciers are the source of the ganges and yamuna rivers which have religious value for the hindu community (rian adhivira prabowo *, 2020). in addition, the judges also stated gautama buddha and mahavira get an enlightenment by sitting under a tree which is also a practice of the people in india that worship nature such as trees and forests (“lalit miglani v. state of uttarakhand & others,” 2016) 2.2. the whanganui river based on law number 7 of 2017 on te awa tupua (whanganui river claims settlement) provides protection and recognition of the position of the whanganui river in new zealand. on subpart 2 about te awa tupua paragraph 12 te awa tupua recognition states that ”te awa tupua is an indivisible and living whole, comprising the whanganui river from the mountains to the sea, incorporating its tributaries and all its physical and metaphysical elements—“ (“te awa tupua (whanganui river claims settlement),” 2017) from the chapter it is explained that te awa tupua is an indivisible and living whole, consisting of the whanganui river from the sea, combining all physical and metaphysical elements. the whanganui river case began with the record for the longest dispute in new zealand legal history, for more than 160 years, between a maori tribe and the new zealand government (the crown) (rian adhivira prabowo *, 2020). according to the maori, the whanganui river has a sacred value for daily and spiritual life. thus, the legal recognition of te awa tupua that the mention of the whanganui river does not only include the natural physical aspects of the whanganui river, but also the cultural and spiritual aspects of the maori population. this is explained in paragraph 13 of the te awa tupua (“te awa tupua (whanganui river claims settlement),” 2017) which recognizes its intrinsic values, among others : a. te awa tupua is a spiritual and physical entity that supports and sustains both the life and natural resources within the whanganui river and the health and well-being of the iwi, hapū, and other communities of the river. b. ko te kawa tuarua, te awa tupua is an indivisible and living whole from the mountains to the sea, incorporating the whanganui river and all of its physical and metaphysical elements. c. ko te kawa tua toru, the iwi and hapū of the whanganui river have an inalienable connection with, and responsibility to, te awa tupua and its health and well-being. d. ko te kawa tuawhā, te awa tupua is a singular entity comprised of many elements and communities, working collaboratively for the common purpose of the health and well-being of te awa tupua. te awa tupua (whanganui river claims settlement) act 2017 has granted the whanganui river full legal status with its representation through indigenous authorities. from the explanation of paragraph 13, the te awa tupua (whanganui river claims settlement) act 2017 the status of the whanganui river as a legal subject includes: foundation institutions, public institutions, public authorities, registered collectors in terms of taonga, resource management authorities, corporate bodies for the purpose of preservation of maori cultural heritage, as well as public access affairs agencies. the recognition of the whanganui river as a subject of law was a breakthrough. this legal breakthrough not only had an impact on the transformation of the status of the river from "object" to " subject”, but also on the reconceptualization of the legal personality itself (rian adhivira prabowo *, 2020). unlike what happens in india where environmental aspects and ecosystem preservation come first, the determination of the whanganui river as a subject of law relates to the maori community. so it can be said that what happened in new zealand with the whanganui river was nothing more than the expropriation of river control in the form of assistance to government representatives and from maori tribes (rian adhivira prabowo *, 2020) in this legal precedent the rights of indigenous peoples to the whanganui river are more emphasized than environmental aspects. miftakhul shodikin 4 2.3. the bengawan solo river bengawan solo river has accompanied the life of the island of java for millions of years. bengawan which means this great river has also witnessed the journey of javanese life whose flow not only crosses the area but also crosses the development of time from time to time. bengawan solo river has existed since the pre-script era and then passed through the hindu and buddhist kingdoms, islamic kingdoms, colonial times until the independence revolution and until modern times. initially, millions of years ago the bengawan solo stream did not flow into the java sea but into the indian ocean, which is precisely on sadeng beach, yogayakarta (wijaya, 2022). however, due to the lifting on the south side due to the pressure of the indo-australian plate so that the island of java is leaning north which resulted in the flow of the bengawan solo river reversing direction and then looking for a “new” flow to the north side. in the pre-script period bengawan solo became the center of civilization, especially on the island of java (savitri, 2015). evidenced by the discovery of ancient human fossils in the bengawan solo river valley such as pithecanthropus erectus, meganthropus paleojavanicus, homo soloensis, homo mojokertensis to homo erectus (ari wlianto, 2022). ancient humans at that time were very dependent on the flow of the bengawan solo river, because of its need for fresh water sources for the needs of life, especially drinking. in addition, game animals usually gather close to water sources. in later times the bengawan solo river functioned not far from the daily needs of humans such as drinking, bathing, farming and livestock. entering the kingdom period, bengawan solo river held a strategic function in supporting business activities since the days of ancient mataram (wijaya, 2022). it is proven that the placement of the capital of the ancient mataram kingdom was placed based on the consideration of its location close to bengawan solo, namely in surakarta, which is in accordance with the concept of javanese cosmology (savitri, 2015). in addition, merchant ships from the kingdoms in java took advantage of the bengawan solo flow for business. there is a port that became the city where the city has a strategic role for the development of the economy in the 17th century. the city was named wulayu which later became known as bandar semanggi in sala village, surakarta (soeratman, 2000) traders from china also utilize the bengawan solo stream to load wood that will meet the sea as a water transportation route (savitri, 2015). while in the colonial period precisely in 1880 hulu bengawan solo by the dutch colonial government was changed so that the estuary that originally existed in the madura strait was transferred to the area now known as ujungpangkah district in gresik regency (bbws bengawan solo, 2020). this was done as an effort to avoid sedimentation in tanjung perak port. during this time, the bengawan solo river became the main trade route on the island of java which was passed by merchant ships from the voc (vereenigde oostindische compagnie). historical traces that contain the vital function of the bengawan solo river one of them is the canggu inscription in 1358 is a historical record that reveals that the bengawan solo river is the center of civilization on the island of java (poesponegoro, 2008). it is further explained that this inscription by the king of majapahit hayam wuruk recorded villages that were given the title sima, namely the title of services to the surrounding community through bengawan solo. one of them is the village of medanten which is now known as bedanten village. the village in the past had a tambangan or river crossing service. culturally and economically, bengawan solo has become an important point towards cultural transformation in java, especially as a transportation route, bengawan solo connects coastal java and inland java (wijaya, 2022). bengawan solo river sustains the sustainability of people's lives on the island of java, especially east java and central java with its use as agricultural and plantation irrigation. the area through which the bengawan solo stream passes is more or less dependent on river water to drain agriculture and plantations. even until now the area traversed by the bengawan solo stream is almost entirely a food barn area including bojonegoro, lamongan and gresik. reached 25 thousand hectares of irrigated areas flowed by the bengawan solo river (labib zamani, 2017). there are at least 20 regencies 3 cities in 3 provinces that depend on the bengawan solo stream, which consists of : yogyakarta, central java, and east java provinces including kab. gunung kidul, surakarta city, kab. boyolali, district. klaten, kab. sukoharjo, kab. wonogiri, kab. karanganyar, kab. srgaen, kab. blora, kab. rembang, kab. pacitan, district. ponorogo, district. madiun, madiun city, kab. ngawai, kab. bojonegoro, kab. tuban, kab. lamongan, district. mojokerto, kab. trenggalek, kab. gresik and surabaya city (bbws bengawan solo, 2017). in addition to the use of bengawan solo water as agricultural and plantation irrigation, the regional water company (pdam) itself utilizes bengawan solo river water as a raw material for drinking water. not only seen from the functional aspect-its history alone. the javanese community is proven to consider water, especially springs as something sacred. the bengawan solo river itself cannot be separated from its origin, namely the urgency of determining the bengawan solo river as a subject of international law 5 its springs. here are some bengawan solo springs that are considered to have religious-spiritual value for the people of java. dianataranya (purwadi, 2020):  kahyangan dlepih tirtomoyo wonogiri the bengawan solo stream geographically originates from the seribu mountains “gunung sewu” located in kab. wonogiri. according to the javanese people, the springs that flow into bengawan solo come from kahyangan delpih tirtomoyo wonogiri. the location is believed to be the place of pesanggrahan panembahan senopati and kanjeng ratu kidul. no wonder the location is often used to perform rituals. many people still believe that if they pray and do ‘lelaku ' at that location, their prayers will be answered.  grojogan sewu grojogan sewu precisely on the slopes of mount lawu is also a water supplier in bengawan solo. the water in grojogan sewu is considered sacred so it is used “sesuci " by prabu brawijaya and the kings of majapahit.  kali larangan kali or this small river is mixed with very clean water and is considered sacred from umbul cokro pengging which was built in 1547 by joko tingkir or sultan hadiwijaya, raja pajang. in ancient times by the surakarta palace, the cleanliness of the prohibition times was very closely guarded. called as kali larangan in javanese ‘larang ' means expensive, luxurious, istimewah. one of the bengawan solo springs is very tightly guarded because of its luxury. the kings of mataram run the ritual flush jamas in umbul cokro pengging, in addition to major figures such as ki ageng pengging, joko tingkir, sheikh siti jenar, and ronggowarsito once lived around umbul cokro pengging.  kaliworo kemalang klaten kaliworo kemalang klaten it is also the source of bengawan solo spring which is no less important. the source comes from the foot of mount merapi. the source of kaliworo kemalang klaten, whose flow gathered into the dengkeng river, grew a prosperous and fertile civilization. throughout the flow of complex community life of the arts such as gamelan, karawitan, gending, dance, batik, pottery, industry is there. in some areas where the bengawan solo river flows, there are rituals that are believed and exist to this day. one of them is the tradition of sowing seeds for the balance of nature. the activity of sowing the seeds has become a great tradition that has now begun to be abandoned. it is believed that the people of java that sowing seeds into the bengawan solo river is also a form of throwing bad luck and seducing nature to give hospitality to humans (med, 2021). meanwhile, people living on the banks of bengawan solo there is a tradition of "tuku banyu nggawan", precisely in kebomlati village, kec. plumpungan district. tuban. the tradition has been carried on for generations. in the ritual, children under five will be bathed by the river and then the parents will sprinkle coins into the middle of bengawan solo. as the name implies “tuku banyu nggawan " or buying river water the ritual is believed to be a form of purchasing bengawan solo water so that children are bathed and the whole family gets salvation from god (munthohar, 2022). the longest river on the island of java that has passed through millions of years has waded through various periods of life in java since pre-script, hindu-buddhist kingdoms, islamic kingdoms, colonial era, and the independence revolution. unfortunately, in this post-modern era there is a decline in the quality and social function of bengawan solo to javanese society. bengawan solo river which was originally considered as a” source of life “degraded function into a”source of disaster". disasters that are not caused by natural cycles such as tidal floods and water increases due to the rainy season but disasters due to globalization and human activities around the river. along the bengawan solo river currently stand private companies that open land (wijaya, 2022). the study found that the upper reaches of the bengawan solo river contain heavy metals, copper and compounds that are harmful to living things. among the content of bengawan solo river water contains chromium compounds (cr) that have passed the threshold. chromium in general comes from waste metal, textile, paper industry (djoko utomo et al., 2010). industrial waste that is not processed properly will certainly have a bad impact on the quality of bengawan solo water. the impact is that agricultural land and plantations are threatened with death and crop failure. at least in 2021, hundreds of hectares of rice in lamongan suffered severe damage due to water contaminated by waste (tatang adhiwidharta, 2021). n the same year the regional drinking water company (pdam) of solo and blora ceased operations to extract water from bengawan solo because it was polluted by alcohol, textile waste, and pig farms (labib zamani, 2021). miftakhul shodikin 6 also found in the upper reaches of the bengawan solo river has an abundant content of microplastics. this is because along the upstream flow of bengawan solo stand industries, especially the textile industry. based on water quality testing data conducted at upt environmental quality testing laboratory of the district environmental office. gresik in 2021 found that the bengawan solo river was positively polluted with heavy metals chromium vi, cadmium, copper and lead. further explained that bengawan solo water quality standards are not feasible to use for fisheries and plantation irrigation activities because it does not meet the water quality standards as stipulated in regional regulation no. 2 of 2008 on water quality management and water pollution control in east java province (yusron and asroul jaza’, 2021). the content of microplastics in bengawan solo water certainly has an impact on other living things, especially river biota, namely fish. as evidenced by the findings of fish that are often consumed by the community such as cork fish, keeper, keting and grouper that live in the downstream flow of the bengawan solo river are also identified to contain microplastics (rizqiyah et al., 2021). meanwhile, belanak fish that live in the bengawan solo river, especially in the river flow in kab. gresik found that the digestive tract of mullet fish contains microplastics consisting of films, fibers and fragments that endanger the quality of human life (neily qurrata a’yun, 2019). the entry of microplastics in the body of living things will damage the digestive tract and interfere with growth in addition, microplastics can interfere with hormone development and affect reproduction (rizqiyah et al., 2021). also found in brooms fish meat that lives in the upper reaches of the bengawan solo river has a heavy metal content (djoko utomo et al., 2010). 2.4. the bengawan solo river as a subject of international law from the beginning, an entity holding rights and obligations is always evolving. after human equality where women were recognized as subjects of law and the emergence of the concept of corporation as a non-human subject of law. this is because the law evolves with the times and human conscience. in international law, there is the highest norm in international law, ius cogens. the norm can change according to the will of the human conscience which in international law is represented by the legal conviction held by the state (fajri matahati muhammadin, 2015). in accordance with this according to j.j. rousseau quoted from tomy michael that the general will or belief held by the general public can decision making (michael, 2016). the designation of rivers as subjects of law by the state of india and the state of new zealand indicates that there has been a shift in human views towards nature. not only that some countries like ecuador and france put nature specifically in their constitutions. in ecuador's own constitution natural rights are explicitly recognized in an amendment to the ecuadorian constitution in 2008 (whittemore, 2011). the environmental charter of 2004 was added to the constitution of france of 2006 in line with the declaration of human and vitizen rights of 1789. article 1 of the environmental charter of 2004 states that “everyone has the right to live in a balanced environment which shows due respect for health” (“charter for the environment of 2004 ,” 2004). everyone has the right to live in a balanced environment that shows respect for health. human rights and the environment have an interdependent relationship with each other (michael and noviar ramadhany, 2022). when referring to the legal precedent that occurs in the world today where in india by designating the ganges and yamuna rivers as subjects of law, then also in new zealand by designating the whanganui river as a subject of law. considering in india that the environmental and ecosystem conditions of the ganges and yamuna rivers are getting worse with the high pollution, mining activities, and disturbances so that the establishment of both rivers from upstream along with other attributes becomes the subject of law. in addition, the ganges and yamuna rivers are believed to have religious value for the hindu community, which is also a consideration for their determination (rian adhivira prabowo *, 2020). thus, the determination of the ganges and yamuna rivers as legal subjects is more focused on the urgency of environmental and religious aspects. meanwhile, what happened in new zealand with the whanganui river was related to the aspect of” river control " in the form of pengampu to government representatives and maori tribes. in this legal precedent indigenous peoples ' rights over the whanganui river are more emphasized than their environmental aspects. based on these two legal precedents, the bengawan solo river can be used as a legal subject with the urgency of determining the aspects of environmental sustainability, ecosystem restoration and socio-economic and religious functions of bengawan solo springs which are believed to have been in the past. where the level of water pollution of the bengawan solo river has crossed the threshold, the river biota is exposed to microplastics so it is very the urgency of determining the bengawan solo river as a subject of international law 7 dangerous for consumption. in addition, it also needs to be ranked if the javanese people in general have confidence and local wisdom to bengawan solo springs as a sacred place so that rituals are often carried out there. bengawan solo water quality decline is inversely proportional to the beginning of the utilization of fresh water sources. the water is not suitable for consumption and adversely affects agriculture and plantations due to the high level of waste contained in the river. in addition, the river biota inhabiting bengawan solo which is polluted can endanger health if consumed by humans. not only that, bengawan solo's endemic biota is also threatened with extinction. based on this, the determination of the bengawan solo river as a subject of international law needs to be considered. with the determination of the bengawan solo river as a subject of international law so that the river biota and other living things that live in bengawan solo remain sustainable. in addition, the prevention of worsening water quality degradation is one of the considerations in order to restore its social function as irrigation for agriculture, plantations and raw water sources. 3. conclusion an entity holding rights and obligations is always expanding. after human equality where women were recognized as subjects of law and the emergence of the concept of corporation as a non-human subject of law. this is because the law evolves with the times and human conscience. in international law, there is the norm of ius cogens which is considered the highest norm and is constantly changing according to the will of human conscience which in international law is represented by the legal beliefs held by the state. the designation of rivers as subjects of law by the states of india and new zealand indicates that there has been a shift in human views towards nature. reinforced by increasingly severe climate change forces humans to change habits that are detrimental to the balance of nature. the view of man as the natural center of human-centered “anthropocentrism” was replaced by the view of deep ecology, namely the awareness of a series of interconnected ecosystems. deep ecology is an approach to the environment that sees the importance of understanding the environment as a whole of life that supports each other, so that all elements have the same meaning and significance (miftachul et al., 2019). the designation of the ganges and yamuna rivers in india as legal subjects is related to the urgency of preserving nature including its influence on people's lives and refers to local wisdom and culture and spiritual values in india. like the hindu gods. meanwhile, in new zealand the designation of the whanganui river as a subject of law relates to the maori people. it could be said that what happened in new zealand with the whanganui river was nothing more than a takeover of control of the river in the form of pengampu to government representatives and from the maori tribe. despite having different root causes, basically the two legal precedents have an urgency that is a shared anxiety globally, namely : the climate crisis. because it cannot be denied that the climate crisis is a global problem that needs joint efforts to overcome it. in this regard, the bengawan solo river, which is the longest river on the island of java, deserves to be considered as a subject of international law. the level of pollution and water quality degradation is very worrying resulting in degradation of function for the people of java to the bengawan solo river which was once a” source of life “turned into a”source of disaster". whereas the bengawan solo river which has been flowing for millions of years has played a strategic role for the life of the javanese people, especially for trade routes, agricultural irrigation and plantations and supporting the economy. meanwhile, bengawan solo spring is a place that is believed to be sacred so that rituals are often carried out by javanese people in general. by determining the bengawan solo river as a subject of international law, so as to preserve the environment and ecosystems there. the socio-economic function of bengawan solo as agricultural and plantation irrigation can also improve the economy of the surrounding community. 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penelitian 2. yusron, m., asroul jaza’, m., 2021. analisis jenis dan kelimpahan mikroplastik serta pencemaran logam berat pada hulu sungai bengawan solo. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 124-133 124 institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country adrian fulko ndunguru college of business education dodoma, tanzania elia mwanga college of business education dodoma, tanzania received: march 17, 2023 accepted: may 29, 2023 published: june 01, 2023 abstract: the study is interested to review the challenges of the current tanzania institutions framework dealing with protection of geographical indications with the view of exploring the alternative changes that can enable tanzania to effectively deal with enforcement of domestic and international laws dealing with protection of geographical indications. in the end study recommends the possible wayward to strengthen the performance of the institutions dealing with protection and enforcement of geographical indications in tanzania. keywords: geographical indications 1. introduction effective protection of geographical indications in any country depends on the existence of strong institutional framework that can deal with registration and monitoring effective enforcement of the registered indications against possible infringements (giovannucci, josling , kerr, o'connor , & yeung , 2009). this study is interested to examine the challenges of the tanzania institutions on protection of geographical indications. geographical indications are names of geographical areas or symbols that are used to identify and commercialize natural agricultural products and foodstuffs, wine and spirits to mention a few as originating from a particular geographical area where certain unique characteristics or quality of the product are attributed to (bagal, 2011). 2. background to the problem during colonialism, the concept of intellectual property right was totally of no interest by the black people in africa and tanzania in particular. there were no many intellectual property rights registered by local citizens or companies in tanzania (tanganyika by then) because of the nature of the laws and the conditions to be registered only if they were registered in uk (mangistie, 2014). the history of the institutions dealing with protection of intellectual property rights is connected to evolution of the law on protection of intellectual property laws. the recent history is traced from 1995 with the establishment of the world trade organization and the adoption of the trade related aspects of intellectual property agreement here in after referred as trips agreement (tabaro, 2009). the trips agreement came into force in 1995 and it provides the minimum standards for the protection of geographical indication at international level. it also provides for obligation to the member states to enact domestic laws and establish institutional framework for protection of geographical indications in their respective countries. most of african countries are members of the wto and as such they are bound to implement the legal instruments for protection of geographical indications. the laws on protection of geographical indication in africa is still evolving. there are no collective regional efforts to protect geographical indication as a separate category of institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country 125 intellectual property right. the protection is expected to take place under national laws. however, the existing literatures shows that the national laws are also still at infant stage. however, all the required conditions for development of geographical indications already exist and there is a political will to protect geographical indications in the national laws (the african union commission department of rural economy and agriculture , 2018). at african regional level, the institutional framework on protection of geographical indications are divided into two blocks, one covering the african regional intellectual property organizing (aripo) countries and the other one covering the african intellectual property organization. under aripo, the members adopted the banjul protocol on marks in 1993 (lange, 2016) in 2004, aripo designed a continental strategy for protection of geographical indications in africa. the strategy is expected to address the issue of harmonization of domestic laws and the african institutional framework on protection of geographical indications through the african union member states. the continental strategy is implemented in steps. in 2004 the africa and eu partners organized the first consultation meeting in nairobi kenya, in january 2016 initial workshop was done in rome where the objectives of the strategy was agreed, in march 2016 the draft of the strategy was prepared, in april 2016 another e-consultative meeting was organized on the complete draft of the strategy, in june 2016 validation of the strategy took place where the consolidated draft was presented to the african union members , in november 2016 a workshop was organized in nairobi where the draft of the strategy was presented and discussed , in 2017 the strategy was presented to the au special technical committee for indorsement and publication. apparently, the strategy is waiting for validation and implementation by the au member states (lange, 2016). in response to the international and regional movement on the protection of geographical indications, different states in africa have taken measures by enacting or reviewing their intellectual property laws and institutions to cover protection of geographical indications in their territory. however, at the time of independence in 1961, tanzania inherited few intellectual property laws from colonial regime which includes the patent legislation of 1922, the copyright ordinance of 1924 and the trade marks ordinance of 1922. the intellectual property laws were adopted without any significant change in their contents. in 1986, tanzania mainland enacted the trade and service marks act no. 12 of 1986 and subsequently in 1997 the business registration and licencing agency (brela) was established to administer the act (the trade and service marks act ) and to deal with registration of various intellectual property rights like patents, trade and service marks (kihwelo & bullu, 2008). however, the performance of brela as a key institution dealing with registration and protection of geographical indications has not been effective dues to some challenges facing the institution in performing its function. other institutions working closely to brela were also established in the later years to wit in 2007 the fair competition commission (fcc) and fair competition tribunal (fct). the history of the law and institution dealing with intellectual property rights in tanzania shows that, tanzania have not taken serious steps to establish effective laws and institutional framework on protection of geographical indications although she is interested to protect certain geographical indications like handcrafts made in tourist destination (kihwelo & bullu, 2008). 3. statement of the problem tanzania being a member of the trade related aspects of intellectual property rights herein after the trips agreement is obliged to ensure effective protection of geographical indications against possible infringements. the effectiveness of protection requires existence of strong institutional systems that can monitor compliance to the protection standards set by the laws and provide effective remedy against infringements (mangistie, 2014). however, despite of the obligations imposed by the international law, tanzania seems not to have effective institutional framework for effective protection and enforcement of geographical in the country. (kihwelo & bullu, 2008). the existing frameworks are facing some serious challenges which makes not to be effective in performing their functions. according to some literatures, companies in europe and asia are using tanzania geographical indications to market certain products as originating in tanzania even for products not originating in tanzania. for example, certain coffee producing countries are using the name kilimanjaro to market their coffee as kilimanjaro coffee for coffee not even originating in kilimanjaro (mangistie, 2014). this shows the great weakness of tanzania institutions on protection of geographical indications in tanzania. this paper is therefore interested to study the weaknesses of the institutions adrian f. ndunguru & elia mwanga 126 dealing with protection of geographical indications in tanzania and thereafter propose the possible way forwards to address these challenges. 4. literature review the existing literature on geographical indication provides for understanding on the nature and scope of geographical indication as an intellectual property rights and the theoretical justification for protection of geographical indication. bertozzi has written an article on managing geographical indications. in his article, the author clearly points out that, strong organization and institutional structure is one of the essentials for geographical indications to be effective (bertozzi, 2014). the author further argues that, strong institutions are required to maintain, develop and monitor compliance to geographical indication standards. the article by bertozzi is important for justifying this study on institutional challenges because it speaks about the need for effective institution in protection of geographical indications. institutions are key player of protection of geographical indication (bertozzi, 2014). however, the author does not provide for the exhaustive coverage of the role of institutions in protection of geographical indications. also, the author highlights some challenges of institutions in protection of geographical indications but does not give recommendations as way forward for institutions to be effective. mangistie , has also written a paper on managing geographical indications in africa. according to mangisties, african countries has potential distinctive products with unique characteristics attributed to geographical origin but little is done to protect geographical indications to capture their intangible values (mangistie, 2014). in the opinion of this author, protection of geographical indication in africa is facing number of challenges including weak institutional framework, lack of or inadequate resources and capacity needed for protection, management and promotion of intellectual property rights assets. this author too has highlighted the challenges of managing and protecting geographical indications in africa generally but this work is specifically dealing with institutional challenges and it is addressing them in tanzanian context. the european union intellectual property office (euipo) has published a manual for geographical indications in africa in which they point out that, for geographical indication to be successful, robust system of protection and enforcement is required (intellectual property rights and innovation in africa, 2021). the euipo further argue that, credibility of geographical indications depends on controls exercised by strong institutions be it public or private which must ensure that, the promise made by producers to the consumers about the product qualities are maintained and respected by all producers to ensure that the product authenticity is guaranteed. giovannucci and others have written a book on guide to geographical indication, in this book the authors states that, lesson from the case studies and literatures suggest that, for a geographical indication to be successful four components are essential; strong organization and institutional structure , equitable participation among producers and enterprises in a geographical indication region , strong market partners and effective legal protection including domestic geographical indication system (giovannucci, josling , kerr, o'connor , & yeung , 2009). the authors further clarify on the role of organizational and institutional framework that, such institutions are important to maintain, market and monitor the geographical indications. however, the authors do not mention the nature of the institutions and how should they be structured to perform their intended function. in a nutshell, the key authors discussed in this section points out that, strong institutional framework is the key factor for successful protection of geographical indications. however, the institutions are facing some challenges which needs to be identified and serious measures for addressing these must be explored. when those challenges are effectively addressed in tanzania , the country will realize the benefits of protecting geographical indications and promote national development by selling unique products of geographical indications internationally. 5. objectives of the study the main objective of the study is to examine institutional challenges of protecting geographical indications in tanzania and proposes the way forward. the specific objects are; to examine the powers and function of the institutions dealing with domestic protection of geographical indications, to explore the challenges facing the institutions in performing their powers and to examine the possible solutions for addressing the challenges facing the institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country 127 institutions. in the end, the study draws conclusion on each objective and provides the recommendations for improvement. 6. methodology this paper is based on qualitative approach. the study mainly uses secondary data obtained by reviewing documentary sources like legal instruments establishing the institutions under study and other documentary sources like reports, books and journal articles. the study also uses primary data obtained from interview with key stakeholders working with the institutions under study. the data collected are analyzed by suing content analysis techniques which involves establishing revealing themes from the legal text which are interpreted in line with the research objectives. the findings being qualitative in nature, are presented in narrative statements. 7. findings of the study 7.1. existing institutional framework the review of various literatures and reports have revealed that, in tanzania there are about 5 key institutions which are directly or indirectly involved in the over all protection of geographical indications. these institutions are; the ministry of industry and trade, business registration and licencing agency (brela), the fair competition commission, fair competition tribunal and the high court commercial division. this section examines the establishment and functions or powers of each institution in line with their powers in protection and enforcement of geographical as one of the emerging intellectual property rights. the finds will help the study to conclude whether the institutional framework available is effective or not effect to protect geographical indications in the country. 7.1.1. the ministry of industry and trade geographical indications is one of the aspect trade and industry. geographical indications being an aspect of trade is falling within the ministry of industry and trade. the ministry is established for general supervision of trade related matters in the country. the ministry is the one supervising the implementation of the national trade policy of 2003 which is also providing for policy statement and objectives on matters relating to intellectual property as an aspect of trade. this ministry also supervises key institutions dealing with protection of geographical indications like the business registration and licensing agency (brela) and the fair competition commission which is responsible for enforcement of the laws relating to consumer protection against dishonest trade practices like use of misleading indications of origin of goods. the ministry of industry and trade has managed to formulate the national trade policy which among other things provides for the general guidance of trade and business in tanzania. under the national trade policy, the ministry expressly insists on the main objective of the policy on matters of trade laws as to protect the interests of consumers through enhancing the capacity of government institution to perform their regulatory functions efficiently 7.1.2. business registration and licencing agency (brela) business registration and licencing agency (here in after brela) is an executive agency established by the government executive agencies act no. 30 of 1997 as a semi-autonomous agency to deal with general issues relating to registration of business and intellectual property rights. it was specifically established by government notice no. 294 published on 8th october 1999 and officially inaugurated on 3rd december 1999. the agency is operating under the ministry of industry and trade. the agency is implementing number of laws which includes the trade and service marks act. the agency has a directorate which deals with registration of intellectual property rights like trademarks, patent, industrial designs, service marks and other related industrial properties. this directorate is headed by the director of intellectual properties. the role and functions of brela are specifically stipulated in the constitutive government notice. in this respect, brela is also administering the trade and service marks act which contains prohibitions to register false indication of geographical origin of goods in course of registering trademarks. brela is also responsible for registering business organizations like companies and trade names. in performing these functions, it is guided by the company act and the business names registration act. it has been observed by exiting literatures that, brela is very active on this function than that of intellectual property division. adrian f. ndunguru & elia mwanga 128 7.1.3. the commercial court of tanzania commercial court of tanzania is a special division of the high court of tanzania dealing with adjudication of business-related cases. this is according to rule 5(1) of the high court (commercial division) procedure rules gn. 250 of 2012 government notice no. 250 of 2012. generally, the high court of united republic of tanzania is established by article 108 of the constitution of united republic of tanzania of 1977 as amended. the divisions of the high courts are established by the chief justice in consultation with the president of united republic of tanzania under section 4a (1) of the judicature and application of laws act. according to the said section… the chief justice may after consultation with the president by order published in the gazette establish such number of divisions of the high court as may be required for the purposes of facilitating the discharge of judicial functions in respect of specific matter as may be determined by the chief justice. the high court (commercial division) procedures rules provides for the jurisdiction of the commercial division of the high court of tanzania. according to rule 5(1) of the high court (commercial division) procedure rules, the commercial court vested with original and appellate jurisdiction over commercial cases. the act further provides for the nature of commercial cases which the court can determine. these are cases related but not limited to; the formation of a business or commercial organization, the management of a business or commercial organization , the contractual relationship of a business or commercial organization with other bodies or persons outside the business or commercial organization, the liability of a business or commercial organization with other bodies or persons out of the business or commercial organization , the liability of a business or commercial persons arising out of that person’s business or commercial matters , banking and financial services, the restructuring or payment of commercial debts by or to business or commercial organization or persons and the enforcement of arbitral awards decided by courts or tribunals of competent jurisdiction on international agreements to which tanzania is party. the nature of the cases falling within the commercial court jurisdiction includes matters relating to protection of geographical indications especially in paragraph (d) of rule 3 of interpretation in the high court (commercial division) procedures which talks about liability of a business or commercial organization with other bodies and paragraph (h) of the said rule 3 of interpretation in the high court (commercial division) procedures which talks about enforcement of arbitral awards by some competent tribunals to which united republic of tanzania is party. intellectual property rights are enforced as civil cases through the commercial court. the main purpose of the court is to grant orders like injunction, payment of monetary compensation to the victims of breach and general penalties and fines imposed by the national laws. according the johansen, in tanzania most of industrial property rights provide for civil rights and no criminal sanction, furthermore plaintiff would only be entitled to injunction, damages and compensation. this is enforced by the commercial courts of law. 7.1.4. the fair competition commission the fair competition commission is a special commission established under section 62 (1) of the fair competition act to deal with matters relating to unfair trade practices which are likely to affect consumers rights. the commission started operating in in 2007 after appointment of required staff for its operations. according to section 62(1) of the fair competition act, the commission shall be independent and perform its functions and powers independently and impartially without fear and favour. the main function of the commission as stipulated under the fair competition act are centered within the functions of consumer protection. this protection enforced by the commission include protection against false indications of geographical origin of goods. section 62(1) of the fair competition act provides for the specific functions of the commission which are ; to promote and enforce compliance with the fair competition act; to promote public knowledge , awareness and understanding of the obligations, rights and duties, functions and activities of the commission; to make available to consumers information and guideline relating to the obligations of persons under the act and rights and remedies available to consumers under the act; carry out inquiry studies and research into matters relating to competition and protection of interests of consumers etc. the specific function relating to consumer protection is that of carrying out inquiry on matters relating to competition and protection of consumers. 7.1.5. the fair competition tribunal institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country 129 the fair competition tribunal performs almost the same functions of the fair competition commission (here in after fcc) of protection of consumers welfare. this body is established as an appellate organ to the fcc. according to section 82(1) of the fair competition act, there shall be established an independent tribunal to be known as the fair competition tribunal. any person aggrieved by the decision of finding of the fcc may appeal to the fair competition tribunal and the decision of the tribunal shall be final. 7.2. institutional challenges the existence of strong and well-equipped institutions for protection of geographical indications is an important aspect towards effective protection of potential geographical indications in tanzania. the purpose of the institutions is generally to provide for registration, management and enforcement of the potential geographical indication. however, the effectiveness of these institutions is affected by number of challenges. lack of specific institutional mandate for protection of geographical indications the study of various laws establishing institutions dealing with protection of geographical indications does not have specific provision giving powers to the institutions to deal with registration of geographical indications. the law establishing brela and fcc does not have define specific powers of brela or fcc in relation to protection of geographical indications. in the absence of such powers, these institutions can not seriously engage in protection of geographical indications. this is according to interview with brela director of intellectual property division. reviewed literatures reveal that, successful protection of intellectual property dependents on successful operation of the intellectual property system which include industrial property office, courts and well-trained practitioners (usaid, 2003). this means that, there must be specific institutions with mandates to deal with protection of geographical indications for the system to be effective. the instruments establishing brela empowers brela to administer the trade and service marks act, the company act, the business licencing act and the patent act which allows the institutions to receive and process applications for registration of trademarks, service marks and patent. the director for intellectual property division insists that, brela has no mandate to receive an application for registration of geographical indications because there are no enabling laws. the director further observed that, brela rejects all applications for registration of geographical indications for lacking institutional mandate from enabling laws which apparently do not provide for procedures of registration of geographical indications. inadequate human resource to monitor infringement of geographical indications. the effective enforcement and management of geographical indications require enough competent staff. most of the african states including tanzania are facing the challenge of inadequate skilled manpower to monitor infringement and enforce the intellectual property rights (mangistie, 2014). human resource may not be readily available in the majority of african states and tanzania in particular. the problem of inadequate man power results into weak institution to monitor infringement of the protected geographical indications and poor enforcement of the laws. this in a long run results into continuous violation of the protected rights. this challenge is facing brela to the extent of making it less active in area of protection of intellectual property rights (mahingila, 2005). the problem of inadequate manpower requires short term and long-term strategies. the short term solutions may include securing financial and technical support from development partners and international organization and longterm solution will require establishing special fund for managing and promoting the geographical indication as protected product which in a long run will release contributions from the benefits of protection that will be invested in training staff for equipping the regulatory authorities. during interview with some informed respondents, it was observed that, one of the major challenges facing brela in administration and protection of intellectual property rights in tanzania is inadequate man power. according to interview with the brela director of intellectual property, there are no enough competent officers who are well trained to deal with protection of geographical indications in tanzania. lack of strong producers organizations protection of geographical indications in tanzania is facing the problem of lack of strong organization of producers who can collectively manage and own geographical indications (mangistie, 2014). most of geographical indication laws requires ownership of geographical indications be given to groups of farmers or producers as collective mark. however, in most of african countries including tanzania there are very weak and non-inclusive organization of adrian f. ndunguru & elia mwanga 130 producers which cannot ensure effective participation in developing and implementing geographical indication strategies (giovannucci, josling , kerr, o'connor , & yeung , 2009). according to mangistie, african countries are facing the challenge of weak or non-inclusive organization of producers. the collective nature of ownership of geographical indications requires existence of an organization of producers that will ensure effective participation in the process of development and implementation of geographical indications as well as promoting the geographical indication (mangistie, 2014). lack of strong or well-organized producers’ associations affects the efforts of protection of geographical indications in many respects; first, it denies interested parties the right to apply for registration of collective marks. second, it creates difficulty in monitoring compliance to standards or product specifications set for assessing registrability of a product. third, it affects the collective interests of the community to realize benefit from the use and protection of potential geographical indications available in their locality (mengistie, 2013). in tanzania, most of the primary farmers associations are not well organized and they do not have competent staff who can formulate and monitor implementation of geographical indication laws. weak system of settlement of disputes relating to infringement of geographical indications according to article 42 of the trips agreement, one of the important requirements for effective protection of geographical indications is existence of strong and effective system for settlement of disputes relating to infringement of intellectual property rights. interview with intellectual property lecturer at the university of dodoma tanzania revealed that, most of the african countries including tanzania are facing this challenge. the wto and african regional institutions are lacking a serious and effective institutions for settlement of disputes concerning violation of intellectual property rights. where these systems exist at national level, they are not effective and accessible for the general public to enforce their rights against infringement (mangistie, 2014). according to article 44, 45 and 46 of the trips agreement, the effectiveness of the enforcement system is measured in terms of availability of effective and timely remedies like injunction orders against infringement of the geographical indication rights, payment of damages to the right holder and other remedies like disposal of the infringing goods. in tanzania, geographical indication disputes could be handled through the commercial court, district magistrate court, fair competition commission and fair competition tribunal as key organs responsible for settlement and enforcement of intellectual property related rights in the country. however, these institutions are not effective in enforcement of geographical indications due to lack of enough and staff to monitor infringement, lack of funding to perform their functions and inaccessible filling fees for ordinary people to open the case (mangistie, 2014).. the high court commercial division is facing a challenge of high cost of filling cases which cannot be accessible by ordinary citizen. the cost of filing a case will go up to tsh. 10,000,000/= as filling fees and tsh.3000,000/= for filling plaint or chamber summons for declaratory orders. these fees are not friendly to be applied for enforcement of geographical indications cases which are commonly filed by farmers. lack of institutional capacity to identify the distinctive qualities or characteristics of the gi products the institutions dealing with protection of geographical indications are also facing the challenge of inadequate capacity to identify the distinctive qualities or characteristics of their products for the purposes of protection by geographical indications. there are no skilled human resources capable of analyzing and determining the unique qualities or characteristics present in the potential geographical indication products, defining the link between the product and the geographical place of origin of the geographical indication product within and outside the country (mahingila, 2005). this has made majority of the african countries un aware of their potential geographical indication products hence failing to realize their potential in international market. lack of technical capacity in protection of geographical indications the institutions engaged with enforcement of geographical indications in tanzania are facing a serious challenge of lacking enough staff with required skills to deal with protection of geographical indications. according to literatures reviewed, protection of geographical indications requires a lot of skilled human personnel who will be readily available to identify and monitor all possible infringements that may result to the protected geographical indications but african countries are lacking such capacity due to limited resources (mahingila, 2005). the fair competition commission report for 2019 has noted some institutional challenges affecting the commission in its daily operations. one of the challenges pointed out is the issue of shortage of staff to adequately carryout the functions of the commission, lack of sustainable source of income to finance the commission operations and insufficient knowledge and awareness on compition matters. all these challenges reveal the incapacity of the institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country 131 commission in fulfilling its daily operation of protection of consumers (the fair competition commission report, 2018). according to john at al , the development of geographical indication in tanzania is in early stage with farmers and administrators developing awareness and technical capacity from basic levels (john et al., 2018). to realize the benefit of geographical indications the government must devise effective strategy such as voluntary license arrangement with importers, distributors and retailers of the products in major import destination to assist in management and monitoring infringements. lack of experience by the institutions in protecting geographical indications institutions dealing with management and protection of geographical indications are facing the serious challenge of lack of experience in protection of geographical indication (mahingila, 2005). in most of african countries, geographical indication is recent phenomenon and as such there are no experience of the use of geographical indications by producers and even intellectual property office bearers as it is in developed countries like the uk (mangistie, 2014). the problem of lack of experience in protection of geographical indications was noted by the former brela ceo when she was presenting her paper in a meeting of stakeholders of sme organized by wipo and tccia. the former brela officer noted that, poor exposure to international best practice is another problem hindering brela in protection of industrial properties (mahingila, 2005). she further noted that, the source of this problem is shortage of finance to send brela officers to participate in international and regional fora which could help the personnel to copy the best practices and be able to apply the same in their service delivery activities. dormant industrial property division at brela the key organ responsible for protection of geographical indications and administration of intellectual property laws is brela. brela has established a special industrial property directorate to deal with registration and administration of industrial property rights like patent, trade and service marks, industrial designs and other related intellectual property rights like geographical indications. this division is headed by a director of intellectual property. the intellectual property division is challenged for being dormant in performing its role of protecting intellectual property rights (mahingila, 2005). brela is not effectively performing its role of registration of geographical indications. the 2018 wipo report of geographical indications shows that, by 2018 there was not even a single geographical indication registered in tanzania (world intellectual property organization , 2018). according to the former brela ceo, the main role of the intellectual property division is to administer current trade and service marks act and the patents act. this activity is not very active mainly due to lack of information from the demand side. she further noted that, the act of brela being unable to cover full range of industrial property is a major problem (mahingila, 2005). lack of centralized african regional institution for protection of intellectual property rights at african region level, there exits two different institutions for management, protection and enforcement of intellectual property rights (african regional intellectual property organization, 2019). there is the african regional intellectual property organization (aripo) covering countries of southern africa states including tanzania and african intellectual property organization (aopi) covering western african states. this situation makes african states to have a divided strategy on protection of geographical indications hence increasing diversity of domestic laws on protection of geographical indications. the disunity is also slowing down the collective efforts towards harmonization of african states legal framework on protection of geographical indications. in 2011, hcl consultants ltd of cyprus was engaged to conduct an empirical study on the protection of geographical indications by the african, caribian and pacific countries engaged in the doha round negotiations. during their study, they were interested to know what were considered to be the main drawbacks associated with existing international geographical indications protection in africa? the study revealed that, ‘absence of centralized african or regional protection system, lack of public knowledge about geographical indications and ignorance of sources of information’ were serious challenges affecting most of the african states in their efforts towards effective protection of geographical indications (blakeney, 2014). it is therefore just and fair to note that, lack of african regional centralized institution is slowing down the efforts of protection of geographical indications in africa because africa is lacking one voice and harmonized regional law for effective protection of african potential geographical indications. this is also affecting african counties in negotiating international ip instruments for common interests of all african states. adrian f. ndunguru & elia mwanga 132 lack of effective monitoring mechanisms the effective protection of geographical indications requires the availability of institutional mechanism of monitoring compliance with the specifications and standards of production in order guarantee consumers authenticity of the product. according afripi, most of developing countries including tanzania is lacking effective institutional system for monitoring compliance to product standards. this will sometime need to hire a private firm to monitor compliance. according to afripi, for geographical indications to be successful, a robust system of protection and enforcement is required. the credibility of a geographical indication depends on control which ensures the promise made by producers in their product standards is respected and product authenticity is guaranteed. this is difficult in most of the african states where especially to those small farmers association which do not have enough financial capacity to hire a private firm to monitor compliance of standard of goods in the market (intellectual property rights and innovation in africa, 2021). 8. conclusion this paper was examining the institutional challenges hindering effective protection of geographical indications in tanzania. the study has revealed that, tanzania has in place the following institutions dealing with protection of geographical indications; the ministry for industry and trade as the policy maker, brela as the key institution charged with administration of intellectual property laws , fcc and fair competition tribunal dealing with administration of the merchandise marks act and the high court commercial division dealing with enforcement of the industrial laws. however, tanzania institution dealing with protection of geographical indications are facing serious challenges which slows down their effectiveness in protection of geographical indications. the serious challenges relating to; inadequate human resource to monitor infringements, lack of strong organization of producers, incompetent staffs, lack of funding to facilitate daily operation and training for staff, weak institutions for settlement of disputes and incapacity to identify the unique qualities or characteristics of potential geographical indications by the national institutions. recommendation the government of tanzania is advised to work on the challenges by strengthening the institutions on the following areas ; to employ more staff at brela and fcc and train them in those countries which are far more better in protection of geographical indications to equip them with up to date skills and techniques of protection of geographical indications. also, to provide financial support to the existing institutions to enable them have enough financial resources to monitor compliance to geographical indication standards in the market. further, the government must think of amending existing laws to provide the institutional powers on registration and management of geographical indications. finally, the existing farmers associations should be strengthened to prepare them for protection of geographical indications. references african regional intellectual property organization. (2019). aripo 2019 annual report. harare: african regional intellectual property organization. bagal, m. n. (2011). practical manual on geographical indications for acp countries. agridea, switzerland : organization for an international geographical indication network (origin). bertozzi, l. (2014). managing geographical indications-some administrative challenges . worldwide syposium on geographical indication (pp. 30-34). bangkok: world intellectual property organization . blakeney, m. (2014). the protection of geographical indication: law and practice. london, united kingdom : edward elgar publishing limited. giovannucci, d., josling , t., kerr, w. a., o'connor , b., & yeung , m. t. (2009). guide to geographical indications-linking products and their origins. geneva, switzerland : international trade centre. intellectual property rights and innovation in africa. (2021). manual for geographical indication in africa. alicante, spain : european union intellectual property office. institutional framework for protection of geographical indications in tanzania: examining the challenges and way forward towards effective protection of geographical indications in the country 133 kihwelo, p., & bullu. (2008). a review of tanzania's current situation with regard to intellectual property rights policy issues : opportunities and challenges. the open university law journal, 2(2). lange, b. (2016). geographical indication: a posibility for small scale farmers and production in least developed countries to gain access to modern market . geneva : world intellectual property organization. mahingila, e. (2005). intellectul property landscapes in tanzania: the emerging role of business registration and licencing agency (brela) in assisting small medium enterprises use in intellectual property. workshop on intellectual property for small and medium size enterprises. dar es salaam: world intellectual property organization. mangistie, g. (2014). managing geographical indications in africa-opportunities , experience and challenges. worldwide syposium on geographical indication (pp. 20-27). bangkok: world intellectual property organization. tabaro, e. (2009). the wto process , geographical indications and east africa community: the state of play. journal of african and international law, 2(2), 32-43. the african union commission department of rural economy and agriculture . (2018). continental strategy for geographical indications in africa . adis abbaba : african union. world intellectual property organization . (2018). world intellectual property indicators 2018. geneva : world intellectual property organization . journal of international trade, logistics and law, vol. 4, num. 1, 2018, 126-137 126 waste biomass based energy supply chain network design hatice güneş yildiz, istanbul commerce university, turkey berk ayvaz, (asst. prof. dr.) istanbul commerce university, turkey abstract: reducing dependence on fossil fuels, alleviating environmental impacts and ensuring sustainable economic growth are among the most promising aspects of utilizing renewable energy resources. biomass is a major renewable energy resource that has the potential for creating sustainable energy systems that are critical in terms of social welfare. utilization of biomass for bioenergy production is an efficient alternative for meeting rising energy demands, reducing greenhouse gas emissions and thus alleviating climate change. a supply chain for such an energy source is crucial for assisting deliverance of a competitive end product to end-user markets. considering the existing constraints, a mixed integer linear programming (milp) model for waste biomass based supply chain was proposed in this study for economic performance optimization. performance of the proposed modelling approach was demonstrated with a real life application study realized in i̇stanbul. moreover, sensitivity analyses were conducted which would serve as a foresight for efficient management of the supply chain as a whole keywords: biomass supply chain, biomass, biogas, anaerobic digestion, supply chain network design 1. introduction increasing concerns on climate change and energy security nowadays encourage world countries utilize natural resources more effectively. international energy agency (iea) data foresees that the global energy demand for the year 2040 would be one thirds higher than the energy demand for the year 2015 (iea, 2014). fossil fuels such as oil, coal and natural gas that are termed to be non-renewable energy resources supply a great portion of global energy demand at a level of 88% (othman et al. 2017). nevertheless, a trust issue with respect to these energy resources emerged after the oil crisis of 1973. despite the petroleum embargo being a short-term event, some of its consequences manifested themselves in the long run. industrialized countries gravitated towards alternative energy resources after this crisis. this quest was pushed on as well because of the rising fossil fuel (oil, natural gas) prices, dependency on the energy imported from a limited number of countries and the intensive generation of greenhouse gases by fossil fuels. renewable energy resources started to become of importance throughout this period (nematollahi et al. 2016). it is expected that the utilization of renewable energy resources would increase from the recent 13.5% levels to 30% in year 2040; in order to meet the increasing energy demands, to comply with the national regulations for greenhouse gas emissions and to restrict utilization of fossil fuels (iea, 2014). biomass is termed as a potential renewable energy resource to be utilized through a variety of biomass conversion technologies for the production of biofuels, bioenergy, biochemical and other bioproducts that are highly valuable (ng et al. 2015). bioenergy generated from renewable raw material resources has the potential to enhance economic growth, energy security and resource sustainability. despite all these advantages, a long-term multi-period strategical planning should be established in order for bioenergy being able to compete with energy production from fossil fuels. researchers mostly focused on technologies that convert biomasses to bioenergy, however, a sustainable and reliable biomass supply chain network should be developed in order to provide an end product that is highly competitive and that would increase customer satisfaction. the best strategy for planning the biomass supply chain would be having full information on the parameters (awudu and zhang, 2012), however the main challenge with this waste biomass based energy supply chain network design 127 respect stems from the presence of numerous uncertainties. these uncertainties include, but not limited to unforeseen weather conditions, transport and storage of biomass, demand for biofuels, raw material and product prices, production technologies, and biofuel related policies (bairamzadeh et al. 2018). bioenergy which is a clean energy resource cannot be utilized on commercial levels despite its numerous advantages, due to the presence of various challenges related to biomass supply chain management and general deficiencies (sansaniwal et al. 2017). considering all these facts and in order for sustainably meeting the growing demand for energy, a decision model was developed for the waste biomass based energy supply chain that is dependent on reallife assumptions and restrictions to cope with problems related to fossil fuel consumption in turkey, which possesses highly rich resources with respect to biomass energy. main objective of this study is providing the most convenient supply chain configuration that maximizes profitability all through the related processes for designing the optimal planning for bioenergy production. a mixed integer linear programming model (milp) that allows decisionmaking in anaerobic digestion based bioenergy conversion procedure by determining the biomass and end product flow rate between the nodes of the network designed to contain the number of storage facilities and plants, their capacities and locations was proposed for this purpose. contribution of this study is based on the development of a mathematical programming model that combines all elements of waste biomass based energy supply chain under a single framework in order to optimize decision-making for strategic supply chain decisions. execution of this research contributes to making use of waste in energy production and as compost, instead of having them idly stored in an environmentally detrimental manner; to meet the current energy deficit in our country, to alleviate our dependence on foreign countries for fertilizer needs and to enhance local economy. the remainder of this article is organized as follows: literature review is presented in the 2nd section. the problem is defined and the proposed mathematical method is explained in the methodology section, namely the 3rd section. a case study based on a real life problem is demonstrated along the 4th section. results and verification of the proposed model is provided in the 5th section. finally, research is thoroughly summarized and recommendations for certain future research topics to be investigated is provided in the 6th section. 2. literature review researchers lately focused on development of mathematical models for the design of biomass supply chain. literature review revealed that numerous studies were conducted with respect to development of biomass supply chain models, and some of these research will be reviewed herein. uncertainties play a major role in decision-making for biomass supply chains, as was stated along the introduction chapter. some of the developed models created different scenarios by taking efficiency, demand and price uncertainties into consideration. ekşioğlu et al. (2009), proposed a biomass based biorefinery supply chain model that utilized corn and ligneous waste to produce ethanol. they formulized a multi-period milp model that predicted material flows along with the network design. moreover, a scenario analysis was conducted taking existing biomass options into consideration. an et al. (2011), developed a mathematical model for maximizing total profit in lignocellulosic biomass based biofuel supply chain that is planned to generate ethanol as the end-product. effects of uncertainty sources such as biomass cost, biomass efficiency, ethanol prices and ethanol demands on biomass supply chain performance was investigated. zhang and hu (2013), constructed two distinct milp models that minimized the cost of supply chain and optimized the number, capacity and locations of biorefinery plants by using corn waste. they considered these models on an annual and periodical (monthly) basis. sensitivity of biofuel demand was considered in this periodical based model. paulo et al. (2015) developed a milp model for bioenergy supply chain design and planning for bioenergy production by utilizing forestry waste as the biomass supply. they conducted sensitivity analysis on biomass availability, logistics, production and investment costs for determining their corresponding effects on supply chain network. duarte et al. (2016), proposed a milp model that aimed at providing the maximum benefit for the supply chain design of the sustainable biofuel produced from the agricultural residue known as coffee cut stem (coffee-cs). they evaluated the effect of co2 price by conducting sensitivity analysis. by taking forest biomass as the raw material, zhang et al. (2017) focused on formulizing a milp model for designing a supply chain network that minimized total system cost. in their proposed study, they determined the plant locations by geographical information system (gis) beforehand and used these data as the input for optimization modelling method. they investigated sensitivities of the uncertainties such as ethanol demand and biomass availability. hatice güneş yildiz & berk ayvaz during the corresponding literature review, it was observed that milp model was the most commonly used method among all mathematical programming techniques for the assessment of biomass supply chain. still, unlike most researchers, marufuzzaman and ekşioğlu (2017), proposed the mixed integer non-linear programming model (minlp) that eliminated the deadlock in biomass supply chain of lignocellulosic biomass due to seasonality by dynamic transportation routing and utilization of multi-mode facilities, while minimizing total cost. they solved a linear approach of their proposed model by using hybrid benders-based rolling horizon algorithm. rentizelas et al. (2009), developed a minlp model that maximized the net present value (npv) of the investment on bioenergy conversion systems for trigeneration (electricity, heating and cooling) that used agricultural waste as the raw material for biomass. they utilized genetic algorithm (ga) and quadratic programming (sqp) as their optimization methods. by using a simulation model for biomass supply chain, zhang et al. (2012), developed a supply chain model by using arena simulation software that determined potential plant locations based on gis, and that took biomass raw material cost, energy consumption and greenhouse emissions into account. windisch et al. (2013) predicted the time spent for each organizational and managerial activity regarding forest biomass supply chain of two different countries by using mutually exclusive event simulation. they utilized business process mapping methodology for the comparison of the business processes and shareholders that take place in each supply chain. summing up, as the related literature was reviewed, it was observed that most of the studies focused on biofuel conversion by similar biomass raw materials having various sources of uncertainty. selection of animal waste as the raw material to be used in this study with respect to food and feed safety, along with the application of the supply chain model designed for utilization of wholesale vegetable and fruit market waste in energy production contributes to the current literature in terms of enhancing renewable energy resources. 3. methodology this study proposes the milp model for the design and management of waste biomass based energy supply chain that takes economic performance into consideration. this supply chain at hand consists of raw material suppliers, biomass storage facilities, biogas plants and points of demand. figure 1 demonstrates an overview of the supply chain network used for the model. figure 1. general structure of biomass based energy supply chain network 3.1. problem definition waste biomass based energy supply chain covers the processes commencing from suppliers and extending to points of demand. model inputs are cattle manure, hen manure and broiler manure for the supply chain in question. waste collected from farms and wholesale markets for vegetable and fruit are transported from biomass storage facilities to biogas plants, where they are fed to a digester that produces biogas and high organic content fertilizer through anaerobic digestion process. collective anaerobic digestion of waste enhances biogas efficiency, which in turn provides important advantages such as an increase in energy sales, savings in organic waste management and decrease in greenhouse gases related to fertilizer and fossil fuel consumption. produced biogas is then converted into heat and electrical energy within the biogas cogeneration (chp) plant. electrical energy is fed to the national electricity grid. waste heat on the other hand, is utilized as process heat for the plant. fertilizer that is the effluent of digestion process is sent to the separator where it is converted into solid and liquid organic fertilizer. solid organic waste biomass based energy supply chain network design 129 fertilizer is put into use through sales of the material to municipalities to be used in parks and gardens. digestion effluent liquid organic fertilizer is used for partial fulfilling of water need in the digester. waste biomass based energy supply chain represents an interconnecting integral system by providing organic waste treatment, renewable energy generation and recycling simultaneously. the model that is to optimize the supply chain in question is constructed so as to determine the relevant system configuration which maximizes profit all through the supply chain. the model aims to make decisions that correspond to below listed items: 1. supply of biomass resources, 2. biomass amount transported to plants and storage facilities, 3. number of plants, their capacities and locations, 4. number of storage facilities, their capacities and locations, 5. amount of biogas and electricity produced by each plant, 6. water quantity to be added to the digester, 7. amount of fertilizer transported to the point of demand. 3.2. model formulation in this section, the basic mathematical model used in the design of the network is described. the following notations (table 1) are used for indices, input parameters, and decision variables in the integrated model. variables are depicted in lowercase letters, whereas the parameters are depicted in uppercase letters. table 1. notation of mathematical modeling indices t plant locations d storage facility locations r supplier locations b waste biomass types k plant capacity c storage capacity i points of demand parameters tbkaptk biomass processing capacity for k capacity for the plant located at t (ton) tekaptk electricity generation capacity for k capacity t located plant (kwe) dbkapdc biomass storage capacity for c capacity storage facility located at d (ton) abrb available b waste biomass in supplier location of r (ton) bdob biogas conversion potential of waste biomass b (m 3 / ton vs) mo methane ratio of biogas (%) bmi energy content of biogas in terms of methane (kwh/m 3 ) bev efficiency of biogas conversion to electricity in cogeneration unit (%) gdob fertilizer conversion rate of waste biomass b (%) tkb solid matter ratio of waste biomass b (%) ukmb volatile solids content of waste biomass b (%) mard distance between storage facility located at d and supplier located at r (km) mbdt distance between storage facility located at d and plant located at t (km) meti distance between plant located at t and point of demand located at i (km) ymaltk investment cost of k capacity level plant located at t (€/kwh) dymaldc investment cost of c capacity level storage facility located at d (€/ton) btmalb unit transportation rate of waste biomass b (€/ton-km) gtmal unit transportation rate of digestion effluent solid organic fertilizer (€/ton-km) ef cost of electricity (€/kwh) gf price of solid organic fertilizer (€/ton) sf price of water (€/m 3 ) bmalb purchase cost of waste biomass b (€) io df predetermined investment cost rate for operating costs (%) discounting factor (%) hatice güneş yildiz & berk ayvaz sko sso maxtk mintk solid organic fertilizer conversion ratio in separator (%) liquid organic fertilizer conversion ratio in separator (%) maximum total solid content of biomass slurry in the digester (%) minimum total solid content of biomass slurry in the digester (%) decision variables ytk the value is 1, if a capacity plant of k will be established in plant location t; otherwise the value is 0 xdc the value is 1, if a storage facility of c will be established in storage location d; otherwise the value is 0 btrdb biomass amount b transported from supplier region r to the storage location d (ton) bddtb biomass amount b transported from storage location d to the plant location t (ton) gti amount of solid organic fertilizer transported from the plant location t to the demand point i (ton) atikt digestion effluent liquid organic fertilizer amount in the plant located at t (ton) urbiyot biogas generated in the plant located at t (m 3 ) urelkt electricity generated in the plant located at t (kwh) st amount of water used in the plant located at t (ton) 3.2.1 objective function the model's objective is maximizing the total profit of supply chain network. profit is calculated by subtracting the total supply chain costs from the total supply chain revenue generated by sales of end products. the economic objective function comprises of five components. the equation given below demonstrates these five components. maximum total profit = total revenue (total investment cost + total operating cost + total transportation cost + biomass purchasing cost) equation (1) total revenue consists of two elements, namely the sales of produced electrical energy to national network and the sales of solid organic fertilizer to municipalities. total income = t ti t t i ef urelk gf g    (1) equation (2) total investment cost consists of two elements, namely the investment cost of plants and storage facilities. total investment cost = dc tk tk d c dc t k d ydf x df ya may l lm     (2) equation (3) total operating cost consists of the operating costs of storage facilities, operating costs of plants, and cost of water. operating costs were taken as a predetermined percentage of the investment cost. total operating cost = dc tk tk t d c t k c t dio x io ydym mal y s sfal        (3) equation (4) total cost of transportation consists of three elements that is; biomass sources transported to storage facilities, biomass transported from storage facilities to plants and the transportation cost of solid organic fertilizer from the plants to the point of demand. total transportation cost= b rdb rd dtb dt ti ti b r d d t t i btmal bt ma bd mb g gtmal me                                (4) equation (5) biomass purchasing cost is calculated by the cost of waste biomass purchased from supplier locations biomass purchasing cost = b rdb r d b bmal bt (3) 3.2.2. model constraints equations (6) (19) represent the constraints of the model. waste biomass based energy supply chain network design 131 3.2.2.1. biomass supply restrictions equation (6) ensures that the biomass quantity supplied from a supplier location does not exceed the existing biomass quantity. rdb rb d bt ab ,r b  (4) 3.2.2.2. flow protection constraint equation (7) represents the constraint that ensures the amount of biomass transported from biomass supplier locations to storage facilities will be equal to the biomass amount transported from storage facilities to plants. rdb dtb r t bt bd  ,b d  (5) 3.2.2.3. capacity constraints equation (8) ensures that the biomass quantity transported from the biomass supplier locations to storage facilities will not exceed total capacity of storage facilities. rdb dc dc r b c bt dbkap x   d (6) equation (9) ensures that the biomass quantity transported from storage facilities to plants will not exceed total plant capacity. dtb tk tk d b k bd tbkap y   t (7) 3.2.2.4. production constraints equation (10) calculates the amount of biogas produced in the plants, whereas equation (11) calculates the conversion rate of produced biogas to electricity. dtb b b b t d b bd bdo ukm tk urbiyo    t (8) tt urbiyo bmi bev mo urelk    t (9) equation (12) ensures that the electricity produced in the plants will not exceed plants' technical capacity limit for electrical energy production. t tk tk k urelk tekap y  t (10) 3.2.2.5 fertilizer distribution constraints equation (13) calculates the amount of solid organic fertilizer produced in plants. equation (14) calculates the amount of liquid organic fertilizer produced in plants. dtb b ti d b i sko bd gdo g    t (11) dtb b t d b sso bd gdo atik   t (14) 3.2.2.6. digester solid content equation (15) demonstrates the formula for mixing solutions. here mn is the mass of the solute and %n is the mass concentration. if the pure solvent (water) is added to a solution, the %n is taken to 0%. using this formula, equations (16) and (17) that ensure total solid content will be within technical limits for wet fermentation process of biomass slurry in the digesters, are derived. moreover, both constraints calculate the water quantity added to the digester. hatice güneş yildiz & berk ayvaz        1 1 2 2 1 2% % % %n n son nm m m m m m        (12)  0%b dtb t dtb t d b d b tk bd s maxtk bd s                    t (13)  0%b dtb t dtb t d b d b tk bd s mintk bd s                    t (14) 3.2.2.7. decision variable restrictions equation (18) shows the binary decision variables, whereas equation (19) shows integer decision variables.  , 0,1tk dcy x  , , ,d t k c    (15) , , , , , , 0rdb dtb ti t t t tbt bd g urbiyo urelk s atik  , , , , ,r d b d t i      (16) 4. application it was aimed to conduct a case study regarding waste biomass based supply chain network design in the country's most populated city of istanbul which dominates surrounding settlements in terms of both economic and societal development, in order to evaluate the performance of proposed model. the ever increasing food demand hand in hand with the population growth during recent years led to an increase in waste generation. uncontrolled and wild dump sites deteriorate the natural resources and generate greenhouse gases which in turn causes problems that threaten both human and environmental health. these wastes which have highly adverse environmental effects can be utilized as biomass sources for energy production in bioenergy plants, instead of being dumped. istanbul has an important potential for organic wastes such as animal waste and waste from wholesale vegetable and fruit market. with the utilization of waste as biomass source, both energy production and organic fertilizer production as the anaerobic digestion effluent would be possible. model was applied to certain districts of istanbul. predetermined districts of istanbul were regarded as potential regions for supply of biomass, biomass storage facilities, biogas plants and points of demand within this model. corresponding map of the related study is given in figure 2. figure 2. application locations map waste biomass based energy supply chain network design 133 4.1. biomass resources four types of biomass were regarded as raw material to be utilized in biogas facilities in this study, which are the cattle manure, hen manure, broiler manure and waste from wholesale vegetable and fruit market. for attaining high biogas efficiencies, animal manure and waste from wholesale vegetable and fruit market were processed together in anaerobic digestion process. data related to waste biomass potential of districts was obtained from the ministry of food, agriculture and livestock. waste amount per animal was calculated by taking 34 kg/day (sözer and yaldiz, 2011) for cattle, and 0.16 kg/day (hart, 1960) as basis. data concerning the waste from wholesale fruit and vegetable market was obtained from istanbul metropolitan municipality's directorate of wholesale vegetable and fruit markets. characteristics of waste biomass that was investigated in the study is provided in table 2. table 2. characteristics of waste biomass biomass resources total solid (%) reference volatile solid (%) reference biogas yield (m 3 /ton vs) reference cattle manure 16.3 (zhang et al. 2013) 81 (avcioǧlu and türker, 2012) 340 (avcioǧlu and türker, 2012) hen manure 24.5 (keskin et al. 2018) 75 (avcioǧluand türker, 2012) 450 (avcioǧlu and türker, 2012) broiler manure 50 (avcioǧlu and türker, 2012) 65 (avcioǧlu and türker, 2012) 550 (avcioǧlu and türker, 2012) waste from wholesale vegetable and fruit market 12.7 (ganesh at al. 2015) 84.9 (scano et al. 2014) 450 (ganesh et al. 2015) 4.2 transportation national transportation infrastructure is suitable for road transport that is selected as the transportation mode for biomass and fertilizer. data utilized in this article were given in terms of district levels, and the district coordinates were used for calculating the distances between locations. among the biomass types; cattle manure was transported at a cost of 0.05 €/ton, whereas waste from wholesale fruit and vegetable market was transported at a cost of 0.03 €/ton (poeschl, 2010). it is assumed that the hen manure and the broiler manure were transported at the same cost as the cattle manure. 4.3 biomass storage facilities and biogas plants potential locations of biomass storage facilities and biogas plants were selected as close as was possible to biogas supplier locations in order for decreasing transportation costs. biogas produced as the result of anaerobic digestion in biogas plants was only utilized for electrical and heat energy production in this study. electrical energy produced by the cogeneration system was assumed to be totally distributed to national electrical energy by associating the electrical energy production with the demand. whereas the heat energy produced by the plant was assumed to be utilized for fulfilling various heat demands of plants. three capacity levels, such as 4000 ton/month, 6000 ton/month and 14000 ton/month were considered for biogas plants. installed capacities of electric energy production in cogeneration systems corresponding to each capacity level for were 1000 kwe, 2000 kwe and 3000 kwe. cogeneration systems' electrical and heat energy efficiencies were taken as 41% and 44% respectively (lijó et al. 2017). total solid content of biomass slurry in the digester is limited to be between minimum 8% and maximum 13%. 4.4. economic parameters the electrical energy generated by biogas plants was fed to the national grid at a price of 0.133 €/kwh. electricity price defined in 5346 number law for utilization of renewable energy resources for electrical energy production was taken as the corresponding electricity price used in the model. anaerobic digestion effluent solid organic fertilizer was sold to points of demand for 8.4 €/ton. the discounting factor was taken as 0.0824 and plants' service life were assumed to be 20 years. hatice güneş yildiz & berk ayvaz since the investment costs mostly did not differ for different plant sizes, the relationship between investment costs and corresponding plant capacities could be expressed by equation 20 (amigun and von blottnitz, 2010). corresponding investment cost for a 1000 kwe capacity level plant was predicted by taking the information present in literature regarding costs of different capacity plants as the basis (kremljak, 2017). annual operating costs of plants and storage facilities were considered to be 10% of investment costs. 1 1 2 2 n c q c q       (17) in this sense, q2 and c2 stood for the capacity of reference plant and its corresponding investment cost respectively; whereas q1 and c1 stood for the capacity of a new plant and its corresponding investment cost. the exponent n stood for the cost factor. 5. results results of the applied model are provided in this section. recommended milp model for waste biomass based energy supply chain design and optimization in istanbul was applied in gams optimization program, version 25.0.3 and was solved using the cplex solver version 12.8. solution trials for milp models were realized on a windows 8.1 pro 64 operating system, 16 gb ram and intel core i7 6700hq 2.60 ghz processor. model consisted of 849 continuous variables and 29 discrete variables. solution of the model took 0.063 seconds. results of the strategic and tactical decisions taken in the proposed model are presented in table 3. biomass storage facilities and biogas plants were established in some selected districts. results revealed that the model tended to decide for second level of capacity (14000 ton/month) for biomass storage facilities, and third level of capacity (3000 kwe) for biogas plants. waste biomass and fertilizer flow between certain districts could not be provided due to high transportation costs. table 3. results of the proposed model maximum profit (€/year) objective 2308910.103 storage capacity and location decisions xdc x2,2=1, x3,2=1, x5,2=1, x6,2=1 and all other xdc =0 plant capacity and location decisions ytk y2,3=1, y3,3=1, y5,3=1 and all other ytk=0 waste biomass flow amounts from biomass supplier locations to storages (ton/year) btrdb b3,2,1= 109477.294, b5,3,1= 75241.830, b6,3,1= 59426.493, b8,5,1= 17882.810, b10,5,1= 49652.410, b11,5,1= 36237.200, b12,6,2= 56624.056, b13,2,2= 613.200, b14,2,2= 67.160, b15,3,2= 175.200, b16,3,2= 122.056, b17,5,2= 642.400, b18,5,2= 905.200, b19,5,2= 6599.200, b20,6,3= 39057.102, b21,5,3= 2645.520, b22,3,4= 10139.000, b23,5,4= 15208.000 and all other btdtp=0 waste biomass flow amounts from storages to plants (ton/year) bddtb b2,2,1= 109477.294, b2,2,2= 67.160, b3,3,1= 134668.323, b3,3,4= 10139.000, b3,5,2= 910.456, b5,5,1= 103772.420, b5,5,2= 8146.800, b5,5,3= 2645.520, b5,5,4= 15208.000, b6,2,2= 14136.673, b6,2,3= 39057.102, b6,3,2= 23192.677 b6,5,2= 19294.706 and all other btdtp=0 solid organic fertilizer flow amounts from plants to points of demand (ton/year) gti g5,1= 39116.591, g2,2= 43140.408, g3,2= 44403.770 and all other gti=0 waste biomass based energy supply chain network design 135 5.1. sensitivity analysis effects of an important input factor with respect to decisions to be taken in waste biomass based supply chain were investigated in this section. biomass availability is one of the main uncertainty types that affect supply chain activities. a sensitivity analysis was conducted for examining the effect of only the biomass availability that is presumed to have the highest effect on the performance of waste biomass based energy supply chain, in this study. table 4. results of the sensitivity analysis biomass availability (%) biogas plant biomass storage total profit (€/year) %10 x2,1 x2,1 40045.603 %20 x2,3 x2,2 427860.348 %30 x3,3 x2,1, x3,1, x6,1 740800.894 %40 x2,3, x3,3 x6,1, x2,2, x3,2 885754.501 %50 %60 %70 %80 %90 x2,3, x3,3 x2,3, x3,3 x2,3, x3,3, x5,3 x2,3, x3,3, x5,3 x2,3, x3,3, x5,3 x2,2, x3,2 x2,2, x3,2 x6,1, x2,2, x3,2, x5,2 x2,2, x3,2, x5,2 x2,2, x3,2, x5,2, x6,2 1195092.331 1508287.595 1675668.871 1950839.025 2221587.382 results of the applied model are summarized in table 4. herein depicts the effects of the +10% range of parameter change. biomass availability affects plant capacities and installation decisions. accordingly, higher biomass availability reduced the unit cost of bioenergy and thus increased the system profitability by increasing bioenergy production. according to these results and as it can be seen from figure 3, it was observed that the supply chain design decisions were highly affected by biomass availability. figure 3. effect of biomass availability on total profit 6. results and recommendations this study presented a research effort regarding the design and management of a waste biomass based energy supply chain. a mathematical model that can be utilized for designing and managing such a supply chain was developed. the model covered the supply chain network as a whole, starting from biomass supply to bioenergy production. the objective of proposed model was maximizing the total profit of supply chain network. results attained revealed the importance of waste biomass based energy for supporting energy demands in istanbul. while providing a real life application of waste biomass based supply chain for the literature, this study also revealed an important role of supply chain management in the field of renewable energies. 0 500000 1000000 1500000 2000000 2500000 0 20 40 60 80 100t o ta l p ro fi t (€ ) biomass availability (%) hatice güneş yildiz & berk ayvaz further research might extend this study in various ways. firstly, models that include the concept of sustainability for achieving better optimization levels in waste biomass based energy supply chain management could be developed. decisions regarding the design of waste biomass based energy supply chain network directly affect social and environmental performances of the supply chain. hence, a robust supply chain design might be established by developing models that include social and environmental aspects of sustainability. the trigeneration system might be 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(2013). “supply chain design and operational planning models for biomass to drop-in fuel production”, biomass and bioenergy, 58: 238–250. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 174-184 174 comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement fabian jonathan universitas pelita harapan lippo village, indonesia fajar sugianto universitas pelita harapan lippo village, indonesia tomy michael universitas 17 agustus 1945 surabaya, indonesia received: march 28, 2023 accepted: may 08, 2023 published: june 01, 2023 abstract: this article shall therefore look into the competencies of both indonesian and singaporean capital market supervisory and regulatory bodies, namely otoritas jasa keuangan and monetary authority of singapore. it further assesses the effectiveness of each body in implementing law enforcement towards insider trading practices in specific. it shall also further evaluate the passiveness portrayed by the indonesian counterpart when it comes to the eradication of wary trading activities in the market as well as variables that are weighed in towards its implementation. normative-empirical research is used for this article as it takes legal principles, legal system, and comparative approach. the materials relied on for this article include an interview with a capital market lawyer, an analysis of the law and other supporting documents, as well as a comparative study. the nature of competence between indonesia and singapore’s capital market supervisory and regulatory bodies is quite similar which adopts integrated approach towards regulation and supervision of the capital market with adequate authorities attributed to them. since 2012, ojk replaces the role of bapepam-lk to administer the capital market law as an independent body. ojk is responsible for enacting rules and supervisory of the sector. keywords: comparative; insider trading; law enforcement 1. introduction the term investment has been really popular for quite some time as it spikes interest over various generations. this phenomenon has intercepted almost all countries in the world including south east asian countries like indonesia and singapore. singapore has been long known as one of asia’s economic powerhouses due to its position as one of the biggest economic hubs in asia and even the world. on the other hand, indonesia has gone through major economic developments over the past years and is recognized as one of the biggest countries as included in the g-20 forum. this leads to the notion that both indonesians and singaporeans have purchasing power with the potential of idle funds stored financially. investment is a way to turn idle funds to potentially generate profit in the future. there are numerous ways for one to invest their money into and it depends on each person’s preference on the form of investment. nowadays, investment instrument varies from foreign exchange, shares, property, even cryptocurrencies. however, the capital market has been one of the most prominent and long-used platforms used by the public to invest in shares, bonds, and other financial products that the market offers. in indonesia, the capital market has been around since the dutch colonization era in 1912 and has continued to exist until the present time. as of today, the indonesian capital market is operated by bursa efek indonesia (“bei”) as the stock exchange platform and overseen by otoritas jasa comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement 175 keuangan (“ojk”) as the capital market regulatory and supervisory body. it operates based on law number 8 of 1995 pertaining to capital market (“capital market law”) as the prevailing law. ojk was established within the enactment of law number 21 of 2011 regarding otoritas jasa keuangan (“ojk law”) in an effort to create a developed, stable, and sustainable national economy with its main objective to form a comprehensive regulatory framework and a supervisory body of the financial services sector. in its means to touch all vital economic sectors in indonesia, ojk serves as a regulatory and supervisory body for the banking and financial services sector with the goal to create an integrated and comprehensive system since the sector is deemed vital for the development of the national economy. also, the financial sector has gone through various changes which resulted in a complex, dynamic, and interconnected system equipped with advanced technology hence the establishment of ojk is expected to accommodate them. a regulatory and supervisory institution is vital for the country as it fosters a healthy financial system providing a safe platform for consumers and ojk is established to meet those expectations. meanwhile, singapore has its own monetary authority of singapore (“mas”) established in 1971 following the enactment of the monetary authority of singapore act (“mas act”). in general, mas holds the authority to regulate the financial services sector in singapore. mas acts as singapore’s central bank as well as financial regulator,[1] which gives them the authority to issue monetary policies and other macroeconomic supervisory duties. in its position as integrated financial supervisor, mas oversee all financial institutions in singapore including banks, insurers, capital market intermediaries, financial advisors as well as stock exchanges. it aims to reach its goal for singapore to be promoted as a dynamic financial centre by providing a prudent and sustainable financial system. all means of laws and regulations that have been set by the government in the field of capital market signifying an effort to protect investors. in essence, investors are the consumer of the capital market, and there is an obligation to protect consumer rights through the adoption of un guidelines for consumer protection. [2] moreover, the protection of investors is very important as they are the life of the capital market which means that the existence of a capital market lies in them. a fully functional capital market requires investors to run hence protection of their legal rights is a must. since any form of investment is full of risks, there is a huge possibility for investors to suffer loss but sufficient regulation and supervision to oversee the market will create a safety net for investors. in circumstances where the capital market can guarantee the protection of its investors, it gives rise to public trust as a safe space for investment which will lead to national economic developments. an investment-friendly country would have a fair, orderly, accountable, and sustainable capital market able to protect investors from any kinds of fraud and wary trading activities that are illegal. wary trading activities themselves may come in various forms and insider trading is one of the practices that has been deemed illegal. it is specifically regulated under article 95 up to article 99 of capital market law, which defines insider trading as the activity of securities trading involving an insider of a respective public company providing insider information that pushes him/herself or another person to engage in purchasing or selling securities. in this sense, the employee has some sort of material information that may be crucial to the price of that particular company. the threshold for an activity to be deemed as insider trading has been set however there lies a certain degree of complexity for the authorities to be able to prove the conduct of insider trading. insider trading has protracted an ambiguity in its enforcement as there lies uncertainty in order to prove it especially since the use of advanced technology in the financial services sector. herein, the burden of proof lies on the investigators to strictly detect suspicious transactions and take action upon them. the key aspect to eradicate insider trading practices is the commitment from the authorities and its intensity in enforcing the law to conduct investigation thoroughly towards companies and investors whether being big institutional investors or even retail investors. indonesia runs capital market activities based on capital market law while singapore has enacted securities and futures act (“sfa”). both countries have prohibited the practice of insider trading accordingly. however, in 2012 an insider trading case occurred concerning one of the listed companies in indonesia, pt bank danamon tbk (“bdmn”). the case involves rajiv louis, former head of ubs indonesia who is suspected to have conducted insider trading. rajiv louis took advantage of insider information regarding dbs group’s plan to acquire a majority of bdmn stocks. in march 2012, he bought 1 million bdmn stock shares through his wife’s account listed in singapore. fabian jonathan & fajar sugianto & tomy michael 176 the outcome of this case and other insider trading case that occurred in indonesia has sparked a public opinion that ojk has not been very committed to investigating insider trading suspicions although they are the assigned authorities to carry out such activity. as previously mentioned, the protection of investors is a key in maintaining a healthy capital market however tracing back in its enforcement record, most insider trading practices in indonesia end up in administrative sanctions whereas capital market law has specifically prescribed the practice as a crime. in this sense, public investors and the market suffered while the perpetrator does not receive any form of deterrence. with that being said, the author will discuss the following issues: (a) how are the nature of competence of the capital market regulatory and supervisory body in indonesia and singapore? (b) how is the enforcement of insider trading in indonesia and singapore during the acquisition of pt bank danamon indonesia tbk by ojk and mas? 2. methodology this article utilizes normative-empirical legal research to further examine the implementation of the prevailing rules that have been enacted and how they set guidelines for any related parties in the capital market. this type of research produces a qualitative study in the form of descriptive information that seeks to portray present phenomena related to the topic of this research. this article uses a normative approach since it relies on various legal products such as positive law, legal principles, and legal doctrines. meanwhile, this article also uses an empirical approach to further substantiate the findings, done through conducting interviews to dig in-depth into the implementation of positive laws in context and any legal issues that arises. in general, there are 2 (two) types of data utilized in this research mainly being primary and secondary data. primary data is obtained directly from the source done to dig in-depth information regarding certain topics that the research would like to highlight. secondary data, on the other hand, is often derived from various legal materials which are relevant to this article done by conducting a literature study. the data used in conducting and compiling this article includes primary, secondary, and tertiary legal data. the relevant data that is utilized within this article is obtained through: a. literature review secondary data is obtained from written materials which is sourced by conducting a literature study towards legal materials. it can be carried out through documents, books, law magazines, law journals, and other sources. the documents are accessed through academic sites such as google books, jstor, ebsco, and others. b. interview primary data is obtained from the main source by means of an interview. it is sourced directly from experts in the capital market sector. information obtained from an expert is considered as qualitative data which will be used for further examination. the interviewee is selected due to his familiarity and expertise in the capital market and its relevant bodies. the figure interviewed is yohanes aples where the author prepared a series of questions to gain practical information on enforcement of insider trading in indonesia and ojk’s systematics in eradicating such practices. yohanes aples is a capital market legal consultant registered with ojk who holds the manager partner position at yohanes aples & partners law firm. he serves as vice chairman of the association of indonesian business law consultants (asosiasi profesi konsultan hukum bisnis indonesia, apkhbi) and head of treasury department for indonesian construction dispute resolution institute (lembaga penyelesaian sengketa konstruksi indonesia, lpski). interview with yohanes aples was conducted in yohanes aples & partners law firm in world capital tower on 26th november 2021 at 17:03 wib. after the legal materials and data have been compiled, the author uses qualitative data analysis. the qualitative analysis does not use numbers to present its findings but gives descriptions using words based on findings and therefore prioritizes the quality of data and not the quantity of it. the author will classify and filter the compiled data according to the quality and its truth which will then be arranged systematically. then, assessment of the data will take place by utilizing the deductive method, taking a conclusion from a general view towards a concrete case that is being discussed, which will then be connected to the theories taken from the literature study. finally, the author will come up with a conclusion that will be used to answer the issue that has been formulated in this research. comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement 177 3. results 3.2. analysis on the competence of capital market supervisory and regulatory bodies in indonesia and singapore prior to ojk, bapepam-lk holds the authority over the capital market but was deemed ineffective in delivering a robust financial services system failing to enforce laws strictly upon violations of capital market law. [3] consistent with the spirit of its predecessor, ojk is created to enact regulations and supervise the capital market but in better and more effective ways. ojk is expected to overcome problems that have been ongoing by creating an integrated, independent, and accountable financial services system that can provide protection for consumers and prioritize public interest. mainly, ojk is responsible for regulatory and supervisory functions. in terms of performing its regulatory duties, ojk has the authority to establish regulations in the realm of the financial services sector, issue ojk regulations, establish a procedural mechanism in the sector, as well as arrange its own internal organization. subsequently, to run its supervisory functions, ojk holds the authority to determine operational policies of supervision, conduct supervisory duties such as inspection, investigation, and consumer protection run towards financial services institutions, issue written orders, as well as the issuer of various licenses needed by a business engaged in the sector. moving unto singapore, its capital market first emerged in 1973 which has been overseen by mas since the passing of mas act in 1970. singapore exchange (“sgx”) undertakes the day-to-day regulation of the securities market and administers a number of rulebooks to govern the listing of securities in the platform. on the other hand, mas still operates as the primary regulatory authority for the offering of securities to the public in singapore. they have regulatory oversight over the financial services industry across various sectors. in achieving its objectives to make singapore a dynamic international financial center, mas performs six oversight functions, which covers enacting regulations, authorisation of financial authorities, supervision of financial institutions, financial surveillance, enforcement, and dispute resolution. in exercising the powers vested to them in the capital market, mas administers the securities and futures act (cap. 289) together with other regulations incorporated in securities and futures regulation 2005. mas has the power to administer sfa and sfr to financial institutions and other parties related to the rule of law. according to the monetary authority of singapore act (“mas act”), part iv of the act stipulates the powers, duties, function that is vested to mas. in relation to the capital market, mas has the authority to issue directions to financial institutions, establish requirements for prevention of money laundering and terrorism financing, inspect compliance of institutions towards directions issued, approve and control of financial institutions, and other authorities in the realm. ojk and mas both gain their authority through means of attribution, signifying that the authority is newly established through a provision in the rule of law. in each of the aforementioned legislation, powers are conferred to the appointed institutions to regulate and overlook the market. table 3.1 comparison of authorities held by ojk and mas subject indonesia (law number 8 of 1995 regarding capital market) singapore (securities and futures act) authorized body otoritas jasa keuangan monetary authority of singapore nature supervisory and regulatory bodies of financial services sector singapore’s central bank and integrated financial regulator approach an integrated approach towards banking, capital market, insurance, pension fund, and other financial institutions. authorities are attributed in law number 21 of 2011 regarding ojk. an integrated approach that covers banking, capital market, insurance, payment services, and other financial institutions. authorities are attributed in the monetary authority of singapore act. regulatory and prescribed under article 8 of ojk law to under mas act, the body is responsible fabian jonathan & fajar sugianto & tomy michael 178 supervisory authorities in the capital market. establish: a. implementing regulations for ojk law and financial services sector b. issue regulations and decisions c. regulations on supervision of financial services d. determine duties of ojk e. procedure to issue written orders f. procedure to appoint statutory managers g. organizational structure h. procedures to impose sanctions in relation to supervision, ojk has the authority to: a. determine operational policies of supervision b. supervise implementation c. supervision, inspection, investigation, consumer protection in financial services institution d. issue written order e. appoint statutory manager f. impose administrative sanctions g. issue or revoke licenses in the financial services sector for six functions: a. enact regulations in a risk-based approach while maintaining principles of anti-money laundering and to combat terrorism financing b. authorisation of capital market entities to carry out services in singapore which covers brokersdealers, fund managers, cis trustee, licensed trust companies, financial advisers, markets and exchanges, clearing houses, trade repositories, and benchmark administrators. c. supervision of financial institutions, to ensure compliance within financial institutions and detect market misconduct d. financial surveillance to closely observe financial institutions and ensure consumer protection by directing the market mechanism. e. enforcement of rules and regulations as prescribed by the law towards contraventions in the market f. dispute resolution to resolve matters in scope of financial services authorities within law enforcement appoint civil servant investigator to carry out preliminary investigation and investigation in relation to contravention in capital market domain. the civil servant investigator may: a. authentication of crime occurrence by receiving reports and examining to verify whether a contravention has taken place. b. obtain information, by means of summon, examine, or request information any bookkeeping, records with the ability to search the location of those documents. c. inter-institution authorities, request of data from telecommunications provider and assistance from other law enforcers. to inquire banks for financial report and block one’s account if necessary holds the authority to investigate which includes the scope of: a. examination of persons, requires examination towards persons to convey information relating to any contravention. b. obtain information, order production/copy of books, conduct search, seize the documents, and produce the documents. c. transfer of evidence, work closely with other institutions to convey their findings to police officers, public prosecutors, and other law enforcers in the jurisdiction. 3.2. analysis on the enforcement of insider trading between indonesia and singapore insider trading refers to unfair securities trading connected with the use of confidential information carried out by an employee of the company who due to their position is able to gain profit from securities trading since the piece of information has not been out in the public domain. insider trading has the potential to create systemic risk and disruption to the market which permits unfair practices of individuals having the upper hand of such information, enabling them to reap more profit by purchasing or selling securities before the price has been incorporated with the information that will be made public. in this sense, the competition between fellow investors becomes unfair which will lead to market instability and public distrust since the public will no longer believe that the platform provides fair and healthy competition. hence, the objection of insider trading is clear, to disable those close to a company to comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement 179 abuse their position by making use of information concerning securities of that company in their possession to be taken into the extent of gaining personal advantage. [4] in indonesia, insider trading is stipulated under articles 95 until 98 of the capital market law. it states that insiders from a listed or public company who has insider information are prohibited to engage in the purchase or sell of the said listed or public company’s securities or other companies in a transaction with them. as explained in the elucidation of article 95 capital market law, insiders refer to: (a) commissioners, directors, or employees of listed or public companies concerned; (b) major shareholders of a company; (c) individuals whom due to their position or profession or having a business relationship with the company enabling them to obtain information, and (d) everyone who in the last 6 (six) months no longer holds the aforementioned position. under articles 95 and 96 of capital market law, insiders are prohibited to engage in securities transactions whenever they are in possession of insider information, to induce other people to purchase or sell the said securities, or give insider information to another person. every person is prohibited from unlawfully gathering information from insiders, a violation will attract similar penal sanctions with the previous articles. article 97 of capital market law prohibits any parties to deliberately in unlawful means obtain and at the end of the day is in possession of insider information. violation of these prohibitions attracts penal sanctions not exceeding 10 (ten) years imprisonment and a fine not exceeding rp. 15.000.000.000, (fifteen billion rupiah). the legal doctrine adhered to in capital market law in relation to insider trading is a fiduciary duty. fiduciary duty theory describes that every employee paid by the company to work for them has the duty to carry out their affairs properly. in a position of fiduciary duty, companies have the obligation of full and fair disclosure to the public. the obligation of disclosure applies to material information, is due to all listed companies who have carried out ipo which consists of obligation for annual report disclosure, incidental reporting obligations, corporate actions disclosure obligations, and obligations for good corporate governance. although supported by many parties, the view of insider trading in the fiduciary duty theory is seen as an under regulated approach in comparison to misappropriation theory. the latter views insider trading in a much wider manner, covers outsider of a company, despite there is effort or not in obtaining the information, can also be held liable if trading using insider information. whereas in singapore, insider trading is regulated in the securities and futures act. it applies to acts occurring within singapore in relation to securities of any corporation, whether formed or carrying out business in singapore or elsewhere. it also applies to acts outside singapore in relation to securities of a corporation that is formed or carries on business in singapore. prohibition of insider trading is stipulated in article 218 and article 219 of sfa. article 218 regulates prohibited conducts done by a connected person in possession of inside information. herein, a connected person refers to a person connected to a company, either being an officer of that company/related company, a substantial shareholder in that company/related company, or occupying a position that may give access to the information. article 219 regulates prohibition on other persons somehow in possession of the material non-public information. these other persons also fall under the prohibition of insider trading due to their knowledge of the information. in whatever ways or method of access to the information, everyone in possession of the information has the obligation to keep its secrecy, and prohibitions imposed towards connected persons are similarly applied herein. the classification of connected persons and other persons has differentiation in the perpetrator, however, attracts the same kind of sanctions. in both cases the object being dealt with illegally is similar, the material non-public information, somehow due to their position or connection they ought to have direct or indirect access to the information. pursuant to article 221 of sfa, perpetrators in violation of article 218 and article 219 shall be guilty of insider trading and shall be held liable on conviction of a fine not exceeding s$250,000 (two hundred fifty-thousand singaporean dollars) and/or imprisonment for a term not exceeding 7 years. the enforcement of insider trading prohibitions in singapore carries the misappropriation theory. under misappropriation theory, outsiders of a company could also be held accountable for trading based on material nonpublic information. it is designed to protect the integrity of the capital market against abuses by outsiders to a corporation who in some ways have access to the confidential information of a company although the person does fabian jonathan & fajar sugianto & tomy michael 180 not owe any fiduciary duty to the company. in this theory, the corporate outsiders owe their duty to the source of information. table 3.2 comparison of insider trading prohibition and enforcement between indonesia and singapore substance of rules indonesia singapore provisions article 95, 96, and 97 of capital market law prohibits insiders of a company in possession of inside information to purchase, sell, procure another person, or tip such information to other parties. articles 218 and 219 of sfa, prohibition of a connected person or any other person in possession of inside information. such persons are prohibited to purchase, sell, procure others, communicate the information. approach person-based approach or those in a fiduciary duty to the company information-based approach or misappropriation theory scope of legal subjects insider of a company or anyone trying to obtain insider information unlawfully. connected persons of a company and other persons. sanctions criminal sanctions in insider trading attract imprisonment and fines in accordance with article 104. person in guilty of insider trading threatened with fine not exceeding 15 billion rupiah and imprisonment not exceeding 10 years. pursuant to article 221 (1) of sfa, contravention of insider trading shall be threatened with fine not exceeding 250.000 singapore dollars or imprisonment not exceeding 7 years. alternative enforcement ojk has the discretion to impose administrative sanctions over violations of rules and regulations. mas can bring a case through civil penalty action which requires no process if the perpetrator admits his actions to the face of the court. the court will issue an order for the perpetrator to pay a sum of the civil penalty with the base of calculation not exceeding: a. 3 times the amount of profit obtained or loss avoided b. 2 million singapore dollars 3.3. analysis on the enforcement of insider trading during acquisition of pt bank danamon indonesia tbk the case took place in 2012 which started from the negotiation process taking place between dbs bank and fullerton financial holdings (“ffh”) where the former was interested in acquiring the latter’s ownership of bdmn shares. the negotiation took place and at the time the parties decided not to disclose it yet to the public. eventually, dbs announced the proposition to the public in april 2012. during the lapse of time between the negotiation of the parties and its announcement, on 30th march 2012, rajiv louis bought 1 million bdmn shares through his wife’s bank account in singapore. after the case took place in 2012, mas took a civil penalty action against rajiv louis in 2015 after they are aware of the purchase that took place. although the purchase was made using rajiv louis’ wife account, mas was able to trace it back to rajiv louis who at the time of contravention occupies the position of indonesia investment banking head of ubs ag. the transaction was influenced by the material non-public information that he had hence is a contravention of insider trading prohibition. comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement 181 subsequently, rajiv admitted his actions to the face of court which results in an order to pay a civil penalty at the sum of s$434,912 ($313,857) which takes into account his $173,965 profit from the proceeds of purchase and sell of the said shares. he was guilty under article 218 paragraph (2) of the sfa. at the end of the day, the acquisition deal did not occur due to several regulatory issues but rajiv was still held liable for insider trading since there was a significant increase in value and price of the securities after the announcement was made. he took advantage of the lapse of time between the negotiation and the announcement to buy before the information has been incorporated in the market price and eventually sell them after the time of announcement where the market price has increased significantly. in view of the enforcement by mas, elements of the crime for insider trading needs to be established. rajiv was held guilty under article 218 paragraph (2) of sfa regarding prohibited conduct by a connected person in possession of inside information. firstly, rajiv louis falls under the bracket of a connected person to the company pursuant to subsection 5 of the article since he occupies a position that may reasonably be expected to give him access to information that applies to the virtue of any professional or business relationship existing between himself and that company. in that, ubs, the company where rajiv louis is working for, has been appointed by temasek holdings pte. ltd. (“temasek”) as their financial advisers along with bank of america-merrill lynch for the purpose of this acquisition. temasek itself is the holding company of ffh who is a major shareholder of bdmn, the company dbs is negotiating with. being the head of investment operations, rajiv louis must have had a fair share in advising temasek or at least get involved in the process. this particular position provides him all the details starting from the deal itself up until matters on shares price. that information should be sufficient for rajiv louis to know the initial bdmn shares price and its projection in the future, which he takes advantage of. hence, he is a connected person to the company in dealing. from this case and other insider trading cases adjudicated by mas, civil penalty action is prioritized in the enforcement of the law since it is highly effective. mas does not need to follow through with criminal proceedings and find sufficient proof which is both very costly. the penalties given are also deterrents that take into account the gain that the perpetrator has obtained due to his offense. the minimum cost of enforcement kept and the high amount of penalty inflicted to the perpetrator signifies an effective punishment. although the illegal practice took effect on an indonesian listed company, ojk chose to let go of the matter and the law enforcement function is not implemented which gives rise to the impression that insider trading is permitted in the market. whereas imposing sanctions on perpetrators is very crucial for the purpose of law enforcement, rajiv louis did not go through any criminal proceedings or subject to any administrative sanctions in indonesia since ojk did not pursue the case. 3.4. analysis on ojk’s law enforcement at hand since its takeover of the capital market in december 2012, ojk is known to opt for administrative sanctions when faced with the contravention of insider trading. there were some cases where ojk has conducted investigation towards but did not pass the prosecution stage since the public prosecutor is not ensured with sufficient evidence to try the case in criminal proceedings. at the end of the day, ojk chose to declare it as an administrative violation. eventually, there is no single case where a contravention of insider trading is charged with criminal sanctions. the degree of complexity in proving insider trading practice to the law enforcers indirectly omits criminal sanctions imposed towards the perpetrators when it creates a deterrent effect inflicted upon them. it can be said that the indonesian criminal procedural law which ojk has to adhere to is not fit to enforce insider trading that in practice has grown rapidly following technological development. in addressing cases with international elements concerning the indonesian capital market or its listed companies, the law needs to accommodate the authorities to obtain information and evidence and potentially exercise jurisdiction from overseas. the tendency of securities trading which permits cross-border activities needs to be regulated, otherwise signifies the permission to carry out insider trading to occur in indonesia. if there is no significant change to address this matter, irresponsible parties will take advantage of the loophole. the degree of complexity of contravention keeps on increasing while the protection remains at the same level which does not support an efficient market hypothesis. with that, the market is prone to the occurrence of market misconduct. fabian jonathan & fajar sugianto & tomy michael 182 firstly, the realm of insider trading goes beyond what has been laid out in the law. [5] since the use of technology, the capital market realm has become too advanced which makes it hard for the law enforcers to trace contraventions. these transactions will just seam into the system by not showing any anomaly from it, leaving no room for suspicion to the authorities. in practice, those who intend to commit insider trading will not use their own identity to engage in the transactions. instead, they will use the identity of people close to them to make sure the transaction will not leave any trace. secondly, there is a lack of proof in the underlying evidence that the authorities should gather. the insiders who try to make a deal with another person most likely will not put the agreement in writing. instead, the dealings are all made based on a conversation either face-to-face or through a call which leaves no written document as evidence to sum it up. with that in mind, the authorities find it hard to collect sufficient evidence to bring the case up to prosecution due to the lack of proof gathered while in criminal procedural law only those prescribed in the law as evidence are eligible in the face of the court. the direct evidence in insider trading is very rare and is more inclined to circumstantial evidence. with that in mind, there lies the need for the authorities to establish a chain of events and piece together the evidence. since it is circumstantial, law enforcers need to be able to connect the dot between one evidence and the other to compose a story out of it that implies the act of insider trading. thirdly, the enforcement function of ojk is distracted by its duty to maintain public interest. herein, the capital market itself is loaded with lots of risks in the first place since it deals with the capital of a listed company and on the other hand, also deals with the public’s money. enforcement of insider trading stipulations can affect one party or the other. if ojk decides to impose sanctions on listed companies or certain employees who are guilty of market misconduct, it will most likely devaluate its market price which effect will also take a toll on the public investors. on the other hand, fines given in small amounts will put the perpetrator in an advantageous position since the profit reaped is bigger compared to the compensation that needs to be paid. from the scenarios mentioned, it leaves a dilemma for the ojk whether to provide strict law enforcement or protect the public interest. with no serious means of enforcement, the retail investors from the public will always be the ones receiving negative impacts. opting for one means sacrificing the other, hence the enforcement function in ojk has been distracted for the sake of public interest. lastly, the enforcement culture in ojk has not yet been shaped equally as a whole. being the super regulatory organization and independent body that ojk is does not automatically establish a strict enforcement culture. in reality, that culture needs to be generated from within the institution to all its employees without exception. the enforcement culture in ojk has yet to achieve the strict level that foreign bodies such as mas have portrayed. by means of authority, the power attributed to them is adequate to carry out enforcement of law but in its implementation, the enforcement depends on each personnel’s assertiveness and initiative. all written law enacted bears its soul on the authorities which put ojk in charge of it on the capital market sector. in this sense, the personnel are the ones who carry out the enforcement function and it depends on them how they would like to pursue each case. however, enforcement does not always have to be from ojk. besides the civil servant investigator, indonesian criminal proceedings stipulate the role of the police as an investigator. the enforcement function does not fall merely on ojk as the police may take the case over and exercise their jurisdiction. in this sense, indonesian national police (known as “polri”) has their own investigatory department called badan reserse kriminal kepolisian negara republik indonesia (“bareskrim”) that has been given the authorities over the investigation and preliminary investigation of crime. due to the rising number of disputes in regards to special crime, polri has been mobilizing serious means of investigation towards economic crimes. bareskrim has a division that is particularly assigned to investigate and supervise economic crimes which lately have also handled several capital market-related cases. direktorat tindak pidana ekonomi dan khusus (“ditipideksus”) in a few years back have started to penetrate economic crimes in the capital market with landmark cases such as pt jouska finansial investment fraud. as insider trading falls under the category of economic crime in the capital market, parties can now resort to conveying reports to the police as opposed to ojk. polri has been intensely showing their means to eradicate all forms of economic crime since it results in public loss. with that in mind, the public or any parties at loss is not tied to merely waiting for ojk to take action. polri has opened its doors to receive any report on economic crimes comparative legal analysis between the competence of otoritas jasa keuangan and monetary authority of singapore on the enforcement 183 including contraventions in the capital market sector, which provides room for any parties at loss to file such contraventions to the ditipideksus where similar investigatory functions will be performed. at the end of the day, the consideration of establishing a capital market regulatory and supervisory body goes back to the nature of the capital market, which serves as a funding platform for listed companies and as an investment vehicle for the public. this platform should be kept in a fair and equal manner by providing sufficient protection for all parties involved for it to continue its existence. the way to provide adequate protection is for the market to be heavily regulated. therefore, capital market regulatory and supervisory bodies should be able to carry out its function in order to keep that balance so the nature of capital market would not deviate from its main purpose. 4. conclusion the nature of competence between indonesia and singapore’s capital market supervisory and regulatory bodies is quite similar which adopts integrated approach towards regulation and supervision of the capital market with adequate authorities attributed to them. since 2012, ojk replaces the role of bapepam-lk to administer the capital market law as an independent body. ojk is responsible for enacting rules and supervisory of the sector. as part of supervision, ojk also runs the enforcement in the capital market by means of criminal proceedings or inflicting administrative sanctions. however, ojk has been passive in its implementation of enforcement towards illegal transactions. in singapore, mas undertakes the capital market regulatory and supervisory functions, assigning them authority to enact regulations, authorization, supervision, enforcement, and also dispute settlement. mas administers sfa upon all parties in the capital market, acting as the gatekeeper of financial institutions in singapore. in terms of law enforcement, mas has been very strict in imposing provisions upon contraventions occurring in singapore or concerning singapore companies. contraventions can be pursued either as a crime or through a civil penalty action approach. references n. f. diba, h. s. disemadi, and p. prananingtyas, “kebijakan tata kelola otoritas jasa keuangan (ojk) di indonesia,” ekspose: jurnal penelitian hukum dan pendidikan, vol. 18, no. 2, 2020, doi: 10.30863/ekspose.v18i2.485. “who we are.” https://www.mas.gov.sg/who-we-are (accessed feb. 07, 2022). hamzah and a. ahmad, “capital market products and investor protection,” european research studies journal, vol. 21, no. 2, 2018, doi: 10.35808/ersj/1035. l. biggerstaff, d. cicero, and m. b. wintoki, “insider trading patterns,” journal of corporate finance, vol. 64, 2020, doi: 10.1016/j.jcorpfin.2020.101654. a. junaedi, “tindak pidana insider trading dalam praktik pasar modal indonesia,” media iuris, vol. 3, no. 3, 2020, doi: 10.20473/mi.v3i3.19639 k. gorobets, “the international rule of law and the idea of normative authority,” hague journal on the rule of law, vol. 12, no. 2, 2020, doi: 10.1007/s40803-020-00141-3. m. t. kacperczyk and e. pagnotta, “inside insider trading,” ssrn electronic journal, 2018, doi: 10.2139/ssrn.3142006. k. zacharzewski, “digital asset capital market law: a new discipline of private law2,” krytyka prawa, vol. 13, no. 2, 2021, doi: 10.7206/kp.2080-1084.457. a. saluja, “financial services in singapore: an overview of the regulatory landscape,” cms legal services eeig, germany, 2016. j. tolokonde, “kebijakan hukum pidana terhadap praktik insider trading sebagai kejahatan bisnis di bidang pasar modal,” journal hermeneutika, vol. 5, (2021), pg. 325. m. k. jardak and h. matoussi, “the effectiveness of insider trading disclosure policies: us and eu comparison,” journal of financial reporting and accounting, vol. 18, no. 3, 2020, doi: 10.1108/jfra-09-2019-0120. m. rodriguez-fernandez, “social responsibility and financial performance: the role of good corporate governance,” brq business research quarterly, vol. 19, no. 2, 2016, doi: 10.1016/j.brq.2015.08.001. d. w. velliana tanaya, “penerapan the misappropriation theory dalam pengaturan insider trading di indonesia (the aplication of the misappropriation theory fabian jonathan & fajar sugianto & tomy michael 184 in insider trading regulation in indonesia) | tanaya | jurnal legislasi indonesia,” jurnal legislasi indonesia, vol. 12, no. 1, 2015. a. d. jagolinzer, d. f. larcker, g. ormazabal, and d. j. taylor, “political connections and the informativeness of insider trades,” journal of finance, vol. 75, no. 4, 2020, doi: 10.1111/jofi.12899. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 164-173 164 the role of legal digitization on cybercrime control in indonesia jenda ingan mahuli universitas pembinaan masyarakat indonesia received: march 06, 2023 accepted: may 03, 2023 published: june 01, 2023 abstract: the purpose of this research is to find out and analyze the extent of the efforts made by the government and the dpr in over coming the problems of articles that are multi-interpreted in several existing laws in indonesia regarding the use of digital applications so that there is legal certainty, and bring up fair and transparent law enforcement. this research discusses the efforts made by the government and the dpr in an effort to minimize the existing turmoil by doing various ways in order to overcome the problems associated with articles that are multi-interpreted in several existing laws in indonesia regarding the use of digital applications, besides that in other studies only on the description of multi-interpreted articles and the explanation of the case, while in this research there is an addition on how to overcome problems to prevent turmoil in the community related to multi-interpreted articles that affect legal certainty and law enforcement. the research method used is descriptive qualitative analysis with a literature research approach. from the results of existing research, the conclusion of this study is that there are several articles of multiple interpretations that exist in the laws and regulations in force in indonesia, where the article is article 27 paragraph 2 and article 28 paragraph 2 of law no. 11 of 2008 concerning ite and article 1 paragraph 4 of law no. 27 of 2022 concerning the protection of personal data that is detrimental to society, as has happened in several cases in indonesia. in addition, from the results of the research, it can be seen that there are several ways to prevent this multiinterpretation article, namely by conducting restorative justice for handling cases related to digital use activities, the efforts of the community to conduct judicial reviews of articles that are multi-interpreted when using digital applications, and the government's desire to revise several articles in the law relating to the use of digital applications. if the implementation of articles that are contrary to the conscience of the people, which are multi-interpretive and also not in accordance with what the community expects is continued, it will make the state lose its authority, and the law will not be dealt with properly, to the detriment of the community, where this article will erode public confidence in law enforcement in indonesia which is currently being tested because of the incompetence of law enforcers in handling cases. keywords: digitalization, law, development, control, cyber crime 1. introduction the changing times gave rise to various eras, where in the 80s technology appeared as a connector for telephones, both landlines and public telephones, so that in the 90s the name telephone shop (wartel) appeared. in addition, in the 90s also appeared internet or web technology, where at that time the development of the internet was only limited to finding information. it was only in the 2000s that a special network for social relations on the internet began to appear through chat and facebook applications, then in the 2010s various applications for trading activities began to appear, as well as applications for investment. in the period of the 2020s, online trading applications, investments and applications related to activities appeared, which at first these two applications were applications that did not harm the community as consumers. however, over time these two applications have harmed the community as consumers, where many consumers feel losses when using online trading and online investment applications, so that they have a negative effect on society. (mahfiana, 2017) (mahfiana, 2017) states that along with the rapid development of the times and dynamic changes, giving rise to the digital world or the era of digital technology, where all activities in people's lives use digital technology or use online applications, where this application has provided many benefits for the community, in addition to several applications that have negative effects on the community as users or consumers of the application. the role of legal digitization on cybercrime control in indonesia 165 the digital world is characterized by the emergence of several applications that can eventually become artificial intelligence intended for the benefit of people's lives, where with the emergence of several digital applications that are useful for humans, such as social media for social relations activities, such as chat applications in the 1990s, web applications for creating webs, applications for creating emails, social media applications, such as facebook, twitter, and instagram, as well as applications for economic activities and trade, such as e-commerce applications, marketplace applications, investment applications and also crypto applications that are well known today. (piliang, 2017) (piliang, 2017) explains that the various applications that appear can make a person or group of people create a threat of criminality and crime in society, where these negative effects will tend to harm the community, and make people apathetic towards this digital technology and assume that this digital technology has many bad effects than the positive effects that exist, so that people will switch to technology that does not or tends to harm them. in addition to application technology to be utilized through community activities, this digital technology is also made a technology that is used to help humans in various professions, where this digital technology can be adapted to an artificial intelligence technology, where this artificial intelligence technology can be used for defense and security technology, as well as to protect personal data from the community, as is done in population administration through e-ktp, as well as other matters related to population data collection and also human life. (ardiyanti, 2016) (ardiyanti, 2016) explains that artificial intelligence can not only be used for things that are beneficial to society and help people in various fields, but can also be used as a tool to create a crime, such as the technology to break into bank accounts, break into personal data for personal interests and crimes, as well as data manipulation crimes for the benefit of terrorism and other crimes that harm other countries which lead to cyber warfare. in applying digital technology, it is not only influenced by the procurement of digitization technology, but also made a legal device through applicable laws and regulations, where this law in various countries is very different. as in indonesia, the digitalization of this law exists in several existing laws, where existing legal instruments can regulate the use of digitalization, as well as prevent the application of digitalization so that it does not become a tool to harm society and also the state. (sari, 2021) (sari, 2021) states that existing legal instruments can be used to ward off various cyber crimes in cyberspace, where this cyber crime is closely related to a set of digital networks that are used to commit crimes with various knowledge related to the digital world, where the law can be used to regulate things that have not been regulated in such a way, so that there is legal certainty. (okano-heijmans, maaike and voose, 2021) the legal certainty that exists in every activity or community activity through digital applications must of course be carried out a legal breakthrough, as well as the appropriate and unambiguous enforcement of legal sanctions so that later the community will be more careful in using each application or platform that exists, so that the community can later understand and understand the legal consequences imposed on them due to actions taken when using certain applications and platforms, so that the community will be protected from every thing they want to do, so that these intentions and actions can be a good control that will allow the community to carry out activities using digital applications properly. (pawar, shekhar and palivela, 2022) (pawar, shekhar and palivela, 2022) state that a truly definite law will make people able to easily understand, and apply strong controls so that they do not carelessly use digital applications, even though we are free to express something in the application, but the freedom of expression in the application has limits that make application users must respect the privacy and human rights of others. indonesia as a state of law should make existing rules relating to the digitization of this law not limit something that makes human rights disturbed, where the laws in indonesia are dynamic and need to be changed at any time so that later the law cannot be dealt with carelessly which makes privacy and human rights disturbed, thus making people no longer want to use digital applications, even though digital applications are now a necessity in people's daily activities. (kim, 2019) explains that human rights in using digital applications must be truly protected, and really considered, where if human rights have been disturbed, it will cause uproar and public antipathy to the rules that are made, so that later these rules will have an impact on decreasing trust in the law itself, where this needs to be used as a basic reference in making a legal framework so that later the bills created do not become controversial, and are not sued by the public. indonesia should view the existing law as a tool to take action against those who are wrong, and the law should be a tool to create certain justice and indiscriminately take action against those who violate the privacy and human rights of application users, where if application users commit acts beyond reason or commit acts of criminality, then the law becomes the only tool to create justice, and make legal digitization as the first step towards achieving a just law and in favor of the community as users. jenda ingan mahuli 166 (huang et al., 2021) (huang et al., 2021) explain that the true level of justice requires a strong impetus so that the attitudes and behavior of the community when this digital application is applied can become a filter that prevents someone from committing actions that harm themselves and others, where the law provides warnings to parties who violate the provisions in the use of applications, so that the law becomes the only way out of some problems that cannot be resolved properly by society in a peaceful and peaceful manner. what is an obstacle to the process of legal digitization in indonesia today is that some of the existing laws to suppress and counteract every action of the community that will act and express something in digital applications have not been able to create true justice, where the rules made in the law are still there are multi-interpretations, and the existing rules have not really been enforced in reality. however, the law must really help the community, even though the existing laws are still not perfect, so that the existence of existing laws and rules is expected to ward off and prevent people from acting outside the normality of society in general, so that in the end it can prevent people from committing crimes and criminality in the digital world. (dwivedi, yogesh k., 2022) (dwivedi, yogesh k., 2022) states that the law is a milestone in the establishment of forces that can prevent and hinder every human action, especially when acting on behalf of individuals, groups, and institutions, as well as organizations, where the law must be a problem solver that cannot be resolved properly peacefully and openly, so that with an upright law it will make the existing race of justice real and be able to make the law a reference point in overcoming all forms of community action beyond the limits of reasonableness. with this multi-interpretation rule, the prevention of cybercrime in the digital world now becomes ambiguous and makes the law no clear certainty, so a comprehensive policy is needed to overcome such problems. this will create legal stability and also reduce the turmoil in society. some of the laws that experience multiple interpretations are as follows:  law number 11 of 2008 concerning ite article 27, where in this article the public is prohibited from further disseminating and transmitting immoral content, which if done will be subject to criminal offenses. in this article, there has been a misunderstanding of ordinary people who are actually victims of sexual harassment, where the community reported sexual harassment by transmitting recordings of verbal conversations about sexual harassment committed by their superiors.this became a polemic when his superior reported to the police and was named a suspect by the police, but in court was acquitted, so that the existence of this multi-interpretation article can be used as a loophole to discriminate against parties who intentionally or not have used this digital application to commit a criminal offense, where the statement of the article there is a big misunderstanding and can cause chaos which leads to legal uncertainty.  article 28 paragraph 2 of the ite law states that every person or group is prohibited from disseminating information that creates hatred or hostility between one person, as well as certain community groups based on ethnicity, religion and race. this article has become multi-interpretive because it curbs human rights in providing expression and criticism or suggestions, as many people have stumbled over defamation issues on behalf of ethnicity, religion and race which makes this article a trap article for those who are not careful in using digital applications.  articles in law no. 27 of 2022 concerning personal data protection, where article 1 paragraph 4 states that the parties controlling this data are individuals, public bodies and international organizations, where this article is multi-interpretive and has not provided a clear legal umbrella regarding the functions of each party, so that personal data protection will be weak and cause a lot of personal data to leak, especially those related to financial aspects.  (nilangsari, sri yayu and muhammad, 2021) stated that there are many aspects that are discussed by the legislation, one of which is the digitalization of the distribution of zakat, where in the terrorism law zakat intended for terrorism activities, both in the form of cash funds, and through funds in digital form is still categorized as a criminal act of terrorism, where the aspect of channeling zakat funds should also enter the criminal act of money laundering which has not been regulated thoroughly, thus causing multiple interpretations in the implementation of the law. (bunga, 2019) stated that the differences in multiple interpretations of the law, especially those related to the legal formal of the cybercrime law, where this legal formal applies if the criminal act committed really proves that he committed the criminal act in question, but if he feels that he did not do this, then the legal formal that exists in the the role of legal digitization on cybercrime control in indonesia 167 law, especially in each article, will make it impossible to say that the law is properly implemented by law enforcement. (ringgi et al., 2017) (ringgi et al., 2017) explains that every law must be able to display all aspects of the law that can provide a deterrent effect, as well as provide protection to parties who are victims of criminal acts that exist in every activity, especially activities in the digital world, so that it can be said that every existing article must provide legal certainty for every problem, so that later with legal certainty, there will be no more forms of public distrust of existing laws. in addition to the multiple interpretations of existing articles, there is also law enforcement that has not been enforced in reality, so that it has an impact on the decline in the level of legal certainty that exists, where with law enforcement that is still biased, it will have a significant impact on people's lives, where legal uncertainty will have an impact on the distrust of various parties towards the state, especially on the indonesian economy which is experiencing economic improvement after the covid-19 pandemic. (stevani, winnie and disemadi, 2021) (stevani, winnie and disemadi, 2021) states that legal certainty is a must for every law enforcer to really pay attention to a sense of justice and humanity, where justice can reflect a strong legal illustration that makes humans sensitive to what is happening in society and the state. (sviatun et al., 2021) (sviatun et al., 2021) states that the concept of justice can be seen from the real evidence of law enforcement in creating a real and impartial justice system, but does not have certain interests and motives, so that later with an upright law it will provide clear evidence that the law has a formal legal that can reflect the sense of justice experienced by the community. based on the background of the problems that have been described, the problem formulation in this study is the existence of multi-interpretive articles in several existing laws in indonesia regarding the use of digital applications, where these multi-interpretive articles affect the existing legal certainty, so that law enforcement becomes not optimal. the purpose of this research is to find out and analyze the extent of efforts made by the government and the dpr in overcoming the problem of multi-interpretive articles in several existing laws in indonesia regarding the use of digital applications so that there is legal certainty, and bring up fair and transparent law enforcement. this research discusses the efforts made by the government and the parliament in an effort to minimize the existing turmoil by doing various ways in order to overcome the problems associated with the articles of multiple interpretations in several existing laws in indonesia regarding the use of digital applications, besides that in other studies only on the description of the articles of multiple interpretations and the explanation of the case, while in this research there is an addition on how to overcome problems to prevent turmoil in the community related to articles of multiple interpretations that affect legal certainty and law enforcement. 2. literature review 2.1. digitization of law (nur azmi, 2020) stated that in indonesia, the doctrine developed regarding law enforcement states that law enforcement elements consist of law enforcement officials, namely judges, prosecutors and the police coupled with other institutions that have specific law enforcement authority. (marune, abraha, etham martupa sahat and hartanto, 2021) (marune, abraha, etham martupa sahat and hartanto, 2021) states that the higher the protection of human rights and constitutional rights that can be obtained through the judicial process, where this judicial process is a process that is preceded by an investigation, then if sufficient evidence is found, an investigation, as well as the determination of a suspect and bringing the case to court. this makes the judicial process the only way to solve problems, especially related to cyber crime, which investigates cases related to crimes in online applications by examining evidence through digital traces in digital applications. (nurgiansyah, t. heru and handoko, 2020) (nurgiansyah, t. heru and handoko, 2020) states that legal digitization is a law enforcement process carried out by referring to articles in one or several applicable laws and regulations from lower laws and regulations, such as government regulations to the law. (gurning, 2019) stated that the process of legal digitization develops along with the development of existing crimes, where existing laws must be conditioned by the development of the prevailing digital world, such as the emergence of the law on personal data protection. (apau & koranteng, 2019) explained that legal digitization exists if law enforcement is actually carried out by the parties, namely law enforcers who want to resolve cases or problems related to digital crime. 2.2. cyber crime (afrianto, 2018) (afrianto, 2018) states that cybercrime is closely related to crime in cyberspace, where in the field of education crimes that exist through digital applications, namely by stealing data on students, students, teachers, jenda ingan mahuli 168 lecturers, and basic education data from schools and universities. (masduki, 2021) (masduki, 2021) states that cybercrime is a crime that develops in the electronic field through an online application, where the forms of this crime include the spread of fake news, the spread of pornography, the spread of hate speech, fraud under the guise of investment, and other crimes related to the theft of personal data. (tan & disemadi, 2021) (tan & disemadi, 2021) stated that cybercrime has a rapid development depending on existing developments, such as crimes in the form of online gambling, hacking against walls or boundaries on the internet to break into certain sites, as well as hacking into population information data, data on one's assets, and other data related to personal interests. (pratiwi & krisnawati, 2021) explained that cybercrime has experienced developments that make law enforcement officials, such as the police, prosecutors, judges and also other law enforcers, where the development of crimes that occur is the breach of personal data, and the breach of state secrets, where this crime requires laws that can protect personal data. (akhuai, wen, 2022) explains that the development of the digital world that gives rise to new digital applications will make changes or revolutions to laws and regulations in various countries, so that a legal breakthrough is needed that can regulate and overcome these digital crimes. 2.3. methods the research method is carried out using descriptive qualitative analysis with a literature research approach, which according to (hamilton & finley, 2020) qualitative descriptive analysis is a research method that is carried out with a thorough description by describing events by describing and analyzing data, where the existing data is data that has been previously processed, then described and described in such a way. (hamilton & finley, 2020) explains that the research method with a literature research approach is a study that analyzes and describes the description of data derived from books, journals and also those outside the object of research. the data collection techniques were carried out through interviews, observations and documentation studies. 3. research results and discussion 3.1. research results crime in the digital world (cyber crime) is a form of crime committed by individuals, by several people or groups carried out using computers or by using online applications, where this type of crime is often not expected beforehand by users or consumers of the internet or online applications. internet or online application users must really pay attention to the details of what can be done when using online applications or things that do not need to be done when using online applications. things that are prohibited in using online applications include distributing messages or news from an application or online portal (online news) to several social media applications, where the news or message to be distributed must be examined by the user so that later application users can read first and check first whether the news is actually true or according to facts or not, where many application users do not check the news either the source, or the truth. the distribution of news that is not necessarily the truth includes fake news and through the process of digitizing existing laws, then in 2008 law number 11 of 2008 concerning ite appeared in article 28 paragraph 2, where this article reads: "every person intentionally and without the right to disseminate information aimed at creating a sense of hatred or hostility of individuals and / or certain community groups based on ethnicity, religion, race and intergroup (sara), where everyone who does this, will be subject to a maximum imprisonment of 6 years and a fine of 1 billion rupiah."(law number 11 of 2008 concerning ite, n.d.). based on the statement from the ite law article 28 paragraph 2 is very ambiguous and can be a trap for the parties who process the problem to the police, where the language of the article makes parties who want to express something will experience complicated legal problems, so a legal breakthrough is needed so that the article can be fully understood by law enforcers, in this case the police and the prosecutor's office in processing this case as effectively and efficiently as possible so that innocent people are not exposed to cases that make the application of multiple interpretations and tend to harm people who experience problems related to the spread of news that is not necessarily the truth. especially for internet users, they must also be careful if they want to send an image or chat in the form of a symbol or image that smells of pornography, it will be subject to punishment or criminal sanctions, where this is reflected in the application of article 27 paragraph 1 of law number 11 of 2008, where the text of this article includes: "every person who intentionally and without right distributes and/or transmits and/or makes accessible electronic information and/or electronic documents that have content that violates decency can be punished with the role of legal digitization on cybercrime control in indonesia 169 imprisonment of up to 6 years and a fine of 1 billion rupiah"(law number 11 of 2008 concerning ite, n.d.). in accordance with the article, parties who transmit, and spread pornographic content in digital media, will be subject to criminal sanctions, as well as a large fine, where article 27 is multi-interpretive, because many of the people are often blamed when they want to spread voice recordings of words or pictures of sexual harassment, so this article has the potential to be misused by law enforcement officials who are carriages to show the legal certainty of this article. for example, the case of baiq nuril, a former honorary employee of sman 7 mataram, where baiq nuril recorded a conversation containing immoral elements by her superior as the principal, where the recording was a recording of a conversation related to the principal's verbal remarks to baiq nuril in a harassing tone, so that baiq nuril felt disturbed, and people around her accused her of having an affair with the principal. as a result baiq nuril recorded the conversation to provide evidence that she did not have the relationship she was accused of, baiq nuril never reported the recording, but she talked about the recording to someone named imam, then imam transmitted the data from the cellphone to the laptop, and spread the transmission of the conversation to other parties, so that the principal did not accept it and reported m to the police and was tried, then sentenced to acquittal at the first level court or district court, then the prosecutor made an appeal to the supreme court and found baiq nuril guilty and sentenced to 6 months and a fine of 500 million rupiah. from this case it can be seen that this kind of multiinterpretive article can be misused by certain elements, both education elements and elements in the government, as well as law enforcement elements who carry out the investigation process of this case, where law enforcement elements are really not observant in seeing the situation and criminal acts, and even tend to take sides against the principal who has clearly committed harassment, where the law enforcement officers of the police and prosecutors are too forcing this case to go to court, so that the community feels that justice is not upheld and law enforcement is still in favor of the strong, where the principal should be guilty of committing sexual harassment to be innocent because what is processed by law enforcement is only a case of spreading indecent speech through digital media. this is a bad thing for the existing legal digitization process, where the misinterpretation of article 27 of the ite law has implications for existing legal uncertainty. another article that has legal consequences that are not in accordance with the principles of justice and society is the article on article 1 paragraph 4 of law number 27 of 2022 concerning personal data protection, where this article reads: "that the parties controlling this data are individuals, public bodies and international organizations".(law no. 27 of 2022 on personal data protection, n.d.). according to this article, each party should be given their functions and duties in the process of protecting personal data, so that derivative regulations are needed that explain the functions and duties of these institutions regarding personal data protection, so that this unclear derivative legal umbrella creates misunderstandings about the functions of each institution, where there are still many public bodies that leak personal data, so that it is disseminated by irresponsible parties, as a result, if a person provides data for work purposes or the like, miscommunication will occur, if the person is accused of disseminating someone's personal data, thus contradicting the law on personal data protection. article 67 of law number 27 of 2022 concerning personal data protection, where this article reads. "every person who intentionally and unlawfully discloses personal data that does not belong to him as referred to in article 65 paragraph (2) shall be punished with a maximum imprisonment of 4 (four) years and/or a maximum fine of rp 4,000,000,000.00 (four billion rupiahs). (law number 27 of 2022 concerning personal data protection, n.d.).. the wording of the article is very multiinterpretive, where this article can trap every individual so that they do not open other people's personal data for any interest. this makes a significant loss for each individual if they want to submit personal data to others for the purpose of employment data in companies, data for taxes, and data for transactions, where the state agency or institution that is given the data should protect the data. legal certainty is the only way that must be taken by every member of society so that the course of the state becomes more dignified and able to create comfort for the community, especially for ordinary people who do not know formally the laws that apply in indonesia, where these ordinary people only know that they must meet the needs of their families by working and earning a living for a bite of rice that will be taken to improve the welfare of the community. many of these ordinary people lack legal literacy, so that they still have a low understanding of existing laws, where this society is not fully law-abiding, so that many rules and laws are violated for their own desires and also in the absence of real action from the security forces against those who violate the law, so that the security forces are too underestimating the actions apart in overcoming every problem of people who violate the law. on the jenda ingan mahuli 170 one hand, many security or law enforcement officials doubt or even tend to go awry if the actions taken by these officials have not been able to be done properly, because many people criticize the actions of law enforcement officials who are still unable to enforce the law properly and optimally, because there are still many selective cuts from each case reported by the community. law enforcement officials such as the police and the prosecutor's office still act arrogantly, and there are still those who choose cases and there are still interests from the security forces to one of the litigants, thus affecting objectivity in investigating and investigating cases. for the prosecutor's office, there are some parties in the prosecutor's office who are still not objective in conducting prosecutions, where the prosecution apparatus must always be at the forefront of existing law enforcement, where the apparatus must prosecute and impose cases in accordance with the articles in the law and regulations in force in indonesia. apparatus actions must be in accordance with clear and transparent procedures, thus requiring high objectivity from security forces in order to create clear and measurable laws, and not harm the community. the community is required to always increase sufficient knowledge with early education and guidance from law enforcement officials to socialize existing laws and regulations to create real justice. this real justice still cannot be applied to some articles, especially those relating to articles on criminal acts or crimes, both general crimes, such as theft, murder, as well as fraud and rape. however, there are other crimes related to the use of technology and digital applications, which are crimes in disguise, as well as crimes that are often used by individuals, or groups of people using sophisticated equipment, and using several applications, ranging from online fraud, online fraudulent investments, there is also the crime of pornography spread by a person or account on social media, as well as other cyber crimes related to defamation through digital media and the spread of false news through digital media and social media, as well as the rules that are violated regarding the sale of goods through online applications that do not properly inform the goods and often even commit fraud on consumers. these existing crimes are regulated through applicable legislation, where existing laws in indonesia regulate matters relating to activities using digital applications, where there are several articles regulated in several laws relating to the use of digital applications that experience multiple interpretations or interpretations of the sound of this article that are not completed and interpreted unwisely by security forces or law enforcement officials, such as the police, prosecutors and judges. this results in existing losses to the community due to misinterpretation of the law, resulting in confusion in the community in the process of investigation, prosecution and also sometimes there are ambiguous decisions from judges making justice collapse and the law cannot be enforced properly, even the decision only benefits the strong party and some decisions benefit the community as a weak party. the community is required to always be legally literate, because indonesia is a country based on law, so the community must be given a talk about the law, so that he is aware of existing laws, including laws relating to the use of social media applications or digital applications, where the community must be given a guidance so that he understands the substance of the articles in the act, so that it will make the community later understand what is in the article, as well as the meaning and substance in the article, so that later if problems arise regarding the use of digital applications, they will no longer be ignored, so that the community can freely do something that is not feasible or inappropriate through digital applications, where there are several things that are inappropriate and cause criminal acts, such as spreading false information, spreading pornographic content, disseminating things that harm the community, product notifications that do not match what is being sold, providing product information that does not match the actual situation, and the rise of online poker or gambling, krypto, and online investment which actually causes tremendous uproar that often occurs, due to the low understanding of online investment from the community, so that there are still many who are wrong to choose the form of online investment that allows customers or consumers to be harmed because if you use an online application, the transactions carried out do not face each other, so they do not know and significantly about the parties related to online investment. the rise of fraud-modeled crimes in online applications has certainly disturbed the community and also the government, where the government has contained special rules and special laws related to the protection of personal data, so that the security of personal data is not only the responsibility of the person himself, but also the responsibility of institutions and also the state to protect the data of the indonesian people so that it is not misused by certain parties who plan to destroy and manipulate data for their own interests and also for the benefit of hidden crimes. the law is actually the party that is able to answer various problems and prevent crimes, especially in the digital field, but there are several articles in the law that trap the community, to the detriment of the community, as a result legal certainty becomes uncertain, thus affecting all aspects of life, especially the economy. this lack of legal certainty affects the comfort the role of legal digitization on cybercrime control in indonesia 171 and security of a region or a country. laws that are not upright will always create riots and uncertainty about the government, so that it will cause a disturbance in people's lives. with the existence of articles that have multiple interpretations, a legal breakthrough is needed that will guarantee protection to parties who always want to ask for justice and when exposed to problems that are indeed carried out to find a bright spot of the problem. this legal breakthrough can provide a short-term solution in addressing problems regarding articles that have multiple interpretations that tend to harm the community as consumers or users of digital applications. with this legal breakthrough, the community will feel a response from the state to solve problems wisely and wisely, and wisely so that existing problems can be resolved comprehensively and openly. based on the articles in several laws that include this multi-interpretation article, most of the articles relating to law number 11 of 2008 concerning ite and the latest laws, namely law number 27 of 2022 concerning the protection of personal data, where these two laws are the starting point of less law enforcement, so that it requires something wise and something that can solve existing legal problems by legal means and in accordance with current legislation, so that it can be understood that legal problems and law enforcement that are still incompatible are the responsibility of the community and also the state to understand the substance of the apsal of the ite law and the personal data protection law. the awkwardness of the multi-interpretive article can be dealt with by a policy, both from law enforcers, the government and also the state, where the policy that must be carried out to change an article to be precise and in accordance with the meaning of the published law is as follows:  there is a policy from the police to carry out restorative justice for parties who feel aggrieved about the articles that have multiple interpretations in the law relating to the use of online applications, where restorative justice is a legal process carried out by the parties to the dispute, where restorative justice is issued through police regulation number 8 of 2021 concerning restorative justice, which according to this regulation can fulfill legal certainty, according to this regulation, in order to fulfill legal certainty, it is necessary to handle cases using consolidation and deliberation to achieve existing directions and suggestions, where with this, the sense of justice obtained becomes real, so as to avoid punishment due to discriminatory articles and manipulative articles so that a bright spot is found on this matter, so that early prevention efforts are needed so that this prosecution does not occur and finally peace is created and creates mutual trust between the community and law enforcement officials.  the public can conduct a judicial review to the constitutional court through articles that are manipulative and also multi-interpretive, so that a long time is needed so that the decisions taken fulfill a sense of justice and also create a legal certainty, where this judicial review is carried out by changing the wording of article by article or deleting several articles and replacing them with new language or not changing the language significantly.  the government and the house of representatives can jointly make changes to several existing articles through the revision of law no. 11/2008 on ite and the latest law, namely law no. 27/2022, where the revision of this law is not the entire article, but on certain articles like a judicial review, where what is revised is the wording of several articles, as well as the entire article of the law related to the use of digital applications. 3.2. discussion based on the results of the research, it can be explained that there are several articles of multiple interpretations in the laws and regulations in force in indonesia, where the articles are article 27 paragraph 2 and article 28 paragraph 2 of law no. 11 of 2008 concerning ite and article 1 paragraph 4 of law no. 27 of 2022 concerning the protection of personal data which is detrimental to the community, as has happened in several cases in indonesia, where according to (nur azmi, 2020). (nur azmi, 2020) the existence of existing laws should be a legal action that creates a high sense of justice, but the existence of articles that have multiple interpretations makes existing activities, especially those closely related to digital activities, create a sense of caution for those who use them, so that the use of this precautionary principle will be something that makes us have to look closely at these articles so that later our actions do not deviate or fall into, so that we will be exposed to these multiple interpretative articles. the article reflects a lack of sense of justice and law enforcement is like a double-edged psiau, which on the one hand can ensnare the community and on the other hand can become a weapon for the security or law enforcement, such as jenda ingan mahuli 172 the police, prosecutor's office and judiciary. based on the results of the research, there are several ways to prevent this multi-interpretation article, namely by conducting restorative justice for handling cases related to digital use activities, such as defamation, spreading false news and distributing words, images and something in the form of pornography, as well as articles related to the dissemination of personal data, where this multi-interpretation article will create something that can harm the parties, especially parties who do not intend to disseminate private conversations that smell of pornography, spread news that is actually not true, and spread data to other parties that are actually used for positive things, but are prohibited by law. in addition, there are community efforts to conduct judicial reviews of articles that have multiple interpretations when using digital applications, as well as the government's desire to revise several articles in the law relating to the use of digital applications, which will create legal certainty that makes the law enforceable and does not oppress the weak, where according to (gurning, 2019). (gurning, 2019) accommodative law, such as restorative justice and judicial review of controversial articles and revision of controversial laws, especially articles that are closely related to activities using digital applications will make the law act fairly and create legal certainty in the midst of society. 4. implementation if the implementation of articles that are contrary to the conscience of the people, which are multi-interpreted and also not in accordance with what the community expects is continued, it will make the state lose its authority, and the law will not be dealt with properly, to the detriment of the community, where this article will erode public confidence in law enforcement in indonesia which is currently being tested because of the incompetence of law enforcers in handling cases. 5. conclusion from the results of the existing research, the conclusion of this study is that there are several articles of multiple interpretations in the laws and regulations in force in indonesia, where the articles are article 27 paragraph 2 and article 28 paragraph 2 of law no. 11 of 2008 concerning ite and article 1 paragraph 4 of law no. 27 of 2022 concerning the protection of personal data that harms the community, as has happened in several cases in indonesia. in addition, from the results of the research, it can be seen that there are several ways to prevent this multiinterpretation article, namely by conducting restorative justice for handling cases related to digital use activities, the efforts of the community to conduct judicial reviews of articles that are multi-interpreted when using digital applications, and the government's desire to revise several articles in the law relating to the use of digital applications. references afrianto. 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(2021). urgency of electronic wallet regulation in indonesia. nagari law review, 5(1), 1. https://doi.org/10.25077/nalrev.v.5.i.1.p.1-14.2021 law number 11 of 2008 concerning ite. law number 27 year 2022 on personal data protection. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 98-110 98 diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania adrian f. ndunguru college of business education dodoma, tanzania romuald haule college of business education dodoma, tanzania elia mwanga college of business education dodoma, tanzania received: feb 19, 2023 accepted: march 28, 2023 published: june 01, 2023 abstract: this paper is intended to study various approaches of legal framework for protection of geographical indications as applied in different countries with the view of ascertaining the strength and weakness of each approach in order to recommended the right approach for tanzania. the main problem which prompted the study is results from flexibility of the system for protection of geographical indications allowed by the wto agreement on trade related aspects of intellectual property rights of 1994 the study was centered on the main objective of examining three approaches of protection of geographical indications which trademark system, sue generis system and the unfair competition system.on part of methodology, the study is qualitative in nature and uses mainly secondary date derived by using documentary review of various international legal instruments, reports, legal text books, articles and conference papers based on protection of geographical indications. data were analyzed by using content analysis in which the researcher sorted data basing on the relevancy of the content on the study objectives of the study. generally, the findings has revealed that, apparently states protects geographical indications by using trademark laws, sue generis or specific laws and unfair competition system. however, the more comprehensive and effective approach that tanzania can adopt is the sue generis system because it provided for specific standards for protection of geographical indications which cannot be mixed with trade mark or competition laws. keywords: social media marketing, covid 19, tiktok, consumer buying decision process 1. introduction protection of geographical indications as a separate category of intellectual property rights has been a matter of heated debate across the world. some national laws protect it as a separate intellectual property right under sue generis system, few protect it as a trademark through collective and certification mark and other protect it as an aspect of unfair competition under the fair competition laws. this multiplicity or diversification of laws has created uncertainty on recognition of the right and the real scope of the right. this study is interested much to examine the three approaches with the view of ascertaining the appropriate approach that can be applied in tanzanian context. 2. definitions of key concepts in course of examining the legal framework for protection of geographical indications, it is important to define some key concepts appearing in the title of the study for more understanding within the context of this study. one of the most important terminology or concepts to be defined is geographical indications as opposed to other similar or related terminologies like appellation of origin and the word legal protection within the context of this article. 2.1. geographical indications diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 99 literature reveals that, in any debate relating to protection of geographical indication, one of the challenges is often the daunting task of defining the subject matter covered by the word geographical indications. a clear definition of geographical indications is important to define the scope of protectable geographical indications by distinguishing geographical indications from other categories of intellectual property rights like trademarks. the definition of geographical indications is provided in different legal documents with almost similar wording. the trips agreement is the benchmark of defining geographical indication. the agreement defines geographical indication to mean; indications which identify goods as originating in the territory of a member or region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographic origin the definition of geographical indications by the trips agreement highlights the scope and conditions for protection of geographical indications. according to the definition of geographical indication provided by trips agreement, for a geographical name to quality for protection as geographical indications; it should be the name of a geographical area found in a region or country or locality where the product originates. the goods using the name must originate in the particular geographical area or locality within the territory of the country they indicate. this is also called geographical nexus. also, the particular goods must have quality or reputation which is essentially attributed from their place of origin. these unique attributes may be measured in terms of taste, aroma, touch or appearance which distinguishes the geographical indication products from similar products produced in other areas. the use of the word ‘indication’ in the definition includes use of a geographical name, figurative representation of the name of a place or any combination of them conveying or suggesting that the goods which they indicate originate in that particular place to which the indication points. this place may be a city/region or country/territory which is famous for producing or manufacturing that particular product. 2.2. diversity of legal systems in this context, diversity of legal systems is used to mean the existence of several approaches of protection of geographical indications across states ranging from trademark laws, sue generis law and unfair competition systems used by the respective states to protect geographical indications in their national systems. 3. background to the problem recently geographical indications have been commonly used by business enterprises and producer groups in both developed and developing countries to market certain distinctive products. studies shows that, consumers are willing to pay premium price to products identified by using indications of origin. the history of protection of geographical indications is connected to industrial revolution in europe in the 19th century. the first country to design a law on protection of geographical indications was france in 1825. the french law was by then intended to prevent false indication of source of industrial goods. the law was mainly implemented by imposing criminal sanction to people who were found guilty of false indication of origin of goods. later in 1919, the french parliament realized that the quality of certain products especially agro products were very much connected to their place of origin basing on natural, human, climatic factors and method of production. therefore, french decided to make a law on protection of geographical origin of some goods such as cheese and wine. this being domestic law with no international recognition triggered for international movements on the protection of geographical indications. at the international level, the law on protection of geographical indications started with the paris convention on indications of source in 1883. this convention prevents the use of false indication of source of goods which are likely to mislead consumers as to the true origin of the goods. it also prohibits acts of unfair competition which are likely to affect consumers. however, the paris convention talks about protection of indication of source of goods without any express recognition of protection of geographical indications. the paris convention provides for minimum level of protection of indication of source without any connection between the source of the goods and reflection of quality of the goods. the weakness of the paris convention raised member’s interests to extend the scope of protection covered by the convention. another round of deliberating measures for addressing deceptive indications of source started in madrid and it ended by members adopting the madrid agreement for repression of false or deceptive indication of source of origin of 1891. the weaknesses of the madrid agreement also led into another diplomats conference in lisbon in adrian f. ndunguru & romuald haule & elia mwanga 100 1958 to discuss the law on the protection of appellation of origin with the view of extending the scope of the paris convention by connecting indication of source of goods and environmental attributes of the geographical area where the goods originates. this conference adopted the lisbon agreement for protection of appellation of origin and their international registration. the lisbon agreement provides for the protection of the use of names of geographical areas of a country, region of a country or its locality in a manner that indicates that the goods originates in that place where a certain special quality or characteristics are attributes basing on natural or human factors. a breakthrough on the protection of geographical indications was witnessed in 1994 with the establishment of the world trade organization and the adoption of the world trade agreement on trade related aspects of intellectual property (trips agreement). this agreement came into force in 1995 and it provides the minimum standards for the protection of geographical indication at international level. it also provides for obligation to the member states to enact domestic laws on the protection of geographical indications. geographical indication is defined under article 22 of the trips agreement. the provision does not provide for the manner or method of protecting geographical indications or to put it clear, the agreement has allowed flexibility of modality and conditions of protecting geographical indication under domestic laws. 4. statement of the problem tanzania is a member of trips agreement which provides for protection of geographical indications as an intellectual property right. the trips agreement imposes mandatory obligations on member states to enact domestic laws to protect geographical indications from abuse. according to the trips agreement; members shall provide for legal means for interested parties to prevent (a) the use of any means in the designation or presentation of goods that indicate that the goods in question originate in a geographical area other than the true place of origin in manner which misleads the public as to geographical origin of the goods. (b) any use which constitutes an act of unfair competition within the meaning of article (10) of the paris convention. however, the trips agreement allows members to adopt their own approach of protection of geographical indication. according to the agreement, …members shall be free to determine the appropriate method of implementing the provision of this agreement within their own legal system and practice. this flexibility has led to diversity of domestic laws on protection of geographical indications has been the source of uncertainty on domestic recognition of geographical indication as an intellectual right. this uncertainty calling for more debate on the appropriate approach of protection which offers effective protection of geographical indication. absence of effective and harmonized legal system for domestic protection of geographical indications is denying interested parties their right to protect potential geographical indications available in their areas and is also attracting infringement from unauthorized companies. therefore, this study aims to research on the effective method of protection of geographical indication that tanzania can adopt to protect her potential geographical indications products like the kyela rice, kilimanjaro coffee and zanzibar cloves. 5. objectives of the study the main objective of the study is to examine the appropriate approach of legal framework for protection of geographical indications as between the trade mark laws, sue generis laws and unfair competition laws. the specific objectives include; first, to examine different approaches of protection of geographical indications: first, to explore the strength and weakness of every approach of protection of geographical indications and third, to recommend the appropriate legal framework that can suite tanzania context. 6. literature review this part reviews various pieces of literature which talk about protection of geographical indications in order to get more understanding of the concept of geographical indications, its nature of protection and the need for their protection by domestic laws. at the end, the researcher identifies legal gaps noted from the reviewed literature in order to justify the need of conducting this study. john, egelyng and lokina discuss various crops with potential of geographical indications protection in tanzania. in their discussion they state that, ‘tanzania does not have a legal framework on geographical indications and this is denying interested parties the right to protect potential geographical indications of their products.’ the three authors diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 101 further point out that, tanzania has big opportunity to advance in export of geographical indications products to international market as well as in domestic market if the products will be protected as geographical indications for tanzania. they note that, geographical indications can be used as a government policy to build alliance of farmers to market their commercial crops, traditional crops and handcrafts made in safari destinations. the article discussed above is focused on studying the potential geographical indications products that need to be protected in tanzania. it discusses the unique attributes of the said potential products for purposes of protection. the article does not address the issues of legal and institutional framework for protection of geographical indications. the objective of the study was to identify the existence and characteristics of food origin products in tanzania that have the potential for geographical indications certification. there is no objective relating to examination of the legal framework for protection of geographical indications. paul and bullu in their analysis of various international and domestic laws on protection of intellectual property rights in tanzania provide that, tanzania is lacking national intellectual property policy. most intellectual property laws are weak and outdated in many respects. the authors further observe that; …currently in tanzania there is no law to protect trade secrets, geographical indications and the industrial designs despite the fact that tanzania is committed to protect certain tourist attractions under the geographical indications. the study has discussed the major challenges inherent in the legal system dealing with protection of intellectual property in tanzania. according to the authors, tanzania is currently facing three major challenges, inadequate manpower, financial constraints and weak and outdated laws to govern protection of geographical indications and other intellectual property rights in tanzania. in the end, the study recommended tanzania to engage into serious process of enacting a policy and law on protection of geographical indication. this calls for tanzania to do a study on which approach is appropriate and effective in tanzanian context. the work by paul and bull is too general; covering all intellectual properties without focusing on specific intellectual property rights. the article has not covered most of the issues discussed in the present study especially examination of different approaches of protection of geographical indication. from the above observation, one may note that more work is needed to extend the study to address the key issues relating multiplicity of domestic laws on protection of geographical indications in tanzania. giovannucci et. al discusses the current trend of protection of geographical indications globally and the factors that can enable effective protection of geographical indication for the benefit of producers. according to the authors, there are currently more than 10,000 protected geographical indications internationally with estimated value of usd 50 billion. geographical indications are now perceived as an opportunity in many countries that have unique physical and cultural attractions that can be translated into product differentiation. the authors further states that, good choice of legal system for protection of geographical indications will promote effective monitoring and enforcement of geographical indication and reduce the likelihood of fraud that can compromise the reputation of the geographical indication and its legal validity. the author also argues that, the practical experience from case studies of countries which have taken steps to protect geographical indications suggests that, for geographical indications to be successfully protected there must be effective legal protection which include strong domestic legal framework for protection of geographical indication. the authors have tried to discuss existence of sound legal framework as one of the important aspects for promoting geographical indications but their study does not go further into detail to discuss the effectiveness of the legal frameworks in protecting geographical indications. mangistie, discusses challenges of managing geographical indications in africa focusing on opportunities, experiences and challenges. according to the author, one of the major challenges of harnessing the potential geographical indications found in africa is lack of harmonized or inadequate legal framework for protecting geographical indications. majority of the african countries including tanzania do not have a law that specifically governs the protection of geographical indications. the author further points out that, in countries where there is no specific law dealing with geographical indications, the potential geographical indications in those countries may be protected using trademark and unfair competition laws. the author recommends that, if african countries would like to benefit from their potential geographical indications, a lot has to be done which includes, ‘strengthening or putting in place adequate legal framework for protection of geographical indication’. adrian f. ndunguru & romuald haule & elia mwanga 102 the study also provides for limitation of using trademark system stating that, ‘trademark law often excludes geographical indications from being protected as trademark unless they have secondary meaning.’ however, the study does not discuss the legal and institutional framework for the protection of geographical indications in tanzania. giovanni, allessandro and andrea illustrate the effect of protection of geographical indications in developing countries. in their view, protection of geographical indications in developing countries offers a lot of benefits; it supports local agro food system, promotes sustainable development in rural areas, reduces unfair competition from abuse or misuse of gis by free riders, offers market opportunity for gi products and assists in rural poverty reduction. the above authors are also of the opinion that despite the benefits derived from protection of gis, there is still lack of systematic research on the effect of gis on firm profitability, on agro-food system and on environmental and social impact. according to the authors, the existing studies seem to address more on the challenges of gis rather than their opportunities. unctad study titled ‘why geographical indications for least developing countries’ is of the view that, in order to promote local farmers or producers in international market where competition is stiff, many developing countries need to develop quality names or brands for their products through protection of geographical indications. the study further observes that gis protection can promote development of local community. the study refers a number of countries as case studies on protection of geographical indications. the cited countries are those which have made initiatives to recognize and protect gis using different approaches; some under trade mark laws like ethiopia and cambodia while others under sue generis system (special gis legislation) like mozambique. at the end, the study presents the general challenges observed from different countries that have attempted to protect geographical indications. according to this study, developing countries face considerable challenges when implementing geographical indications registration because of weak institutional framework and regulatory framework. according to the author many countries are lacking national legal framework for protection of geographical indication and when it does exist, it is incomplete. also, the study talks about general issues surrounding protection of geographical indications in africa. the present study examines the problem of multiplicity of legal framework for protection of geographical indications in relation to choice of appropriate legal framework for tanzania context. after reviewing various pieces of literature, the researcher has observed that; the law on protection of geographical indications is still in infant stage. there is inadequate literature which focuses on issues of protection of geographical indications in tanzania. the available literatures generally reveal that, the major challenge in protecting of geographical indications in tanzania is lack of specific law which provides for protection of geographical indications in the country. 7. methodology on part of methodology, the study is qualitative in nature. the researcher is studying the legal text of various instruments starting from international laws to national laws. the study mainly uses secondary date derived from documentary review of various international legal instruments, reports, legal text books, articles and conference papers based on protection of geographical indications. data collected were analyzed by using content analysis in which the researcher used literary and purposive interpretation to analyses the data in line with the study objectives. 8. findings on approaches of protection of geographical indication the trips agreement provides for obligation of member states to make domestic laws on protection of geographical indication. the agreement further provides for the states freedom to choose which approach is best basing on their national history and economic background. this part of the article presents the status of the legal approaches on protection of geographical indications and later examines the strength and weakness of each approach. existing literatures reveal that, there are three common national legal approaches of protection of geographical indications namely; trademark system, sue generis system and unfair competition system. the diversity of the approaches on protection of geographical indication across states is mainly attributed by flexibility of the trips agreement itself. under the trips agreement, members are free to determine the appropriate method of implementing the provision of the agreement within their legal system and practice. diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 103 one of the wipo publication titled ‘geographical indication; an introduction’ published in 2021 observed that, ‘there are three main modalities of protecting geographical indication which are sui generis system, collective and certification marks system and one relating to unfair business practices.’ the publication further points out the effect of the multiplicity on scope and recognition of geographical indications for purposes of protection noting that, ‘the multiplicity has raised important question on two major issues; conditions for protection of geographical indication and the scope of protection.’ it can be also noted that, the world intellectual property indication report published by wipo in 2018 observes the issues of diversity of national approaches on protection of geographical indications and its implication in recognition of geographical indications. according to the report ... “it is important to note that, gis can be protected through a variety of legal means; sue generis system, trademark law, international agreements and other national means.” the quotation above implies more verities, it points out international agreements and other national means. this means there are even other more approaches. the effect of this multiplicity or diversity is observed by wipo that, it makes it challenging to document which ones are trademarks and which ones are geographical indications. according to wipo, this diversity is causing challenge to obtain complete picture of all geographical indication protected in any particular country. in other words, the diversity is causing difficulty on recognition of geographical indication not only for purposes of management of the indications but also enforcement. the question to be addressed at the end of the study is why do states opt one approach and abandon the other? what is the strength and weakness of each system in order to decide which approach is more appropriate for tanzanian? this section briefly explains the nature, strength and weaknesses of each approach. 8.1. trademark system trademark law is one of the common approaches of protecting geographical indication. in this system , there are two levels of protection provided, the first level deals with protection of the indication against registration of misleading marks that are likely to confuse the consumers as to the true geographical origin of the goods and the second level is concerned with protection of the indication against unauthorized users. the pioneers of trade mark system are countries like australia, canada, china and the united states of america. most of the countries which uses trademark laws registers geographical indications as collective mark or certification marks. united states is one of the champions of the use of trademark system. under the trademark system, a geographical indication is not treated as a separate intellectual property rights but rather it is registers as a trademark on some special conditions. one of the major conditions is that the mark must be distinctive and that, the mark can be used by more than one person as long as the user comply with established standards. under the trademark approach, the mark is subjected to some specifications approved by association of producer of a certain product which apply for registration to become part of the collective mark. the specifications can limit the use of the mark only in connection to goods that are specifically produced by producers of a particular geographical origin. a good example of trademark that is used as collective mark is permigiano reggiano which is used is branding chees in italy. the question is how far is this approach capable of providing effective protection of geographical indication in terms of scope/coverage. in africa this approach is used by ethiopia in protecting its geographical indication over various brands of coffee. in east africa, trademark system is also used for protecting various products in kenya which includes the kenyan coffee. however, literature explaining the effectiveness of trademark system shows that, there is inadequate level of protection of geographical indications under existing trademark laws which is primarily designed for ordinary trademarks. in a survey conducted by world intellectual property organization (wipo) in 2018 wipo did collect global statistics of registered geographical indication from 82 countries. this was done by taking the name of a country, number of geographical indications registered in the specific country and the approach used by each country to protect geographical indications. the findings from the survey of geographical indications done by wipo reveal that, 17 countries out of the 86 countries surveyed used trademark system as the approach of protection of geographical indication. the wipo statistic implies that, only 19.7% of the surveyed counties used trademark while the rest 80.3 % used other approaches like sue generis approach. adrian f. ndunguru & romuald haule & elia mwanga 104 trademark system is used in some countries to protect geographical indications alongside ordinary trade and service marks. those countries who have maintained trademarks defends their position that, geographical indications are not distinctive category of intellectual property rights but rather type of special trademarks. united states of america is one of the defenders of the trademarks system basing on their stand that geographical indications lack distinctiveness to qualify for protection as a separate right. trademarks convey information about the origin of the goods or service they apply and enable consumers to associate a particular quality with the goods or service. trademarks inform consumers about the source of the goods or services because they identify the goods as originating from a particular company. the strength of trademark system in protection of geographical indication the countries which used trademark system to protect geographical indications have opted to use this system basing on its strength over other forms of protection of geographical indications and some other historical and economic factors observed from the use of trademarks systems as opposed to other forms of protection. some of the strength that favors the use of trademark system in protection of geographical indications are noted hereunder. trademark system is used to certify the origin of the goods for consumers protection. when consumers are looking for origin-based goods, they want to get assurance that the goods they purchase are authentic origin-based goods. this task is well accomplished by use of certification mark in which the certifying authority approves the goods as containing particular the quality.according to origin… certification mark indicate that the product or service for which they are used have particular characteristics (given geographical origin for instance). in this regard, the certification mark can be descriptive and can be used to protect geographical indication without the need to prove a secondary meaning. trademarks system protect consumers from confusing marks. an application for registration geographical indications may be refused registration under trademark system if it is identical to a trademark previously applied for registration if it is proved that there is likelihood of the mark to cause confusion with an existing trademark. this is one of the major strengths of using trademark system to register geographical indications. once a product is registered as a trademark of a particular group or producer; no any other person is allowed to register as similar mark to avoid confusion with existing marks. according to hirko, the prohibition against registration of trademark is likely to deceive or mislead the public as to geographical origin of the goods reinforces the protection of collective trademarks with similar scope to the protection of geographical indications under article 22(2)(a) of the trips agreement. furthermore, trademark system prohibits the registration of certain trademarks consisting of false indication of geographical origin of the goods and it allows the registrar to invalidate any trademark register which contains false geographical indication as to origin of the goods in a manner which misleads the public as to true origin of the goods or its special quality or characteristics . also, trademark system applies the principle of ‘first in time, first in right.’ this principle is applied in trade mark law to avoid registration of a trade mark similar to exiting trade mark. in protection of geographical indication, this principle can be used to prevent registration of an indication that is similar to a previous registered indication. in this regard origin observes that, it is crucial in the field of geographical indication to recall the implication derived from the basic principle of trademark law the first in time firsts in right which prevents producers from seeking registration of trademark for a geographical name if another party has already registered such name in good faith. the limitations of trademark laws in protection of geographical indication limitations of using trademark laws in to protecting geographical indications are derived mainly by comparing the trips standards or requirements for eligibility of registration of geographical indications in contrast with the provision of trademark laws governing registration of geographical indications as collective or certification marks. most of the registrability conditions covered by trademark system are not compatible with geographical indications standards. one of the limitations of using trademark law to protect geographical indication is in terms of its effectiveness and adequacy to protect geographical indications. authors have tried to analyze the adequacy of trademark law on protection of geographical indication from different points of view. sileshi hirko from ethiopia has analyzed the use of trademark system for protection of geographical indication in ethiopia and noted that ... …there is inadequate level of protection of gis under existing trademark laws which is primarily designed for ordinary trademarks. diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 105 sileshi hirko further argues that, to use trademark law for protecting geographical indication render most of geographical indication unprotectable because trademark law requires a trademark to be distinctive while most of the geographical indications are descriptive names of geographical areas. in his view, non-dispensation of the requirement of distinctiveness for protection of geographical indication in existing trademark law for protecting geographical indication is a basic pitfall in existing trademark system. insisting on this point the author observes that … …as the requirement for distinctiveness provided for ordinary trademark is similarly required for collective trademarks, most gis are in effect excluded as they primarily designate geographical origin. the requirement excludes most of geographical names which are descriptive despite of their capability to serve as gis in the context of the definition under the trips agreement. this is against the interest of most producers as they cannot get legal protection for descriptive gis for their products for want of distinctiveness. this is the fundamental drawback of the existing collective trademark system to acquire protection for gis. the above quotation is very fundamental for examining the suitability of trademark system for protection of geographical indication in tanzania. the observation from ethiopia shows that, trademark system is not relevant approach for protection of geographical indications because the system excludes the protection of descriptive geographical names used in indicating potential geographical indications products like kyela rice, kilimanjaro organic coffee, dodoma wine or zanzibar cloves. the study by sileshi further observes that, although the ethiopian trademark proclamation mention the registration of collective trademark which can be used to protect geographical indication, the act cannot cover most of geographical indications because it was not primarily designed to protect geographical indication. this impliedly means that, to protect geographical indication in the same way as trademarks are protected limits the scope of coverage of protection of geographical indications. in his conclusion, hirko observes that, the weakness of the trademark system in ethiopia calls for appropriate legislative reforms in the trademark law or the adoption of a new mode of protection to ensure conformity with the provision of the trips agreement. however, the author does not point out which option is better between the trademark system and adoption of specific law for protection of geographical indication. another major challenge of using trademark system in protecting geographical indication is based on monopoly of trademarks. once a person is allowed to register a geographical indication under trademark law it implies monopoly of the mark by the proprietor. in the view of various authors, a geographical indication cannot be registered as a trademark because trademarks are monopolized by the individual proprietor something with is not proper for geographical indication. a geographical indication cannot be monopolized because it reflects common interests. another fundamental drawback of trademarks is that they must be renewed after every certain period of time like seven or ten years. one of the conditions governing registered trademark is renewal after a certain period of time. this is not the case under sue generis system where geographical indications are protected for indefinite duration (no need for renewal) because the attributes which are used to distinguish the goods exist continuously. also, literature show that trademarks are normally designed to indicate the source of the goods but not quality of the goods they indicate. geographical indications are used to identify goods as originating in a certain geographical area where a given quality , reputation or other characteristic of the goods is essentially attributed to its geographical origin.’ geographical indications must indicate the quality of the goods in connection with the place of origin of the goods. geographical indications are totally different from trade and service marks which means a visible sign used or proposed to be used in connection with or in relation to goods or services for the purpose of distinguishing in course of trade or business the goods or services of a person from those of others. the purpose of trademark is only to distinguish goods of one producer or suppliers from those of others but not to show the quality of the goods they indicate and are subject to the conditions for registration which generally are not compatible with the conditions and standards for protection of geographical indications. another challenge of protecting geographical indications under trademark system is the need to prove secondary meaning of the indication in labeling. short of proof of secondary meaning, the geographical indication becomes generic name hence not qualified for protection as an intellectual property right. however, with the sue generis system, there is no need of proving secondary meaning. a geographical name used in a product is protected when it is proved that it reflects on the unique quality of the goods originating in the particular geographical area. adrian f. ndunguru & romuald haule & elia mwanga 106 also it is difficulty to enforce geographical indications registered as certification or collective mark because the right holders must always prove that customers were confused by the infringing geographical indication which is very costly especially when the infringement took place in a foreign country. 8.2. the sue generis system the sue generis system is regarded as a law of its own kind. it is a specific law designed only for protection of geographical indication separate from the trademark laws or fair competition laws. this system involves enacting a special geographical indication act which covers all matters pertaining to the protection of geographical indications. it commonly covers the definition, appointment of the registrar, registration conditions, procedures of handling applications for registration of the geographical indications, offences and penalties upon infringements. this system is commonly used in the eu countries for protection of wine and spirit, agricultural products and food stuffs. according to the wto, sue generis comes from a latin maxim which means ‘of its own kind’ which is used to describe a legal classification that exist independent of other categorization because of its uniqueness or as a result of the specific creation of an entitlement or obligation. there are a lot of terminologies that are used for describing sue generis rights in protecting geographical indications such as appellation of origin, protected designation of origin , protected geographical indications and geographical indication. in countries like uganda and india there is a specific law for protection of geographical indications. the sue generis system offers a special commitment to protection of gis because the sue generis system has effective coverage of special issues affecting geographical indications a peculiar category of intellectual property rights that cannot be mixed with other categories like trademarks. the strength of sue generis system in protection of geographical indications the sue generis system is considered to be the most appropriate way of protecting geographical indications because of its wide coverage of substantive issues relating to protection of this category of geographical indications. origin observes that, protection of geographical indications under sue generis system benefits from a solid legal framework. a similar observation is made by rangnekar who is of the view that, dedicated special geographical indication law tend to provide for stronger protection. sue generis system creates geographical indications as a separate intellectual property right. this is very important for effective protection of geographical indications because the sue generis law requires the registration procedures to provide for special controls for the product specifications which are quite different from those used for protection of trade marks or other rights which are incompatible with geographical indications. sue generis being a law which specifically governs geographical indication has wider coverage than other approaches. this approach covers important matters like definition of geographical indications, specifications for protectable geographical indications, conditions for registration of potential geographical indications, ownership of geographical indications and institutions dealing with registration of geographical indication as special ip right. these matters cannot be fused into trade mark system because the system was traditionally not meant for geographical indications. the sue generis system offers effective systems for enforcement of the right in case of infringement because it establishes special institutional system dealing specifically with monitoring the implementation of the law. for example, the law will normally establish a bureau dealing with registration and deregistration of the indications and designate a court that will enforce the crimes relating to infringement of the right. according to origin, in the countries that uses sue generis system there are public authorities that have the obligation to intervene to ensure the right is respected. organization for international geographical indications network (orgin) insists that, under sue generis law, protected names benefit from solid legal framework. they are protected against direct commercial use of a gi even when the indication or origin is used to mention the true geographical origin or with delocalizing expression. they are protected against imitation or evocation. orgin further observes that, practice demonstrates that, sue generis system to protect gi responds much more to needs of producers than legal framework based on trademarks /including certification and collective marks.’ unlike trademark system, sue generis laws provides for unlimited time of protection of geographical indications. this means that there is no need for renewal of the indication when protected under sue generis system. under sue generis system, the protection of a geographical name does not need to acquire secondary meaning in order to be actionable or protected as an intellectual property right. the only important criteria is registration. limitations on the use of sue generis system to protect geographical indication diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 107 countries which use trademark system has one main reason to defend their position, that geographical indication is not a new intellectual property right but rather it is a trade mark like any other trademark except that this trade mark certify the original of the content it indicates. therefor the use of sue generis system is condemned as being unnecessary repetition of trademark laws. other literature points out that, the use of sue generis system on top of trademark system is additional cost. the use of sue generis will imply putting in place new organization and administrative machinery that will be responsible for registration and enforcement of geographical indications something which have cost implication to the government . also sue generis system is challenged for being unfamiliar to most of the population in developing countries. during interview majority of respondents seems to know trade mark system but they were not aware of geographical indication. therefore, creating a new law for protection of geographical indications alone will be putting another complication in the already existing problem. 8.3. unfair competition system fair competition law is a branch of law which provides for measures and remedy against unlawful and dishonest business practices. the purpose of fair competition law is to protect consumers against the effect of unfair competition trade practices by dishonest suppliers or producers. this approach of protection is normally used parallel with other laws therefore it is non-exclusive means of protection. in tanzania the fair competition is governed by the fair competition act. the preamble of the act is very clear that it is designed to promote and protect offensive competition in trade and commerce and to protect consumers from unfair and misleading market conducts. although the act does not expressly mention protection of geographical indication but its objectives impliedly applies on matters relating to geographical indications especially when there is the use of misleading indication of true origin of goods.unfair competition is defined as any act of competition which is contrary to honest practice in industrial or commercial matters. the use of competition law to protect geographical indication draws its legitimacy from the trips agreement and the paris convention. the trips agreement provides for the duty of the states to enact domestic laws which will regulate acts of unfair competition in relation to geographical indication. the agreement provides that… ...in respect of geographical indication, members shall provide the legal means for interested parties to prevent …...(b) any use which constitutes an act of unfair competition within the meaning of article 10 bis of the paris convention (1967). on the other side, the paris convention provides that, ’the countries of the union are bound to assure the nationals of such counties effective protection against unfair competition. the paris convention further defines unfair competition as any act of competition contrary to honest practice in industrial or commercial matters. the agreement also provides for the list of acts which constitutes unfair competition and it further states that… …the following acts in particular shall be prohibited (3) …indications or allegations the use of which in course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics and the suitability for their purpose or the quality of the goods’ the paris convention further creates the cardinal test of proving violation of the geographical indication under fair competition system. according to this provision, in order to succeed in a case of violation of geographical indications under the fair competition system, one must prove that the act in question was capable of misleading the public. compensation will be paid if the act was capable of misleading the public as to true origin of the goods in dispute. this is very difficult to prove because it deals with individual persons state of mind. the strength of unfair competition laws in protecting geographical indications this system is basically interested with defensive protection of geographical indications by restricting unauthorized people from imitating or using the indications in a manner that will constitute unfair competition. the law for protection against acts of unfair competition or massing off is meant to provide a remedy against illicit commercial acts such as false or misleading indication of origin of goods in the course of trade. the study done by hirko in ethiopia observes that, unfair competition laws complements trademark or sue generis system especially when the geographical indication is not registered. in the absence of such protection under trademark law, this system fills that gap and primarily ensures protection of unregistered geographical indications against acts of unfair competition. this system is recommended for being adequate in imposing sanction to create adrian f. ndunguru & romuald haule & elia mwanga 108 fear for people from misusing the registered indication through seizure of infringing goods. it is therefore effective for enforcement purposes. the standing committee on the law of trademarks, industrial design and geographical indications describes the strength of fair competition law basing on course of action provided by this approach against unfair competition. according to the committee, the national law for the protection against unfair competition, passing off and unregistered geographical indication provides for course of action of traders against competitor who perform commercial acts which are considered to be contrary to honest business practices. the findings also have revealed that, unfair competition law provides for effective remedy in the event of occurrence of acts of unfair competition through seizure and destruction of the goods complained to have committed an act of unfair competition. also, the laws allow the court to award compensation to the victim of unfair competition acts. the unfair competition law is also commented for protecting consumers rights against dishonest trace practices. one of the major challenges of international trade transaction is dishonest practices by traders who use a geographical indication to indicate that the goods are quality goods originating in a particular region for goods which are not truly originating in the indicated region. under the paris convention, unfair competition acts which are intended to mislead consumers as to true origin of the goods. it is therefore the purpose of fair competition laws to protect consumers from these unfair practices. the limitations of unfair competition system in protecting geographical indications despite the strength of unfair competition law in protecting customers and putting in place effective means of enforcing violation of geographical indication laws, the system has also been challenged for having common pitfall. one of the major limitation or weakness of this system is that it does not create intellectual property right in real sense. reviewed literature observes that unfair competition law does not create an intellectual property right but they intend to enforce the existing or registered rights. the system only prohibits such unfair competition acts which may harm consumers especially the use of false indication of origin of goods in the manner which misleads the consumers. according to origin, the protection against unfair competition serves to protect traders and producers from unauthorized use of the geographical indication names instead of creating an intellectual property rights over those names. the purpose of this law is to prevent the abuse of existing intellectual property rights by imposing sanction for their abuse in unfair trade conducts but not to create a real intellectual property right. it is based on defensive approach of protection of intellectual property rights. another weakness of competition law is that it is very hard to prove the action for unfair competition. the law has complex requirements to be fulfilled by the plaintiff. in order to succeed in an action for unfair competition, the plaintiff must prove three important issues; there was an established market for the goods ; the market of the goods established substantial reputation and last the use of the indications caused confusion or was misleading to the customers. the burden of proving all these is on the plaintiff something which is very hard to prove especially when the infringement took place in a foreign country. also, competition laws are challenged for lacking self-existence. this law cannot exist alone to protect intellectual property rights. it must co-exist with another main law which creates the rights. the system enforces rights which are already existing in other laws by creating offences and putting punishment for the violation of the act. competition laws are important to supplement the gap left by other systems like trademark system. when the indication is not fully registered under the trademark mark system it can be enforced under the competition law as an act of unfair competition which infringes consumers rights. 9. conclusion diversity of the law on protection of geographical is caused by the trips agreement. the common approached of protection of geographical indications are trademarks system, sue generis system and the unfair competition system. a close examination of the three approaches has revealed that, sue generis system is the best approach because it recognizes geographical indication as a separate category of intellectual property rights and as such it provides for clear scope and standards of protection which are specifically designed for protection of geographical indications. if tanzania will embark on protection of its geographical indications the best option is to use sue generis system. this system is used in european union and other common law countries like india whose legal system resemble to that of tanzania. diversity of national legal approaches for protection of geographical indication i̇n africa: rethinking the best option for tanzania 109 the study has revealed that, trademark system is only applied because of lack of specific law. one author has noted that, it is only due to proximity between trade mark and geographical indication and in the absence of specific law that practice suggest that both matters can be protected by similar system such as trademark laws. this imply that, those countries which are using trademarks has not opted to use the same but it is just because of lacking a specific law they find themselves using trademark law by default . the study has further revealed that, the standards of protection of geographical indications provided by article 22 of the trips agreement are not compatible with the conditions for protection of geographical indications since trademark system was not designed for protection of geographical indication. on use of unfair competition law, the study has revealed that, this system does not create any intellectual property rights that can be protected as an intellectual property right. the system only protects the integrity of trade and consumer expectation about the geographical origin of the product. it cannot exist alone without other laws which creates the right. 10. recommendation in order to have a comprehensive legal framework for protection of geographical indications in tanzania, sue generis system is proposed and recommended. this law is comprehensive and effective for protection of geographical indications. in east africa, sue generis is used in uganda, and rwanda. kenya is in transition from trademark laws to sue generis law. however, the law must reflect a comprehensive definition of geographical indications which covers tanzania context. also, the proposed law must define clear standards for registration of geographical indications and the procedures for dealing with applications for registration of geographical indications. the law must further provide for competent organization that will supervise or administer the laws and its powers. finally, the law must contain an effective means or mechanism for dealing with infringement of the protected geographical indications. references blakeney, m.l. ‘geographical indications and the scramble for africa’. african journal of international and comparative laws. university of western australia.2017. intellectual property rights and innovation in africa ( afripi) , manual for geographical indication in africa, (europen union intellectual property office, 2020), p. 10. hirko, s., ‘the legal framework for the protection of geographical indication in ethiopia: a critical review’. journal of african law. new york: university of ottawa, 2014 john, i, egelying, h & lokina , a., “ tanzania food origins and protected geographical indications,” journal of food , agriculture and society, 4(2), 2016. kihwelo, p.f., & bullu, s., “ a review of tanzania’s current situation with regards to intellectual property rights policy issues: opportunity and challenges,” the open university law journal, 2(2), 2008 orgin, practical manual on geographical indication for acp countries, geneva: origin, 2011 paul k. & bullu s., “a review of tanzania’s current situation with regard to intellectual property rights policy issues: opportunities and challenges,” the open university law journal,2, 2008, pp. 17-39. rangnekar, d., “geographical indications; review of proposals at the trips council extending article 23 to products other than wine and spirit.” paper issue no. 4 of 2003, unctad. wipo standing committee on the law of trademark, industrial design and geographical indications, “geographical indications: historical background, nature of right, existing system for the protection and obtaining effective protection in other countries mahingila, e., intellectual property landscapes in tanzania; the emerging role of the business registration and licensing agency in assessing small medium enterprises use intellectual property a conference paper presented at a meeting organize by wipo and tccia at dar es salaam on may 10 and 11, 2005 zappalaglio, a guerrieri, f and carls, s. sue generis geographical indications for protection of non-agricultural products in the eu: can the quality scheme fulfil the task. munich: institute for innovation and competition.2020. sitepu, f.y. the potential of geographical indication and its legal protection. edp science. 2018.1 avilable at https://doi.org/10.1051/e3sconf/20185200017 last accessed 8/feb/2020 adrian f. ndunguru & romuald haule & elia mwanga 110 mengistie, g. managing geographical indications in africa-opportunities, experience and challenges. a paper presented at the wipo worldwide symposium on geographical indication held at bangkok, thailand from 2729, march 2013. musungu, s. the protection of geographical indication and the doha round: strategic and policy considerations for africa, geneva: quaker united nations office, 2008. reports world intellectual property organization, world intellectual property indicators 2018, geneva: wipo, 2018. list of laws domestic laws the constitution of the united republic of tanzania of 1977 cap 2 r.e 2002 the fair competition act, cap 285 [r.e 2002]. the merchandise marks act no. 20 of 1963 the trade and service marks regulations, 2000, gn. no. 40/2000. trade and service marks act, no. 12 of 1986 cap 326 [r.e 2002]. international laws the lisbon agreement for the protection of appellation of origin and their international registration of 1958 the madrid agreement concerning the international registration of marks of 1891 the paris convention for the protection of industrial property of 1883 the wto agreement on trade related aspects of intellectual property rights of 1994 journal of international trade, logistics and law, vol. 9, num. 1, 2023, 61-71 61 the right to regulate in natural wealth and resources in tanzania: challenges and prospects naufal kitonka university of dodoma, tanzania ferdinand marcel temba sokoine university of agriculture, tanzania received: jan 19, 2023 accepted: march 09, 2023 published: june 01,2023 abstract: this article examines the right to regulate in tanzania amidst legal reforms in natural wealth and resources done in 2017. the right to regulate seeks to balance investor’s economic interests in investment protection with host states’ interests in pursuing public policy objectives such as environmental protection and human rights (distributive justice). achieving this delicate balance, however, is quite tricky. whilst these reforms elevated the right to regulate to new lights, they equally exposed tanzania to new investment arbitration claims. this article has reviewed related literature, statutes and case laws and observed that regulatory measures taken in pursuance of these reforms may be at odds with investment treaty standards and commitments entered by tanzania in investment treaties. the article reveals that majority of bilateral investment treaties entered by tanzania do not contain provisions recognizing or implicating right of states to regulate. in essence, this contradicts legal reforms done in 2017. it is, therefore, recommended that tanzania should review investment treaties so that they also reflect the right of states to regulate. by complementing efforts done under domestic investment laws, this will help to safeguard the right of state to regulate. keywords: right to regulate, natural wealth and resources, tanzania, challenge, prospects 1. introduction the right of states to regulate (rtr) means the right to take regulatory measures in a bid to ensure development is aligned with legitimate objectives of the state such as environmental and human rights protection as well as social and economic objectives. (sadc, 2012) such legitimate public policy goals include protection of public health, environment, competition, human rights and social values like engagement with local communities before economic projects are embarked. these regulatory measures of the state can emanate from legislative, administrative or judicial actions. (korzun, 2016). in this study, the right to regulate should interchangeably be understood to mean police power doctrine, regulatory space, right to legislate and regulatory freedom. (ugale and martinkute, 2022) this right, exercised in accordance with customary international law, recognizes “inherent sovereignty of states to regulate investor activities in the interests of local communities.” (zhu, 2017). todate, this right has received its formal recognition yet under comprehensive economic and trade agreement (ceta) between canada, and the european union countries. while this right does not aim to eliminate altogether the standards of investor protection, it only seeks balance divergent interests of investors, local communities as well as host states. as such, it seeks to end the view that investment treaties are single-minded instruments bent purely to promote investor rights while overlooking other public welfare objectives. (zarra, 2017). thus, within this perspective, rtr takes an enlarged meaning to include needs of ensuring not only distributive justice but also economic justice. this largely entails ensuring host states and local communities benefit from investments made in natural resources. (morossini, 2018 :2). notably, trade in natural resources has great potential for economic development prospects of recipient countries in terms of generating capital, foreign exchange, transfer of technology, and employment. (de gregorio, 2003 : 1-3) naufal kitonka & ferdinand marcel temba 62 conversely, natural resource industries raise challenges in terms of potential to cause environmental damage or human rights impacts where natural resources are over-exploited or poorly exploited. (zaman, 2012) in practice, since investment activities take place in host countries (recipient countries), local communities are impacted the most. (mayne, 1999). thus, divergent interests between exporters and importers of natural resources have been at the center of the need to regulate natural resources. as a result, this has shaped a rethink of trading relations between host states and investors. (oecd, 2011) importantly, rtr is among the policies meant to maximize benefits while minimizing potential adverse effects of natural resource trade. this articles seeks to analyse recent policy initiatives aimed at enhancing the regulation of natural resources in tanzania. such initiatives illustrate the growing realization by policymakers of the need to take legitimate regulatory measures into account when assessing investment and trade relations between states and investors. following this introduction, part one illustrates the methods of the study. this part also gives an historical setting of the socioeconomic and environmental problems in the natural resources sector. these problems prompted the natural wealth and resources’ reforms of 2017; which are also covered under this part. part three proceeds to assess the challenges of safeguarding the right to regulate in tanzania amidst legal reforms of 2017. part four assesses the prospects of such reforms while part five concludes the study. 2. methodology this article is mainly a doctrinal legal research. it has been conducted by reviewing statutes ; treaties ; related literature reviews and case laws including arbitral awards. main domestic statutes in question include the natural wealth and resources (permanent sovereignty) act, 2017; [herein after referred to as the permanent sovereignty act], the natural wealth and resources contracts (review and re-negotiation of unconscionable terms) act, 2017; [hereinafter referred to as the review act], the written laws (miscellaneous amendments) act 2017 and the amended mining act and its regulations. these statutes constitute domestic investment laws in tanzania. analysis of such statutes was complemented by analysis of relevant investment treaties in force which tanzania has entered into with other countries. these treaties were accessed from unctad investment policy hub. the aim of reviewing these statutes and investment treaties was to ascertain the extent to which such laws or treaties recognize and embody provisions implicating right of states to regulate. to clearly illustrate the legal implications, challenges and prospects of rtr amidst reforms of 2017, a body of case laws and arbitral awards has been resorted to. these awards, were accessed via the international centre for settlement of investment disputes (icsid) law database, ital law, kluwer arbitration, westlaw and iisd/awards. the arbitral awards include those in which tanzania has been involved or subjected into international arbitration. those arbitral awards offer interpretation about the scope and effect of right to regulate. importantly, a combination of these sources has shed light into the legal position of right to regulate in tanzania, including its challenges and prospects. 2.1 historical context tanzania is rich in minerals, petroleum and natural gas deposits ranking fourth in africa in terms of diversity and richness of such natural resources. presence of vast mineral resources raises the potential to achieve economic prosperity and sustainable development. (andilile et al, 2019) however, the impact of natural resources in transforming social and economic development in tanzania has always been a far cry. even though trade and investment impact from natural resource industry has potential to transform the economy and sustainable development prospects at large, everything boils down to and depends on, the nature of management and governance framework, particularly, the design of the legal framework. (bishoge et al, 2018 : 16) in that regard, domestic law assumes an important role of trying to balance competing twin goals of promoting or increasing transnational trade and investment while spontaneously pursuing public welfare goals in natural resource industries effectively. in trying to achieve this delicate balance, there is a pressing need for recipient-developing countries to have sound legal principles that can regulate investment activities in a way that can encourage positive impacts (economic development) while mitigating and managing negative impacts in terms of environment or human rights. (mayne, 1999) structural reforms of 1990’s in tanzania, pioneered by world bank, meant to galvanize the mining sector. these reforms were contained in the africa strategy for mining technical paper of 1992. the reforms ushered in neoliberal ideology which is about liberalisation of economy and promotion of private investment. (society for the right to regulate in natural wealth and resources in tanzania: challenges and prospects 63 international development, 2009) however, while these reforms saw increased levels of exploration and mining activities, there were dissatisfactions over the impact of the reforms in tanzania. such reforms are touted to have overly-liberalized the legal regime at the expense of public interests. for instance, the mineral sector development programme and the 1992 report discouraged use of local content strategically for employment generation. as such, the subsequent mining act of 1997 had no references regarding local content. in contrast, generous incentives to investors were offered. these include exemptions from a wide range of taxes like value added tax or duty exemptions, 5 year tax holiday, favourable concessions, 100 percent transferability of profits, 100 percent foreign ownership, and from environmental impact assessment. similarly, the tanzania investment act of 1997 was also hugely pro-investor at the expense of public interest goals. (society for international development, 2009) as a result, this dispensation is argued to have caused low social and economic contribution of the sector to gross domestic product. this led the government to revise its mineral policy in 2009 and it culminated in the amended mining act of 2010. the revised mining act of 2010 sought to secure more benefits to local community. in particular, it had new provisions around local content, benefication and increased participation of tanzanians, linkage of investments with local community through corporate social responsibility (csr) programs. (institute for human rights and business, 2016) apart from shoring up extractive resource management, increased conditions were also put relating to plan for relocation, resettlement and compensation of local communities. (institute for human rights and business, 2016) however, despite the act reinstating local content requirements plus other changes, progress in these areas was still nonetheless unsatisfactory. there were still persistent complaints about the industry. local communities still held the belief that investments are not of benefit to the country, due to transferring of resources elsewhere but having limited social and economic impact in the country. these complaints were met by adoption of corporate social responsibility initiatives in mining companies. (kinyondo and villanger, 2017) lessons learnt from the mining sector were implemented in the natural gas policy of 2013 and subsequent legislations concerning oil and gas. for example, informed by the gas policy, the 2015 petroleum act was enacted to regulate the petroleum sector. further three new acts were passed in 2015. these include the petroleum act, the oil and gas revenue management act and the tanzania extractive industries (transparency and accountability) act. new local content rules, csr initiatives, new safety and environmental principles were all taken into account in these new acts. (andilile, et al, 2019) however, these changes were still deemed insufficient. there were still dissatisfactions over the contribution of the mineral sector to social and economic wellbeing of communities. it is argued that, while previous legislations in mining sector were enacted in response to investors’ concerns, legal reforms in the natural wealth and resources from 2015, especially in 2017 were done in response to “the need to protect public interests, including participation ownership, governance and of the management of expectations.” (ovadia, 2019) hence, out of the need to ensure that mining investments benefit tanzanian communities more, tanzania overhauled its laws in 2017 through enactment of the permanent sovereignty act, the review act and the written laws (miscellaneous amendments) act 2017. the overall aim of passing these laws was to protect interests of tanzanian citizens by increasing government control or regulatory power over investment contracts and mining. collectively, the new acts sought to promote and safeguard the interests of the people. (andilile, et al, 2019) 2.2 the right to regulate under natural wealth and resources’ reforms of 2017 significant reforms concerning natural wealth and resources, especially mining, were made in 2017 when three new acts were enacted, namely, the permanent sovereignty act, the review act, and the written laws (miscellaneous amendments) act of 2017. these reforms not only embody domestic regulation of natural resources but they also have legal provisions implicating right of states to regulate. (masamba, 2017) 2.2.1 recognition of the principle of permanent sovereignty over natural resources the 2017 reforms have been premised on principle of permanent sovereignty over natural resources. this principle is recognized under preambles of both the permanent sovereignty act and the review act. these two acts recall the united nations (un) general assembly resolution 1803 (xvii) of december 14, 1962 which specifically recognises rtr in accordance with national legislation and international law. in addition, resolution 2158 (xxi) together with the charter of economic rights and duties of states premised the scope of rtr on local laws and naufal kitonka & ferdinand marcel temba 64 regulations, and on national objectives and priorities. therefore, by recalling these united nations resolutions, tanzania has premised or domesticated the right to regulate on permanent sovereignty act and the review act. according to the sovereignty act, the right to permanent sovereignty resides in the people but the president holds in trust the natural resources on behalf of the people. under these general powers to protect rights of citizens or secure benefits of the people, the president is empowered to impose environmental regulatory measures or pass legislations which seek to impose human rights obligations to private actors to respect human rights in exploitation or management of natural resources. 2.2.2 review of state-investor contracts in pursuance of permanent sovereignty, it is prohibited to enter into agreements concerning natural wealth and resources without seeking approval of national assembly and securing interests of citizens. in this regard, the parliament as a legislative organ of the government is empowered to review all agreements relating to extraction and exploitation of minerals such as mineral development agreements. conversely, this role of check and balance was previously absent whereby a minister responsible for mining could enter into agreements under confidential and indeed suspect circumstances. (suedi, 2018) currently, though, the minister has been stripped of powers to enter into mineral development agreements. conclusively, the net effect of these provisions is said to secure interests of citizens through public participation, transparency; accountability; identifying terms contrary to best interests of people and alleviating irregularities which are inimical to the interests of local community and the state at large when entering into mineral development agreements. 2.2.3 renegotiation of “unconscionable terms” part ii of the review act contains a rebuttable presumption that all agreements concerning natural wealth and resources are concluded in good faith and have interests of the people in heart. thus, in asserting permanent sovereignty, the review act empowers parliament to review and renegotiate all agreements that contain unconscionable terms. such “unconscionable terms” have been defined to mean terms inconsistent with “good conscience” and terms that are inimical to the interests of the people if implemented. as such, provisions that can be deemed unconscionable include those the limit the right of states to regulate foreign investment, exercise full permanent sovereignty, restricting periodic review of contracts, depriving citizens economic benefit and provisions undermining environmental protection measures. in effect, such unconscionable terms are subject of review by parliament. in reviewing such contracts, the parliament can remedy contracts that are “prejudicial to state interests or interests of the people.” similarly, the minister has been stripped of powers to enter into mineral development agreements. all prior mineral development agreements that might have been entered into by the minister remain in force but are now subject to the provisions of the review act. this means that where such terms of the agreement are deemed unconscionable then they are subject for review. thus, it is argued that this new dispensation aims at preventing corruption and secrecy in negotiating and entering into natural resource contracts. overall, this enhanced transparency is aimed to promote sustainable development in mining through having contracts whose legal terms and conditions are more transparent. in effect, this ensures not only that local people benefit more from the presence of mines but also that mining investments contribute more to growth domestic product (gdp) economic well-being. (ombella, 2018). 2.2.4 prohibition of stabilization clauses the miscellaneous amendments act prohibited the use of stabilization provisions in mineral development agreements. these include provisions that have the effect of freezing of laws or chipping away of state sovereignty for the life time of mine. instead, acceptable stabilization clauses are only those that are “specific, time-bound, based on an economic equilibrium equation and make room for occasional renegotiation. ” the overall aim of these legal provisions is to insulate the government from lawsuits if and when it passes legislative measures promoting public interests like healthy environment or water but which incidentally affect mining companies. 2.2.5 explicit human right and environmental provisions even though new legislative reforms do not contain an explicit and stand-alone right to regulate, there are explicit human right and environmental provisions which nonetheless implicate right to regulate. for instance, the natural the right to regulate in natural wealth and resources in tanzania: challenges and prospects 65 wealth and resources (permanent sovereignty) (code of conduct for investors in natural wealth and resources) regulations of 2020 is conscious that: due care shall be exercised by an investor to avoid being complicit in basic rights violations committed by third parties or affiliate of the investor, and where there is reasonable suspicion that a third party or affiliate of the investor is committing basic rights violations, the investor shall endeavour to promptly address the situation and report to government authorities. further, the natural wealth and resources regulations have included provisions requiring investors to respect human rights and to comply with domestic policies and laws. the regulations further prohibit conducts such as corruption or economic and organised crimes, conflict of interest and adverse impacts on environment. in that regard, the regulation on code of conduct for investors is conscious of the need of states to protect legitimate public interests. another local mechanisms in which the law safeguards right to regulate is by requiring an applicant seeking grant of prospecting license to submit a statement of integrity pledge. a statement of integrity pledge seeks to commit holder of propsective licence not to cause “losses, injuries or damages to environment, communities, individuals and properties that may be occasioned in the course of carrying out mining operations and/or activities” therefore, these domestic initiatives constitute part of a rethinking of host state policies meant to regulate foreign investment and ensure that investment benefits citizens. 2.2.6 limiting access to international arbitration the preceding features of the reforms have mainly been about substantive provisions of safeguarding rtr. apart from these substantive requirements, the 2017 reforms also changed procedural framework relating to access to international arbitration. in this regard, the “permanent sovereignty act” discourages foreign investors from resorting to international arbitration as an investment dispute resolution mechanism. foreign investors in natural resources are banned from instituting arbitration proceedings before any foreign court or tribunal. these foreign courts or tribunals have been interpreted to mean judicial bodies not necessarily established in tanzania. the legal effect of these provisions could be interpreted as changing the arbitration seat to tanzania. it is argued that if mineral development agreements signed by tanzania and investors provide for tanzanian law as the law governing the dispute then arbitration will be conducted in tanzania as its seat and the law applicable will be tanzanian law. in this instance, foreign investment disputes with local seat clauses fall within the procedural requirements of these provisions in the sense that a tribunal sitting in tanzania is not a foreign court and is not applying foreign law. (luttrell, 2018). the overall aim of employing this legal mechanism is to safeguard regulatory powers of the state by shielding the state from exposure to investment claims aimed at challenging regulatory measures of the state. 3. challenges of safeguarding right to regulate notably, tanzania has made conspicuous and deliberate efforts in trying to insert provisions implicating right to regulate under natural wealth and resources legislations. however, safegurading the right is far from certain. as this coming section shows, there are still challenges going forward. 3.1 inconsistency between domestic laws and bits the main legal issue in safeguarding right to regulate in tanzania is inconsistency between tanzania’s domestic investment laws and provisions of bilateral investment treaties (bits). bits which are still in force in tanzania include those with ; germany (signed in 1965), united kingdom (signed in 1994), denmark (signed in 1999), finland (signed in 2001), italy (signed in 2001), switzerland (signed in 2004), mauritius (signed in 2009), china (signed in 2013), and canada (signed in 2013). (unctad, 2023) out of all these bits, it is only bits with canada and china that contain progressive features implicating right of states to regulate and thereby preserve regulatory space. as such, it can safely be concluded that the rest of bits are overly-protective of investor interests than state’s interest or right to regulate. 3.1.1 inconsistency regarding substantive standards generally, tanzanian bits do not contain a stand-alone general right to regulate which categorically empowers state to take regulatory measures to protect environment or human rights. such kind of provisions would have removed naufal kitonka & ferdinand marcel temba 66 ambiguity as to the extent to which parties may use the rtr as a principle to justify measures that may erode economic value of investment. (giannakopoulos, 2017) in contrast, however, bits with canada and china contain some provisions implicating right of states to regulate. for instance, article 10 of china-tanzania bit states that contracting parties “should not relax domestic, health, safety or environmental measures just so as to encourage investment.” this article also empowers host state to adopt regulatory measures necessary to protect the environment. rtr is also recognized under article 15 of canada-tanzania bit on health, safety labour and environmental measures. this article contains similar wording to that of china-tanzania bit by discouraging measures which seem to relax environmental standards. on top of these provisions, these bits also contain not only standalone general exception clauses but also contain carve-out options/exception clauses under individual substantive standards. by carving out some limitations or exceptions to investment standards, the state promotes legitimate purposes within the right to regulate principle. short of these provisions, states can be sued for taking these regulatory measures when such measures reduce economic value of investments. (chi, 2018 :59-61). therefore, while domestic laws have provisions implicating rtr, some of tanzanian bits are silent on rtr. such bits are not in sync with domestic investment laws. given the propensity of bits to constrain policy space, the bit network in tanzania is a hindrance to the implementation of domestic natural resource reforms. as such, tanzania may end up facing claims by foreign investors based on provisions of bits. this is especially so given that the bit regime is a system used by foreign investors to seek protection against normal and legitimate regulatory change. legitimate regulatory measures such as non-renewal of environmental permits, revocation of licenses can therefore be challenged under international arbitration. (sornarajah, 2015) indeed, tanzania has faced or is still facing investor claims following natural welath and resources’ reforms of 2017. for example, following the mining (mineral rights) regulations of 2018, all retention licences issued prior to 10 january 2018 were cancelled/revoked. even though retention licences are nolonger issuable under mining law, right holders of prospecting licences can still apply for mining licences in their stead. (fin & law, 2020) nonetheless, implementation of such measures could potentially expose tanzania to investor claims for violations of investment treaty standards. indeed, after cancellation of such licences, the mining commission advertised new tenders in respect of areas previously covered under the very retention licences. this was allegedy done without making it mandatory to compensate previous owners of retention licences. consequently, ntaka nickel holdings ltd located in nachingwea sued tanzania in the case of nachingwea and others v. tanzania for breach of expropriation clause and fair and equitable clause under united kingdomtanzania bilateral investment treaty. (indiana resources, 2020) cancellation of such retention licences is also subject of another lawsuit in winshear v. tanzania. in this case, the investor claims such regulatory measures amounted to expropriation of its smp gold project. the dispute is based on tanzania-canada bit of 2013. this dispute is still pending. another case pending in court is that of montero mining v. tanzania. apart from these cases, another case concerns ecoenergy africa v. tanzania. in this case, eco energy invested on land to grow sugarcane and process sugar for exports as well as produce ethanol in bagamoyo. concerns over this project were raised in january 2015 when a tanzanian parliamentary special committee on land, natural resources and environment reported that 3,000 hectares of the project land were allocated within the national park. further, local activists disputed the relocation of land and compensation for farmers. local activitsts opposed the project on grounds of land-grab by specifically alleging forced eviction owing to the fact that the investor failed to obtain free and informed consent of communities and that communities were not fairly and properly compensated. the project stalled due to these disputes. finally, the government revoked the land lease in a bid to protect a wildlife sanctuary and concerns over human rights impact on local communities. dissatisfied with this move, the investor brought an investment claim against tanzania, the claim is based on sweden-tanzania bit (1999). in sunlodges v tanzania case, the government is alleged to have seized investor’s land which was used for cattle farming activities. the objective of this measure was to build power station and a cement works. the claim was based on italy-tanzania bit (2001) which incidentally does not contain provisions implicating rtr. tanzania was found liable. in ayoub-farid michael saab v. tanzania , the bank of tanzania revoked banking business license of a commercial bank co-owned by the investor, federal bank of middle east, after united states financial crimes enforcement network accused the bank of international money laundering and financial terrorism and other financial crimes. the case has since been discontinued. by taking these regulatory measures, tanzania was challenged by foreign investors for violating investment protection standards. these cases evidence that tanzania can still face the right to regulate in natural wealth and resources in tanzania: challenges and prospects 67 investor arbitration lawsuits on the basis of provisions of her bits. it is therefore important that tanzania bits should be in sync with domestic investment laws. tanzanian bits also contain certain provisions which are known as "umbrella clauses." these clauses “oblige the host state to observe any obligation it may have entered into with regard to investments of nationals or companies of the other state.” (dolzer, 2005) for example, article 2(2) of the uk-tanzania bit contains an umbrella clause. usually, these specific undertakings are in the form of investor-state contracts or mineral development agreements (mdas). tanzania has signed mdas with both barrick gold at north mara gold mine and anglo-gold ashanti. these were signed in 1999. tanzania has signed four other mdas with other gold mine operators. a key feature in all these agreements is stabilisation clauses. (muganyizi, 2012 : 12) where an arbitral tribunal regards the legal effect of breach of umbrella clauses to automatically mean a breach of the bit itself, such as in sgs v. philippines, then tanzania’s regulatory measures aimed to protect host states’ and local community rights are exposed to international arbitration. through this line of thinking, even where tanzania regards stabilisation clauses signed with a british investor as expunged, the legal effect of umbrella clauses in tanzania-uk bit has it that tanzania will still be regarded to have violated provisions of a mineral development agreement which contains a stabilisation clause. as such, it is possible that “unilateral change of existing contracts may be lawful under domestic law and yet still give rise to international responsibility under international investment protection treaties.” (luttrell, 2018). consequently, where mineral development agreements contain stabilisation clauses, tanzania could be exposed to investor claims for breach of investor-state contracts despite the fact that such clause are prohibited under domestic laws. 3.1.2 inconsistency regarding investment disputes settlement provisions the provisions of the “permanent sovereignty act” and review act contradict provisions of bilateral investment treaties which subject investment disputes to international arbitration under international convention on settlement of investment disputes (icsid). tanzania is a party to the icsid convention since 17 june 1992. it follows therefore, that where a mineral development agreement contains a mixed clause calling for application of local law and “principles of international law” then an investor can have leeway to file claims for damages by invoking provisions of bilateral investment treaties (bits), which, in this case, are part of “international law.” accordingly, tanzania cannot be successful in insulating herself from international arbitration. this is mainly based on the principle that “no state party can rely on its own legislation to limit the scope of its international obligations.” (luttrell, 2018).where investors rely on this legal argument, tanzania can still face lawsuits under an “arbitral tribunal constituted under an applicable bit.” (luttrell, 2018). a good example is the fact that tanzania is still facing lawsuits over cancellation of retention licenses. therefore, if tanzania chose this approach so as to safeguard her regulatory space, then this will boil down to how it implements the new laws. the manner of implementation will shed some light on the effectiveness of this new approach. the fact that tanzania has amended section 11 of sovereignty act to read, “judicial bodies or other organs in tanzania but not necessarily established in tanzania” seems to lend credence to the preference of african focused international arbitration or dispute resolution. this opens room for mauritius and south african rules of international arbitration. preference for african centres of arbitration is festered on the belief that “centres founded and located conveniently within africa acknowledge current levels of socioeconomic development of african states.” (suedi, 2020).this is something international arbitration centres may fail to do. however, tanzania’s dispute with barrick gold resulted into a settlement agreement and establishment of a new company called twiga minerals. one of the terms of the agreement is that, for future disputes, the parties will use uncitral conciliation rules and/or uncitral arbitration rules. further, according to the resolutions, the seat of arbitration proceedings will not be tanzania, other east african community member states, canada, the united kingdom or the united states. this appears to be contrary to what the sovereignty act provides. suedi reckons that, “this may set precedent for other companies with mining development agreements pre-dating the act to request similar terms from the government.” (suedi, 2020) conclusively, the legal position will become clearer as developments in this area unfold. naufal kitonka & ferdinand marcel temba 68 3.2 inconsistency of interpretation approaches by arbitral tribunals in investment claims, including those that tanzania is currently facing, the difficulty lies in striking a balance between normal regulatory activity of host state and the need to preserve stability or economic value for investors. the line between political risk and business risk is always blurred. measures pursuant to rtr have been challenged and adjudged as violations of investment treaty standards. the way in which arbitration tribunals decide investment disputes tend to further blur this line. some cases have others have focused on deprivation of economic value of investment as a sole/single determinant factor in assessing liability of states and thereby award compensation to investors regardless of bonafide reasons of state behind regulatory measures. (schacherer, 2016) this line of jurisprudence is led by the santa elena award, where it was stated that : expropriatory environmental measures – no matter how laudable and beneficial to society as a whole – are, in this respect, similar to any other expropriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains. however, another line of jurisprudence considers police powers doctrine as relevant criteria in assessing liability of states for regulatory measures. for example, in chemtura v. canada, the use of pesticide called lindane was banned by canada. this, however, negatively affected the claimant’s business. in assessing the claim, arbitrators stated that “irrespective of the existence of a contractual deprivation, the state took measures within its mandate, in a nondiscriminatory manner, motivated by the awareness of the dangers presented by lindane for human health and environment.” in similar vein, glamis, saluka and marvin feldman recognized the rtr doctrine. in effect, these cases advance the legal position that governments should be absolved from liability if they act in pursuance of bonafide public interests like “protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions and the like.” indeed, one of the most progressive approaches was taken by the methanex corp. v. united states. in this case, the tribunal adopted the traditional police powers carve-out on regulatory measures by holding that, if “done in a non-discriminatory way, for a public purpose and in accordance with due process, should not be deemed to be expropriatory in the first place and hence compensable unless the host state government had made specific commitments that it would not take such regulatory measures.” in that regard, due to these contrasting approaches, it is difficult to tell exactly when states will be challenged for unfair action or legitimate regulation. this is especially concerning due to the fact that there is neither application of doctrine of precedent nor appeal mechanisms in investment arbitrations. as such, cases with similar facts can be decided differently. for instance, lauder v. czech republic and cme v. czech republic had similar issues emanating from same set of facts but tribunals reached two different conclusions as to whether czech republic was liable. cme found liability while lauder found no liability. similarly, the bilcon award took note of the need to uphold right of states to regulate for environmental purposes including conducting environmental impact assessment so as to balance economic development and environmental integrity. nonetheless, broader public policy concerns were not taken into account in assessment of legitimate expectation. this signifies that there are unpredictable interpretative outcomes by arbitral tribunals. accordingly, rtr is thrown into uncertainty as it is difficult to differentiate exactly when right of states to regulate will be given due consideration or not. 4. prospects host states can take heart from the fact that new wave of recent cases is beginning to recognize and uphold rtr so long as such regulatory measures are bonafide, non-discriminatory and proportional to state goals. more importantly, provisions implicating right of states to regulate are beginning to have some influence in investment arbitrations. indeed, the al-tamimi v. oman case, based on the oman – united states free trade agreement, contained an environmental policy reservation provision under article 10.10 of the treaty. the treaty also contained a stand-alone environmental clause under chapter 17. the tribunal resorted to both language of treaty implicating rtr and domestic environmental regulation. it was held that since the conduct of oman was to enforce national regulations to protect the environment, the impugned conduct was held to be in good faith, bonafide and nondiscriminatory. (schacherer, 2016) the case of bear creek v peru also illustrates the importance for investors to conduct public participation and outreach with local community. this should be done in order to ensure local community’s opinions and perspectives are taken into account in the investment project. the right to regulate in natural wealth and resources in tanzania: challenges and prospects 69 under recent cases, the award in philip morris v. uruguay is very progressive in that it recognized the rtr based on principle of a wide margin of appreciation for states. the tribunal was of the view that where a regulatory measure attempts to address public concerns such as health and the measure is reasonable or is taken in good faith, then that is sufficient to shield a state from treaty responsibility. the tribunal held that such normal and legitimate regulatory measures should not be regarded as violation of legitimate expectation provided there is no violation of commitment specifically assumed by the state. as such, the tribunal affirmed the police power doctrine. (schacherer, 2016 :43) in particular, it was stated that, “manufacturers and distributors of harmful products such as cigarettes can have no expectation that new and more onerous regulations will not be imposed and certainly no commitment of any kind were given by uruguay to the claimants.” however, it has been cautioned that, “it is not clear whether the same approach would be taken with respect to other areas of public health or environmental protection, where the scientific evidence and consensus are not as clear and where no international legal frameworks like the world health organization’s (who) framework convention on tobacco control (fctc) exist.” (schacherer, 2016) 5. conclusion this study has examined the legal position of rtr in tanzania amidst legal reforms of 2017 concerning natural resources. the review of these domestic investment laws reveals many statutory provisions implicating rtr such as recognition of doctrine of permanent sovereignty over natural resources, review of state-investor contracts by national assembly, renegotiation of contracts on grounds of unconscionable terms, prohibition of stabilization clauses and express inclusion of human rights and environmental provisions. however, a further review of investment treaties entered into by tanzania and analysis of arbitral awards reveals that implementantion of these regulatory reforms might be at odds with investment treaties by tanzania. in particular, these reforms might be at odds with some of the restrictive interpretation approaches adopted by arbitral tribunals towards rtr. this study, therefore, shows that majority of investment treaties entered by tanzania are not in sync with domestic investment laws in regards to having provisions implicating rtr. this exposes tanzania to international arbitration of investment disputes. it is, therefore, recommended that in order to safeguard rtr, tanzania should review its investment treaties so that they are in line with domestic investment laws. this is especially important given that some arbitral awards such as philip morris award and al-tamimi award are beginning to recognize and take rtr into account in their assessment of investment treaties. references andilile, j., odd-helge, f., and donald m., (2019), ‘the legislative landscape of the petroleum sector in tanzania’ in odd-helge, f., etal. 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97-109 97 challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania yussuf ali masoud college of business education (cbe), tanzania received: april 06, 2022 accepted: may 14, 2022 published: june 01, 2022 abstract: despite the government of tanzania's multiple measures to combat the coronavirus epidemic, there is still a lot of misery and human death that is recorded from time to time. the goal of this research was to determine the role of coordination, transportation, and information and communication technology in the performance of humanitarian operations during the coronavirus pandemic and to give recommendations for how to improve it. the data was collected via a questionnaire from a sample of six referral hospitals in dar es salaam and the coastal region using quantitative methodologies and an explanatory research methodology. using descriptive data analysis, the mean and standard deviation of the findings were computed, and the data was then summarized using frequency distribution tables before being analyzed using a multiple regression model. all independent factors demonstrated a significant positive relationship with humanitarian relief performance, including coordination, transportation, and information communication technology (p0.05). for better humanitarian relief operation performance, the study recommended that referral hospitals management ensure that there are adequate facilities for distribution of relief requirements, the required materials/ facilities arrive on time, and adequate ict facilities for coordination of all stakeholders in the relief operation. keywords: coordination, transportation, information communication technology, humanitarian relief performance 1. introduction recently, the world has experienced various types of disasters causing widespread devastation and suffering among people. some, like the 2004 tsunami, haiti's earthquake in 2010, typhoon haiyan in the philippines in 2014, and the japan earthquake in 2017, are natural disasters (bai, 2018). other man-made calamities include the 2020 beirut explosion, the 2001 world trade center explosion, and others (ab malik et al., 2020; pasman et al., 2020). the severity of the misery and destruction wrought by these disasters varied depending on the type. there are some that affect a small area of the planet and those that affect the entire world, such as the current coronavirus pandemic (khan et al., 2020). whatever the scale of the crisis, humanitarian logistics are critical, as disaster management relies heavily on numerous logistics activities, including transportation, coordination, information exchange, warehouse operations, inventory management, and so on (ab malik, et al., 2020). humanitarian logistics, according to (ab malik et al., 2020), is the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods and materials, as well as associated information, from point of origin to point of consumption in order to alleviate the suffering of vulnerable people. additionally, they stated that it entails planning, procurement, transportation, warehousing, tracking and tracing, as well as customs and clearing, therefore, humanitarian logistics is crucial in ensuring that the afflicted community obtains the necessary supplies at the appropriate time and location in order to reduce the disaster's impact. this can be accomplished by having sufficient planning and cooperation among all supply chain players (saab et al., 2013). effective humanitarian logistics is very crucial in combatting effects caused by all sorts of disasters including health related ones like covid19 pandemic due to its nature of spreading and ways of controlling it (sanchez, 2020). the coronavirus pandemic is a global tragedy that has killed thousands of people and impacted global economic activity (sanchez, 2020). the pandemic is especially hazardous since it is so easy to spread from person to person, even if infected people don't yussuf ali masoud 98 show any symptoms (bai et al., 2020). its occurrence as other kind of disaster had not been predicted previously. it started in wuhan, china, with a few cases, but after a few weeks, it had spread all across the world (sin et al., 2020). because of its impact on economic and social contexts, it raises concerns about the global efforts of all stakeholders to battle it, with humanitarian logistics serving as a steering wheel for the entire humanitarian relief process (ab malik et al., 2020) as previously stated, humanitarian logistics plays a critical role in the design, implementation, and control of relief efforts. once the humanitarian logistics have been properly planned and organized, the process of transporting medicine, commodities, and supplies from the point of origin to the crisis area in order to alleviate the suffering of the disaster's victims is monitored by the humanitarian logistics (thomas, 2003). wankmüller (2020) notes that uncoordinated leadership, inadequate communications, insufficient planning, resource constraints, and poor public relations are all characteristics of nearly all disaster operations, resulting in recorded inadequacies. as a result, collaboration among all stakeholders is critical if these issues are to be resolved (sahay et al., 2015). governments, humanitarian agencies, donors, non-governmental organizations, and commercial firms must collaborate to capture and manage disasters (kovács & spens, 2007; nillson et al., 2010; akhtar et al., 2012). through effective coordination, all parties' roles and responsibilities are clarified, and a common understanding of how to conduct operations is achieved. divergent perceptions among partners may exacerbate the disaster's magnitude rather than alleviate it (panda, 2012). aside from the significance of excellent coordination in humanitarian aid, one of the most significant functions in the course of a humanitarian relief operation is transportation. there is a great deal of transportation of products and materials, including medical supplies and foodstuffs, from one location to another in disaster management (shin et al., 2020). in this pandemic, for example, infected persons must be gathered from their homes and transported to specially equipped health centers. not only that, but medical equipment and facilities, including as overall protection gear, ventilators, masks, and gloves, are in great demand and must be distributed from manufacturers to various medical facilities and health centers (shin et al., 2020). regrettably, the imposition of lockdown as one of the disease's containment strategies in some nations renders the entire supply chain impractical (singh et al., 2020). furthermore, the situation is exacerbated in many underdeveloped countries, where roads are inaccessible, particularly during rainy seasons, hampering the transportation of medicine and other essential services to remote areas. small trucks and aircraft are needed in this situation for distribution in such remote places, whilst larger vehicles can only be employed in close proximity (kovas and spens, 2009). however, in many areas, a lack of or inappropriate addressing complicates an effective response to medical emergencies (kovas and spens, 2009). additionally, effective communication among all stakeholders is critical during humanitarian assistance operations. the use of information and communication technologies (ict) can contribute to the effectiveness of the relief effort. the ndrf's use of google crisis mapper, person finder, and unmanned aerial vehicles (uavs) to locate marooned persons in remote locations where roads had been washed away due to the 2013 floods in uttrakhand exemplified the effectiveness of these approaches (salay et al., 2016). in nigeria, (fonkam and ukpe, 2013) noted the same thing, stating that using ict for crisis management is extremely beneficial because information systems enable more flexible emergency response. unfortunately, reliable internet access continues to be a barrier in the vast majority of developing countries (bali et al., 2016). the majority of municipalities do not have supported facilities, which include ict infrastructure in addition to transportation-related assets, and this is particularly true in rural areas (kaba, 2007; osei-akom, 2007). according to (bealt, 2016), a lack of adequate information technology systems leads to insufficient information sharing, limited collaborative effort, and, as a result, redundancy of efforts in the workplace. regrettably, one of the most critical challenges in combating the pandemic was a lack of co ordination among east african countries (saleh, 2020). according to (dan and aikande, 2020), the tanzanian government used a different approach to pandemic control than the rest of east africa. in tanzania, for example, there were no curfews or restrictions on movement, and citizens were urged to pray to god for relief, undergo fumigation, and use traditional medicine. other east african neighbours, such as kenya and uganda, have imposed restrictions and lockdowns (african news, 2020; devermont & harris, 2020). on the transportation of materials from tanzania to other east african countries, some tanzanian drivers who wanted to cross borders to other east and central african countries were tested positive and were supposed to be quarantined for 14 days, causing delays and late deliveries of materials to final customers (nakkazi, 2020). in terms of information technology, most tanzanian societies, particularly in rural challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania 99 areas, are opposed to internet connectivity. this makes it difficult for them to communicate in a dependable and efficient manner (mgema and komba, 2020; ngwacho, 2020). as a result, the goal of this article was to discover how coordination, transportation, and ict affect humanitarian logistics in this covid-19 pandemic, as well as to provide potential solutions that would lead to more successful humanitarian logistics in the future. 1.1. statement of the problem the world is at a perilous crossroads, with covid-19 spreading at an alarming rate on a daily basis. the loss of human life and economic damage caused by the pandemic have reached an alarming level on a global scale. over 1.5 million people have died, over 64.5 million have been infected, and numerous manufacturing activities have been disrupted globally (who, 2020). governments and other developing partners around the world have made numerous attempts to contain the pandemic due to its enormous impact. un agencies, who regional offices, and non-governmental organizations (e.g., international committee of the red cross, médecins sans frontières) have been at the forefront of humanitarian assistance. they have assisted and continue to assist in a variety of countries, including providing staff training, developing case management and hospital readiness protocols, and supplying testing kits and pcr machines (karamouzian & madani, 2020). governments worldwide have implemented a variety of preventative measures, including a complete lockdown (in which all events are suspended, schools are closed, non-essential shops are closed, non-essential movement is prohibited, and land borders are closed), the wearing of masks, and hand washing. 1.2. main objectives to determine the factors affecting efficient humanitarians logistics toward combating covid 19 pandemic in tanzania. 1.2.1. specific objectives i. to determine the role of coordination among partners of humanitarian logistics towards combating the covid-19 pandemic in tanzania. ii. to determine the influence of transportation on efficient humanitarian logistics toward combating the covid-19 pandemic in tanzania. iii. to determine the role of information communication technology in efficient humanitarian logistics toward combating the covid-19 pandemic in tanzania 1.3. significance of the study this research is significant as it will contribute important solutions to difficulties that result in inefficient humanitarian logistics in the fight against covid 19. covid-19's spread, as is well known, is a global overarching issue owing to its impact on human lives and overall economic ruin around the world (sanchez, 2020). 2. literature review 2.1. role of coordination on humanitarian logistics coordination, according to (malone and crowstone, 1990), is the act of managing the interdependence of activities performed to accomplish a goal. this definit2.ion exemplifies the interdependence of disaster relief organizations and all responding organizations, all of which share the common goal of saving lives. sanchez (2020) demonstrates that, while all stakeholders in disaster relief share a common goal, their backgrounds, experiences, and perspectives vary. to avoid confusion, contradiction, and duplication of effort, effective coordination is required, in which each stakeholder has well-defined, well-defined, and well-known roles from the perspective of the other stakeholders. additionally, effective coordination benefits logistics operations by allowing for the sharing of experiences and knowledge, which increases efficiency, reduces costs, improves quality, and increases the flexibility and speed of operations (bealt et al., 2016). coordination, according to (gazley and brudney, 2007) can result in a variety of benefits, including cost savings, improved service quality, organizational learning, access to new skills, risk diffusion, enhanced public accountability, the ability to buffer external uncertainties, and conflict avoidance. yussuf ali masoud 100 coordination can be classified as horizontal or vertical. horizontal coordination entails relationships within an organization or community; vertical coordination entails relationships between two or more organizations that share responsibilities, resources, and performance data in order to serve relatively similar end customers (kaynak & tuer, 2014). however, in all forms of coordination, an effective communication system is critical. to avoid confusion, information should come from a single well-known source. electronic coordination and communication systems are more efficient than manual coordination systems, which have a high rate of failure due to their slow response times when dealing with victims. therefore, the coordination process should be aided by an integrated information system (handayani and mustikasari, 2018). the experience in japan in 2010 demonstrates that the disaster management process failed due to insufficient coordination, which was exacerbated by a lack of political leadership, a delayed response by government and nongovernmental organizations to disaster relief, some military constraints, and an inefficient communication system (panda, 2012). the absence of adequate coordination among humanitarian aid partners is felt in many ways in the wake of the worldwide calamity caused by the coronavirus epidemic. for example, there is a global inconsistency in the use of proper drugs for disease therapy. while president trump advocated the use of chloroquine for his population, european countries objected (yazdany & kim 2020), and in african countries, the use of traditional medicine is common (temesgen et al., 2020), which was questioned by who because it had never been approved. furthermore, the use of some protective equipment, like as masks, varies from country to country. while some countries (like as singapore) advocated for the use of masks by all citizens, others advised that such masks be worn exclusively by sick people (ohanube, 2020). in addition, when the pandemic initially emerged in china, the united states expressed concern to who about how it handled the situation. as a result, it cut off all financial support to who, which had a significant impact on worldwide efforts to combat the illness (fong & devanand, 2020). poor coordination, such as that which is currently being experienced around the world in dealing with the corona virus, may result in the pandemic becoming resistant and thus persisting for a longer period of time, causing more deaths and severe economic destruction around the world (kaynak & tuer, 2020). as commented by (thévenaz and resodihardjo, 2010), a lack of coordination leads to duplication of efforts, inefficient and ineffective resource use, and relief operations that are delayed, slowed, or hindered. 2.2 role of transportation on humanitarian logistics in humanitarian logistics, transportation is crucial. because transportation accounts for a considerable percentage of supply chain expenses and plays a vital role in achieving customers' expectations (on-time delivery, short lead times), effective transportation increases the overall performance of humanitarian relief (balcik et al., 2010). it assists in the transfer of necessary supplies, equipment, and facilities to the appropriate locations. there is a strong demand for transferring people, equipment, and supplies from one location to another during this coronavirus pandemic. it is in high demand to transport health facilities and drugs from a warehouse or manufacturer to hospitals (sanchez, 2010). in addition, patients or dead bodies who have died at home must be collected and prepared for burial (arellanam et al., 2020). however, one of the most difficult challenges for many developing countries is the lack of adequate transportation facilities. not only that, but the road conditions in most parts of the country, particularly during the rainy season are impassable (kovács & spens, 2009). according to namagembe (2019), throughout most of southern africa, assistance distribution is hampered by rough or gravel roads, as well as a lack of or inadequate bridges. vehicle breakdowns and accidents are common due to the status of the road network, which includes several dirt roads (kovács & spens, 2009). this makes the transfer of medicine and other necessities to rural places extremely difficult. because of this gap, controlling the pandemic will be extremely difficult, and the disease will be able to stay in our community for an extended amount of time. also, poor infrastructure and bad house planning also stymie effective humanitarian aid. there is no adequate pass route between residences in most unsurvey locations. as commended by (kovács and spens , 2009) that many regions in ghana have little or no street signs and names, complicating the response to fire and emergency situations. this necessitates the use of drones to deliver medications and other emergency services to residents of inaccessible locations (shavaranim, 2017). challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania 101 2.3 applications of information and communication technologies ict has become a primary asset for information coordination and exchange among stakeholders at all stages of the disaster management cycle (raymond et al., 2015). ict can take many forms, ranging from two-way radios and cell phones to humanitarian web forums and social media sites. these platform features are critical for rapid information transmission during disaster relief efforts (bjerge et al., 2016). the use of information and communication technology (ict) in the fight against the coronavirus pandemic is becoming increasingly critical. it cannot be overstated how critical it is to receive timely and accurate information. different parties could coordinate the humanitarian mission more efficiently through the use of icts (tatham et al., 2017). for instance, by utilizing a warehouse management system and radio frequency identification, such icts assist relief operators in determining demand, tracking order status, and planning an efficient distribution procedure (smith, 2005). other ict applications, such as gps and geographic information systems, are also beneficial during the evacuation. these applications are advantageous for locating patients, particularly those who are concealed or unavailable (tohidi and rustamov, 2020). additionally, effective communication between decision-makers at various levels and operational response teams/personnel on the ground is critical to the success of the humanitarian operation (lal, 2019). however, the availability of information systems and skills are among the key constraints that hinder humanitarian relief in most areas of poor countries, as per experience. according to (thomas and kopczak, 2007), information systemic weaknesses are caused by a lack of available software that can handle humanitarian supply chain operations, unstable internet services, inadequate equipment, and a lack of qualified and competent ict employees. lack of proper it systems, according to bealt et al., (2016), leads to inadequate information exchange, restricted collaboration, and duplication of efforts among partners. poor it infrastructure can also function as a barrier between humanitarian groups and logistical service providers, as shortcomings in this area can result in costly blunders and inefficient time management (bealt et al., 2016). 2.4 performance of humanitarian operations the performance of rescue efforts is a critical component of disaster management. due to the diversity of stakeholders involved in the relief operation, each with their own unique history and experience, the relief operation's execution has become a point of contention (dangi et al, 2012). as a result, those involved in the operation must have well-defined, achievable goals. numerous metrics of relief operation performance have been recognized in studies (beamon & balcik, 2008; bardhan and dangi, 2016), such as relief service coverage, relief chain flexibility, cost, availability of relief services, relief service quality, relief service timeliness, and relief service equity. 3. methodology the study employed an explanatory research design with the goal of establishing a causal link between variables (saunders et al, 2012). this strategy was used to investigate the relationship between independent and dependent variables. six referral hospitals in dar es salaam and the coastal regions were included in the study. the target population consisted of 300 respondents who had participated directly in the covid 19 relief operation. the sample size was determined using a simplified yamane formula of 1967, where n denotes the required sample size, n denotes the target population, and e denotes the level of confidence, which in this case is 5%. 175 respondents were chosen at random from 312 employees using a simple random sampling technique. however, only 152 respondents out of 175 returned completed questionnaires. the questionnaire was self-administered and personally delivered to participants via the drop-off and pick-up method (dopu). the questionnaire gathered biographical information about the study participants as well as information about the procurement performance. the questionnaire items were operationalized using 5-point likert scales ranging from 1 to 5, with 1 indicating strong disagreement and 5 indicating strong agreement. the descriptive and inferential statistics used in this study were both descriptive and inferential. the data were presented descriptively using frequency distribution tables. mean scores with their associated standard deviations were computed for each item and construct. additionally, exploratory factor analysis (efa) was used to ascertain whether previously identified items define a specific construct. at this stage, reliability and construct validity were determined. for each defined construct, factor scores were computed and prepared for use in multiple linear regression analysis. to ascertain the relationship between independent and dependent variables, multiple linear regression analysis was used. the study tested the multiple linear regression model's assumptions of linearity, homoscedasticity, the absence of multicollinearity, and residual normality. (2012) (saunders et al., 2012). yussuf ali masoud 102 the multiple linear regression model that was used is given as follows; y = α + ß1x1 + ß2x2 + ß3x3+ + ɛ. where: y = procurement performance; α = constant of regression; ß = beta coefficients; x1 = coordination; x2 = transportation; x3 = information communication technology; and ɛ = error of regression. 4. research findings and discussion 4.1. demographic characteristics of the respondents the demographic characteristics of the respondents are show in the table 1; table 1: demographic characteristics of the respondents 4.1.1 gender of respondents the gender of the respondents was determined, and the results indicated that 94 (61.8%) of respondents were male and 58 (38.2%) were female. this indicates that the vast majority of respondents were men. 4.1.2 age of respondents according to their ages, the majority of 81 (53.3 percent) were between the ages of 26 and 45, while 34 (22.4 percent) were between the ages of 18 and 25, and 37 (24.4 percent) were between the ages of 46 and 60. this indicates that the vast majority of respondents (77.6 percent) were over the age of 25 and sufficiently mature to participate in the study and provide rational responses. 4.1.3 educational attainment the respondents' educational attainment was analyzed, and it was discovered that 11 (7.2 percent) held a certificate, 38 (25.0 percent) held a diploma, and 70 (46.1 percent) held a bachelor's degree. twenty-seven (17.8%) respondents held a master's degree, while only six (3.9%) held a doctorate. this indicates that the majority of respondents (67.8 percent) were educated beyond a bachelor's degree. variable frequency (percentage) sex male 94 61.8 female 58 38.2 age 18-25 years 34 22.4 26-45 years 81 53.3 46-60 years 37 24.3 level of education certificate 11 7.2 diploma 38 25.0 bachelor 70 46.1 master degree 27 17.8 doctorate 06 3.9 work experience less than 5 years 24 15.8 6-10 years 43 28.3 11-15 years 42 27.6 16-20 year 33 21.7 above 20 years 10 6.6 challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania 103 4.1.4. work experience the study sought to ascertain the work experience of parastatal employees in order to determine the extent to which their responses could be relied upon when drawing conclusions. according to figure 4.1, 24 (15.8 percent) of respondents had between one and five years of experience. slightly more than a quarter of respondents, 44 (28.3 percent), had between 6 and 10 years of experience; 42 (27.6 percent) had between 11 and 15 years; 33 (21.7 percent) had between 16 and 20 years; and 10 (6.6 percent) had over 20 years. 4.2. descriptive analysis 4.2.1. the role of coordination among partners of humanitarian logistics towards combating covid 19 pandemic the respondents were asked to rate their agreement with several statements in order to determine the extent to which coordination among humanitarian logistics partners aids in combating the covid-19 pandemic. table 2 summarizes the responses' averages and standard deviations; table 2: the role of coordination among partners of humanitarian logistics towards combating covid 19 pandemic min max mean std. dev. there are adequate meetings to discuss the relief operation 1.00 5.00 3.33 .77 all stakeholders participate in the decision making 1.00 5.00 3.31 .81 all stakeholders are under the one control 1.00 5.00 3.31 .79 the information on relief operation are disseminated to all stakeholders at the right time. 1.00 5.00 3.32 .80 the respondents concurred that sufficient meetings are held to discuss the relief operation (mean 3.33). this means that all parties involved in the relief effort met to discuss how to respond to the pandemic. additionally, respondents agreed that all stakeholders should be involved in decision-making (mean 3.31). all respondents agreed that all stakeholders are controlled by a single entity (3.31). these findings corroborate those of (panneer et al., 2021), who discovered that china and singapore were able to contain the pandemic due to their use of large-scale coordination as an institutional and timely response, as well as their collaboration with government, industry, banks, and financial institutions, as well as their efforts to promote community resilience. these findings, however, contradict (panda , 2012)'s finding that there was no coordination among the relief operation's partners following the 2010 japanese earthquake. the relief operation became more complicated as a result. finally, respondents agreed that all information regarding relief operations should be made available to all stakeholders at the appropriate time (3.32). this finding is consistent with (handayani and mustikasari's, 2018) observation that effective information sharing facilitates relief operation coordination. 4.2.2. the role of transportation on efficient humanitarian logistics towards combating covid 19 pandemic the respondents were asked to rate their agreement with several statements in order to determine the extent to which transportation as part of logistics operations aids in the fight against the covid-19 pandemic. table 3 summarizes the responses' averages and standard deviations. table 3: the role of transportation on efficient humanitarian logistics towards combating covid 19 pandemic min max mean std. dev. there are adequate facilities for distribution of relief requirements. 1.00 5.00 2.21 1.04 the required materials/ facilities received at right time. 1.00 5.00 2.25 1.07 the road infrastructure facilitates the relief operation. 1.00 5.00 3.90 1.05 the adequate numbers of operators who facilitate the relief operation 1.00 5.00 3.94 1.05 yussuf ali masoud 104 the respondents disagreed that there were adequate facilities for the distribution of relief requirements (2.22). also, the respondents disagreed that the required facilities for relief operations like cylinders of oxygen gas, ventilators, masks, overalls, and sanitizers were not delivered at the right time. this implies that a lack of enough transportation/distribution equipment leads to a delay in the availability of the required materials. however, the respondents agreed that the road infrastructure facilitates the relief operation as it is, in most cases, passable. this finding is contrary to the finding of ( kovas and spens , 2009), who revealed that in most parts of developing countries like ghana, the roads become impassible, especially during the rainy seasons. this may be due to the fact that the study was conducted in dar es salaam and the coastal region, where, to some extent, the road infrastructure was in good condition. lastly, the respondents agreed that there were adequate numbers of operators who could facilitate the relief operation. this implies that drivers and other cargo handling operators were sufficiently trained to undertake the required tasks. 4.4. the role of information communication technology on efficient humanitarian logistics toward combating covid 19 pandemic respondents were asked to rate their level of agreement with several statements in order to determine the extent to which information communication technology aids in the fight against the covid-19 pandemic. table 4 shows the response averages and standard deviations. table 4. the role of information communication technology on efficient humanitarian logistics toward combating covid 19 pandemic min max mean std. dev. there are adequate ict facilities for coordination of all stakeholders in the relief operation 1.00 5.00 2.33 .97 there are ict facilities for planning and distribution of the relief requirements. 1.00 5.00 3.98 1.05 there are ict facilities for the effective sharing of information of all partners of relief operation. 1.00 5.00 3.97 .99 there are ict facilities for decision making on the relief operation 1.00 5.00 3.88 1.07 the findings indicated that respondents disagreed that adequate ict facilities exist to coordinate the efforts of all stakeholders involved in the relief operation (2.33). this means that some health workers may lack access to a computer connected to the internet, which facilitates stakeholder coordination, or may work in areas with unstable and unreachable internet facilities. this finding is consistent with that of bealt et al. (2016), who discovered that many health facilities in the dar es salaam region have internet connectivity. furthermore, respondents agreed that information and communication technology (ict) facilitates the planning and distribution of humanitarian assistance (3.98). additionally, respondents agreed that information technology facilitates effective information exchange (3.97) and, finally, that information technology facilitates decision-making during relief efforts (3.88 ) this finding is consistent with ( tatham et al., 2017), who discovered that utilizing icts increases the efficiency with which various stakeholders coordinate humanitarian operations. 4.5 the performance of the humanitarian logistics the respondents were asked to rate their agreement with several statements in order to determine the extent to which humanitarian logistics performed in combating the covid-19 pandemic. table 5 summarizes the responses' averages and standard deviations. table 5. the performance of the humanitarian logistics min max mean std. dev. the quality of services was of the required standard 1 5 3.87 1.06 challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania 105 there was minimum complaints from the victims/ patients 1 5 3.88 1.08 the affected person received the relief / aid at right time. 1 5 3.88 1.10 the relief operations were conducted at minimum cost 1 5 3.87 1.11 the respondent acknowledged that the quality of services offered by different centers in relation to the coronavirus met the required standard, according to the findings (3.87). furthermore, the majority of respondents (3.88) felt that there were only a few complaints from victims or patients in need of assistance. furthermore, the respondents agreed that the afflicted person received relief services at the appropriate time (3.88), and that the relief operations were carried out at a low cost (3.87). these findings are consistent with those of (bardhan and dangi, 2016) who found that the success of relief operations is largely dependent on excellent coordination, efficient logistics, and effective communication among all relief partners. 4.5. inferential statistics 4.5.1 reliability test to determine the reliability of the study variables, they were subjected to a reliability test. according to sekaran and bougie, the reliability of measurement instruments in this investigation was determined using the cronbach's alpha coefficient (2009). cronbach's alpha of 0.7, the authors assert, indicates the instrument is reliable. the reliability scores for the variables included in this study are as follows: as shown in table 6, coordination is.880, transportation is.850, information communication technology is.832, and humanitarian aid operation performance is.838. as a result, all instruments with variable parameters are trustworthy table 6: reliability statistics variable cronbach's alpha no of items coordination 0.880 4 transportation 0.850 4 information communication technology 0.832 4 humanitarian operation performance 0.838 4 4.5.2 multi-collinearity test result both tolerance and variance inflation factors were used to determine whether the independent variables were correlative. table 7 summarizes the results of the multicollinearity test. table 7: multi-collinearity test results collinearity statistics tolerance vif contract preparation .641 1.559 competence of contract mgt. team .377 2.653 allocated budget .358 2.790 the results above indicate that the variables are not collinear (tolerance factors of 0.641, 0.377, and 0.358, respectively). the variables have a vif of less than 5, which is considered acceptable (1.559, 2.653, and 2.790, respectively). the strength of the relationship between the research variables was determined using karl pearson's coefficient of correlation. at a 95% confidence level, it was determined that all of the factors correlated positively (p 0.05). 4.5.3. kaiser-meyer-olkin (kmo) and bartlett’s test kaiser-meyer-olkin was used to determine sampling adequacy. table 8 summarizes the findings. yussuf ali masoud 106 table 8: kmo and bartlett's test kmo and bartlett's test kaiser-meyer-olkin measure of sampling adequacy. .945 bartlett's test of sphericity approx. chi-square 3338.627 kaiser-meyer-sampling olkin's adequacy value was 0.945, which is greater than the threshold value of 0.5, and bartlett's test of sphericity was statistically significant (p=.000), indicating that the variables under study are factorable. 4.5.4 anova f test the anova f test was used to determine whether the overall model fit met acceptable levels of statistical criteria. table 9 contains the results. table 9: anova anovaa model sum of squares df mean square f sig. regression 165.566 3 55.189 180.537 .000b residual 72.449 237 .306 total 238.015 240 according to table 9, the overall model fit is satisfactory, as the p-value for the regression model f test is.000, which is less than the critical p-value (0.05) at a 95 percent confidence level. as a result, the model is highly significant in concluding that the three independent variables competence, independence, and management support all predict the performance of humanitarian relief. 4.5.5. model for regression table 10 summarizes the regression model's findings table 10: regression model summary model summaryb model r r square adjusted r square std. error of the estimate durbin-watson .834a .696 .692 .55289 1.686 the adjusted r squared value was 69.6, indicating that coordination, transportation, and information communication technology could account for approximately 69.6 percent of the change in humanitarian relief performance. other factors not included in the model could account for the remaining 30.4 percent variation in procurement performance. 4.5.6 regression model result table 11 summarizes the regression model's output. table 11: regression model result unstandardized coefficients standardized coefficients t sig. b std. error beta constant -1.011 .217 -4.655 . 000 coordination .468 .065 .321 7.181 .000 challenges of humanitarian logistics on disaster management: the experience of corona pandemic in tanzania 107 transportation .398 .093 .251 4.293 .000 information and communication technology .548 .085 .385 6.424 .000 coordination was found to have a coefficient of 0.468 (p-value = 0.00). this means that a unit increase in coordination results in a 46.8 percent increase in the performance of parastatal organizations providing humanitarian assistance. additionally, transportation has a coefficient of 0.398 (0.00 p-value). this means that a unit increase in transportation efficiency results in a 39.8 percent increase in humanitarian relief performance. additionally, the coefficient for information and communication technologies is 0.548 (0.00 p-value). this means that an increase in information and communication technology by 54.8 percent increases the effectiveness of humanitarian assistance. all three components had a positive effect on the performance of humanitarian relief (coordination, transportation, and information and communication technology). this can be summarized using the regression equation. table 10 summarizes the regression model's output. performance (y) = -1.011+0. 468 x1+0.398 x2 + .548x3+e 5. conclusion and recommendations 5.1. conclusion according to the study findings, coordination, transportation, and information and communication technology have a positive effect on humanitarian relief performance. that is, as coordination, transportation, and information and communication technology improve, so will humanitarian relief performance, and vice versa. 5.2. recommendations according to the study's findings, it is recommended that organizations should ensure that there are adequate facilities for the distribution of relief requirements, the required materials/facilities are received at the right time, and there are adequate ict facilities for coordination of 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(2014) demonstrated the increasing intensity number of employees who works in transportation, storage, postal, telecommunication. these new job opportunities require new talents and skills. lin and chang (2018) investigated the employee’s skills in logistics, and they demonstrated that communication, customer and strategy management skill, global logistics and supply chain management skill and logistics information management skill is important. international market trend, supply chain management and information technology are changing the way of logistics is practiced and taught. also, logistics sector is very complex and volatile sector. employees need a coping mechanism for completing their task. in this way, job crafting can be used a form of coping with stressful job demands and difficult situation (masood, et al. 2021). job crafting enhances to meaningfulness, engagement and satisfaction to logistics sector büşra müceldi̇li̇ 148 employees (demerouti, 2014). for example, tims et al. (2015) emphasized that engaged employees’ job performance and performance ratings from their supervisor and clients are in the highest level. in the present study, we use job crafting theory for investigating the success factor of logistic employees. our aim is to foster proactive behavior at logistic employees. the paper shows how, when, and why logistics employees craft their jobs and the role of crafting building new work identities and work meanings in logistics employees (wrzesniwski and dutton, 2001). for example, wrzesniewski and dutton (2001) showed different examples from different sectors, including, health sector, beauty sector, it sector and refreshment sector. however, there isn’t evidence about logistic employees. additionally, the study underline the motivation of the logistics employees by finding meaningful jobs in their organizations. as wrzesniewski and dutton (2001) emphasized in the organizations the desire of controlling and meaning, having a positive self-image and connection with others foster job crafting activities. the purpose of this conceptual paper is to underline the importance of job crafting and fig.1 shows the conceptual framework on job crafting. in this paper as emphasized by gilson and goldberg (2015) logical arguments has been developed and proposed a new relationship between constructs. in this conceptual paper theoretical and empirical studies in the literature has been reviewed. the article has been organized around four sections. firstly, literature review is enhanced by defining job crafting and explaining different theoretical perspectives. in the second section antecedent and consequences of job crafting has been discussed and offered relationships between variables. in this conceptual model environmental turbulence indicates as an antecedent of job crafting. previous research on antecedents of job crafting has mainly on employee specific factors (wrzesniewski and dutton, 2001). in the last section discussion and future research take part. 2. theoretical framework 2.1. job crafting conceptualization and measurement in the literature job crafting have been defined and operationalized by various ways. the most famous one has been defined by wrzesniewski and dutton (2001). job crafting refers to physical and cognitive changes employees making for task or relational boundaries of their work (wrzesniewski and dutton, 2001). in the literature there are two main theoretical perspectives for explaining job crafting. the first one is composed of by wrzesniewski and dutton (2001) which we showed above. wrzesniewski and dutton (2001) indicated three types of job crafting namely, task, relational and cognitive crafting. task crafting shows the changings in the scope and type of tasks by altering in the number or form of work (masood, et al. 2021). relational crafting indicates the changings in the interactions between employee and their networks (masood, et al. 2021). cognitive crafting demonstrates the changings employee’s cognitive boundaries of the job (masood, et al. 2021). the second perspective belongs tim et al. (2012) study (makikangas and schaufeli, 2021). the base of the tim et al. (2012) is job-demands resources (jdr) model. this model has two categories namely, job demands and job resources. job resources shows growth opportunities in the job and job demands shows requirements of the jobs (masood, et al. 2021). according to tims et al. (2012) job crafting involves four dimensions, structural job resources, social job resources, challenging job demands, hindering job demands. in her study demerouti (2014) compare both theoretical perspectives and she underlined that wrzesniewski and dutton (2001) focused on meaningfulness in job on the other hand, jd-r perspective focused on employee motivation and health. the common point of perspective is changing work for handling problems and finding novel solutions. additionally, it is important to note that job crafting has been operationalized by various types. although studies about job crafting were qualitative at the beginning, in the last decade various studies attempted to develop scales for measuring job crafting. there are various measures for operationalizing job crafting such as, dutch crafting scale, job crafting questionnaire, job crafting measure and the overarching job crafting scale and combined job crafting scale (2020 hu et al.). dutch job crafting scale was developed by tims et al. (2012) and measured with the 21 items that measures increasing structural job resources, decreasing hindering job demands, increasing social job resources and increasing challenging job demands. job crafting questionnaire was developed by slemp and vellabrodrick (2013) and measured with 15 items that measures task crafting, cognitive crafting, relational crafting. job crafting measure was developed by weseler and niessen (2016) and measured by 14 items that measures task crafting, relational crafting and cognitive crafting. overarching job crafting scale was measured by vanbelle (2017) job crafting in logistics employees: a model proposition 149 through four items. lastly, combined job crafting scale was developed by bizzi (2017). bizzi (2017) revised and adapted leana et al. (2009) scale. bizzi (2017) measured job crafting by eight items. furthermore, bruning and campion (2019) underlined the types of job crafting, namely, work role expansion, (i.e., enlargement of work, expanding the task), social expansion (i.e., changing the relation aspect of the work, increasing social connection or improve communication), work role reduction (i.e. reducing the requirements of work, delegating), work organization (i.e. reconfiguration of resources), adoption (i.e. integrating new technology, new knowledge), metacognition (i.e. general cognitive self-management practices), withdrawal (i.e. disjoin task, relationship or aspect of the work context). in this study we focus on two general categories when we studies outcome variable: performance and health. performance is investigated via task performance and contextual performance. task performance indicates that create/support product or service in organizations and these behaviors lead to firm’s success (landay and harms., 2019). contextual performance indicates social and psychological support in the organization for enhancing success. contextual performance is called as ocborganizational citizenship behaviorand emphasizes interpersonal and motivational aspect of employee’s behavior (landay and harms., 2019). also, health is investigated via psychological and physical health. figure 1: conceptual model 2.2. antecedents of job crafting 2.2.1. the relationship between environmental turbulence and job crafting in the literature there is significant interest of market and technology turbulence due to unexpected and fast changings. environmental turbulence refers to market turbulence, technological turbulence, and competitive industry (turulja and bajgoric, 2019). accordingly, market turbulence indicates the rate of customer change in their product or service preferences, demands and fluctuations in market trend (turulja and bajgoric, 2019, sebeto and hon, 2020). technological turbulence indicates the rate of technological change in the industry (jaworski and kohli, 1993). technologically turbulent environments require to develop new skills for challenging future demands. logistics employees should improve and adapt their work changing customers’ demands and technological advancements such as frontline workers and knowledge workers (folger et al., 2021). also, in fast changing market and technological environment, logistics employees need to provide new solutions. hence, we propose that: p1: environmental turbulence is positively related to job crafting. 2.3. consequences of job crafting 2.3.1. the relationship between job crafting and health in the literature there are evidences the relationship among work and health. for example, parent-thirion (2007) indicated that health problems such as pain, headache, cardiovascular problems are related with work environments and demands. additionally, duffy et al. (2021) emphasized that positive and negative workplace experiences are related with physical outcomes. for example, positive experiences such as working in regular hours, supportive climate or workplace safety leads to greater physical health, on the contrary high job demands, excessive work hours and deadlines cause poorer physical health. similarly, the psychological health of employees is influenced by working conditions. for instance, hospitality employees who faces with demanding customers and pressures lead to stress and burnout. tian et al (2022) underlined the importance of job crafting for employee’s psychological well-being. job büşra müceldi̇li̇ 150 crafting also helps employees work family enrichment (loi et al., 2020) to associated with physical and mental health (mcnall et al., 2010). hence, we propose that: p2: job crafting is positively related to employee physical and psychological health. 2.3.2. the relationship between job crafting and performance we suggest that job crafting influences both task and contextual performance. job crafting provides engaged employees, and these behaviors are important for job-employee related outcomes (i.e. employee performance, job satisfaction, service recovery performance). (cheng and o-yang, 2018, karatepe and eslamlou). for example, wang and chen (2020) emphasized that employees optimize their work through their own knowledge, skills, abilities, and preferences which influences positively employee performance. they evaluated employee performance through task performance (objective measurement of performance). hence, we propose that: p3: job crafting is positively related to employee task performance and contextual performance. 3. discussion our conceptual model of job crafting provides new perspectives for management and logistics scholars. we propose that job crafting is self-initiated behaviors and provides employee’s engagement for aligning their jobs. by highlighting the role of job crafting, this study enhances a framework for researchers and managers to understand the association among environmental turbulence and positive outcomes (i.e. employee health and employee performance). 3.1. theoretical and practical implications it is important to note that there are different theoretical lenses for explaining job crafting. additionally, we showed that there are different scales were developed for operationalized job crafting. there are inconsistencies and overlapping among these explanations. we follow hu et al. (2020) and investigate and integrate different theoretical views on job crafting. in this study we follow duffy et al. (2021) and provide to answer the effect of workplace experiences and environment on the employee’s health. beside theoretical contribution our research makes contributions for practitioners (i.e., logistics managers, supply chain managers and stakeholders). first, it can contribute to understand health issues in workplace. recognition of the importance of self-initiated change behaviors fosters employees’ physical health and psychological health (wellbeing). from this research logistics management can understand the role of job crafting to enhance positive employee outcomes in workplace. moreover, logistic management should be aware that job crafting is important for gaining superior performance and building energetic and vital organizations. in this respect, job crafting promotes objective and subjective performance through meaningfulness for work. lastly, supply chain management and logistics management should organize extra training programs for a better understanding of job crafting, cognitive and behavior crafting. 3.2. limitations and future research this study proposed that job crafting is related to employee health and performance. it would be beneficial show the impact of job crafting on employee outcomes. also, the mediating effect of job crafting can be investigated the relationship between environmental turbulence and employee outcomes. moreover, future research should investigate demographic differences in gender, work status and generations and educational background. specifically, in the literature there are evidence about the differences among work values preferences between generations (winter and jackson, 2016). in this study, we argued positive aspects of job crafting however job crafting can lead to negative consequences. in this sense, the negative consequences of job crafting such as turnover intention and burnout can be examined. job crafting in logistics employees: a model proposition 151 references bakker, a.,b, hetland, j., olsen, o.k, espevik, r., de vries j. 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(1995). human resources and sustained competitive a: resource-based perspective. the international journal of human resource management, 5 (2), journal of international trade, logistics and law, vol. 1, num. 1, 2015, 41-49 blue sky birds come to the world bura sabiha kelek, (lecturer) istanbul commerce university abstract: the new supply system comes to all fields for logistics.drone is an unmanned vehicle for loading and unloading packages.perhaps we can imagine it as a ‘’blue sky bird’’. this new trend has three important impacts that are determined by technoligical capabilities, ,regularity pressure, and public acceptance so that it will be dealed within current powers and circumstances. this kind of vehicles are used in different capacities, such as multicopter,drone or robot.logistics’ issues are interested in short-term delivery systems for customer satisfaction but all developments go through gps so it is based on 21st century technological developments, which have been tested on a short-term basis and will be expected to be of use in 2 years. the purpose of this research is to give lead to researchers information about risk and the advantages of using the technology in this manner.some advantages and disadvantages ,schedules’ problems in the system will be identifed. keywords: logistics; distribution; drone; predator; transportation 1. introduction: they are our co-workers we haven’t known a until a year before. drones as you know are literally named as unmanned aerial vehicles which are produced by foreign companies, also need systematic and technological investments however they are not being used in logistics sector nowadays on the other hand their usage is shown as matter of time .they are logistic’s robots in our near future so that many important experimentations are being carried through by major companies abroad. drones are just vehicles which have a capacity for burden. for the first time, the purpose of their production is based on the defense industry yet planning so many conferences is to show their new meaning to transportation and logisticians who are in emergengy consingment. these birds who are the smallest unmanned airplanes just started to test drive.of course , they are still in secret.nowadays , lead companies of logistics significiantly attempt to use them for being in one step ahead.they could be fiery eyes in the transportation. these tranport officials of package are not designed just as drone furthermore they are named for family tree of the helicopter. according to us, they are stated like that to change the future of logistics.who knows if you can find the package that is ordered a day before on your balcony thanks to these little transporters. this new era allows for new apportunities.’welcome ‘’ to new drones, which are new logisticians. congratulations to our man brand new machines to all logistics’ sector. 2. the aim of the paper we will sentence the uavs’ historical settlement for the entire world.in fact, they have already been considered for a long time by amateur , yet all techniques for them are ready to go along in all fields.especially , indicated technics are familiar with us and our world so that no one is oblivious or disinterested in the internet and its source coming out. important topics are indicated at the following sentences ;for example reliability,security and infrastructure . all these requirements are explained shortly and introduced so many types of uavs. balancing the time and loading – unloding capacity are in connection with upgrading the cities’regularity.blue sky predators deal with current circumstances today there is plenty of discussion about civil aviation producers for uavs. pilotless aerial devices will fill in our sky .in reality , all kind of sectors are willing to have their new hopes but logistic industry put itself forward for it.the importance of the delivery will be correlated with quickness of these sky predators. 42 bura sabiha kelek also, urgent deliveries are specified as priority usage for the human being.we are not talking about just drones,multicopters,quadcopters or planes etc.we will be willing to explain the necessity of usage for our technic world .a new era will cover you as soon as possible. 3. historical perspective due to the fact that it is necessary to defend our precious lands from enemies,we have faced enemy planes similar to drones since the beginning of time.the basic role is stated in army aviation because uavs have enourmous potential for the battle field so that it is the usage of air power in apparent ways. uavs receive a signal from a sensory array which are settled in ground control system and a basic datalink the navigation system is one of the major subsystems for a uav.it provides the rest of subystems with the position,velocity and attitudeinformation they require in orderto control the aircraft,manage the mission of inform the pilot (parra, 2005). the uav is also equipped with first person view (fpv) systems for easier and more accurate control by a remote user (spyridon g.kontogiannis, 2013). between 1960s and 1980s , piloted vehicles had a visible popularity but then some problematic term came to recognize in this path so late of 1980s unmanned air vehicle would be discovered even so in the 1990s piloted vehicles were chosen to keep the balance for the new invention such that they had to get an acronym form thence all got the same name as uav . up to now,funding for the development of uavs has principally been put up by the military and this is expected to remain so fort he foreseeable future.even though uavs have been around for nearly 50 years , their military value and complementarity in relation to other weapon systems has not been generally acknowledged and accepted by the military hierarchy and the political establisment until fairly recently (blyenburgh, 1999). 3.1 tactical role aviation sector focused on observation and reconnaissance mission in interwar years so these were photo and visual reconnaissance , contact mission and adjusment of artillery fire.uavs liked better than balloons because commander wanted the men in them to be their eyes in the sky.observation planes assured more flexibility than balloons because of their grater range. nato operation allied force in yugoslavia has demontrated that a new age in reconnaissance is in fact dawning.for the first time in warfare,commanders at all levels have had nearly continuous,real-time visibility of at least portions of the battlefield through the optical and video sensors carried on u.s. predator and hunter uavs (m.nutwell, 2000). picture 1. blue sky birds come to the world 43 significant efforts invested in unmanned air vehicle (uav) technology led to a wide variety of new applications such as aerophotography and surveillance.parallel advances in avionics and electronics applied to modern uav technology combined with rapid developments in video and photographic equipment resulted in significant wight reduction,enhanced efficiency ,and quality improvements (spyridon g.kontogiannis, 2013). 3.2 technical classification they were developed for military and special operations but also used for growing number of civil aviation so uavs are specifically designed for logistics and cargo operations and they are recognized how to use for human’n expectations furthermore all technical developments are used to cover their needs’. uavs must receive greater priority in service budgets.investments in uav programs are still modest compared with investments in manned aircraft.to some degree this reflects a continuing cultural bias toward manned platforms in the services (m.nutwell, 2000). 4. changes and challenges in spite of uavs’ usage purpose in early times, their drifts’ route distinctly took some important shape for commercial areas.especially new innovation system was subsidiary to them upgrading steps. they are considered finding so many ways which are efficient , dependable, fast in logistics’ industries. they can be used to succeed and survive in logistics’ sector.meanwhile they have been growing and using for the sector , all perturbation would come to mind for the future of logistics.it is hard to get them and start to use them in a balance to keep for the human expectations. several challenges must be overcome if unmanned vehicles are to realize their promise in the s&r mission  vulnerability to air defenses must be reduced through signature reduction and provision of some selfprotection capability against battlefield threats.  all weather capability,including ability to fly in icing conditions,must be provided.  agreements,procedures,and capabilities for operating uavs routinely in controlled airspace must be developed.  assured global,wide-band data links that are accesible to multiple echelons of command.  reliability must be improved ,not only to reduce attrition rates and life cycle costs but also to facilitate flight in controlled airspace and over populated areas.key factors in reliability include:redundant critical components;secure,reliable communication links;and enhanced ability for autonomous operations and recovery in the event of the loss of communications (m.nutwell, 2000). 2.1 routing path planning plays an important role in enhancing the ability of autonomous flight of unmanned aerial vehicle (uav).by finding a global optimal route offline,the traditional two-dimensional (2d) path planning is popular in static or known environment.but the actual flight environment of uav is usually dynamic and unknown,where a feasible path should be planned online by dealing with various dynamic situations (peng yao, 2015). logistic system that is associated with uavs has got significant opportunities so ongoing projects are tried to coordinate in between basic location spots. otherwise , traveling problems will be occured in any time without calculating and testing the covered lands.in last few years they are being tested for the kind of problems we greet. 2.2 scheduling the unique capability has been provided by this semi self-governing aircrafts so these flying robots are more capable and less expensive thus commercial sector are aware of the smart predators such that seeking to collacate miles and algorithms on that vehicles can be operated by an operator so coordinating loading and unloading services gain to an important role. 44 bura sabiha kelek on the other hand,flexibility in use,especially in a city environment,demands a short takeoff runways.therefore,the takeoff distance was set to a maximum of 60 m.an electric power plant for the propeller was selected since it offers low operating costs,simplicity in installation,use,and because it is eco-friendly (spyridon g.kontogiannis, 2013). but the other important point that is about the capacity problem occurs on meantime.because they have got a limited capacity to carry.all them depends on wing lift efficient role ,surface and planform geometry. so,the electronic and video equipment that the aircraft should typically carry does not exceed a total weight of 3 kg (spyridon g.kontogiannis, 2013). 5. understanding uavs of course , we can face some effective rules to use and put them in an order because regulations are changable situation from country to country on that matter some criticizing moves are settled slowly because solid arguments say that delivering packages to people will irritate other airspace users because airspace crowded in many regions will require maximum control capability on the other hand uavs are not using just airways but also they are capable of using the land areas because they can stop whatever the controller wants.not only just a menace for the air also for the land and pedestrians.besides safety regulations can become to sight in a weakness ‘coz of setting up cameras for controlling and seeing where they are going to and how they are finding their way.nobody can give any guarantee to have more safety.so nasa works to design drone air-traffic control system which is called ‘unmanned aerial system traffic management’. nasa said on its website: ‘’ a uas traffic management (utm) system for low-altitude airspace is needed, much like today's surface vehicles that operate within a system consisting of roads, lanes, stop signs, rules, and lights, regardless of whether the vehicle is automated or driven by a human. www.rt.com/usa/310705 drone-air-traffic-control having summarised current nato efforts and challenges in the field of uavs,and before elaborating on future uav requirements,let me now briefly comment on why uavs are getting higher priority in procurement planning anc acquisition.the short answer is reduced costs and less personel combined with higher efficiency for specific missions.for existing weapon systems,operating and logistic costs are the bulk of total life cycle cost,and the single largest portion of these costs is for personnel (blyenburgh, 1999). in some concepts ,’’wartime uavs’’ could be operated primarily by reserv personnel who would only be called to active duty as and when required. the other reason uavs are becoming more attractive is the advantages provided by not having an onboard crew.by reducing the risk of loss or capture of personnel,the uav provides a more politically acceptable military system for certain missions. (blyenburgh, 1999). from a technological perspective ,social,business and political changes are not more wider than technology ones.in this case, they are expanded in types builded which are fixed-wing ,tilt-wing,unmanned helicopter and multicopter as known as drones.they have different specifications not only leading the range but also taking off capacity. table.1 advantages disadvantages fixed wing long rance-endurance vertical take off landing tilt wing fixed wing combination expensive unmanned helicopter maneuverability high requirements multicopter inexpensive,low weight limited payloads blue sky birds come to the world 45 combination of uavs can be identified them into different categories such that long short range ,inexpensive expensive , low-high payloads , uncomplexed complexed models.multicopter,octocopter, etc. 6. logistics’ impacts as we mentioned before these new birds on air help to transport from one place to another.this improved air vehicles as known uavs allow all logistics and supply chain managements advanced scopes as cheaper and smarter transporter . digital technology in this case are growing much faster without any doubt.meanwhile,all kind aircraft have the capability of autonomous flight ,it means that there is a mission from point to another one. gps has accommodate with sensor,batteries or other signal which comes from on ground to remote uavs .air freight delivery system can be easily adopted to use particular package transportation. recognizing package space delivery needs short line will help all logistic systems to understand how to use them in efficient way. picture 2 we must also consider the future role of uavs and other aircraft with respect to spaceborne reconnaissance platforms.spacecraft provide wide geographical coverage and access to regions denied to aircraft,can respond rapidly to missions in different regions,and are invulnerable to conventional countermeasures.airborne s&r platforms provide under-the-weather coverage , video, dwell for imagery and video , operational flexibility,and the ability to address some regions not covered by overhead assets.in short,airborne and spaceborne reconnaissance platforms complement each other. (m.nutwell, 2000) this new transportation mode is emanated but developing and maturing will be happened sooner than we think.human beings must be aware of facing with road-drones (driverless truck) for the road transport.stay tune. the approach to the newest anthology of technic for the logistics before 5 years ,there weren’t this kind of camera system which are smaller and sharper also fast microchips on the other hand batteries weren’t so light and long durability.this new transporter is a virtual availability of the real man but usage of them for logistics are stil in early stages.but book rental services are ready to use them because aim is to reduce to wait the delivery from two to three days , to as little as two to three minutes.the most important thing is existing facilities like hubs,warehouses,crossdocking sites.in addition to weight,size and critical time and also there are some criteria could include road,air conditions and network load. 46 bura sabiha kelek figure.2 a network of mobile sensors has demonstrated the ability to enhance sensing flexibility and achieve the mission objective in a shorter time period.decentralization among the sensors further provides scalability,modularity,and redundancy to the network this reduces the vulnerability to central server failure,which further enhances to overall system robustness (pablo lanillos, 2014). emergency transport comes in this stage especially picking up time critical shipment as blood,medicine,serum. of course there might be needed a notification for customer satisfaction or in case of returns and insufficiency customer location . picture. 3 also ,uavs have scanned the barcode on the package and controlled the route to determine the distance.after delivery , they return to rechargable area on the ground or on a vehicle and they can do it wirelessly. uavs look like blue sky birds come to the world 47 blue birds in ancient times , they transport light package to the receiver.the most amazing trick is identifying the customer via qr code then they hand over it because getting approval helps to gain trustworthiness. locations are highly dissimilar all over the world such as uavs could drop the package in a garden or a balcony , they must use the roof for large buildings.perhaps this idiomatic problem can be solved making an alternative delivery area or point like a box which is upgraded station to handle shipments. multi-sensor coorrdinated search problem considers a team of mobile sensing platforms capable of maneuvering freely and gathering information about the existence of targets within a defined workspace (pablo lanillos, 2014). 7. emergency response for the logistics logistic companies pay attention for the process with occured just in time so that emergency deliveries can be performed by the uavs because they are easy to distribute and there is no requirement for well trained personel .express delivery system can be put in order to do operations such as spare,machine or precession parts.intralogistics need to cover the private demand in case of emergency operations and providing the major advantages because of more flexibility and accessibility. picture. 4 the other aspect is that the commercial use of uavs could have a beneficial effect on the use of military uavs,as economies of scale would then become possible.the commercial use of uavs is not only being severely limited by air traffic management issues and high price of ownership and insurance (in relation to manned aircraft).the high cost of insurance severely limits the interest of leasing uav systems for commercial (or military applications) and is generally attributed to the unproven reliability (safety) of uavs;once uav technology has proven itself a little more,and acceptable uav system qualification norms exist,their cost should come down (blyenburgh, 1999). 48 bura sabiha kelek picture. 5 8. conclusion this paper has introduced the features of the uavs maybe it is likely to face some challenges , privacy concerns , perfection into existing networks. logistic industry is ready to use them for urgentexpress shipments ,potentially aims to upgrade the delivery speed which effects the its time and also , using global trade networks can provide rural deliveries inadequated areas. technological developments and changes in a short period will require the some arrangements in applicable law of uavs.this kind expectations will be fined over the next few years. uavs are currently at a major turning point in their history.after decades of limited success and some failed promises,the uaav has become a real hope for the future (kreienbaum, 2000). the age of unmanned air vehicles has arrived.the confluence of technology and tactical considerations,especially the thirst for ‘’ dominant battlespace awareness’’ and the desire to avoid aircrew losses,has resulted in increased reliance on unmanned vehicles for s&r and for other missions (m.nutwell, 2000). uavs’ projects will be ameliorated in certain ways. several works have been extended in many modalities.we need little more time to see them in the air and look forward to great opportunities. references http://logisticsviewpoints.com/2013/02/06/drones-the-birth-of-a-new-transportation-mode/ http://uofllogistics.org/seminar:drones in logistics http://mashable.com/2015/08/02/faa-drone-close-calls http://mashable.com/2015/08/02/license-plates-for-drones www.ibj.com/articles/53394-langham-will-drones-distrupt-logistics http://www.dhl.com/content/dam/downloads/g0/about_us/logistics_insights/dhl_trendreport_uav.pdf www.rt.com/usa/310705drone-air-traffic-control blyenburgh, p. v. (1999-vol 1). uavs:an overview . dossier , 5/6. kreienbaum, b. (2000 vol2). unmanned air vehicles are taking off in nato's priorities . air&space europe , s. 26-30. m.nutwell, r. a. (2000 vol2). unmanned air vehicles-coming of age at last . air & space europe , 23-25. pablo lanillos, s. k.-p. (2014-282 ). multi-uav target search using decentralized gradient-based negotiation with expected observation . information science , s. 92-110. blue sky birds come to the world 49 parra, s. d. (2005, 9). low cost navigation system for uav's . science direct , s. 504-516. peng yao, h. w. (2015-47). real-time path planning of unmanned aerial vehicle for target tracking and obstacle avoidance in complex dynamic environment. aerospace science and technology , s. 269-279. spyridon g.kontogiannis, j. a. (2013-29 ). design,performance evaluation and optimization of a uav . aerospace science and technology , s. 339-350. journal of international trade, logistics and law, vol. 2, num. 2, 2016, 143-148 the impact of the airline freight transportation on gdp in turkey okşan kibritci artar, (asst. prof. dr.) istanbul commerce university, turkey nagehan uca, (ph.d) istanbul commerce university, turkey mustafa emre taşçı, (ph.d candidate) istanbul commerce university, turkey abstract: the demand of passenger and freight transportation has been increasing tremendously each day due to the globalization process. therefore, the acceleration in the transportation demand has a natural impact on the distances that the freights have been carried through in overall. in this prospect, international logistics provides an economic utility from the sustainability viewpoint in the global competition arena. world-wide supply and distribution channels have become so sophisticated, resulting in having vitality in the field therefore boosting its share in the gross domestic product (gdp). high impact of liberalization in the air transportation markets has been affecting the market of turkey as well as usa and eu. moreover, it is one of the industries that have survived from the global financial crises which is also critical from the competition based strategies. in this study, the relation between the gdp and the air freight traffic of turkey has been analyzed by using an econometric model. as a result, it has been found that there is a statistically significant relationship between those parameters keywords: air transportation, logistics, gdp, economic utility, regression analysis, airline freight 1. introduction economic activities shape the investments, the trade and the transportation through the channels of logistics which are an inevitable result of accelerated globalization and natural effects of the developments in many countries. increase in the demand of the freight transportation advances every passing day as a result the globalization. logistic channels for cargo and passengers have been developed in the last century as a result of the developments in technology but especially after ii. world war, it was a new period. after the aviation affected the mobility of the passengers and cargo as aircrafts were no more war instruments but already several pragmatic jumps had been achieved during the war. with the higher mobility advantage of this new aviation are has been shaped since chicago convention which has been shaping aviation in the international level but it was also a key start point how to coordinate the complex processes the world-wide countries. hence the economies of the countries developed not only in the domestic markets but also international integration of those economies has connected to each other through logistic channels and mainly the transportation had a key role with the effect of the liberalization coming within the globalization period. 2. a brief overview on the air transportation industry in turkey prior to 1980, only state-owned companies were allowed to do the business in the civil aviation industry in turkey. turkey’s flag carrier, turkish airlines, was the unique and only airline in the country which created domination in the domestic market. all airports were owned previously by the government, and were operated by state-owned companies. in 1983, civil aviation law, no.2920 was the flashpoint moment of new developments in the turkish 144 okşan artar, nagehan uca and mustafa emre taşçı aviation industry. this was not a movement created instinctively, but rather a result of the liberalization domino effect coming from the usa and eu countries. (gerede, 2010: s.81) the federal aviation act of 1958 in usa was aiming to improve the market forces in the country where it could provide a range of variety that could create liberalization in the market and result of a higher aspect of the quality with competitive prices within the air services therefore in the continued era eu was also integrating its skies between the member countries and it was a reflection of the liberalization that had started by usa. not in a coon’s age but in 20 years us deregulation act of 1978 was removing the power of the government in usa. (button, 2012: s.17) just between 1979 and 1982, usa signed 23 bilateral agreements with several countries as a result of open skies policy which was like a turnpike exit to free highways in the world-wide area and it was one of the peak points that globalization evokes its giant steps for many other countries. undoubtedly 1980 was not an instinctive turn point for turkey but it was a consideration for the astounding outgrowth of the globalization. naturally turkey has also focused on its domestic markets and even first privatization in the country was usaş in 1987 which had been owned by the government and partially sold to a multinational company, gate gourmet. it was not a coincidence to make the first step in the aviation area but it was a coming liberalization effect through worldwide aviation industry. during 80’s turkey started regulatory reforms in the aviation arena, developed its domestic markets with several air service agreements and associated services through inter-regional open aviation areas. 2000’s is also another progressive period for turkish aviation industry after the developments in the base of the aviation in turkey. turkish airlines were no longer owned by government and it was open to public in the stock exchange market. it started to increase its fleet faster after 2001 and meanwhile onur air, atlas jet, pegasus airlines and other private airline companies was established and started to operate their aircrafts in the liberated domestic and international market. air cargo with its premium service capability is a result of the factors that it is providing in logistics such as a strong flexible alternative, speed and security belief. accordingly with the advancements in the aviation industry in turkey and with this nature of air cargo, after 2003 it has generated an increase in the freight carried though air as it could be seen from figure 1. (i̇statistiklerle ulaştirma denizcilik ve haberleşme, 2003-2014: s.41) figure 1: airfreight traffic in turkey (million ton) 20032014 source: dhmi the impact of the airline freight transportation on gdp in turkey 145 air freight is not only the products that are being carried by aircrafts but also passengers are the air freights that are being moved from one destination to another. as a result of the correlation of the passengers and the cargo which is carried under-deck of the aircraft, there is a capacity relation between seat capacity and cargo capacity in aviation logistics. seating and freight capacity of the airlines in turkey has also shows this natural relation and besides it proofs the increasing trend after 2003 as in the figure 2. (i̇statistiklerle ulaştirma denizcilik ve haberleşme, 20032014: s.43) figure 2: seating & freight capacity of the airline companies in turkey 2003-2014 source: shgm 3. literature review the airline freight transportation is one of the important transportation modes that provide the integration of the marketplaces removes the barriers between the economies and shortens the distances in a most efficient way from the time perspective. economic activities shape investments, trade and transportation through the channels of logistics which is also an inevitable result of accelerated globalization and naturally effects the developments in the countries. in the literature, there have been a few studies indicating the causal analysis between the air transport and economic growth for developing countries which is the potential reason for the growth in the air transport demand. there have been many studies issued by many researchers over the last decade. gerard de jong and et all. (2005), they analyzed the uncertainty in traffic estimates analyzed with dutch national model system (lms) and the national model for (nrm) noord brabant by using time series method. they found a various methods rather than input uncertainty. mariya a. ishutkina and r. john hansman (2009), they analyzed the individual country level to indicate the development model differences between air transportation passengers and gdp for 139 countries. the result of the study reveals that the individual country level is important for determining the effect of air transport for each economy. yu-hern chang and yu-wei chang, (2009), in their study; the relationship between the expansion of air transport and economic growth has been explored in taiwan over the period 1974-2006. the results of the empirical analysis show that there is a long-run equilibrium between taiwan's expansion of air transport and economic growth and a bi-directional relationship between them. 146 okşan artar, nagehan uca and mustafa emre taşçı marazzo et al. (2010) studied the relationship between air passenger demand and economic growth in brazil and found that gdp and air passenger growth are co-integrated. they have indicated that there is a positive intense effect on air passenger growth due to have a significant alteration of gdp. elton fernandes & ricardo rodrigues pacheco (2010), in brazil, the relationship between economic growth and domestic air passenger transport has been examined by using empirical analysis over the period 19662006. the result of the study shows that the economic growth has a unidirectional causality relationship with the demand for domestic air transport in brazil. the study of g. s. çekerol and nalçakan m. (2011) analyzed the demand related to the railway transportation mode within the logistic sector in turkey. their study was determined that the variable having the least effect on demand in the study is the gross domestic product per capita and there is a positive relationship between the demand and gdp. gerard de jong and et all. (2013) their study ensured that the european literature was audited on freight transport models developed at the national or international level since 2004. this study describes the progress achieved in the incorporation of "logistics" in the regional, national and international transport model. elien van de vijver and et al. (2014), they investigated the frequency and reciprocal linkages between the deployment of transport infrastructure and spatial economic development in asia-pacific by using empirical analysis for the period 1980–2010 and they examined the causality scenarios among different countries. douglas baker and et al. (2015), their study determined the catalytic effects of regional air transport on regional economic growth and they examined the short-term and long-term relation between regional aviation and economic growth in australia for the period of 1985-86 to 2010-2011. the analysis concluded that the airports affected regional economic growth and that the economy directly affected regional air transport. megersa abate (2016) study empirically analyzed the economic effects of liberalization in air transport by using two variables such as wage and service quality, which measure the frequency of departure. the result of the study suggests when compared to fully liberalized, there is a relatively larger increase in departure frequency in routes with partial liberalization. the impact of liberalization is significant for the development of service quality and there is no significant effect on fare reduction. m., hakim and r. merkert (2016) examined the causal relationship between air transport and economic growth in the south asia. the result of their study establishes the existence of a long-run unidirectional causality relationship that extends from gdp to air passenger traffic, as well as air transport volumes. contrary to the current literature, they have not found a long-run and bi-directional causality that confirms the importance of spatial dimensions. j. westin and et all. (2016), they analyzed the uncertainty and economies of scale of the swedish domestic freight transport system. the results show that by shifting the logistics model predominantly to freight transport, new logistics solutions for larger demand can be found. 4. methodology and empirical findings this study aims to analyze the relation between economic growth and air freight traffic in turkey. the ordinary least squares (ols) technique was used to estimate the parameters of the model. data used in the analysis has obtained from turkish statistical institute for the period 1980-2014. there were 35 observations for the selected period in turkey. particularly, the analysis is used to explain (1) how cargo flow of air transport, goods and services flows affect economic growth in turkey and (2) how the air transport flows can affect the factors and demand conditions of turkey. the impact of the airline freight transportation on gdp in turkey 147 table 1. results of the ordinary least squares (ols) dependent variable :lgdp constant 0,0007*** 0,118342 lyt 0,0116** 0,2857 n 35 f statistics 7,191248 d-w stat 1,98 r2 18,83% notes: (***), (**) and (*) denote the significance level of 1 per cent, 5 per cent and 10 per cent, respectively. in this model; gdp is a dependent variable where it indicates the economic growth of turkey. air freight demand is the independent variable which indicates millions of tones carried. the result of the analysis shows that there is an autocorrelation between gdp and air freight demand. a number of alternatives have been developed which can capture autocorrelation in the moment conditions by generalized method of moments (gmm). variables are stationary at the 2nd difference. there is no heteroscedasticity hence it was determined by wald test for the model. in the most recent studied model, deviations from the assumptions have been controlled in the classical regression analysis and no deviation has been found. it has been discovered that the %18 of the increase in gdp was sourced because of the increase in the gdp. the model that has been used in the analysis is statistically significant. as air freight demand increase has a positive effect on the increase in the gdp, %1 increase in air freight has been resulting in a %0.76 increase in gdp as shown in table 1. 5. conclusion in the historical background, developments of the air transportation have a significant role in the social and economic development as a result of the development in the mobility of the freights. in this study, the effect of air freight demand on the gdp has been analyzed. the increase in the air freight demand is explaining a slight part of the increase in the gdp and it is a positive relationship in the same direction. gdp is the total money value of all products and services produced in the country. not only the air freight but also the transportation of the passengers has a positive effect on the gdp. air transport creates economic growth by facilitating tourism and trade, provides job opportunities, improves living standards and alleviates poverty and increase incomes from taxes. efforts to develop demand forecasts by making the right planning to allow healthy development of the air transportation sector, which survived from the global financial crisis, are important for making concrete investment decisions. thus, it contributes to sustainable economic development. these studies could be extended through several perspectives such as including eu countries and usa. some other explanatory variables (macro indicators) could be added. further research could be analyzed by using (in and by the cross sectional/times series time) panel data.. 148 okşan artar, nagehan uca and mustafa emre taşçı references abate, megersa (2016). “economic effects of air transport market liberalization in africa”. transportation research part a 92 (2016): 326–337. baker, douglas and rico merkert , md. kamruzzaman (2015). “regional aviation and economic growth: cointegration and causality analysis in australia”, journal of transport geography (43): 140–150. button, kenneth (october 2012). “ongoing government failures in air transportation”. https://www.mercatus.org/system/files/ongoing-government-failures-in-air-transportation.pdf/6.10.2016 chang,yu-hern and yu-wei chang (2009). “air cargo expansion and economic growth: finding the empirical link”. journal of air transport management (15): 264–265. çekerol, gülsen serap and meserret nalçakan (2011). “lojistik sektörü i̇çerisinde türkiye demiryolu yurtiçi yük taşıma talebinin ridge regresyonla analizi”. marmara üniversitesi i̇.i̇.b.f. dergisi, xxxi (ii): 321-344. elien van de vijver and ben derudder, frank witlox (2014). “exploring causality in trade and air passenger travel relationships: the case of asia-pacific, 1980–2010”. journal of transport geography, 34(2014): 142–150. fernandes, elton and ricardo rodrigues pacheco (2010). “the causal relationship between gdp and domestic air passenger traffic in brazil”. transportation planning and technology, 33 (7): 569-581. gerard de jong and inge vierth, lori tavasszy and et all. (2013). “recent developments in national and international freight transport models within europe”. transportation (2013) 40:347–371. gerard de jong and marits pieters, stephen miller, and et all. (2005). “uncertainty in traffic forecasts literature review and new results for the netherlands”. avv transport research centre working papers, march (2005): 1-171. gerede, ender (2010). “the evolution of turkish air transport industry: significant developments and the impacts of 1983 liberalization” yönetim ve ekonomi 17(2): 63-91 ishutkina, mariya a. and r. john hansman (2009). analysis of the interaction between air transportation and economic activity: a worldwide perspective. mit international center for air transportation (icat)/ department of aeronautics & astronautics massachusetts institute of technology cambridge. report no. icat-2009-2. marazzo, m. and scherre, r., fernandes, e. (2010). “air transport demand and economic growth in brazil: a time series analysis”. transport research (46): 261–269. md mahbubul hakim and rico merkert (2016). “the causal relationship between air transport and economic growth: empirical evidence from south asia”. journal of transport geography 56 (2016): 120–127. ulaştırma, denizcilik ve haberleşme bakanlığı (2014). 2003-2014 i̇statistiklerle ulaştirma denizcilik ve haberleşme. ankara: çağhan ofset matbaacılık. westin, j. & inge vierth, gerard de jong and et all. (2016). “analyzing model uncertainty and economies of scale of the swedish national freight model to changes in transport demand”. european journal of transport and infrastructure research, johansson issue 16(4): 619-632. journal of international trade, logistics and law, vol. 3, num. 2, 2017, 58-64 legal aspects of aircraft hijacking sencerhan avcı, (mlm) istanbul commerce university, turkey mustafa emre civelek, (phd) istanbul commerce university, turkey received: dec. 11, 2017 accepted: dec. 28, 2017 published: jan. 02, 2018 abstract: the aim of this article is to discuss and examine the legal dimension of aircraft hijacking crime from international agreements and turkish legal system aspect. the fact that there are gaps in security procedures of countries and the punishments not being deterrent in aircraft hijacking acts; affect many people, regions, and countries. increasing terrorist acts in the last years; acts like aircraft hijacking by terrorist groups make it necessary to review universal rules, penal sanctions, and security procedures. this study mentions the problems created by the association of aircraft hijacking crime with political events. as a solution, it suggests imposing sanctions on countries that make this association and making it compulsory to have police in planes. keywords: aircraft hijacking, turkish judicial system 1. introduction use of aircraft, which is one of the most important tools for transportation, brings some problems along as the number of people using it increases. when we consider the route of an aircraft, since it goes over many countries, it creates situations that may concern many countries if there is any crime. aircraft hijacking crime creates situations that may harm other countries if the lives and properties of passengers and crew in the plane are harmed in an accident. this study examines aircraft hijacking crime, aircraft hijacking examples, reasons and risks that cause aircraft hijacking, reasons identified as political, and the effects of aircraft hijacking deeds. the regulation of aircraft hijacking crime in international agreements, the legal dimension of aircraft hijacking crime in turkish judicial system, and its relation to political events are examined. aircraft hijacking is derived from "hi jack" in english. the reason it is named so is that in one of the recorded airplane crashes the pirate went into the cockpit greeted the pilot with "hi" and the pilot's name (jack). so, it became "hi jack!". if we describe the aircraft hijacking crime with another statement; it is forcing the plane to go in other directions, and causing other problems by going into the air space of another country without a permit, and committing acts to hinder passengers and to rob by threatening the crew using force and threats or other illegal acts. even though it is different than air piracy definition, all acts that will remove the authority of current crew can be explained with aircraft hijacking act (uyar, 2009). 2. aircraft hijacking samples "21 february 1931, first recorded aircraft hijacking act: captain byron rickards, the pilot that experienced the first hijacking in the world; after landing his panagra ford type plane with three engines were surrounded with armed military. the soldiers told the pilot that the plane was confiscated for the revolution. another aircraft hijacking act happened on 6 july 1948; a seaplane was hijacked in a robbery attempt, and then the plane crashed into river pearl. 26 passengers and four crewmembers died in the crash. the only survivor was the air pirate. aircraft hijacking attempt by the youngest person was recorded on 10 november 1969. a plane belonging to delta airlines was sencerhan avcı & mustafa emre civelek hijacked by 14-year-old david booth in chicago. on 24 november 1971 another interesting aircraft hijacking act happened. boeing 727 type plane belonging to northwest orient airlines was hijacked by air pirate d.b. cooper. after the plane took off, d.b. cooper jumped out of the plane with a parachute with the 200.000 dollars he stole, disappeared and was never caught. this event was recorded as the most mysterious robbery and aircraft hijacking event in american history. to date, d.b. cooper is the only air pirate not caught by fbi. after this event, a system was developed to prevent the opening of plane doors in flight, and this system was named cooper vane. after this incident, they started to search all passengers and their luggage in america. in our country, the first aircraft hijacking event happened on may 1972. dc-9 boğaziçi plane belonging to thy on i̇stanbul-ankara trip was hijacked by 4 turkish pirates. their goal was to stop the execution of their friend (wikipedia). " the most interesting aircraft hijacking incident recorded in turkish aviation happened on 29 october 1998, on the 75th anniversary of the proclamation of the republic. adana-ankara plane of why with flight number 487 was hijacked a short time after it took off from adana at 19:45 by a passenger who was a pkk (kurdistan workers' party) sympathizer. there were 34 passengers and six crewmembers on the plane. the terrorist wanted to go to the place the agreement that ensured the foundation of the republic 75 years ago, to lausanne (switzerland), to protest the foundation of the republic of turkey. the pilot convinced the terrorist that it was impossible to fly to that distance, they had to land in sofia (bulgaria) to fuel up. however, the pilot filled the time by drawing large circles when they arrived above ankara and landed in esenboğa airport as if he was landing in sofia square. it was 22.00. authorities immediately launched the crisis center and started negotiations with the terrorist. the police informed nearby mosques, they asked them not to recite the azan for morning prayers to prevent the ter rorist from being suspicious. the terrorist was saying that he would make the grenade on him explode if security forces make a move on the plane. meanwhile, the cockpit was silent, and he was not interested in the passengers. negotiators were talking in english as they were pretending to be bulgarians. negotiations continued through the night, but they yielded no results. thereupon, at 04:35 in the morning, special forces units made operations in the plane. the police got in from the rear door; after they evacuated some of the passengers, they shot and killed the terrorist in the cockpit. there was no other loss of lives or injuries in the incident. a 7,65-mm pistol with five bullets and a t1 grenade with the pin attached was found on the terrorist. as seen above, aircraft hijacking incidents that happened in various ways in different years brought together with them many rules for solutions after each incident. the problems in aircraft hijacking incidents not only put people in difficult situations, but they also put existing airlines, countries, persons and aviation sector in difficult situations. a possible accident will not only affect the people on the plane, but it will also threaten the settlements of the country. when we consider that the decisions that can be taken about these problems can affect the whole world, the importance of finding decisive solutions can be understood. 3. causes of aircraft hijacking aircraft hijacking act has various reasons. most of them are political reasons. after the second world war, the world got separated into two; iron curtain and west blocks and hostility reigned between the two blocks. as a result, people that want to escape from one block to the other started to use planes as vehicles. aircraft hijacking for political reasons is done for two purposes. one of the reasons is, the people that think their freedom of thought is restricted and that they may get punished for their acts want to escape to another country. another reason is that people think that aircraft hijacking can draw much attention and they do it to draw attention to the political situation in their country (john, 1991). aircraft hijacking may have other reasons than political reasons. all reasons for aircraft hijacking act can be grouped as shown below (çavdar, 1970) (bayraktar, 1971): 1. people that do not conform to the social and political conditions in their country and want to be freed from that 2. people that have a criminal record and lose their sheltering possibilities in their country 3. people that are mentally unstable 4. people that want to get extorted money out of the country, legal aspects of aircraft hijacking 5. acts by terrorist groups to prove themselves, stand out as well as acts with terrorism intents, 6. refugees that want to be free of oppressive regimes, 7. with ransom goals. 4. hazards that may occur in aircraft hijacking aircraft hijacking acts negatively affect the flight safety of airlines that use the air corridors. air traffic controllers that organize the air traffic may not have much opportunity to interfere with other aircrafts in malfunctions (roming, 2015). this may cause an accident in the air. strips to land on differ according to plane types. this makes the accident unavoidable if the plane lands in a strip it is not supposed to. economic problems faced by the airline company mixed in an aircraft hijacking constitute another extent of the effect. as a result of aircraft hijacking, beliefs, thoughts of people on the security of planes change and this causes them not to travel with the planes of certain airline companies. this situation affects the financial situation of aviation companies, creates various financial problems. if an accident is close a settlement, harm to local population can also be considered as another effect. aircraft hijacking acts affect the trust psychology of people towards aircrafts, also negatively affects aviation economy. aircraft hijacking crime may result in many dangerous situations. some of these situations are listed below. 1. with aircraft hijacking, human lives may be put in danger, the lives of passengers and the crew can be threatened. 2. the fuel in the fuel tank of the plane may be depleted as the flight path is changed. this can cause the plane to crash and therefore the death of people inside; if the settlement the plane crashes into is central, it may cause the death of people in the settlement. 3. the pilot may not be familiar with the navigation means of the area that he/she is forced to land on, he/she may not know the airport well. the area to land on may be insufficient in opportunities. 4. possible struggle happening in the plane may cause the plane to explode or cause it to lose its balance. 5. as disputes in the plane increase, people that attempt the aircraft hijacking may shoot their weapons; therefore, kill the passengers, crew, and even the pilot. 6. during aircraft hijackings, properties of passengers and the airline company may get damaged. 7. when the plane is taken off its course and forced to in another route, it may be a target for the planes or antiaircraft guns of another state. 8. if aircraft hijacking incidents continue, people's trust to aircrafts as means of travel may disappear. also, it may create image problems for airline companies. 5. aircraft hijacking in international agreements since the start of commercial aviation, various accidents and incidents have happened. every incident and accident revealed the deficiencies and inadequacies in the aviation sector. aircraft hijacking is one of the problems. the fact that these problems occur in periods where transportation is easy and comfortable makes it necessary to address national and international solutions regarding aircraft hijacking crime. with studies conducted prevention measures, punishments, and dissuasive rules were created; this problem has entered penal laws of countries, and international agreements in the international arena. after aircraft hijacking incidents, the investigations mostly try to base the incident on political grounds; this fact makes it necessary to establish some rules both nationally and internationally. the desire to base aircraft hijacking crimes on political grounds comes from the thought of removing the return of the criminals. it is now compulsory to make necessary regulations to separate aircraft hijacking from political crimes with agreements. international agreements for measures taken to deter from aircraft hijacking are explained below (agrawala, 1973). sencerhan avcı & mustafa emre civelek 5.1. preventing and punishing terrorism agreement by this agreement, all acts directed towards damaging or abolishing properties assigned to public service or public properties that took of from one of the contract states are considered as terror acts. thus, harmful acts against planes got into the punishable area. another important aspect of the agreement was to ensure the return of such terrorist offenders (bayraktar, 1971). those who undertook terrorist acts would not be able to shelter in another country. when we look at this agreement about political events, inability to sheltering in another country shows that it cannot be based on political grounds. 5.2. geneva convention when we look at geneva convention regarding open seas, dated 29 april 1958; there is not much information about aircraft hijacking. according to the convention, all kinds of acts, interceptions, and plundering of a ship, a plane, people or properties inside are considered as crimes and express piracy act. an important point here is that acts that are not committed with personal goals do not constitute piracy crime. when we look at it as a political crime, it is not mentioned in the geneva convention. 5.3. tokyo convention the origin of tokyo convention is the cordova incident of 1947 (urban, 2016). while the plane was over the sea, the passenger diego cordova started to argue with other passengers while extremely drunk and bit the pilot and hostess who wanted to interfere. by the marine judicial system of usa, an allegation was made in new york federal court; however, the incident came to an end when the court dropped the case because the plane is not a marine vessel. with tokyo convention, signed in tokyo on 14 september 1963, regulations were realized regarding crimes and actions in planes and aircrafts. tokyo convention involves an agreement that authorizes the pilot to use force if the crime is committed inside the plane. the captain can use this right through others, in other words, passengers. when we look at the rules and punishments to be applied, the rules of the country the plane is registered in will be applicable. the fundamental regulation of tokyo convention is gibing the pilot of the plane certain rights. the rise of violence in planes in those years created the tokyo convention, and it was thought that it could be solved with the rights given to the pilot. however, increasing incidents in the following years showed that tokyo convention was not enough. tokyo convention does not have regulations regarding political crimes and aircraft hijacking. 5.4. la haye convention it was accepted on 16 december 1970 in la haye, international aviation law conference. let's look at its articles (resmi gazete, 1972); all contract states guarantee to punish the crime with severe punishments. all contract states, where the culprit or the person who is alleged to be the culprit is in, shall arrest this person or take other measures that will ensure their presence if they decide the conditions are enough. the crime shall be considered as a returnable crime in the return agreements of existing criminals between contract states. in accordance with the national laws of contract states, icao shall be informed as soon as possible of the conditions of the crime; measures taken to return the control of the plane to aircraft commander, and to ensure the continuation of the trip for the crew and the passengers; measures taken regarding the criminal or the alleged criminal; and especially about the results of return formalities. the state the plane is registered in, the state where the plane landed in, and finally the state of residence of the criminal shall have jurisdiction. la haye convention does not fully make the necessary explanation regarding the return of criminals, and it does not define aircraft hijacking crime. these reasons cause this convention to be insufficient in the solution of the problems. legal aspects of aircraft hijacking 5.5. european convention on the suppression of terrorism in article 1, for the purposes of extradition between contracting states, none of the following offences shall be regarded as a political offence or as an offence connected with a political offence or as an offence inspired by political motives (resmi gazete, 1981): a. an offence within the scope of the convention for the suppression of unlawful seizure of aircraft, signed at the hague on 16 december 1970; b. an offence within the scope of the convention for the suppression of unlawful acts against the safety of civil aviation, signed at montreal on 23 september 1971: with the european convention on the suppression of terrorism, the goal was to abolish the thought of legal gaps by characterizing aircraft hijacking crime, which is an international crime, with political incidents. one of the important problems here was that only a limited number of states accepted this convention. contract states agreed on necessary sanctions to increase the participation of other countries. 6. aircraft hijacking, turkish judicial system turkey signed the la haye convention in 1970 and ratified it right after. therefore, turkey is under mutual obligations with 60 states that currently ratified the convention. therefore, in accordance with the la haye convention turkey: considers it an international crime to wrongly seize airship; undertook convention provisions regarding banishment of this crime with severe punishments, arrest of the perpetrators or suspects of the crime, prepare, return, criminal pursuit, return of airship control to legitimate airship commander, continuation of the journey of passengers and crew, return of the airship and the loads to their owners. since la haye convention could not deliver effective solutions to existing problems, 2010 beijing convention was accepted on 10 september 2010 in diplomatic conference in beijing to complete la haye convention. another important regulation concerning the sanctioning of aircraft hijacking crime is the european convention on the suppression of terrorism (1978). european convention on the suppression of terrorism was published on the official gazette dated 26.03.1981, and with no 17291, following the consigning to european council, it went into effect in turkey on 20.08.1981; in it, crimes regulated in la haye and montreal conventions are excluded from political crimes. with it, the goal was to prevent the possible gap by abolishing or limiting the possibility of objection to returning request based on the political nature of the crime. if we look at the regulations in our laws apart from international agreements; one of the fundamental rights of persons, freedom of travel was secured with the 23rd article of the constitution. again, with the 5th article of the constitution, to protect and improve this right is one of the fundamental duties of the state. the primary condition to carry out this duty is to ensure the safety of travel for the public. in that case, the legal matter imposed with sanctions, protected by punishments is the individual-public interest regarding the security of public travel. besides, the criminal sanctions regarding aircraft hijacking crime are described in article 223 of turkish penal code (resmi gazete, 2004). according to the 3rd clause of article 223 of turkish penal code; the person who prevents the act of aircraft by using force or threats or with another illegal act or taking it somewhere else other than the destination shall be punished with five to ten years of imprisonment. it is also regulated in the same article that if the personal liberties are limited and/or intentional injury crimes are committed during the act of this crime, they will separately be judged. article 152 also covers this. 7. conclusion air transport is considered fast and reliable; it continuously grows and brings together some problems. unfortunately, making some necessary regulations and decisions in the aviation sector happen as a result of some sad incidents. recent malaysia, germanwings, and egypt accidents are some examples of this. all three incidents make it a must to rearrange aviation rules and take new measures. problems in the universalism principle of aviation affect many countries. the fact that there are gaps in security procedures of countries and the punishments not being sencerhan avcı & mustafa emre civelek deterrent in aircraft hijacking acts; affect many people, regions, and countries (evans, 1969). increasing terrorist acts in the last years; acts like aircraft hijacking by terrorist groups make it necessary to review universal rules, penal sanctions, and security procedures. it proves that nowadays aircraft hijacking acts cannot be associated with political events because of international agreements. states that do not sign these agreements shall be confronted with common attitude so that the whole world will apply them. even though it has been 85 years since the first aircraft hijacking act in 1931, aircraft hijacking incidents still continue to this day. as a solution for this, besides not associating aircraft hijacking acts with political events, it should be obligatory to have a plane police inside the planes, and it should be obligatory for all airline companies to do this in order to not have accidents and losses; this should be applied by all countries. and other safety measure must be taken. for instance following the activity of the pilots is important (rogalski, 2010). icao (international civil aviation organization), of which states are members, should lead states regarding sanctions by inform states that aircraft hijacking crime cannot be associated with political crimes. references agrawala, s. (1973). aircraf hijacking and international law. journal of air law and commerce, 659-661. bayraktar, k. (1971). uçak kaçırma suçu. i̇stanbul üniversitesi hukuk fakültesi mecmuası, 37, 168-169. çavdar, a. (1970). uçak kaçırma olayları ve hukuki niteliği. ankara barosu dergisi, 163-164. evans, e. (1969). aircraft hijacking: its cause and cure. american journal of international law, 63(4), 695-710. john, p. (1991). air piracy, airport security, and international terrorism: winning the war against hijackers. westport: quorum books. resmi gazete. (1972). 7 aralık 1972. türkiye cumhuriyeti. resmi gazete. (1981). 26 mart 1981. türkiye cumhuriyeti. resmi gazete. (2004). 12 ekim 2004. türkiye cumhuriyeti. rogalski, t. (2010). the idea of a system increasing flight safety. aviation, 14(4), 112-116. roming, t. (2015). the hijacking of flight et 702: the challenges of managing a major security threat, media attention and continuing daily airport operations. journal of airport management, 9(4), 310-316. urban, j. (2016). the protocol to amend the convention on offences and certain acts committed on board aircraft: a missed opportunity or a sufficient modernization? indiana law review, 49, 713-743. uyar, t. (2009). uçak kaçırmak. airport haber. wikipedia. (tarih yok). wikipedia. https://en.wikipedia.org/wiki/list_of_aircraft_hijackings: https://en.wikipedia.org/wiki/list_of_aircraft_hijackings adresinden alınmıştır journal of international trade, logistics and law, vol. 4, num. 2, 2018, 19-24 19 impact of oil revenues on economic prosperity in south sudan henry jada jacob yugusuk istanbul commerce university, turkey received: november 16, 2018 accepted: december 10, 2018 published: december 15, 2018 abstract: south sudan among the most oil-independent country in the world, oil contribute for almost all bulk of its exports, around 60% of gross domestic products (gdp), and 98% of government revenue, yet the economy is stationary and faced with several woes such a s lack of infrastructural development, widespread poverty, and growing inflation. oil revenue meant to improve economic development, but due to the kleptocracy system of government, the economy remained motionless. this paper argues that oil revenue has a negative impact on economic prosperity in south sudan, that lead to poor quality institutions and governance, which cause slower economic growth. based o n this, this article recommends that the government should establish some robust legislation on revenues management such as a management of oil income, audit, and procurement in order to ensure accountability and transparency in the oil sector. by establishing those laws, the revenue that generated from oil can be invested in the agricultural sector as a mean of diversification that can sustain and robust economic prosperity. this can avoid the economic crisis in the nearest future due to unstable oil prices in the international market. keywords: oil revenue, patronage, economic prosperity 1. introduction south sudan is not different from oil-dependence countries, where oil had become a curse rather than a blessing (resources curse). (arriola, 2009); oil contribute for almost all bulk of its exports, around 60% of gross domestic products (gdp), and 98% of government revenue, yet the economy is stationary and faced with several woes such as lack of infrastructural development, widespread poverty, and growing inflation. the country expected to improve economic development on the basis of its oil. contrarily, the oil-revenue allowed the political elites to build a kleptocratic-militarized, corrupt neo-patrimonial regime, that consumed the copious oil revenue and almost leaving nothing for public services, economic development, and institution building. (waal, 2017) the kleptocracy regime control all sectors of the economy overspent on military-political patronage and undermined the other revenues institutions. south sudan as a country with a reserve of 375,000 billion barrels of crude oil is supposed to prosper the economy growth but instead, it created a kleptocracy system on which the functioning of the state institutions is determined by the mechanism of supply and demands instead of laws and regulations. in the absence of laws and regulation in other revenue sectors, the political offices will be used for personal gain. the essence of the kleptocracy is that leaders are opportunists that use everyday chance to embezzle public funds in order to spend on military -political patronage system that keeps them in power. when the leaders overspend in security sectors and political budget then less or nothing will be left for development and institutions building. 2. literature review several studies demonstrate that oil resources lead to poor quality institutions and governance, that cause slower economic prosperity. scholars have regularly asserted that oil-rich countries have a poor quality or in some cases it a total lack of political and economic institutions. (shambayati, 1994), (sala-i-martin, xavier, 2003),(isham, j., m. woolcock, l. pritchett, 2005), and (ross, 2003). the argument has been used to expound why oil states grow at a slower rate and suffer from others reverse outcomes. this robust the link between oil resources and a state level of economic prosperity. henry jada jacob yugusuk 20 since the 1990s, numbers of literature have been presented on the natural resources curse, the propensity on the countries with oil resources, economically grow at a slower rate (shambayati, 1994). the implications indicate that oil curse has inflicted most of the oil-producing countries by creating both a culture of corruption and a culture of overspending frequently lead to what so call dutch disease (an overheated economy with a major macroeconomic imbalance). for instance, countries like chad, nigeria, angola, and gabon received an immerse rent from oil revenues, however, the gross domestic product (gdp) in those countries display a slow economic growth rate in some cases there is no growth in gdp. (kojucharov, 2007). furthermore, the literature robust the argument that, oil has a negative impact on the institutions, on the bases that oil rents or revenue influence state capacity on which the oil independent states distort the institutional development of a country because the revenue that comes from oil incapacitate proxies of restraints. for instance, taxation is one of sector that government may avoid due the oil revenue that the state receives directly from the oil exploitation, the assertion is that, if there no taxation, there is no need for the state to establish a revenue-generating tax rules and regulations, that is the main motivation for institutions building and effective governance. (chaudhry, 1989), (karl, 1997),(wyk, 2007)(luong, pauline, and erika, 2006), and (fearon, 2005). according to (diamond, 2008) & (bueno de mesquita, bruce, alastair smith and (, 2003); government utilizes the oil revenue to pacify certain group through patrimony and corruptions rather than improving the institutions or provide public services. in term of corruption, the oil exporting states have a higher level of corruption, numerous study indicates that, due to a weak institution, high risk of misappropriations of oil revenue are immersed problems that, the state may encounter because there are not institutions restraints. (tiede, 2013). corruption will extend from the oil productions stage to the government civil servants based on the secret signature bonuses that contribute to the oil curse. government position will side with the policies that benefited their side rather than the good of the overall of state welfare, why because the main aim is to share the oil revenue with their supporters. (tiede, 2013) further stated that lack of mechanisms how government should spend state oil revenue, always allowed the oil-rich countries to overspent on patronage which in return, undermine the state accountability and allowed oil revenue to redistribute through a political channel. therefore, oil revenue displays a negative impact on the economic prosperity based on the above findings from the secondary literature. south sudan political patronage according to (johnson, 2016) the political elites was the cause of the tension and exacerbated south sudan’s fragility, whether through political or military institutions, the access to the public office depended on the ethnic identity and the elites were used as the link for that access. that degenerated into the absence of the proper function of the public institutions and the government lack some credible institutions to redistribute the public wealth. the ethnicity and the creation of the patronage were viewed as the main qualifications to access the public offices and public funds. the south sudanese communities knew that the access into the government institution depends on both ethnic identity and patronage, therefore, the ethnic groups started to agitate for more new administrative peripheries (counties), these are preferable to the ethnic lines. the new administrative units would benefit the individuals in term of the salaries if the borders are constructed a base on ethnic lines. that could guarantee the benefits to one own community that was the first sign of division and fragmentation. consequently, in march 2012 the vice president of the republic of south sudan riek machar proposed the establishment of not less than four hundred (400) newly administrative peripheries (counties) that were five times more than the previous number. machar inserted that the creation of the new counties will pave a way for the sufficient redistribution of the public wealth throughout the country. there was a misperception that, the establishment of the new administrative peripheries would inspire peace and especially if the demarcation of the new borders based on ethnic lines in which the people would be governed by their own communities. but the opposite was true, the more establishment of the administrative peripheries the higher the competition you get for resources and the less the resources become the higher the risk of conflicts. machar as the vice president authorized all the governors to establish and implement the newly created counties which are contrary to the local government act of 2009. the governors and the states administrative in the upper nile and equatoria tried hard to avoid demarcation of the new borders on ethnic lines, but instead, they tried to mixed ethnics groups with each another. the machar policy was questioned if he wants to change national policies? machar orders were enforced by some state governors, but the policy faced higher criticism from the united nation mission in south sudan (unmiss) country coordinator that the new formation of the counties encourages violent in impact of oil revenues on economic prosperity in south sudan 21 several rural areas all over the country and the reason was because of the new demarcated borders or the host of headquarters of the new administrative peripheries. based on the above explanation, the machar policy indicated a clear state of patronage and the obvious signs of the power struggle and resources. formation of more new counties, along with the ethnic lines, would provide benefits for any leader who had ambitious for power. the communities that would benefit from the newly created counties would always increase the numbers of loyalties officials in favor of the creator of those counties and that will have an influence within the splm structures that means an increased on the numbers of representatives in the party organ. (for continuing candidates for the chairmanship, the potential of such a development was clear) for the other political elites and tribal leaders down the line, the desire to extend their patron base on ethnic was important, course the particularism will never end. the tribes are divided into clans and the clans are divided into sub-clans and then families. on the eve of the first independence anniversary in 2012, president of the republic of south sudan called off the machar initiatives by saying that “the time was not right to establish a new counties and further assessment needed to be conducted” the president speech came as a sigh of relief to several governors but yet did not end the patronage politics. according, to local government act 2009, the counties administrators (commissioners) are to be elected by people and accountable to them, however, due to the political patronage, the commissioners were appointed by the state governors and accountable to them. on the other hand, south sudan transitional constitution gave powers to the president that limited the check and balance within the three branches of government. for instance, in 2012 president dismissed three elected governors that were contrary to the constitution, course the governors were elected by people and can only be accountable for them, but dismissal and the reappointment by presidents mean that the governors are answerable to the presidency. in addition to that, the president progressively appointed individuals from his tribe to the government key institution positions like central bank and judiciary in order to control power. that increased the tension. consequently, president policy led to the centralization of power and division of south sudan communities based on the ethnic lines, and that was cheap politics. it indicates that people from villages and common inhabitants did not have a combined platform to defy a leader, no vent to protest or complaints. in turn, this avoid the accountability of the elites in the political offices at all level. table.1 table.2 henry jada jacob yugusuk 22 south sudan gdp last previous highest lowest unit gdp annual growth rate -6.30 -13.10 15.90 -46.10 percent gdp 2.90 10.91 17.27 2.90 usd billion gross fixed capital formation 1377.70 1884.20 4811.30 1377.70 million ssp gdp per capita 745.30 820.10 1562.20 745.30 usd gdp per capita ppp 1569.89 1875.38 3789.90 1550.27 usd gdp constant prices 22921.10 22848.20 28183.80 13662.50 million ssp according to johnson splm party (the ruling party) had conducted a widespread consultation throughout the country on the performance of the governances and party, juneaugust 2012. the party members were sent out to their constituencies to conduct a survey on the performance of the governances and party and report back to the party headquarter in juba. all over the ten (10) states the results of the consultations indicated a prevalent dissatisfaction with both the party and government performance and there was a lot of disappointment and discontents. prospectively, the consultation outcome turned into a weapon in the internal power struggle in the party, that led to the accusation of some members within the party for coordinating consultation result to put the party chairman in the negative image. others used the outcome results to put blame on the president. 3. south sudan military patronage when south sudan become independence on 2011, there was no army but at least three armies, the post –1991 spla, the machar group which returned and reunified in 2002 and the paulino matif forces, south sudan defense force ssdf. the splm is not a standing army, even if, it is an organization that suggested the soldiers be mobilized for each operation and abandoned after the operation, it resembles the white army, the difference is that the spla have command structures and some training that give minimum discipline. in december 2013, the spla was set to comprise roughly of 240,000 soldiers 200 thousand militarily active and the remained 40 000 are reserve including those with handicap and retired but on the payroll spla did not have the full payroll of the soldiers in the central commands, however, the payroll was under commanders administration and the central command does not have any access to the lists of those soldiers, in order word spla is not a single integrated unit. the body guard of president kiir is mainly from his dinka tribes and machar and paulino matif are mainly nuer. majority of ministers in the national government had personal tribal bodyguard or militias, a prominent politician in opposition, also have their own tribal army, for instant lam akol. spla central command tried to unite the army but all in vain, therefore, the numbers of spla soldiers were only to be quest. the numbers of general commands are relatively seven thousand generals at the time of crisis, on december 2013. they were four, (4) stars general, night general with 3 stars, one hundred major generals and uncountable numbers of brigadiers generals. the ration of the generals in the spla reportedly higher than any others state army in the world. president kiir policies maintained the spla as the collection of separate militias and postponed any reform in the military section. the only things those militias shared in common, they all received their funds from government treasuring. generals are retired and appointed as ministers or directors in the ministries, generals become a top politician, the commander in chief (cic) become president, a general become speaker of parliament and brigadier become state governors. table 3: south sudan defense spending (us$ million) https://tradingeconomics.com/south-sudan/gdp-growth-annual https://tradingeconomics.com/south-sudan/gdp https://tradingeconomics.com/south-sudan/gross-fixed-capital-formation https://tradingeconomics.com/south-sudan/gdp-per-capita https://tradingeconomics.com/south-sudan/gdp-per-capita-ppp https://tradingeconomics.com/south-sudan/gdp-constant-prices impact of oil revenues on economic prosperity in south sudan 23 2006 2007 2008 2009 2010 2011 2012 defence 586 580 917 688 736 1,047 964 total govt exp. 2,281 1,888 2,563 3,273 2,785 defense (% of exp.) 40 36.5 28.7 32.0 34.6 gdp 15,264 11,853 15,179 19,146 10,220 defense (% of gdp) 6.0 5.8 4.8 5.5 9.4 sources: defence spending: data for 2006–8 from lewis 2009, p. 66; data for 2009 from world bank; data for 2010– 12 from sipri (excludes other uniformed services and off-budget expenditure); figures for gdp and government spending are taken from world bank data 4. conclusion south sudan is blessed with crude oil as the mains source of its revenue over years. despite the higher oil revenue, the country has still been listed among the poorest countries in the world due to its several glitches started from unstable inflation because of kleptocracy government that increased poverty, unemployment and among others. however, this study assessed the impact of oil revenue on economic prosperity in south sudan. the results of this study indicated that gdp is negatively based on table 1 & 2, and the result is contrary to the argument that oil revenue improves economic growth. 5. recommendation based on the finding of this paper, it was recommended that the government should establish some robust legislation on revenues management such as a management of oil income, audit, and procurement in order to ensure accountability and transparency in the oil sector. by establishing those laws, the revenue that generated from oil can be invested in the agricultural sector as a mean of diversification that can sustain and robust economic prosperity. this can avoid the economic crisis in the nearest future due to unstable oil prices in the international market. references arriola, l. r. 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(2016) south sudan:untold story from independence to civil war. i.b.tauris & co.ltd london. new york. henry jada jacob yugusuk 24 karl, t. (1997) the paradox of plenty: oil booms and petro states. berkeley,: ca: university of california press. kojucharov, n. (2007) ‘poverty, petroleum & policy intervention: lessons from the chad-cameroon pipeline’, review of african political economy, 34(113), pp. 477–496. available at: https://doi.org/10.1080/03056240701672619. luong, pauline, and erika, w. (2006) ‘rethinking the resource curse: ownership structure, institutional capacity, and domestic constraints.’, annual review of political science, 9(2), pp. 241–263. ross, m. (2003) the natural resource curse: how wealth can make you poor. washington, dc: available at: in options and actions, edited by byian bannon and%0apaul collier. sala-i-martin, xavier, and a. s. (2003) addressing the natural resource curse: an illustration from nigeria. nber working paper. shambayati, h. (1994) ‘the rentier state, interest groups, and the paradox of autonomy:state and business in turkey and iran’, comparative politic, 26(3), p. 307–331. tiede, r. k. and l. (2013) ‘economic development assumptions and the elusive curse of oil’, international studies quarterly, 57(1), pp. 760–771. waal, a. de (2017) ‘when kleptocracy becomes insolvent: brute causes of the civil war in south sudan’, african affairs, 113(452), pp. 1–30. wyk, j.-a. van (2007) ‘political leaders in africa: presidents, patron or profiteers’, accord occasional paper, 2(1), p. 1. journal of international trade, logistics and law, vol. 3, num. 1, 2017, 23-42 bitcoin: legal definition and its place in legal framework olena demchenko (master student) istanbul commerce university, turkey received: jan. 17, 2017 accepted: mar. 21, 2017 published: june 1, 2017 abstract: present paper explains role of the bitcoin and its involvement in economic activity worldwide, using practical examples of real business models, reflects the modern views of legislators and judicial bodies on local (selective countries legislation and court practice) and international level (european union legislation and international court practice), which are formed after bitcoin’s fast widespread in 2012. current research examines in details various definition of the bitcoin, used by legislators to place bitcoin in already existing legal frames – virtual money, property, commodity or financial instruments, which has significant importance to legislators worldwide to reg ulate business activity related to bitcoin: licensing of institutions issuing bitcoin, if it is defined as virtual money; bitcoin’s place in stock market, if it is defined as security or financial instrument; or transfer of property rights, if bitcoin is defined as commodity or property. moreover this paper underlines importance of amendments acceptance, based on certain bitcoin’s definition, to prevent money laundering, financial support providing to terrorism, to straighten financial market and consumer protection procedures. keywords: bitcoin, digital currency, property, financial instrument, securities 1. introduction discovering the official description of bitcoin as an “innovative payment system ”, everything might sound unbelievable or even to seem like a modern utopia. the bitcoin grants not only global accessibility, high level of security, which provides fraud protection, but also simplicity in its usage in everyday life activities, such as: charity and donation proceedings, crowdfunding campaigns, intercorporate decision making, even dispute resolution and mediation procedures . more on this topic is explained in part i of this paper. such virtual currency or payment system as bitcoin is not a new idea, in the prism of virtual payment system. we can remember flooz.com, whose usage in frauds was under the f.b.i. investigation -in the end company was closed in 2001 more modern systems like litecoin, darkcoin, peercoin, dogecoin, primecoinetc , which are still in usage, but their technical characteristics, centralization and exchange rate are different from bitcoin. we shall consider that there were some attempts in doctrine to discover and analyze what is bitcoin from legal aspect and to understand where is the place of bitcoin in existing legal regimes and legal frames. we can agree that satoshi nakamoto’s idea (most probably a pseudonym of a person or group of people recently the australian entrepreneur craig wright claim that he is satoshi nakamoto, but such claim was taken very skeptically ) of bitcoin is itself amazing: an autonomous, decentralized payments system, a virtual currency which can be globally used for any payments in one-click. no banks, no credit unions, no lenders. the only weak point of bitcoin is about the network of users: to proceed any payment in bitcoins your counteragent should be able to accept this payment method. nevertheless, nowadays the number of companies that understood all bitcoin’s preferences is developing and widening every day; bitcoin integrates itself more and more in our everyday life. it might look like, after bitcoin boom in 2012-2013, this topic is not under consideration of legislators and society but the situation is completely the opposite. therefore present paper will reflect the modern views of legislators and judicial bodies on local (selective countries legislation and court practice) and international level (european union legislation and international court practice), which are formed after bitcoin’s fast widespread in 2012. therefore in 24 olena demchenko part ii of present paper is explained legal background of bitcoin definition used by legislators worldwide (currency, property or security). besides bitcoins’ constant usage in everyday life activities like buying a coffee, having a haircut, purchasing property or booking a taxi ride, which are explained in part i, bitcoin is also used in darknet, money laundering or terroristic attacks .for example in april 2012 the f.b.i. published a report underlining the absence of a legal regulation on bitcoin, the absence of a certain centralized base or controlling authority which can be part of financial market, the absence of special software to detect money laundering schemes via bitcoin, the difficulties to identify the real source of funds exchanged for bitcoins, proceeding of bitcoin trade through third parties based all around the world, that makes bitcoin an attractive instrument for criminal activities, like reported illegal drugs purchase through silk road online platform in 2011 using bitcoin, or usage of first malware “infostealer.coinbit” designed to steal bitcoins in same year . in russia, for example, government is considering to forbid and to penalize bitcoin usage, which is considered as “money surrogate” according to suggested amendments to russian legislation, and therefore it falls under provisions about money regulation and financial market , in the territory of russian federation for last 2 years, but still such law (including as punishment deprivation of liberty up to 4 years and for persons on high managing position up to 7 years for bitcoin issue and distribution) is just in consideration . in the same time the european union underlines the importance of putting the bitcoin under anti-money laundering and counter terrorism regulation not just on union level (anti-money laundering directive and payment services directive) but also in national legislation of member states, and proposes to apply a licensing to the bitcoin exchange platforms . moreover, according to the europole’s information, bitcoin is mostly used as a single common currency by cybercriminals within territory of the european union . therefore in part iii are explained main aspects of legal regulations on anti-money laundering and counter terrorism considering bitcoin’s usage. therefore, as we can see, firstly, to provide any legal regulations and to penalize bitcoin’s usage in money laundering and terrorism, the global definition of bitcoin should be accepted. considering mentioned above and the recent development of terrorism in western europe and in the rest of the world, providing to the bitcoin a certain status and defining bitcoin’s place in national and international legal framework is important to make a more effective system of anti-terroristic control and money laundering prevention. 2. bitcoin and its involvement in multinational and national trade in the modern world the new technologies are becoming more and more integrated in our lives: almost every person has a phone, or a pc, or a tablet, or each of them. therefore many transactions are made in few seconds and few clicks on the internet surface and sometimes with usage of unconventional currencies such as bitcoin. nowadays many multinational corporations and media “giants” like microsoft1, time inc.2, taz3, dell4declared their use of the bitcoin system. in the modern world having a bitcoin wallet means no need of a bank account anyone can proceed in any place on the earth, using just a computer, actions as: 1 https://commerce.microsoft.com/paymenthub/help/right?helppagename=csv_bitcoinhowto.htm, (accessed 13.10.2016); 2 press release, time inc. partners with coinbase to become the first major magazine publisher to accept bitcoin payments, time inc., 16.12.2014, available at: http://www.timeinc.com/about/news/press-release/time-inc-partners-with-coinbase-tobecome-the-first-major-magazine-publisher-to-accept-bitcoin-payments/, (accessed 13.10.2016); 3http://www.taz.de/unterstützung/!142454/, (accessed 13.10.2016); 4 http://www.dell.com/learn/us/en/uscorp1/campaigns/bitcoin-marketing?c=us&l=en&s=corp, (accessed 13.10.2016); http://www.timeinc.com/about/news/press-release/time-inc-partners-with-coinbase-to-become-the-first-major-magazine-publisher-to-accept-bitcoin-payments/ http://www.timeinc.com/about/news/press-release/time-inc-partners-with-coinbase-to-become-the-first-major-magazine-publisher-to-accept-bitcoin-payments/ http://www.taz.de/unterstützung/!142454/ bitcoin: legal definition and its place in legal framework 25  booking a hotel (travel agencies like expedia, cheapair and travelkeysare accepting bitcoins5. expedia's vice-president, michael gulmann, explained that the company was "in a unique position to solve travel planning and booking for our customers and partners alike by adopting the latest payment technologies"6),  purchasing a flight tickets (airbaltic, air company with headquarter in latvia, focused on proceeding flights around baltic countries, scandinavia and europe, has become the first airline in the world to accept the bitcoin as tickets payment. chief executive officer of airbaltic, martin gauss, underlined: “airbaltic has been ranked among top 10 most innovative airlines globally. introducing the bitcoin payment option is a part of our innovative approach to the service with a central focus on our customer.”7),  paying university tuition fees (the university of nicosia in cyprus announced bitcoin acceptance as a tuition fee payment. “what we aim to explore in this program is the likely development pathway of digital currency and to give our students the insights that they can bring to bear in their professional careers.”8 said dr. andreas polemitis, senior vice rector at the university of nicosia.),  buying a computer or any software (for example dell is accepting bitcoin for payment proceedings in usa, uk and canada9. according to data, on february 2015 company declared their largest transaction in bitcoins in amount exceeding $50 00010.),  purchasing furniture, bed leanings, clothes, watches, perfumes or any retail products (such huge retailer like overstock.com11, on date of august 2014, reported bitcoin sales over $2 million (1% of total sales), with about $15,000 per day, or $300,0000 per month12, besides one of the biggest retailers in europe, paris based showromprive.com13, or monoprix14 also declared bitcoin acceptance as a payment system).  apart of the most popular bitcoin markets like online shopping and gift cards purchase, which are easy accessible by a computer or a smartphone, nowadays different local business are trying to go with the flow and use bitcoin system in coffee shops, restaurants, jewelry shops etc. for example, in prague it is very easy to find paralelni polis15, an espresso bar where you can have a cup of good coffee in exchange of a reasonable amount of bitcoins. payment proceeding is very easy: even if you do not have bitcoin wallet, you can create it directly on the spot and exchange your currency in bitcoin atm to enjoy your fresh espresso16. 5 news report, expedia to accept bitcoin payments for hotel bookings, bbc, 12.06.2014, available at: http://www.bbc.com/news/technology-27810008, (accessed 15.10.2016); 6 news report, expedia to accept bitcoin payments for hotel bookings, bbc; 7 press release, airbaltic world’s first airline to accept bitcoin, airbaltic, 22.07.2014, available at: https://www.airbaltic. com/airbaltic-worlds-first-airline-to-accept-bitcoin, (accessed 15.10.2016); 8 press release, university of nicosia in cyprus to be the first university in the world to accept bitcoin: offers master’s degree in digital currency, university of nicosia, 21.11.2013, available at: https://www.unic.ac.cy/about-us/university-nicosia-digitalcurrency-initiative/press-release, (accessed 15.10.2016); 9 http://www.dell.com/learn/us/en/uscorp1/campaigns/bitcoin-marketing?c=us&l =en&s=corp, (accessed 15.10.2016); 10pevehouse, laura, (2016), we’re now accepting bitcoin in the uk and canada, dell, 19.02.2015, available at: http://en.community.dell.com/dell-blogs/direct2dell/b/direct2dell/archive/2015/02/19/dell-now-accepting-bitcoin -in-uk-andcanada, (accessed 15.10.2016); 11https://www.overstock.com/bitcoin, (accessed 15.10.2016); 12 chavez-dreyfuss, gertrude, (2016), exclusive: overstock ceo says bitcoin sales to add 4 cents to 2014 eps, reuters, 13.08.2014, available at: http://www.reuters.com/article/us-overstock-com-bitcoin-iduskbn0gd21220140813, (accessed 15.10.2016); 13http://www.showroomprive.com/contratcgv.aspx, (accessed 15.10.2016); 14http://www.numerama.com/magazine/33462-monoprix-bitcoins.html, (accessed 15.10.2016); 15https://www.paralelnipolis.cz/koncepty/bitcoin-coffee-en/, (accessed 15.10.2016); 16 nguyen, tuan, (2014), i bought coffee at the prague cafe that only accepts bitcoin. here’s what it was like, the washington post, 05.11.2014, available at: https://www.washingtonpost.com/news/ innovations/wp/2014/11/05/i-bought-coffee-at-theprague-cafe-that-only-accepts-bitcoin-heres-what-it-was-like/, (accessed 16.10.2016); https://www.unic.ac.cy/about-us/university-nicosia-digital-currency-initiative/press-release https://www.unic.ac.cy/about-us/university-nicosia-digital-currency-initiative/press-release https://www.overstock.com/bitcoin http://www.reuters.com/article/us-overstock-com-bitcoin-iduskbn0gd21220140813 http://www.showroomprive.com/contratcgv.aspx http://www.numerama.com/magazine/33462-monoprix-bitcoins.html https://www.paralelnipolis.cz/koncepty/bitcoin-coffee-en/ 26 olena demchenko after bitcoin boom, in 2014 so-called bitcoin boulevards, streets or areas dedicated to local business which accept bitcoin payment became popular in the world. similar boulevard, for example, was opened in cleveland heights, ohio, usa17,but lately after the ohio department of public safety banned alcohol sale in exchange of crypto currency18, bitcoin payments were proceeded not so often and business went down. so far the netherlands are considered as the most bitcoin friendly country, the hague was the first city where such bitcoin boulevard19 was opened, besides that a new bitcoin city is on development20. moreover in the netherlands you can simply rent a bike21, have a boat ride22 exploring amsterdam channels, and have a drink23 or even a haircut24 using bitcoins. a new dutch startup biccur is working on implementing an idea of part-ownership in real estate using bitcoin system25. bitcoin atm network is growing every day: you can easily find bitcoin atm in many european capitals like london, copenhagen, amsterdam, prague etc26. on the current date in denmark, the first real estate, a house in a town mørkøvin north-western part of denmark, worth 117 bitcoins (over $ 50 000)27 was sold using bitcoin via coinfy startup28. in milan the first taxi driver accepts bitcoins for transportation services29. in ukraine, the official banking authority, “privatbank”, which de facto has monopoly on financial transactions in ukraine and, according to recent news, is on the way to its nationalization by government30, since january 2016 proceeds money exchange for bitcoins by using absence of legislation or control from national bank of ukraine or any other bodies31. the picture of how much virtual payment system, or so-called crypto currency, integrated itself in real life becomes very global and such integration is becoming deeper with technological progress. considering mentioned above, notwithstanding of satoshi nakamoto’s idea of regulation absence on bitcoins, in reality modern government policy, local and international legislation demand such legal regulation. 17http://bitcoinboulevard.us, (accessed 16.10.2016); 18 pick, leon, (2014), ohio bans alcohol sales with crypto on bitcoin boulevard, finance magnates, 28.04.2014, available at: http://www.financemagnates.com/cryptocurrency/news/ohio-bans-alcohol-sales-with-crypto-on-bitcoin-boulevard/, (accessed 16.10.2016); 19sardesai, neil, (2014), bitcoin boulevard: bitcoin a part of everyday life in this dutch neighborhood, cryptocoinsnews, 03.11.2014, available at: https://www.cryptocoinsnews.com/ bitcoin-boulevard-bitcoin-part-everyday-life-dutch-neighbour hood/, (accessed 16.10.2016); 20http://www.arnhembitcoinstad.nl/#deelnemers, (accessed 16.10.2016); 21http://www.starbikesrental.com, (accessed 16.10.2016); 22http://www.amsterdamboatevents.nl, (accessed 16.10.2016); 23http://www.cafekobalt.nl/en/nieuws, (accessed 16.10.2016); 24http://www.cutthroatbarber.nl, (accessed 16.10.2016); 25http://biccur.com/blog/portfolio/blandlord-com/, (accessed 16.10.2016); 26https://coinatmradar.com, (accessed 16.10.2016); 27 maras, elliot, (2016), a first in denmark: miner buys house with bitcoin using coinify, cryptocoinsnews, 14.03.2016, available at: https://www.cryptocoinsnews.com/a-first-in-denmark-miner-buys-house-with-bitcoin-using-coinify/, (accessed 16.10.2016); 28 aitken, roger, (2016), danish blockchain startup coinify scores $4 million early-stage investment, forbes, 03.08.2016, available at: http://www.forbes.com/sites/rogeraitken/2016/08/03/sebs-vc-unit-invests-4m-in-blockchain-payments-operatorwith-seed-capital/#33e495b01ea1, (accessed 16.10.2016); 29cavadini, federica, (2014), dallabistecca a palestra e taxi qui sipaga con moneta virtual, corrieredella sera, 02.02.2014, available at: http://milano.corriere.it/ milano/notizie/cronaca/14_febbraio_02/dalla-bistecca-palestra-taxi-qui-si-paga-moneta-virtualef1ab0942-8bf1-11e3-a29b-8636964bc663.shtml, (accessed 16.10.2016); 30 news report, nazionalizatsiya privatbanka: vse podrobnosti, correspondent, 19.12.2016, available at: http://korrespondent.net/ukraine/3788705-natsyonalyzatsyia-pryvatbanka-vse-podrobnosty, (accessed 06.01.2017); 31 gadomskiy, dmitriy, (2016), early adopters: mozhet li privatbank rabotat s bitcoin v ukraine i kogda nbu opredelitsa s resheniyem po kriptovalute, forbes, 21.01.2016, available at: http://forbes.net.ua/opinions/1409465-early-adopters-mozhet-liprivatbank-rabotat-s-bitkoin-v-ukraine, (accessed 22.11.2016); http://bitcoinboulevard.us/ http://www.financemagnates.com/cryptocurrency/news/ohio-bans-alcohol-sales-with-crypto-on-bitcoin-boulevard/ http://www.arnhembitcoinstad.nl/#deelnemers http://www.starbikesrental.com/ http://www.amsterdamboatevents.nl/ http://www.cafekobalt.nl/en/nieuws http://www.cutthroatbarber.nl/ http://biccur.com/blog/portfolio/blandlord-com/ https://coinatmradar.com/ https://www.cryptocoinsnews.com/a-first-in-denmark-miner-buys-house-with-bitcoin-using-coinify/ http://forbes.net.ua/opinions/1409465-early-adopters-mozhet-li-privatbank-rabotat-s-bitkoin-v-ukraine http://forbes.net.ua/opinions/1409465-early-adopters-mozhet-li-privatbank-rabotat-s-bitkoin-v-ukraine bitcoin: legal definition and its place in legal framework 27 to summarize, i would like to underline that nowadays bitcoin is used for:  purchase agreements (including real estate),  service provisions agreements (including transportation services), which are legally regulated by national legislation or internationally, including: o tax regulations, o customer protection, o licensing, o anti-money laundering and counterterrorism. 3. the meaning of bitcoin in present paper i will not stop on technical characteristics of bitcoin and blockchain technology or will not try to explain how peer-to-peer network works. detailed description on this subject can be found on official web site of bitcoin system32 or in research papers, for example, in work of nikolei m. kaplanov “nerdy money: bitcoin, the private digital currency, and the case against its regulations”33. instead i would like to focus on the legal aspect of such phenomenon as a bitcoin. is it a currency? is it a payment system? maybe it can be considered as a property? or as a type of security? legislators in various countries were trying to answer on these questions and therefore several views on problem of bitcoin’s definition exist. let us have a look. 3.1. bitcoin as a money money definition by itself is changing from time to time; let us remember such ancient currencies as mina, talent or denarius, which were made from gold or other metals, using them in modern times now might seem impossible or inconvenient. bringing with you a brick of gold to exchange for tools in modern world – who can imagine it? nowadays with fast technological progress and “cash-free” movements around europe (for example in norway cash makes just 5 % of total payments and rates in uk and sweden are even lower34, in sweden you can even buy a newspaper sold on street by homeless people using your bankcard35, danish government is insisting for moving country to “cash-free” economy36, besides bill and melinda gates underline importance of digital economy for development37). money, notwithstanding of their form, has three different functions: they work as a medium of exchange a means of payment with a value that everyone trusts, as a unit of account allowing goods and services to be priced and as a store of such value38.money also can be considered as the cost to acquire financial resources39. 32 https://bitcoin.org, (accessed 06.01.2017); 33kaplanov, nikolei m., (2012), nerdy money: bitcoin, the private digital currency, and the case against its regulations, available at: https://poseidon01.ssrn.com/delivery.php?id=127087120097029 1160790831040870070300220410170310270780 99093025106009077127117007030001121005122042126107027084094099025020064046034013064088072028064087111018028 100086036012092019023110091027124065109087117124127029025024069089092004106080077024084095&ext=pdf, (accessed 06.01.2017); 34http://www.norwaypost.no/index.php/business/general-business/29983, (accessed 02.12.2016); 35 harrison, virginia, (2015), this could be the first country to go cashless, cnn, 02.06.2015, available at: http://money.cnn.com/2015/06/02/technology/cashless-society-denmark/, (accessed 02.12.2016); 36tange, alexander, (2015), denmark proposes cash-free shops to cut retail costs, reuters, 06.05.2015, available at: http://www.reuters.com/article/denmark-cash-idusl5n0xx2zq20150506, (accessed 02.12.2016); 37http://www.gatesfoundation.org/media-center/press-releases/2013/09/digital-payments-can-benefit-the-poor, (accessed 02.12.2016); 38 european central bank, what is money?, 24.11.2015, https://www.ecb.europa.eu/explainers/tell-memore/html/what_is_money.en.html, (accessed 02.12.2016); 39smithin, john n., (1994), controversies in monetary economics, 1994, p. 2, 34, available at: https://books.google.com.ua/books?id=ri_tvuojgtcc&pg=pa1&lpg=pa1&dq=what+is+money?+john+n.+smithin&sour ce=bl&ots=spi7_u2gea&sig=qdqmzubg5hkkgplax9u4wq8etn0&hl=ru&sa=x&ved=0ahukewje5y7xstxqahvlvxq khaopaqeq6aeiozaf#v=onepage&q=what%20is%20money%3f%20john%20n.%20smithin&f=false, (accessed 02.12.2016); http://www.norwaypost.no/index.php/business/general-business/29983 http://money.cnn.com/2015/06/02/technology/cashless-society-denmark/ http://www.reuters.com/article/denmark-cash-idusl5n0xx2zq20150506 http://www.gatesfoundation.org/media-center/press-releases/2013/09/digital-payments-can-benefit-the-poor https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html 28 olena demchenko besides electronic money can be defined as electronically (in a smart card or the computer memory), including magnetically, stored monetary value, which represents a claim on the issuer, is issued on receipt of funds for the purpose of making payment transactions, is used as a means of payment and is accepted by a natural or a legal person other than the electronic money issuer40. considering mentioned above, let us have a look on specific regulations to understand if bitcoin payment system can fall under definition of “electronic money”. in case state of florida vs. michell abner espinoza (case #f14-2923), the judge teresa pooler underlines that bitcoin definition does not fall under definition of “payment instrument” under federal laws of the u.s.a. and the actions of the defendant does not fall into definition of “money transmitter” because he was not charging a fee for bitcoin transactions and “a money transmitting business transmits money from a customer and then, for a fee, paid by a customer, transmits that money to a recipient”41. the court noticed that bitcoin might have some attributes in common with what we call “money”, but bitcoin differs on some important aspects42. while bitcoin can be exchanged for money (accepted just by some businesses), its value is uncertain and mechanism of stabilization does not exists, there is no issuing authority or reserve, therefore bitcoin can be considered as “money”43. in the same time the financial crimes enforcement network of the united states department of treasury underlines that virtual currency (including bitcoin) is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency44. the danish assessment board in the case of skm2014.226.sr on 25 march 2014 relied that bitcoin cannot be considered an official currency for tax and the v.a.t. purposes, as bitcoin is not regulated by authorized authority in global market, not regulated by any central bank and cannot be withdrawn from circulations. therefore, neither invoice nor tax return cannot be prepared in bitcoin, and traditional bitcoin trade is not considered as financial contract for tax purposes according to the danish law45. moreover the danish central bank on march 2014 declared that “bitcoin does not have any real trading value compared to gold and silver, and thus is more similar to glass beads”, besides bitcoins are not protected by any national laws or guarantees, such as a deposit guarantee46. in 2013 the people’s bank of china issued a notice prohibiting financial institutions from concluding contracts in bitcoins, as by its nature bitcoin is not a currency and should not be circulated and used in the market as a currency in order to “protect the status of the statutory currency, prevent risks of money laundering, and protect financial stability”47. nevertheless on current date china takes first place from the most widespread bitcoin markets all around 40 e-money directive, 2009/110/ec, 16.09.2009, available at: http://eur-lex.europa.eu/legalcontent/en/txt/pdf/?uri=celex:32009l0110&from=en, (accessed 02.12.2016); law on payment services and electronic money, available at: http://www.fktk.lv/texts_files/0_law_payment_services_electronic _money.pdf, (accessed 02.12.2016); electronic money rules of commerce, appendix 1, available at: https://www.occ.gov/topics/bank-operations/bit/intro-toelectronic-money-issues-appendix.pdf, (accessed 02.12.2016); ödeme ve menkul kıymet mutabakat sistemleri, ödeme hizmetleri ve elektronik para kuruluşları hakkında kanun no. 6493, 20.06.2013, (r.g. 27.06.2013/28690), available at: http://www.resmigazete.gov.tr/eskiler/2013/06/20130627-14.htm, (accessed 02.12.2016); 41state of florida vs. michell abner espinoza, case # f14-2923, 22.07.2016, available at: http://www.miamiherald.com/ latestnews/article91701087.ece/binary/read%20 the%20ruling%20(.pdf), (accessed 20.10.2016); 42state of florida vs. michell abner espinoza, case # f14-2923; 43state of florida vs. michell abner espinoza, case # f14-2923; 44 financial crimes enforcement network of the united states department of treasury, request for administrative ruling on the application of fincen’s regulations to a virtual currency payment system, 27.10.2014, available at: https://www.fincen.gov/sites/default/files/shared/fin-2014-r012.pdf, (accessed 18.12.2016); 45skatterådet #skm2014.226.sr, 25.03.2014, available at: http://www.skat.dk/ skat.aspx?oid=2156173&vid=0, (accessed 20.10.2016); 46press release, danish central bank (nationalbanken), bitcoin erikkepenge, 18.03.2014, available at: http://www.nationalbanken.dk/da/presse/documents/2014/03/ph_bitcoin.pdf#search=bitcoin, (accessed 23.10.2016); 47mullany, gerry, (2013), china restricts banks’ use of bitcoin, the new york times, 05.12.2013, available at: http://www.nytimes.com/2013/12/06/business/international/china-bars-banks-from-usingbitcoin.html, (accessed 23.10.2016); http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32009l0110&from=en http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32009l0110&from=en https://www.occ.gov/topics/bank-operations/bit/intro-to-electronic-money-issues-appendix.pdf https://www.occ.gov/topics/bank-operations/bit/intro-to-electronic-money-issues-appendix.pdf https://www.fincen.gov/sites/default/files/shared/fin-2014-r012.pdf http://www.nationalbanken.dk/da/presse/documents/2014/03/ph_bitcoin.pdf#search=bitcoin http://www.nytimes.com/2013/12/06/business/international/china-bars-banks-from-usingbitcoin.html bitcoin: legal definition and its place in legal framework 29 the world. for example according to an analysis performed for the new york times by chainalysis, chinese exchanges have accounted for 42 percent of all bitcoin transactions for 2016 year48. central bank of brazil on 09 october 2013 issued law no. 12,865 basically legalized the possibility of electronic money (resources stored in device or electronic system that allow the final user to perform a payment transaction) usage, including bitcoins, in national money transferring system49. according to mentioned above bitcoin considered as currency in brazil. german federal financial supervisory agency classified bitcoins as “digital currencies” units of account in the sense of the german banking, therefore bitcoin operators established in germany or those, who serve german customers are obliged to obtain a license from the german federal financial supervisory agency under the german law 50. according to the new proposed amendments to russian legislation and its federal law “on money surrogates”, the bitcoin is considered as a money surrogate, falls under provisions of russian legislation about money emission and therefore all bitcoins emission on the russian territory should be made just by licensed financial authority or punished by law 51. whereas how russian authorities will define in the scope of internet surface where certain bitcoin was issued, or de facto coded, is not specified in mentioned law. in turkey, according to law on payment and securities reconciliation systems, payment services, and electronic money institutions #6493, bitcoin is not falling within the scope of “electronic money” definition52. despite absence of regulation, the platform btcturk, which provides turkish lira-bitcoin exchange53, successfully provides its services, but recently accounts of btcturk have been stopped, according to information reported by webrazzi.com54, turkish information platform on web innovations and bitcoin news. considering that the legislation of the european union is trying to define bitcoin status, first we need to mention virtual currency schemes, issued by european central bank in 2012, in which stated bitcoin cannot be defined as “electronic money” according to electronic money directive (2009/110/ec)55, because in this context electronic money is just a different form of traditional money, but with bitcoin system traditional money are exchanging for bitcoins56. according to virtual currency schemes – a further analysis issued by european central bank in 2015, such virtual currencies like bitcoin obtained ad-hoc definition as “a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money”57. 48 popper, nathaniel, (2016), how china took center stage in bitcoin’s civil war, the new york times, 29.06.2016, available at: http://www.nytimes.com/2016/07/03/ business/dealbook/bitcoin-china.html, (accessed 23.10.2016); 49central bank of brazil, law no. 12,865, 09.10.2013, available at: https://www.bcb.gov.br/pom/spb/ing/ institucionalaspects/law12865.pdf, (accessed 23.10.2016); 50 boehm, franziska and pesch, paulina, bitcoin: a first legal analysis with reference to german and us-american law, available at: http://www.uni-muenster.de/jura.itm/hoeren/materialien/boehm_pesch/ btc_final_camready.pdf, (accessed 23.10.2016); 51proekt federalnogo zakona “o denezhnih surrogatah”; 52ödeme ve menkul kıymet mutabakat sistemleri hakkında kanun. № # 6493; 53https://www.btcturk.com, (accessed 24.10.2016); 54 kara, merve, (2016), btcturk, tl yatırma işlemlerini durdurdu, webrazzi, 18.08.2016, available at: http://webrazzi.com/2016/08/18/hacklendigi-iddia-edilen-btcturk-tl-yatirma-islemlerini-durdurdu/, (accessed 24.10.2016); 55 electronic money directive, 2009/110/ec; 56european central bank, virtual currency schemes, 2012, available at: http://www.ecb.europa.eu/pub/pdf/other/ virtualcurrencyschemes201210en.pdf, (accessed 24.10.2016); 57european central bank, virtual currency schemesa further analysis, 2015, available at: https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf (accessed 15.12.2016); scheinert, christian, (2015), virtual currencies, challenges following their introduction, available at: http://www.europarl.europa.eu/regdata/etudes/ brie/2016/579110/eprs_bri(2016)579110_en.pdf, (accessed 15.12.2016); https://www.chainalysis.com/ https://www.bcb.gov.br/pom/spb/ing/%20institucionalaspects/law12865.pdf https://www.bcb.gov.br/pom/spb/ing/%20institucionalaspects/law12865.pdf https://www.btcturk.com/ http://www.ecb.europa.eu/pub/pdf/other/%20virtualcurrencyschemes201210en.pdf http://www.ecb.europa.eu/pub/pdf/other/%20virtualcurrencyschemes201210en.pdf https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf 30 olena demchenko besides case c-264/14, which was ruled in the court of justice, is worth to mention for our purposes. according to fabula of present case, mr hedqvist, swedish national, carried out electronic transactions via his company’s website; that company purchased bitcoins directly from private individuals and companies, or from an international exchange site and then resoled bitcoins to private individuals or to companies on such an exchange site, or just stored them58. in this situation, the supreme administrative court of sweden applied to the court of justice with a request for preliminary ruling asking if such transaction with bitcoins should be a subject on the value added tax. the court of justice underlined that, according to mentioned above virtual currency schemes by european central bank, bitcoin was explained as virtual currency used, principally, for payments made between private individuals via the internet and in certain online shops that accept bitcoins59. such virtual currency as bitcoin does not have a single issuer and instead is created directly in a network by a special algorithm, such system allows anonymous ownership and the transfer of bitcoin amounts within the network by users who have bitcoin addresses or so called “bitcoin wallets”, which may be compared to a bank account number60. the court of justice in this case states that a virtual currency can be defined as a type of unregulated, digital money, which is issued and controlled by its developers and accepted by members of a specific virtual community 61. the “bitcoin” virtual currency is one of the virtual currency schemes with “bidirectional flow”, which users can purchase and sell on the basis of an exchange rate and are analogous to other convertible currencies as regards their use in the real world; they allow both real and virtual goods and services to be purchased62. virtual currencies differ from electronic money within the scope of directive 2009/110/ec 63, in so far as, unlike that money, for virtual currencies the funds are not expressed in traditional accounting units, such as in euro, but in virtual accounting units, such as the bitcoin. besides within the scope of c-264/14 case the advocate general has observed that virtual currency has no purpose other than to be a means of payment and the court of justice mentioned that bitcoin transaction are considered as supply of services not goods, bitcoin can be considered as non-traditional currency on which both parties of such transaction agreed, therefore bitcoin transactions can be called exempted from v.a.t. financial transactions64. considering mentioned above worldwide accepted definitions and specific characteristics of money and electronic money particularly:  a medium of exchange with a value that everyone trusts (notwithstanding on widening of bitcoin’s application in specific areas, still its usage is very limited, therefore even though bitcoin can be a medium of exchange but still cannot be considered as a value that everyone trusts. that is why bitcoin’s characteristics do not fall under this feature of money.);  a unit of account allowing goods and services to be priced and as a store of such value (whereas, as it was shown in part i, some businesses around the globe do price their services in bitcoins, therefore bitcoin’s characteristics do fall under this feature of money.);  the cost to acquire financial resources (whereas bitcoin can be exchanged for other kind of currency, depositedor stored, therefore bitcoin’s characteristics do fall under this feature of money.);  electronically (in a smart card or the computer memory), including magnetically, stored monetary value (whereas bitcoin stored just electronically (on computer or flash drive using electronic encryption) and does not have any other form, therefore bitcoin’s characteristics do fall under this feature of electronic money.); 58 the court of justice, c-264/14, 22.10.2015, available at: http://curia.europa.eu/juris/document/document.jsf; jsessionid=9ea7d2dc30d5a4270d3ebea146d391c3cd2b45e5f395.e34kaxilc3qmb40rch0saxykb3j0?text=&docid=170305&pagei ndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=1761157, (accessed 23.11.2016); 59 the court of justice, c-264/14; 60 the court of justice, c-264/14; 61 the court of justice, c-264/14; 62 the court of justice, c-264/14; 63 electronic money directive, 2009/110/ec; 64 the court of justice, c-264/14; bitcoin: legal definition and its place in legal framework 31  represents a claim on the issuer (whereas bitcoin basically does not have common issuer or any controlling body, bitcoin transactions work as peer-to-peer network, but as services or goods can be purchased with bitcoin and bitcoin atm system helps to make further exchange easier, therefore bitcoin’s characteristics do not fall under this feature of electronic money.);  issued on receipt of funds for the purpose of making payment transactions (whereas to obtain bitcoin common used currencies are involved and bitcoin is exchangeable for goods and services, therefore bitcoin’s characteristics do fall under this feature of electronic money.);  accepted by a natural or a legal person other than the electronic money issuer (whereas, as mentioned in part i, bitcoin is accepted by limited network of legal entities and also can be accepted by natural person, therefore bitcoin’s characteristics do fall under this feature of electronic money.) considering mentioned above, on present stage of limited bitcoin’s acceptance by businesses and population, bitcoin’s characteristics does not totally fall under all electronic money features. in case when certain countries legislation took bitcoin under electronic money framework, contracts including bitcoins should be considered as contracts including other type of payment (like foreign currency, which is not used commonly as national means of payment in such state) and should be regulated subsequently. 3.2. bitcoin as a property according to blackstone’s famous statement – property is that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe65. in doctrine in many cases property rights are considered as decision rights (right to hold, lend, sell, permit to use etc) over some objects or assets, which provide right to take certain action (rights to access) and right to prevent others from certain actions (right to exclude), including same right to access and right to exclude over income or profit obtained from mentioned above asset or object66. property rights are not considered as physical object or event but are abstract social relations67. looking at mentioned definitions in prism of bitcoin essence, bitcoin can be accepted as such object or asset (even though bitcoin is stored as file on computer, sever or flash drive), over which concrete real or legal person can have property rights: right to permit access (to sell, to give as present bitcoins to other real or legal person) or right to exclude (bitcoin is encrypted and without personal encryption key of owner it is almost not possible to copy or to use bitcoin by real person or legal entity other than owner). 65 malloy, robin paul and diamond, michael, (2011), the public nature of private property, p. 47, available at: https://books.google.com.ua/books?id=lhqgcwaaqbaj&pg=pa47&lpg=pa47&dq=j.w.+ehrlich,+ erlich%27s+blackstone+113+(1959).&source=bl&ots=wgjmnve4_i&sig=kphmla-przrpuri9rb azoxyb1iw&hl=ru&sa=x&ved=0ahukewjpqs2slpbqahwbpxqkhehuci4q6aeihtaa#v=onepage&q=j.w.%20ehrli ch%2c%20erlich's%20blackstone%20113%20(1959).&f=false, (accessed 15.12.2016); 66 segal, ilya and whinston, michael d., (2010), property rights, stanford university, 07.08.2010, available at: http://web.stanford.edu/ ~isegal/prights.pdf (accessed 17.12.2016); grossman, s.j. and hart, o.d., (1994), the costs and benefits of ownership: a theory of vertical and lateral integration, journal of political economy 94, p. 691; 67pejovich, svetozar, (1990), the economics of property rights: towards a theory of comparative systems, p. 27, available at: https://books.google.com.ua/books?id=mufir6kbxaqc&pg=pa27&lpg= pa27&dq=property+rights+definition&source=bl&ots=gq5d_kelj5&sig=yshvmv-cooj59zyzi8k7yizmx 1o&hl=ru&sa=x&ved=0ahukewjqqosm7_vqahvguhqkhsitbeu4chdoaqhmmac#v=onepage&q=property%20rights %20definition&f=false, (accessed 17.12.2016 ); http://web.stanford.edu/%20~isegal/prights.pdf 32 olena demchenko whether bitcoin can be an object of property rights or not should be decided by legislators. for example in some countries object of property rights can be just tangible things and in others intangible things like idea or energy also recognized as property rights’ object68. for example, the internal revenue service in the u.s.a. in its notice #2014-21 stressed out that bitcoin in some businesses can function like currency but it does not have legal status in any jurisdiction. it can be considered as asset same like stocks, bonds, shares in property. “the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. for tax purposes in the u.s.a., virtual currency should be treated as property. general tax principles applicable to property transactions apply to transactions using virtual currency”69. besides, in the same u.s.a. bankruptcy court of the northern district of california, hearing case on bankruptcy of bitcoin mining firm hashfast’s trustee (hashfast technologies l.l.c and hashfast l.l.c v. marc a. lowe, case no. 14-30725dm), declared that bitcoins are not u.s. dollars and should be considered as intangible property or commodity for bankruptcy procedures70. one of the arguments, pro bitcoin’s consideration as property, is the constant change of the bitcoin’s money equivalent, for example on the date of 06.01.2017 bitcoin’s price was equal 1026,08 u.s. dollars, on date of 18.12.2016 equal 789,83 u.s. dollars, on the date of 26.11.2016 it was equal 753,40 u.s. dollars71, one year ago on the date of 20.12.2015 it was equal 457,53 u.s. dollars, two years ago on the date of 17.12.2014 it was equal 331,92 u.s. dollars, on 30.11.2013 one bitcoin was equal 1108,80 u.s. dollars72 and in june 2011 bitcoin price fall to 2 u.s. dollars73. in the above mentioned bankruptcy case no. 14-30725dmthe judge underlined, that for purposes of section 550(a) of the bankruptcy code (the u.s.a. legislation) the 3,000 bitcoin transferred constitute a commodity, not currency, and if the subject transfers are avoided the estate is entitled to either the bitcoin or the value of the bitcoin as of the transfer date or time of recover, whichever is greater74. it means that under the court ruling the defendant is obliged compensate the value of bitcoins on the date of hearing not on the date when he purchased them in 2013. generally term “commodity” is used (mostly in the u.s.a. legislation) in trade agreements to define tangible things which move in commerce and commit governmental measures (like quotas, rates of duty etc); in most cases term 68mattei, ugo, (2000), basic principles of property law: a comparative legal and economic introduction, p. 75, available at: https://books.google.com.ua/books?id=l4dd7x_5yiqc&pg=pa75&lpg=pa75&dq =property+right+object&source=bl&ots=arynb3cud_&sig=vcmkfxl7b-_mefyign42olbavng&hl=ru& sa=x&ved=0ahukewip6_qhop3qahwkicakhqltdjeq6aeigzaa#v=onepage&q=property%20right%20object&f=false , (accessed 18.12.2016); 69 the internal revenue service of the u.s.a., notice #2014-21, available at: https://www.irs.gov/pub/irs-drop/n-14-21.pdf, (accessed 20.10.2016); 70reingold, steven c. and durken, timothy j., bitcoins are not u.s. dollars: what does the ruling in the hashfast bankruptcy mean?, available at: http://www.jagersmith.com/downloads/pdf/bitcoins-are-not-us-dollars.pdf, (accessed 18.12.2016); 71http://www.coindesk.com/price/, (accessed 06.01.2017); 72https://www.coinbase.com/charts, (accessed 18.12.2016); 73 malone, j. anthony, (2014), bitcoin and other virtual currencies for the 21st century, 2014, p. 7, available at: https://books.google.com.ua/books?id=_etxcaaaqbaj&pg=ra1-pr58&lpg=ra1pr58&dq=guidance+ on+the+application+of+fincen+regulations+to+transactions+in+virtual+currencies&source=bl&ots=z642cgnmik&sig=5 uc94iual0qwubwz40xhfbdeg1a&hl=ru&sa=x&ved=0ahukewi987elif7qahwewbqkhtrraawq6aeirdaf#v=one page&q=guidance%20on%20the%20application%20of%20fincen%20regulations%20to%20transactions%20in%20virtual%20 currencies&f=false, (accessed 18.12.2016); 74 news report, california bankruptcy court to decide whether bitcoin is a currency or commodity, econotimes, 10.02.2016, available at: http://www.econotimes.com/ california-bankruptcy-court-to-decide-whether-bitcoin-is-a-currencyor-commodity-158333, (accessed 18.12.2016); higgins, stan, us bankruptcy court set to weigh in on bitcoin's currency status, coindesk, 09.02.2016, http://www.coindesk.com/bankrupt-bitcoin-mining-firm-trustee-seeks-return-of-funds-from-formerpromoter/, (accessed 18.12.2016); https://www.irs.gov/pub/irs-drop/n-14-21.pdf http://www.jagersmith.com/downloads/pdf/bitcoins-are-not-us-dollars.pdf http://www.coindesk.com/price/ https://www.coinbase.com/charts http://www.coindesk.com/bankrupt-bitcoin-mining-firm-trustee-seeks-return-of-funds-from-former-promoter/ http://www.coindesk.com/bankrupt-bitcoin-mining-firm-trustee-seeks-return-of-funds-from-former-promoter/ bitcoin: legal definition and its place in legal framework 33 “commodity” can be interchangeable with “asset”, “articles”, “goods”, “products”75.as bitcoin is intangible object and for now most of governments do not apply any quotas or rates for bitcoin transactions such term cannot be used in most cases to define its status, but the same as commodity bitcoin is an object for trade agreements and can move freely in commerce. not just american regulating and judicial bodies stress out bitcoin’s belonging to property objects, according to the principle statement of norwegian tax authority, bitcoins are treated as capital property for tax-related purposes76. hans christian holte, director general of taxation in norway, says “bitcoins don’t fall under the usual definition of money or currency”77. in the same way, recently stepped on the way to cash-free economy denmark78denmark’s ministry of finance has come up with an idea to allow certain businesses (it will be limited to gas stations, clothing stores, and restaurants) to turn away customers who cannot pay electronically79 using bitcoin on same level with electronic payments can become beneficial. as mentioned in previous chapter of present paper, in denmark bitcoin is not considered as currency and bitcoin involving transactions are officially tax free. the australian taxation office in its guidance on 18 december 2014 stated that bitcoin is neither money, nor a foreign currency, however it is an asset. therefore transactions with bitcoins are considered as barter agreement80. besides, can be also found some views that bitcoin, especially its private key, should be considered as intellectual property81, in this case authors stress out that operations with bitcoins are less like transfer of property but more like operations with assignment of rights to receive any benefits associated with bitcoin’s ownership82. therefore in attempts to qualify bitcoin’s status in legal framework, many countries come to conclusion that bitcoin cannot be considered as money, some legislators went further and defined bitcoin as a property and bitcoin involving operation as barter agreements (transferring certain amount of bitcoins to someone’s property in exchange for transfer certain amount of property rights for other object or services). 3.2. bitcoin as a security besides two main views on bitcoin’s place in legal system: as money and as property, there is one more view – to consider it as a security. 75 walker, herman, the international law of commodity agreements, duke university, available at: http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2960 &context=lcp, (accessed 18.12.2016); 76 http://www.skatteetaten.no/no/radgiver/rettskilder/uttalelser/prinsipputtalelser/bruk-av-bitcoins--skatte--ogavgiftsmessige-konsekvenser/, (accessed 23.10.2016); 77 webb, sam, (2013), 'bitcoin isn't real money': norwegian government refuses to recognize digital currency, dailymail, 16.12.2013, available at: http://www.dailymail.co.uk/sciencetech/article-2524672/bitcoin-isnt-real-money-norwe giangovernment-refuses-recognise-digital-currency.html, (accessed 23.10.2016); 78 russell, helen, (2015), no wallet, no worries: denmark considering cash-free shops, the guardian, 14.05.2015, available at: https://www.theguardian.com/world/2015/may/14/no-wallet-no-worries-denmark-considering-cash-free-shops, (accessed 18.12.2016); 79hannestad, adam, (2014), bitcoin-gevinster kanstikkes direct eilommen, politiken, 25.03.2014, available at: http://politiken.dk/oekonomi/dkoekonomi/article5508292.ece, (accessed 18.12.2016); 80 guidance, the australian taxation office, 18.12.2014, available at: https://www.ato.gov.au/general/gen/tax-treatment-ofcrypto-currencies-in-australia---specifically-bitcoin/, (accessed 23.10.2016); 81 brito, jerry, (2005), the law of bitcoin, p.34, available at: https://books.google.com.ua/books? id=yvqjcgaaqbaj&pg=pt6&lpg=pt6&dq=bitcoin+private+key+intellectual+property&source=bl&ots=pewwxrudvh&si g=2d_y9hb0g-7_u2pdbndlrjbut1c&hl=ru&sa=x&ved=0ahukewiupm-c1p7qahucp xqkhrgdckkq6aeintad#v=onepage&q=bitcoin%20private% 20key%20intellectual%20property&f=false, (accessed 19.12.2016); 82 berta, michael a. and noonan, willow w., (2015), the property-contract duality of bitcoin, financeworldwide, available at: https://www.financierworldwide.com/the-property-contract-duality-of-bitcoin/#.wfb1znsg_iu, (accessed 19.12.2016); http://www.dailymail.co.uk/sciencetech/article-2524672/bitcoin-isnt-real-money-norwe%20gian-government-refuses-recognise-digital-currency.html http://www.dailymail.co.uk/sciencetech/article-2524672/bitcoin-isnt-real-money-norwe%20gian-government-refuses-recognise-digital-currency.html https://www.theguardian.com/world/2015/may/14/no-wallet-no-worries-denmark-considering-cash-free-shops http://politiken.dk/oekonomi/dkoekonomi/article5508292.ece https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/ https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia---specifically-bitcoin/ https://www.financierworldwide.com/the-property-contract-duality-of-bitcoin/#.wfb1znsg_iu 34 olena demchenko generally security can be defined as financial instrument or interest83, can be in shape of note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation of any profitsharing agreement, investment contract, certificate of deposit for a security84. in the european union securities defined as financial instruments and this term is used in the european legislation85, according to the hague securities convention “securities” means any shares, bonds or other financial instruments or financial assets (other than cash), or any interest therein86. according to legislation of the united kingdom securities were first defined in 2000 and considered as forms of investment the issuing and trading of which, as “regulated activities”, must be conducted by an authorized person or by an exempted person87. as mentioned in part i certain businesses use bitcoins as means of payment and in some part as investment actives. we can remember that after visa, mastercard, bank of america, and paypal stopped providing donations to wikileaks, the web site claimed using bitcoin as donations88. moreover there were several attempts to create platforms for bitcoin trading, like bitcoinica, which provides contract-for-difference trading against the bitcoin/u.s.d. exchange rate89. besides many people accept bitcoin not just as instrument of investment but also as an investment by itself, especially considering bitcoin’s always changing value90. a research note from the bank of america suggested an idea that one day bitcoin takes a 10 percent share of money transfers and e-commerce transactions91. in poland some members of parliament follow view that if derivatives (such as options or futures) were created based on bitcoin’s value, they would have a status of financial instruments92. the austrian financial market authority shares opposite view on bitcoin’s status and underlines that bitcoin cannot be considered as financial instrument in any case93. considering the role of bitcoin in investment activity, its involvement in future contracts, in particular cases bitcoin can be accepted as security. for example the u.s. securities and exchange commission charged a man from texas and its company for defrauding investors in a ponzi scheme (an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors94) involving bitcoins; in mentioned case bitcoin is 83kaplanov, nikolei m., nerdy money: bitcoin, the private digital currency, and the case against its regulations; 84 the securities act of the u.s.a. of 1933, available at: https://www.sec.gov/about/laws/sa33.pdf, (accessed 20.12.2016); 85 directive 2004/39/ec of 21 apr 2004 (mifid) oj 2004 l 145/1, annex i, available at: http://www.fond-fci.ro/en/docs/ directive-39-2004-en.pdf, (accessed 20.12.2016); 86 36. convention on the law applicable to certain rights in respect of securities held with an intermediary, 05.07.2006, available at: https://assets.hcch.net/docs/ 3afb8418-7eb7-4a0c-af85-c4f35995bb8a.pdf, (accessed 20.12.2016) 87 castellano, giuliano g., (2012), towards a general framework for a common definition of “securities”: financial markets regulation in multilingual contexts, p.19, available at: https://www.lse.ac.uk/ collections/law/staff%20 publications %20full%20text/castellano/offprint-castellano-2012-3.pdf, (accessed 21.12.2016); 88 greenberg, andy, (2011), wikileaks asks for anonymous bitcoin donations, forbes, 14.07.2011, available at: http://www.forbes.com/sites/andygreenberg/2011/06/14/wikileaks-asks-for-anonymous-bitcoindonations/, (accessed 17.12.2016); 89 brito, jerry et al., (2014), bitcoin financial regulation: securities, derivatives, prediction markets, and gambling, available at: https://poseidon01.ssrn.com/delivery.php?id=69700112712607412712611507812008007410302403604408600310007510212 51240890231250880291100320530221090490031200050660961090681161160830940220861250721111171160271040600170670 21020094115113105024004070093023023092120030005088005111120079073117065120009&ext=pdf, (accessed 20.12.2016); 90 brito, jerry et al., (2014), bitcoin financial regulation: securities, derivatives, prediction markets, and gambling; 91 woo, david et al., (2013), bitcoin: a first assessment, 05.12.2013, available at: https://ciphrex.com/ archive/bofabitcoin.pdf, (accessed 20.12.2016); 92 pick, leon, (2014), poland: bitcoin derivatives are financial instruments, bitcoin isn’t currency, financemagnates, 09.07.2014, available at: http://www.financemagnates.com/ cryptocurrency/news/poland-bitcoin-derivatives-are-financial-instrumentsbitcoin-isnt-currency/, (accessed 20.12.2016); 93https://www.fma.gv.at/fma-themenfokusse/bitcoin/, (accessed 20.12.2016); 94 the u.s. securities and exchange commission, investor alert, no. 153 (7/13), available at: https://www.sec.gov/ investor/alerts/ia_virtualcurrencies.pdf, (accessed 18.12.2016); https://www.sec.gov/about/laws/sa33.pdf http://www.fond-fci.ro/en/docs/%20directive-39-2004-en.pdf http://www.fond-fci.ro/en/docs/%20directive-39-2004-en.pdf https://ciphrex.com/%20archive/bofa-bitcoin.pdf https://ciphrex.com/%20archive/bofa-bitcoin.pdf https://www.fma.gv.at/fma-themenfokusse/bitcoin/ https://www.sec.gov/%20investor/alerts/ia_virtualcurrencies.pdf https://www.sec.gov/%20investor/alerts/ia_virtualcurrencies.pdf bitcoin: legal definition and its place in legal framework 35 considered as security by the u.s. securities and the exchange commission and is a subject of licensing requirements95. further on request of the us securities and exchange commission on mentioned case (ponzi scheme case u.s. v. shavers, case # 15-cr-00157) a federal judge ruled that bitcoin fits definition of security under the security exchange act (the u.s. legislation)96. according to the final judgment on this case, following information provided by the u.s. attorney’s office of the southern district of new york, the defendant was sentenced to 18 months in prison for one count of securities fraud stemming from his involvement in a bitcoin-related ponzi scheme97. moreover the new york stock exchange have launched a bitcoin price index since 2015: the new index tracks the price of one bitcoin in u.s. dollars by looking at transactions processed through various bitcoin exchanges 98. in most cases security represents a legal ownership interest like, for example, a share in corporation, nevertheless bitcoin does not represent such interest. whereas bitcoin’s role in financial instrument’s market is limited to future contracts and investment activity, bitcoin cannot be fully considered as security. considered mentioned above, we can underline, many legislators even inside the european union, connected with same money market, treat bitcoin in different way and there is no common view or common legal status for bitcoin in the world. the picture of legislation on bitcoin can be described with different points: some legislators states, bitcoin cannot be considered as money or electronic money, other countries go further and consider bitcoin as property, few legislators accept bitcoin as virtual currency, some did not provide any legal status to it and in doctrine there are few views that bitcoin can be considered as intellectual property. just in the u.s.a. different regulators put bitcoin under property, currency and security regulation schemes. i can make conclusion systemizing the most common points in worldwide legislation– the best option is to consider bitcoin as a property, whose monetary value can change, therefore operations with bitcoins are barter agreements and bitcoin purchases should fall under legislation (including taxation) about barter agreements. 4. international legislation on bitcoin concerning money laundering and bitcoin’s involvement in terrorism considering bitcoin’s nature: its independence from controlling authority, tax free status, anonymity and simplicity of transactions with bitcoins, it is not surprising that in some cases bitcoin is considered as instrument for such activity as money laundering or terrorism. therefore bitcoin attracted attention of such international agencies like europole or interpole, numerous educational seminars, conferences briefings on bitcoin’s subject are organized all around the world. for example in 2015 the virtual currencies conference was organized by europol's european cybercrime centre (e.c.3) and the u.s. i.c.e. homeland security investigations (h.s.i.) for the second time and held at europol's headquarters in the 95 press release, sec charges texas man with running bitcoin-denominated ponzi scheme, 23.07.2013, available at: https://www.sec.gov/news/pressrelease/detail/ pressrelease/1370539730583, (accessed 18.12.2016); the u.s. sec, investor alert; 96 malone, j. anthony, bitcoin and other virtual currencies for the 21st century; 97 press release, texas man sentenced for operating bitcoin ponzi scheme, department of justice, the u.s. attorney’s office, southern district of new york, 21.07.2016, available at: https://www.justice.gov/usao-sdny/pr/texas-man-sentenced-operatingbitcoin-ponzi-scheme, (accessed 18.12.2016); 98 hackett, robert, (2015), new york stock exchange gives bitcoin some mainstream love, time, 19.05.2015, available at: http://time.com/3889775/new-york-stock-exchange-gives-bitcoin-some-mainstream-love/, (accessed 18.12.2016); https://www.justice.gov/usao-sdny/pr/texas-man-sentenced-operating-bitcoin-ponzi-scheme https://www.justice.gov/usao-sdny/pr/texas-man-sentenced-operating-bitcoin-ponzi-scheme http://time.com/3889775/new-york-stock-exchange-gives-bitcoin-some-mainstream-love/ 36 olena demchenko hague with a view to further strengthening the international cooperation and operational focus against the abuse of virtual currencies, such as bitcoin, for criminal transactions and money laundering99. in 2016 europol, interpol and the basel institute on governance established partnership to create a working group on money laundering with digital currencies to benefit from the exchange of information and knowledge with peers from other jurisdictions100. after attack in paris and brussels, the european union bodies raised their concern about virtual currencies’ involvement in terrorism, as according to investigations, mentioned terroristic attack was financed anonymously via payments made online or pre-paid cards101. but not all countries look at bitcoin as at dangerous instrument for money laundering and terrorism. in the u.k. home office report on the u.k. national risk assessment of money laundering and terrorist financing, money laundering risk involving such digital currency as bitcoin described as “low”102. according to europole’s report, the financing of terrorist operations by the islamic state are largely unknown: it is obvious that the costs of travel, the renting of cars and safe houses and the acquisition of means of communication and of weapons and explosives may involve considerable sums of money, but there is no evidence however of the islamic state financing networks in existence, besides despite third party reporting suggesting the use of anonymous currencies, like bitcoin, by terrorists to finance their activities, this has not been confirmed by law enforcement 103. considering situation with terrorism nowadays and fast technological development, the european union is trying to keep its legislation updated. in a proposal for amending directive (eu) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending the directive 2009/101/ec, the european commission is willing:  to extend strict anti-money laundering regulation to both virtual currency exchange services and custodial wallet providers;  to restrict the anonymous use of virtual currencies;  to apply customer due diligence controls when exchanging virtual for real currencies;  to oblige bitcoin companies to collect their customers’ identity documents;  to oblige bitcoin companies to monitor transactions on their platforms and report suspicious activity;  to address national financial intelligence units to provide measures to be able to associate virtual currency addresses to the identity of the owner of virtual currencies; 99 press release, us authorities & europol focus on combating the abuse of virtual currencies, 24.06.2015, available at: https://www.europol.europa.eu/newsroom/news/us-authorities-europol-focus-combating-abuse-of-virtual-currencies, (accessed 21.12.2016); 100 press release, money laundering with digital currencies: working group established, 09.09.2016, available at: https://www.europol.europa.eu/newsroom/news/money-laundering-digital-currencies-working-group-established, (accessed 21.12.2016); 101guarascio, francesco, (2015), eu clamps down on bitcoin, anonymous payments to curb terrorism funding, reuters, 19.11.2015, available at: http://www.reuters.com/article/us-france-shoooting-eu-terrorism-funding-iduskcn0t81 bw20151 119, (accessed 21.12.2016); 102 the uk national risk assessment of money laundering and terrorist financing report, the uk home office, 2015, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/468210/uk_nra_ october_2015_final_web.pdf, (accessed 21.12.2016); 103 changes in modus operandi of islamic state terrorist attacks, europol report, 18.01.2016, available at: https://www.europol.europa.eu/publications-documents/changes-in-modus-operandi-of-islamic-state-terrorist-attacks, (accessed 21.12.2016); https://www.europol.europa.eu/newsroom/news/us-authorities-europol-focus-combating-abuse-of-virtual-currencies https://www.europol.europa.eu/newsroom/news/money-laundering-digital-currencies-working-group-established bitcoin: legal definition and its place in legal framework 37  to allow users to self-declare to designated authorities on a voluntary basis should be further assessed104. according to mentioned above, considering bitcoin’s nature, its anonymity, involvement in many transactions in internet surface, absence of governmental control, many international enforcement bodies, national legislators are trying to amend legislation or organize international data exchange to prevent crimes connected with terrorism and money laundering using bitcoin. therefore to implement any changes successfully and to criminalize bitcoin’s usage in illegal actions properly, first of all, such regulators should define the legal nature of bitcoin. 4. conclusion in present paper was explained role of the bitcoin and its involvement in economic activity worldwide, using such practical examples on real business as: airbaltic, microsoft, dell etc. therefore it can be seen that bitcoin is used not just illegal transactions in darkweb but also for completely legal business: bike rent, coffee sale, haircut services provision and even property sale. according to mentioned above bitcoin usage for legal transaction raised many questions from legislators – should such transactions or bitcoin’s issue be licensed; how consumer rights can be protected; how to proceed taxations of sale or services provision in exchange of bitcoin etc. to put businesses which operate bitcoin in certain legal frames, first of all the legal nature of bitcoin should be defined. considering views of legislators on national (selective countries legislation and court practice) and international level (the european union legislation and international court practice), there are 3 main views on bitcoin’s definition:  bitcoin is a virtual currency;  bitcoin is a financial instrument;  bitcoin is a property.  determination of bitcoin’s nature has significant importance to legislators worldwide to regulate business activity related to bitcoin: licensing of institutions issuing bitcoin if it is defined as virtual money; bitcoin’s place in stock market if it is defined as security or financial instrument; or transfer of property rights if bitcoin is defined as commodity or property. analyzing mentioned in present paper legislation and court practice, it become clear that many legislators even inside the european union, connected with same money market, treat bitcoin in different way and there is no common view or common legal status for bitcoin in the world. the picture of legislation on bitcoins can be described with different points: some legislators states, bitcoin cannot be considered as money or electronic money, other countries go further and consider bitcoin as property, few legislators accept bitcoin as virtual currency, some did not provide any legal status to it and in doctrine there are few views that bitcoin can be considered as intellectual property. just in the single u.s.a. different regulators put bitcoin under property, currency and security regulation schemes. however, considering bitcoin’s role in financial instrument’s market is limited to future contracts and investment activity, bitcoin cannot be fully considered as security. moreover, on current stage of limited bitcoin’s acceptance by businesses and population, bitcoin’s characteristics cannot fall fully under all electronic money features. in case when certain countries legislation took bitcoin under electronic money framework, contracts including bitcoin should be considered as contracts including other type of payment (like foreign currency, which is not used commonly as national means of payment in such state) and should be regulated subsequently. notwithstanding mentioned above, in attempts to qualify bitcoin’s status in legal framework, many countries come to conclusion that bitcoin cannot be considered as money, some legislators went further and defined bitcoin as a property and bitcoin involving operation as barter agreements (transferring certain amount of bitcoins to someone’s property in exchange for transfer certain amount of property rights for other object or services). 104 proposal for amending directive (eu) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending directive 2009/101/ec, available at: http://ec.europa.eu/ justice/criminal/ document/files/aml-directive_en.pdf, (accessed 21.12.2016); 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http://www.arnhembitcoinstad.nl/#deelnemers http://biccur.com/blog/portfolio/blandlord-com/ http://bitcoinboulevard.us/ https://bitcoin.org/en/innovation https://www.btcturk.com/ http://www.cafekobalt.nl/en/nieuws https://www.coinatmradar.com/ https://www.coinbase.com/charts http://www.coindesk.com/price/ http://www.cutthroatbarber.nl/ https://commerce.microsoft.com/paymenthub/help/right?helppagename=csv_bitcoinhowto.htm http://www.dell.com/learn/us/en/uscorp1/campaigns/bitcoin-marketing?c=us&l=en&s=corp https://www.europol.europa.eu/iocta/2015/key-findings.html https://www.fma.gv.at/fma-themenfokusse/bitcoin/ http://www.gatesfoundation.org/media-center/press-releases/2013/09/digital-payments-can-benefit-the-poor http://www.norwaypost.no/index.php/business/general-business/29983 http://www.numerama.com/magazine/33462-monoprix-bitcoins.html https://www.overstock.com/bitcoin https://www.paralelnipolis.cz/koncepty/bitcoin-coffee-en/ http://www.showroomprive.com/contratcgv.aspx http://www.skatteetaten.no/no/radgiver/rettskilder/uttalelser/prinsipputtalelser/bruk-av-bitcoins--skatte--og-avgiftsmessige-konsekvenser/ http://www.skatteetaten.no/no/radgiver/rettskilder/uttalelser/prinsipputtalelser/bruk-av-bitcoins--skatte--og-avgiftsmessige-konsekvenser/ http://www.starbikesrental.com/ http://www.taz.de/unterstützung/!142454/ journal of international trade, logistics and law, vol. 9, num. 1, 2023, 35-46 35 the effect of fdi and financial development markets on subsahara african economy: an empirical study based on var model farhio abdukadir abdi istanbul commerce university, turkey ayben koy istanbul commerce university, turkey received: dec 14, 2022 accepted: marc 09, 2023 published: june 01, 2023 abstract: this paper investigates the effect of fdi and financial development markets on gdp growth in 35 sub-sahara african (ssa) economies over the period 1980-2020. the results in the vector autoregression (var) models indicate that fdi has no significant impact on the gdp growth of ssa. however, two variables of financial development have got positive significant effect on the economic growth of ssa. moreover, the result of the granger causality test show that financial development have significant causality effects on the economic growth of ssa. keywords: economic growth, fdi, financial development markets, granger causality 1. introduction fdi remains the largest foreign capital inflow for developing economies. several explanations have been advanced to justify the benefits of fdi, including augmenting domestic savings and investment, improved managerial skills, and transfer of advanced technologies to the host countries. the relevance of fdi has been emphasized for a variety of reasons, including increasing local savings and investment, transferring cutting-edge technology, and improving managerial abilities in a destination. consequently, several countries in the developing world have resumed their efforts to attract fdi. a minimum of 126 investment policy reforms were enacted by 65 nations and economies in 2015, of which 84% were investor-friendly. the authorities liberalized entrance conditions in a variety of industries, including transport, energy, and industry. they also encouraged and made it easier for people to invest by making administrative processes simpler, giving incentives, and setting up special economic zones (sezs). however, those benefits do not automatically convert to becoming the host country’s spillovers but require the host country to have an adequate base to absorb the acquired technology. global fdi flows dropped by 23% to $1.43 trillion in 2016. this contrasts sharply with rapid growth in trade and gdp. similarly, africa's foreign direct investment fell to $42 billion, down 21% from 2016. the downturn was triggered by low oil prices and negative continuing the commodity bust has had macroeconomic consequences in major african counties. (unctad 2018). in the past decade, sub-saharan african economies have been the main recipient of fdi in the percentage of gdp among developing economies while the economic growth in ssa in 2015 collapsed to its lowest level in 15 years. as financial development helps to allocate and mobilize financial resources as well as support other economic policies in enhancing productivity. in 2020, sub-saharan africa's real gdp is expected to decline by 1.6 percent, the lowest amount of growth ever recorded. southern and east africa, which was the most impacted by the coronavirus, is estimated to recover from a 3.0 percent decline in gdp in 2020. gdp growth in south africa is estimated to return from -6.4 percent in 2020, while gdp growth in angola is estimated to revive from -5.4 percent in 2020, following two years of recession. farhio abdukadir abdi & ayben koy 36 central and west africa's growth is estimated to contract by -0.8 percent in 2020. nigeria's economy is estimated to increase from -1.8 percent in 2020, mainly to improved oil and non-oil sector performance. nevertheless, attracting fdi is crucial for economic development in ssa because it provides the external capital necessary for investments (asiedu, 2006) and (cleeve, 2008). still, the challenge is how to make investors commit to registering for real capital expenditure. it makes sense that things like raising money and hiring staff need time to plan for implementation. however, the variation in fdi inflow and stock in ssa as well represents the uptake capacity of host economies, which falls short of the level of economic development. examples include underdeveloped financial markets, inadequate physical infrastructure, and the lack of qualified workers, all of which support the notion that member states can often profit from fdi through dynamic capabilities. by improving their initial capacity. therefore, the goal of this study is to examine the influence of financial market development and fdi on gdp growth in ssa. the question of whether fdi and financial market development trigger economic growth or economic development brings fdi and a more developed financial market is an unresolved issue. furthermore, the study focuses on 35 countries in the same geographical region in ssa economies over the period 1980-2020. the paper used time series data since world bank collected data as a single country. by analyzing the var model impulse response test, and var granger causality test. 2. literature review several kinds of research have been led on the relationship between fdi and economic growth in the literature. although most previous studies avoid focusing on ssa because of the data limitation, this section discusses the relationship between fdi, gdp, and the financial development market. to identify the importance of country-specific characteristics on fdi-led growth, (zhang, 2001) the empirical study has been carried out using data from 11 latin american and eastern asian economies. the study found that there is a positive relationship between fdi and productivity growth, concluding that the strength of this relationship depended in particular on host country conditions for improving education and hence the state of human resources, preserving macroeconomic stability, and implementing a liberalized trade regime. similarly, (alfaro, chanda, kalemliozcan, & sayek, 2004) discussed that the effects of fdi differ across industries and the effect of fdi on the primary sector is negative and its influence on the manufacturing and service sectors is positive and uncertain. the result indicated fdi targeting the primary sector, especially in oil exporting countries, did not consider the national government to have a minimum degree of human capital or even to be politically stable. human capital or even be politically stable as long as multinational companies repatriate more profit, which is happening in many developing countries. (brenner, 2014) studied the effect on the national economic growth of foreign direct investments through gmm panel regressions and identified impacts on productivity development, labor, and capital inputs as well as innovation activities. moreover, fewer and more developing countries are being analyzed separately along with the periods 1992200 and 1974-1991. fdi's effects on production capacity for the first time in more developed countries, while impacts on innovation activities for the medium-developed countries in the latter era are established. the findings show clearly that economic growth is a positive effect on rises in capital production. (pegkas, 2015) observed the effect of fdi on productivity in eurozone economies, the study's key finding was that fdi is a significant element that influences productivity development in eurozone nations. as a result, fdi plays an essential role in the eurozone's economic growth. to overcome the limitation, (li & liu, 2005)investigated whether foreign direct investment economic growth is based on a panel of 84 countries by using both single equation and simultaneous equation system techniques to detect the endogeneity problem. the paper combined and used both the world investment directory published by the un and world bank data. they also used education, technology gap, and infrastructure as the interaction term and found that fdi does not directly promote economic growth by itself but indirectly through its interaction terms. (johnson, 2006) used panel and cross-section data from 90 countries to come to the conclusion that innovation flows cause fdi to boost economic growth in developing countries but not in developed economies. the study also looked at how fdi affects the growth of economies in the service and manufacturing industries. the effect of fdi and financial development markets on sub-sahara african economy: an empirical study based on var model 37 (herzer, klasen, & nowak-lehmann d, 2008) also, run the same test with a different technique. in the majority of the sampled nations, they were unable to identify either a long-or short-term association between fdi and economic growth and they discovered no proof of a causal connection between the two. in contrast, (ekanayake & ledgerwood, 2010) employed panel data on an assembly of 85 evolving nations top asia, africa, and latin america, and the caribbean for the period 1980-2007, found that fdi has a positive and significant influence on gdp. (owusu-nantw, 2018) empirically examined the long and short-run relationship between fdi and gdp in south america using panel data from 1970 to 2013. the empirical result indicates that positive and statistically significant in the long-run relationship between fdi and productivity growth while short-run the findings show bidirectional causality between sustainable gdp and fdi (awad & ragab, 2018) the study highlighted that fdi appears statistical effect on economic growth per capita, the result indicated that increasing 10% fdi inflow would lead to an increase in the growth rate in per capita economic growth by an average of 1.3%, the positive impact of fdi, in this case, that not reflect simply in domestic investment. (li & tanna, 2019) noted that fdi is commonly seen as a catalyst for productivity growth, especially in developing economies, the gdp-enhancing impact of inward fdi while dependent on the capacity of absorptive of developing economies. they found there is a short direct impact of fdi on total productivity growth in developing economies. (ibrahim & acquah, 2020) the global inflows of fdi have been reallocated to other emerging economies as the fdi inflows to developed countries have decreased in the last ten years. the weak allocation of foreign direct investment gives credence to the african continent’s weak financial structure. the continent’s financial system is largely bankbased and undeveloped financial development measures financial institutions’ ability to make financial services available to individuals and to finance support the economic drive of the private sector in the financial system. to have an intuitive understanding of the role of absorptive capacities based on previous papers, the next part will discuss the fdi absorptive capacity and the choice of financial functioning as the focus of our study, the relationship between financial market development and economic growth as well as how functioning financial intermediation is vital for promoting saving and investment and eventually economic growth. (agbloyor, abor, adjasi, & yawson, 2014) the positive relations observed between economic growth and private capital as well as the role of domestic financial development, imply that inadequate financial markets may make nations more susceptible to financial and exchange-rate shocks, which could lead to a loss of foreign capital and a slowdown in long-term growth. in addition, (yavas & malladi, 2020) also argued that stock market returns and volatility play an important role in understanding incoming fdi flows in the u.s. eventually, results appear to support the paper's core premise: linkages exist between capital markets and foreign direct investment. (barbra & nawaz, 2021) they examined the connection between fdi and gdp in uganda. they discovered oneway connection among fdi and gdp and that fdi is the driver of gdp growth. concluded having an understanding of these connections between causes and effects can help with the predicting of economic expansion in uganda in the future. (abaidoo & agyapong, 2022) they examine rising economies' formal quality and financial development. all other things being equal, institutional quality accelerates the rate of financial development across countries in the subregion. according to the results of their study, when considered separately at the micro-level, good governance, institutional quality, rule of law, and responsibility are likely to have a significantly beneficial effect on the growth of the financial sector. (mutenyo, nnyanzi, & makika, 2022) the authors examine the influence of (fdi) and local private investment on the gdp of sub-saharan african nations. they discovered that foreign direct investment had a negative effect on gdp in sub-saharan african nations. pdi correlates positively with economic growth; hence, pdi is more growth-inducing than fdi in ssa. conclude, ssa states should strengthen regional integration in order to attract the required fdi in order to attain the desired economic outcomes. in addition to government spending, baseline gdp per capita, human capital development, financial development, and trade openness are significant growth variables. the performance management systems of saves and investments differ in that effective savings are mostly influenced by income, whereas effective investment is primarily determined by entrepreneurial skills, knowledge, and risk-taking propensity. developing-country savers where financial markets are less developed like ssa where (hermes & farhio abdukadir abdi & ayben koy 38 lensink, 2003) pointed out the importance of a well-developed financial sector for the technical dissolution process linked with fdi. they verified that 37 of the 67 nations in the given dataset have a financial sector that is highly robust to allow fdi to contribute favorably to economic growth. the majority of these nations are in asia and latin america, and only three countries (ghana, swaziland and zambia) are in ssa. these savers with less developed financial markets tend to invest real assets, often of relatively low social productivity. these papers mostly focus on countries with an already developed financial market while they give little attention to the less developed regions like ssa where the inflow of fdi is substantial, but the development of the financial market is quite low. therefore, it is important to understand the interrelationships among fdi, financial market development, and gdp growth ssa. 3. data and methodology to assess empirically the influence of financial development markets and fdi on gdp growth in 35 sub-sahara african economies over the period 1980-2020. the paper used time series data since world bank collected data as a single country. the study uses vector autoregression model, impulse response test, and var granger causality test. several studies have used this method previously such as: (barbra & nawaz, 2021), (ocaya, ruranga, & kaberuka, 2013). therefore, the basic specification of the first-order, autoregressive process ar l model is presented as: 𝑦𝑡 = 𝜇0 + ∑ 𝛽𝑖 𝑃 𝑖=1 𝑦𝑡−1 + 𝜖𝑡 … … … . . … … … (1) whereas yt: represents variable vectors either “gdp growth, fdi, fd1dc, and fd2mc”. also, p is the number of lags. μ_0: is the constant. β_i is the parameter that we need to estimate\ coefficient of lag i. y_(t-1): is lagged endogenous variables in time t-1, and ϵ_t is an error term or white noise. the study runs a bivariate var model. the first equation excluded the financial market development variable, to understand the influence of fdi on economic growth. therefore, the estimated equation is: 𝐷𝐺𝐷𝑃𝑡 = 𝜇1 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷𝐼𝑡−1 + 𝑢𝑡1 … … … … … . . (2) 𝐷𝐹𝐷𝐼𝑡 = 𝜇2 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷𝐼𝑡−1 + 𝑢𝑡2 … … … … … (3). the second equation and third equations will estimate the effect of financial market development variables on economic growth individually. the effect of fd1dc on economic growth: 𝐷𝐺𝐷𝑃𝑡 = 𝜇1 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷1𝐷𝐶𝑡−1 + 𝑢𝑡1 … … … … (4). 𝐷𝐹𝐷1𝐷𝐶𝑡 = 𝜇2 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷1𝐷𝐶𝑡−1 + 𝑢𝑡2 … … … … (5). the effect of fdi and financial development markets on sub-sahara african economy: an empirical study based on var model 39 third equation is the effect of fd2mc on economic growth: 𝐷𝐺𝐷𝑃𝑡 = 𝜇1 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷2𝑀𝐶𝑡−1 + 𝑢𝑡1 … … … … (6). 𝐷𝐹𝐷2𝑀𝐶𝑡 = 𝜇2 + ∑ 𝛽1 𝑃 𝑖=1 𝐷𝐺𝐷𝑃𝑡−1 + ∑ 𝛽2 𝑃 𝑖=1 𝐷𝐹𝐷2𝑀𝐶𝑡−1 + 𝑢𝑡2 … … . . (7). 3.1. granger casualty test to determine causality link between time series variables, granger causality test estimated whether x causes y. (granger, 1969). granger causality test bivariate var model: 𝑦𝑡 = 𝛼1 + ∑ 𝛽11 𝑃 𝑖=1 𝑦𝑡−1 ∑ 𝛽12 𝑃 𝑖=1 𝑥𝑡−2 + 𝑒1,𝑡 … … … … . (8). 𝑥𝑡 = 𝛼2 + ∑ 𝛽21 𝑃 𝑖=1 𝑥𝑡−1 + ∑ 𝛽22 𝑃 𝑖=1 𝑦𝑡−2+𝑒2,𝑡 … … … … (9). the null hypothesis h0: variable x does not granger causes variable y. the alternative hypothesis h1: variable x granger causes variable y. table 1: data description variable explanation source gdp gdp growth (annual %) wb fdi fdi inflow as (% of gdp) wb dc domestic credit to private sector (% of gdp) wb mc monetary sector credit to private sector (% gdp) wb gdp represents host country gdp growth. fdi net inflows as a proportion of gdp is referred to as fdi. fdi is a significant mechanism for transferring technology, expertise, and cash to receiving nations, resulting in increased economic potential. dc reflects domestic credit provided by the banking industry, which includes all credit to other sectors. the financial sector includes deposit money and monetary authorities, as well as other data-driven financial firms. mc stands for monetary sector credit to private sector, financial companies give financial resources to the private sector in the form of loans, trade credits, non-equity securities purchases, and other accounts receivable that create a farhio abdukadir abdi & ayben koy 40 claim for recovery. the financial growth of a host nation is a key requirement for fdi to have a beneficial impact on gdp, and financial system development also adds to the fdi-associated technology diffusion cycle. 4. result and discussion in this section, we present the results obtained from the empirical analysis and discussion. we present a formal empirical analysis that tests the effect of foreign direct investment and financial market development on the subsahara african economy. 4.1. descriptive statistics table 2: descriptive statistics: gdp fdi fd1__dc fd2__mc mean 2.921910 1.523762 42.85271 26.79908 median 2.859308 1.627731 44.66771 27.36889 maximum 6.551653 3.854456 56.82258 31.14259 minimum -2.509550 0.067083 20.99349 17.96692 std. dev. 2.307663 0.985743 10.49491 3.318620 skewness -0.490121 0.231977 -0.506871 -0.899749 kurtosis 2.689525 2.032017 2.129773 3.245722 jarque-bera 1.806171 1.968416 2.974946 5.497616 probability 0.405317 0.373735 0.225943 0.064004 sum 119.7983 62.47423 1714.108 1071.963 sum sq. dev. 213.0123 38.86760 4295.581 429.5162 observations 41 41 40 40 the average gdp growth is 2.92%. the average of fdi to ssa economy is 1.52% this indicates that fdi has an important source of financial development for ssa economies. as while as the average of fd1 domestic credit to the private sector and fd2 monetary sector credit to the private sector is 42.85% and 26.79% respectively. the numbers explain the extent of the private sector constraint to credit which can limit the ability of the economy to take advantage of potential spillovers from foreign direct investment. 4.2. unit root test: adf and philips tests the data used in var model should be. the study used augmented dickey fuller (adf) test and philipsperon test to estimate the unit root test of the variables at level and first difference. as the result of tables 3 and 4 indicates all variables are non stationary at level the p-value of variables are greater than 0.05. while all variables are stationary at first difference the p-value of the variables are less than 0.05. therefore, the data is stationary at first difference. the effect of fdi and financial development markets on sub-sahara african economy: an empirical study based on var model 41 table 3: adf test unit root test of ssa: adf test l 1(d) ssa: t-statistics prob t-statistics prob gdp: -2.288342 0.4303 -6.830693 0.0000 fdi: -0.872385 0.9491 -10.81336 0.0000 fd1: dc: -1.084547 0.9185 -5.120847 0.0036 fd2:mc: -2.371628 0.3877 -5.668728 0.0013 significant level: 0.01, 0.05, 0.10. table 4: philips test unit root test of ssa: phillips-perron test l 1(d) ssa: t-statistics prob t-statistics prob gdp: -2.392181 0.3778 -8.655448 0.0000 fdi: -2.504725 0.3243 -12.15255 0.0000 fd1: dc: -0.484953 0.9800 -16.82499 0.0000 fd2: mc: -2.261757 0.4436 -9.298052 0.0000 significant level: 0.01, 0.05, 0.10. 4.3. var model 4.3.1. vector autoregression estimates vector autoregression can be estimate, all variables are endogenous and stationary at the first difference. the lag length criteria based on akaike information criterion “aic” the optimal lag is one, also there is no cointegrating equations, short-run relationship is estimated. the short-run is adjusted through individual coefficients of differenced terms. in order to determine the significant impacts of the variables we estimated wald test as shown tables 5, 6 and 7. table5 fdi and gdp: vector autoregression estimates variables: coeff std. error t-stat prob wald test dgpd to dgdp: -0.075164 0.169814 -0.442626 0.6594 0.6580 dgdp to dfdi: 0.402691 0.516352 0.779877 0.4380 0.4355 cons: -0.050277 0.288060 -0.174538 0.8619 farhio abdukadir abdi & ayben koy 42 dfdi to dgdp: 0.058189 0.047627 1.221757 0.2258 0.2218 dfdi to dfdi: -0.465623 0.144820 -3.215180 0.0020 0.0013 cons: 0.045756 0.080792 0.566341 0.5729 significant level: p<0.001, p<0.01, p<0.05....... as the result of table 5 indicates, based on wald test dgdp and dfdi has no significant impact on dgdp. dgdp is 0.6580 and dfdi is 0.4355. both variables they are greater than the level of significant. also, dgdp is 0.2218 it doesn’t have significant impact on dfdi. while dfdi is 0.0013 it has significant impact on dfdi. 𝑑𝑔𝑑𝑝 = −0.050277 + (−0.075164dgdp ) + 0.402691dfdi 𝑑𝑓𝑑𝑖 = 0.045756 + 0.058189dgdp + (−0.465623dfdi) table6: fd1dc and gdp: vector autoregression estimates variables: coeff std. error t-stat prob wald test dgpd to dgdp: -0.159458 0.146046 -1.091833 0.2788 0.2749 dgdp to dfd1dc: 0.244437 0.065327 3.741731 0.0004 0.0002 cons: 0.006804 0.256568 0.026520 0.9789 dfd1dc to dgdp: -0.497912 0.358970 -1.387059 0.1700 0.1654 dfd1dc to dfd1dc: -0.067848 0.160526 -0.422657 0.6739 0.6725 cons: 0.028700 0.639201 0.044900 0.9643 significant level: p<0.001, p<0.01, p<0. 05.. as the result of table 6 shows based on wald test dgdp has no significant influence on dgdp. while dfd1dc is 0.0002. it has positive significant impact on dgdp. also, both variables dgdp and dfd1dc has no significant impact on dfd1dc: financial development 1, domestic credit. 𝑑𝑔𝑑𝑝 = 0.006804 + (−0.159458dgdp ) + 0.244437dfd1dc 𝑑𝑓𝑑1𝑑𝑐 = 0.028700 + ( −0.497912dgdp) + (−0.067848dfd1dc) table7: fd2mc and gdp: vector autoregression estimates variables: coeff std. error t-stat prob wald test the effect of fdi and financial development markets on sub-sahara african economy: an empirical study based on var model 43 dgpd to dgdp: -0.110528 0.156094 -0.708088 0.4813 0.4789 dgdp to dfd2 mc: 0.379731 0.135114 2.810440 0.0065 0.0049 cons: 0.018056 0.274668 0.065738 0.9478 dfd2mc to dgdp: -0.135867 0.171100 -0.794079 0.4300 0.4271 dfd2mcto dfd2mc: -0.271445 0.148519 -1.827677 0.0721 0.0676 cons: 0.136833 0.305093 0.448495 0.6552 significant level: p<0.001, p<0.01, p<0. 05.. as the result of table 7 indicates, based on wald test dgdp has no significant influence on dgdp. while dfd2mc is 0.0049 it has positive significant impact on dgdp. also, both variables dgdp and dfd2mc has no significant impact on dfd2mc: financial development 2: monetary sector credit. 𝑑𝑔𝑑𝑝 = 0.018056 + (−0.110528dgdp ) + 0.379731 dfd2mc 𝑑𝑓𝑑2𝑚𝑐 = 0.136833 + ( −0.135867dgdp) + (−0.271445dfd2mc) 4.3.2 impulse response function test in econometric research that utilizes var model, the impulse response is a crucial step that explains the response of one variable to changes of another variable in the system while all other shocks are held constant at zero. cholesky decomposition method was used to investigation the response variable shocks to another variable. the below figures indicates the responses of dgdp and dfdi, dgdp and df1dc, dgdp and df2m. respectively figure 1 up to figure 3. -0.4 0.0 0.4 0.8 1.2 1.6 2.0 1 2 3 4 5 6 7 8 9 10 response of dgdp to dgdp -0.4 0.0 0.4 0.8 1.2 1.6 2.0 1 2 3 4 5 6 7 8 9 10 response of dgdp to dfdi -.2 .0 .2 .4 .6 1 2 3 4 5 6 7 8 9 10 response of dfdi to dgdp -.2 .0 .2 .4 .6 1 2 3 4 5 6 7 8 9 10 response of dfdi to dfdi response to cholesky one s.d. (d.f. adjusted) innovations ± 2 s.e. figure1 response of dgdp: one sd shocks on the gdp starts positive 1.80% slightly decline gdp in the first period later at the second period became negative -0.16 then it made a little increase at period 3 positive 0.07. response of dgdp: one sd shocks fdi starts zero first period increases second period 0.2 then decline third period -0.11 and lastly increased fourth period 0.06. response of dfdi on dgdp: one sd shock on the gdp first period starts negative -0.06 and later second-period increases 0.12 then decline in the third period negative -0.07, as the graph shows. its up and down positive and negative responses until the last period. therefore, shock gdp has a symmetric impact on fd. farhio abdukadir abdi & ayben koy 44 -0.5 0.0 0.5 1.0 1.5 1 2 3 4 5 6 7 8 9 10 response of dgdp to dgdp -0.5 0.0 0.5 1.0 1.5 1 2 3 4 5 6 7 8 9 10 response of dgdp to dfd1dc -1 0 1 2 3 4 1 2 3 4 5 6 7 8 9 10 response of dfd1dc to dgdp -1 0 1 2 3 4 1 2 3 4 5 6 7 8 9 10 response of dfd1dc to dfd1dc response to cholesky one s.d. (d.f. adjusted) innovations ± 2 s.e. figure 2 response on dgdp: one sd shock to fd1dc initially increases on dgdp. positive 0.94 response sharply declines at period 3 and period 4 and remains negative declines. therefore, the shock to fd1dc has a symmetric impact on gdp. response on dfd1dc: one sd shock to dgdp decreases negative dfd1dc. that negative response remains or stays until half of period 3 (-0.3). then increase period 3 again (0.2) and remains positive. -0.5 0.0 0.5 1.0 1.5 2.0 1 2 3 4 5 6 7 8 9 10 response of dgdp to dgdp -0.5 0.0 0.5 1.0 1.5 2.0 1 2 3 4 5 6 7 8 9 10 response of dgdp to dfd2mc -0.8 -0.4 0.0 0.4 0.8 1.2 1.6 2.0 1 2 3 4 5 6 7 8 9 10 response of dfd2mc to dgdp -0.8 -0.4 0.0 0.4 0.8 1.2 1.6 2.0 1 2 3 4 5 6 7 8 9 10 response of dfd2mc to dfd2mc response to cholesky one s.d. (d.f. adjusted) innovations ± 2 s.e. figure 3 response on dgdp: one sd shock to fd2mc initially increases on dgdp. the positive 0.66 response sharply declines negative at period 3 ( -0.26). then increase period 4 positive (0.04). therefore, the shock to fd2mmc has a symmetric impact on gdp. response on dfd2mc: one sd shock dgdp gradually has a negative on dfd2mc from period 1 to period 2, then increases a few at period 3. it stays state value and remains positive. 4.3.3. var granger causality table 8: var granger causality/block exogeneity wald tests: all variables hypothesis: chi-sq df prob decision causal dfdi to dgdp: 0.608207 1 0.4355 no causality dgdp to dfdi: 1.492690 1 0.2218 dfd1dc to dgdp: 14.32704 1 0.0002 one-way causality dgdp to dfd1dc: 1.923933 1 0.1654 dfd2mc to dgdp: 7.411592 1 0.0065 oneway causality dgdp to dfd2mc: 0.630562 1 0.4271 the effect of fdi and financial development markets on sub-sahara african economy: an empirical study based on var model 45 h0 significant rejection level: p<0.05, p<0.01. as the result of table 8 shows there is no directional causality effect of foreign direct investment on economic growth. while the two variables of financial development have significant causality on economic growth of ssa. 5. conclusıon this study examined the influence of fdi and financial development markets on gdp growth in 35 sub-sahara african economies over the period 1980-2020. several statistical measures were used such as, vector autoregression model, impulse response function irf test, and var granger causality test. at vector autoregression in order to determine the significant impacts of the variables we estimated wald test. the results indicate fdi has no significant impact on economic growth of ssa. while the two variables of financial development fd1dc and fd2mc has positive significant effect on economic growth of ssa. additionally, the result of causality links indicates that foreign direct investment does not have directional causality effect on economic growth. while the two variables of financial development have significant causality effect on economic growth of ssa. therefore, the positive causation impact of the fd1dc and fd2mc to gdp shows that an increase of financial development markets increases the economic growth of ssa. references abaidoo, r., & agyapong, e. k. 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(2001, april). does foreign direct investment promote economic growth? evidence from east asia and latin america. contemporary economic policy, 19(2). journal of international trade, logistics and law, vol. 3, num. 2, 2017, 20-25 the government supports of people’s republic of china for improving logistics sector gulipiyamu tuerxun istanbul commerce university, turkey received: july 21, 2017 accepted: oct. 27, 2017 published: dec. 01, 2017 abstract: the people's republic of china is a country that has developed rapidly along with economic growth, targeting almost every country in the world as an international market. parallel to the economic growth, the logistics industry also showed a rapid development and achieved an important place in the world rankings. in this study, the policies applied on the logistics sector of the people's republic of china were investigated. the rapid growth of china's logistics industry has been investigated in terms of the economic effects, policies applied and the growth rate of these policies. in this context, the general situation of the logistics activities in the people's republic of china and the policy that the government implements are included. according to the obtained data, in the people's republic of china, the logistics industry is rapidly developing and it is determined that the government provides serious support with the policies applied to the logistics sector. keywords: people's republic of china, logistics sector, government supports 1. introduction the logistics sector makes a very critical contribution to the world economy with the effect of globalization, and it is expressed to be the third sector after the industrial and service sectors in terms of its growth phase. in the people’s republic of china, the logistics sector has progressed in parallel with the economic growth. the logistics sector has improved the total social logistics by 38.4% with its growth environment, transportation facilities, service aspect, and the technological development, and this rate increases every year. the concept of modern logistics showed its most significant development in the people’s republic of china in the 20th century. significant support was given to the logistics sector with the implementation of the centralized planned economic system, transportation, storage, packaging, distribution, and application methods in the sense of the creation of the new china. in the people’s republic of china, the logistics sector has been remarkably developing lately. the reason for this is expressed to be the great lack of infrastructure. it is observed that the growth acceleration has increased with the contributions and improvements by the central government and the local governments to the sector. when examined in terms of the regions, it is observed that the sector develops much faster in the coastal and inland areas. it is seen that in rural areas, the sector has not developed as much as the other regions most likely due to transportation problems and lack of infrastructure, and the logistics costs are considerably high. the state support behind the development of the logistics sector has an important effect. in this context, the central government issued a circular in march 2001 with the state economic and trade commission, ministry of railroads, ministry of communications, information and industry, and other units to speed up the modern logistics development of china. following this circular, it explained its opinions on the establishment of a free container and transportation and a pilot foreign investment institution. furthermore, serious regulatory reforms were made on subjects such as the modern logistics industry, the revitalization of the logistics sector, and the work plan, logistics and logistics industry policy of china, with which chinese logistics enterprises can promote the country. gulipiyamu tuerxun the outsourcing rate of the logistics operations of industrial and commercial enterprises in the people’s republic of china is lower when compared to the developed countries; however, this rate gradually increases. when considered in general, conventional activities such as transportation and distribution are accepted as the most popular outsourcing areas. this situation indicates that chinese enterprises have become more active about outsourcing to load more advanced logistics functions to the lps (logistics planning system). 2. support provided to the logistics sector in the people’s republic of china 2.1. the logistics sector in the people’s republic of china it is observed that the logistics sector of the people’s republic of china has made significant progress in recent years. it was previously considered that the main reason for the slow growth of development acceleration is deficiencies in infrastructure. improvement investments carried out to overcome the infrastructure deficiencies in recent years have allowed the sector to leap. it is observed that the transportation infrastructure of the people's republic of china is quite inadequate when compared to the land and population in spite of its current mega size. in general, it is considered that the transportation infrastructure of the people’s republic of china only responds to the 60% of the population. on the other hand railroads and ports cannot respond to this demand. in airline transportation, which has an important place in strategic logistics, there is a lack of advanced technology, materials and educated human resources. the differences in climatic and geographical conditions in the people’s republic of china which has a large surface area brings some difficulties with it. due to the large population of flood plains in the eastern part of the country, the rapid increases in land prices and charges in coastal areas cause the production centers of the companies to move to these regions (logistics in china 2010). the fact that the companies move to the interior regions has improved the waterway transportation and highway transportation and provided opportunity for the investments. it is observed that the most important deficiencies in the infrastructure are resulted from communication and transportation. although the highway networks of some regions in the people’s republic of china are in accordance with the western standards, there are serious infrastructure problems in the rural areas outside the center. thus, this situation causes high logistic costs. the reason for the fact that logistics network is widespread in the rural areas is that major investments are required in the interior areas despite government efforts. moreover, it is stated by the logistics authorities that since the national economy is in the course of development, the logistics sector will make rapid progress and achieve global standards. 2.2.government’s attitude towards the logistics sector in the people’s republic of china in the people’s republic of china, the concept of modern logistics appeared in the 20th century. in the people’s republic of china in the post-reform period, macroeconomic environment indicated fundamental changes and the changes in the planned economic system destroyed. it was observed that together with rapid economic development, goods distribution of some companies increased. many infrastructure facilities such as railways, airlines, junctions, warehouses as well as storage, transportation, packaging operations caused a rapid development in the logistics sector. together with rapid development of the people’s republic of china economy, economic power significantly increased in the 1990s. increase in the supply of goods, supply and demand relationship improved the logistics sector. the ministry of foreign affairs made significant attempts to develop the logistics sector. in march, 2001, state economic and trade commission, the ministry of communication, information and industry, ministry of railways and other sub-ministries issued a circular letter to accelerate the logistics development of the people’s republic of china. this letter is the first written document issued by the government to accelerate the modern logistics development of the people’s republic of china. the state council carried out the applications of free container and transportation (april, 2002), opinions related to the pilot foreign investments, the issues required to be considered by the chinese logistics companies (june, 2002) for the country presentation, modern logistics industry (august, 2004), revitalization and study plan of the logistics sector (march, 2009), chinese logistics and logistics industry policies with the related ministries for the development of the logistics sector. the logistics sector began to be considered as a potential sector to contribute to the economic growth. for this purpose, the procedures to be carried out to develop the sector and contribute to the national economy were rapidly planned and put into practice. the government supports of people’s republic of china for improving logstics sector the council of state and the other institutions provided support with the policies they applied for the rapid economic development of the people’s republic of china. national logistics operation briefing collectively published by the national development and reform commission, national statistics bureau, china federation of logistics in 2010 indicated that the condition of china at the end of the policies applied was generally good. significant increase in logistics demand, developed operation productivity, rapid growth of the logistics play an important supportive role to provide and protect the proper and rapid development of the national economy. total industrial logistics of the people’s republic of china was reported as 113,1 trillion yuan in 2010. the growth rate of 14,6% observed in the previous year indicated an increase at the rate of 0.5%. total social logistics is 90,2%, import cargo logistics factor is 9,4 trillion yuan. these numbers indicates that the country has indicated a rapid growth (deloitte research, 2015). the logistics sector of the people’s republic of china indicated a strong growth in 2011, total logistics value reached to 158.400 million yuan and increased by 12,3%. the manufacturing sector continues to be the key for the chinese economy. china logistics market developed by 1,59 trillion us dollar to create the 18,6% in the world in 2013 and became the greatest logistics market of the world two years in a row. although the outsourcing rate of the logistics operations of the chinese industry and trade companies is lower than the similar companies in the developed countries, this rate increases. the outsourcing rate increased to 63,3% in 2010. this situation indicates that gradually increasing chinese companies have observed the benefits of outsourcing and begun to use external sources. logistics enterprises can receive more taxes due to many government policies. some local authorities are providing preferential tariff rates to promote export. companies need strong local knowledge and relations with developing incentives and regulatory changes (www.logisticsmgmt.com). it is thought to make a contribution to the growth of the logistics sector by giving priority to logistic parks, railroads and harbour constructions. thus, domestic and foreign investments will increase, and the growth potential in logistics services will also increase across the world. according to the twelfth five-year plan, road networks will be expanded by the end of 2015 and improvement will be provided by 90%. then, it is aimed to establish a serious supply chain by investing more than 1.5 million yuan in the aviation sector (www.logisticsmgmt.com). 2.3. the types of logistics companies in the people’s republic of china state logistics companies: railway transportation belongs to the large-scale manufacturing companies such as chinese railways express, chinese transportation group, chinese air, china cargo, as well as the logistics companies, sinopec and petrochine including the branches from different public enterprises such as sinotrans. offshore transportation and local mail services are among the state logistics. foreign logistics companies: there are ups, fedex, dhl, kerry logistics and global logistics, hong kong, macau and taiwan based companies including the companies invested by the foreign capital. personal logistics companies: there is a large number of such companies and have spread all over china. they perform all kinds of logistics operations such as highway transportation, home express delivery and storage. some of them such as sf express, yt express, sto and yunda created a national network and acquired a substantial amount of market share (deloitte research, 2015). 2.4. invest propensities of the logistics sector in the people’s republic of china logistics, which is one of the first companies to enter the outside world, has become an important field to attract foreign investments. logistics has become a focal point in foreign investments in china. the statistics indicate that the logistics sector is the focal point in the foreign investments (basically acquisitions) in china. it was observed that there was a decrease in both economic disasters in the years of 2008 and 2012. it was observed that the acquisition of the chinese logistics companies by the foreign companies in 2014 reached 539 million us dollar in total in the transportation and logistics infrastructure fields. foreign companies adopted one of the following three strategic approaches to enter the logistics market in china (deloitte research, 2015) : 1. acquiring real estate areas for company and network in tire 1 cities. 2. trying to proactively penetrate tire 2 and tire 3 cities by focusing on control rate. 3. slowly entering the market with ways such as partnership, purchasing and privatization. the improvement of the operational productivity in all logistics industry is based on the standardization and the development of technology. in recent years, new technologies represented by huge data, cloud computing and http://www.logisticsmgmt.com/ gulipiyamu tuerxun internet provided big opportunities to transform and enhance the logistics industry. increase in the labor costs significantly increases the attention to adopt software and technologies by the companies. in the international market there are new methods of capacity release, regional and cross border expansion, logistics growth. 3. conclusion since the 1990s, the rapid development of the national economy of the people's republic of china has led to significant economic power, wealthy resources of goods, transport systems of the buyer to the market, supply and demand formation, a strong development of the logistics industry. the logistics sector in the people’s republic of china only responds to the 60% of the transportation infrastructure due to general deficiencies. while responding to the demands for ports and railways, airline transport has not completely developed due to lack of advanced technology, educated personal and equipment. the people’s republic of china has succeeded to attract the attention of many international companies getting out of its label as a market producing cheap goods and its population of 1.330.141.295 has gained a seat in the world trade with 8789 trillion dollar gdp. the people’s republic of china considers the logistics sector important and supports its development. in accordance with the obligations of the wto, the distribution channels opening to the foreigners provide the integration of the sector with global logistics network. the people’s republic of china focused on transportation in the interior regions and logistics sector in the coastal regions. the reason for this situation is cheap port costs. cheap costs in the people’s republic of china cause densities in the ports. chinese state council issued new eight enactments (state regulation) to stabilize and strengthen the development discipline. the people’s republic of china makes great effort to regulate the freight market. these enactments issued have been effective to cope with the increasing labor costs and expensive energy resources. the additional capacity in the break bulk market, oil tankers and dry cargo transportation caused decrease in the freight rates. this problem is considered to be resulted from the imbalances between supply and demand. on the other hand, debt crises in many developed countries suppress the global demand. the people’s republic of china made significant investments to the railway transportation. although military traffic, resources and passenger railways are priorities for goods transport, it is expected that there will be longer-term increases in railway loading. the people’s republic of china makes a major part of the local transportation with highway transportation. the expansion of the highway transportation network is prioritized among the local governments. due to violent competition in the logistics market, road-based service levels are improving. while the capacity of airline transportation increases by 6% per year, this increase is low when compared to the general logistics market in the people’s republic of china. the airline transportation in the people’s republic of china is mostly used to transport high value or significantly compact goods. the transportation conducted with short-distance waterway has an important place in the economic growth in the mid western of china. the reason for this in that the conventional manufacture proceed to the west due to gradually increasing costs in the eastern cities of china and that the decision-makers of supply chain try to open new channels in the interior channels. the expansion of an extensive transportation network is important for the development of the logistics sector. the improvement of the transportation infrastructure is a priority for the chinese government. in 2010, the people’s republic of china made decisions contributing to the consistent increases both in passenger and freight traffic. the logistics market of the people’s republic of china is quite fragmented. the presence of many small-scale local lps provides local know-how with affordable prices and services with tender method. some small-scale lps cannot adapt to the logistics applications. in this case, there are decreases in the demands for raw material transportation and merchandise exports in the people’s republic of china. increase in the fuel costs is an important problem for the logistics sector. heavy goods vehicles are frequently encountered in the people’s republic of china, road accidents are frequently experienced and there is no guarantee for on-time delivery due to traffic congestion. in this case, small businesses use flatbed truck or vehicles covered with simple canvas. in this regard, product damage and security become an important problem. low level of outsourcing in the logistics procedures in the people’s republic of china may prevent the sector from developing. the government supports of people’s republic of china for improving logstics sector deficient regulations in the people’s republic of china, deficiencies in the standardization about the logistics regulations and logistics operation prevents the sector from developing in a healthy way. the retail market in the people’s republic of china is at the third place in the world after japan and usa. the franchising application of the foreign investors willing to take place in the people’s republic of china market sparkling with its superiority have gained importance. however, while there is not a specific franchising law, foreign investors apply a set of franchising methods and create versatile distribution channel. the people’s republic of china government continues to provide the required infrastructure to make the logistics sector stronger. especially, the studies to improve the logistics development strategy with pearl river delta region and chinese continent continue. it seems that the required infrastructure studies will continue to improve themselves as the logistics, economy and a new economic growth potential with the increase in investments. references banerje, a.& duflo, e.& qian, n. (2012). on the road: access to transportation infrastructure and economic growth in china revised version: february 2012. pdf. deloitte (2015). investment promotion report of china’s logistics industry 2014-2015, simplified version, pdf. global logistics: china update, logistics in china thinking ahead, 2011 october www.logisticsmgmt.com i̇tki̇b (2012). temel ekonomik göstergeler genel ve sektörel bilgiler, i̇tki̇b genel sekreterliği ar&ge ve mevzuat şubesi şubat 2012.pdf. [i̇tki̇b (2012). basic economic indicators general and sectoral information, secretary general of i̇tki̇b r & d and regulatory branch february 2012.pdf.] kearney. a. t. (2015). china 2015: transportation and logistics strategies. pdf. musi̇ad (2016). lojistik sektöründe sürdürebilirlik yeşil lojistik, 2015 lojistik sektörü raporu. [musi̇ad (2016). sustainability in the logistics sector green logistics, 2015 logistics sector report.] logistics in china dhl logbook http://www.dhl.discoverlogistics.com/cms/en/course/trends/asia/china.jsp. musi̇ad (2016). lojistik sektöründe sürdürebilirlik yeşil lojistik, 2015 lojistik sektörü raporu. [musi̇ad (2016). sustainability in the logistics sector green logistics, 2015 logistics sector report.] yiğin, s.(2009). çin ekonomisi ve dış ticaret i̇lişkileri, yüksek lisans tezi, çukurova üniversitesi sosyal bilimler enstitüsü i̇ktisat anabilim dalı. [yiğin, s.(2009). chinese economy and foreign trade relations, master's thesis, çukurova university institute of social sciences department of economics.] wang, y.& yao, y. (2003). sources of china’s economic growth 1952-1999: incorporating human capital accumulation, china economic review (14), p.44. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 216-221 216 an examination on evolution of accountability and transparency procurement principles in mainland tanzania moh'd masoud khartoum university of dodoma, tanzania received: may 02, 2023 accepted: may 27, 2023 published: june 01, 2023 abstract: like in other african countries, the government of the united republic of tanzania has engaged and conducted a good number of procurement reforms. this has been carried out by the government since it attained its independence in 1961. it was an expectation of the public that all reforms that have taken place mainly aimed at ensuring that procurement system become robust and promising. this is because, in its day-to-day business, the government relies entirely on public purchasing in getting various commodities from bidders, both local and internationally. it is unfortunate, however, in all procurement reforms that have carried out by the government, with exception of 2016 procurement reforms, accountability and transparency procurement principles evolution was not given a deserving priority it deserved. obviously, the 1977 constitution of the united republic of tanzania, and all other previous constitutions contained a provision relating to financial matters, yet it is unluckily that as of today, the same 1977 constitution of the united republic of tanzania has not a single provision emphasizing or rather indicating on accountability and transparency procurement principles. this evidences clearly that procurement reforms seem to be not fruitful since accountability and transparency procurement principles evolution has slowly emerged and in previous procurement reforms, this was in fact, given little and less attention on various occasions when public procurement laws were reformed. in all procurement reforms, until 2016 procurement reforms that the government did, accountability and transparency procurement principles did not feature in any statute in mainland tanzania. keywords: evolution, procurement, procurement principles, accountability, and transparency 1. introduction procurement is simply termed as the process sourcing, acquiring, and paying for goods and services from bidders that are contractually engaged in procurement undertakings. every procuring entity requires having goods and services depending on its own procurement to achieve its plans. the primary aim of any procuring entity is to acquire goods and services that the procuring entity needs in respect of the contractual terms and conditions. with a streamlined procurement process, the procuring entities increase cost savings, and eventually minimize wasteful spending. this is only possible through consideration of accountability and transparency procurement principles. this research article discusses the evolution of accountability and transparency procurement principles in mainland tanzania. because of its significance, and for purposes of enlightening the topic to future researchers in this area, the article also discusses this topic by tracing evolution of above-stated procurement principles under discussion from other jurisdictions. the jurisdictions that this research article covers include, but not limited to, united kingdom and other countries in the world. it is indisputable fact that procurement is not a union matter. it is for this reason that each jurisdiction, forming the united republic of tanzania, has its own procurement regime, governing procurement matters, in each part of the union. in each part of the union, apart from existing legislation governing all procurement matters on each side, there are also regulations assisting application of the stated parent acts. in mainland tanzania, especially, procurement reforms have been conducted from time to time to ensure that the procurement system offers required outcome. in many procurement reforms that have been taking place, consideration of accountability and transparency procurement principles have become evident. it is a reality though; inclusion of these procurement principles has not been considered in all previous reforms. it is only in the last 2016 procurement reforms that an examination on evolution of accountability and transparency procurement principles in mainland tanzania 217 accountability and procurement principles have been finally considered. the current procurement reforms that have taken place in 2016, have considered accountability and transparency procurement principles. 2. evolution of accountability and transparency procurement principles in the ancient era realisation and recognition of accountability and transparency procurement principles, especially in ancient times, was problematic and challenging in the field of procurement. these procurement principles were not recognized fully in the procurement system in all states. in some places, they were purposely associated with democracy helping to smoothly govern some issues. this was considered purposely to make and control leaders from enriching themselves in positions they hold. basically, introduction of accountability and transparency principles was made to meet some specific objectives. it is argued that accountability and transparency principles were introduced in nearly many countries in the ancient era. in reality, the introduction of accountability and transparency principles was intended to curb issues such as personal enrichment for leaders, corruption, and other malpractices, that were evident in eroding the development of the societies. eminent authors such as robert, gilles, and many others, have discussed much on the implication of the accountability and transparency principles in the governance of the societies. as earlier stated, roberts makes more emphasis on consideration of accountability and transparency principles as he believes that they help in the growth of societies, without which the societies will not prosper and citizen’s development will be restricted. gilles, on the other hand, focuses mainly on transparency principle in the french context. this author believes that recognition of the transparency principle was a milestone development of having a transparent government in france. this helped and marked a break from other previous legal system and frameworks in place. the transparency principle was, however, officially recognized and accepted in 1781. 3. the evolution of accountability and transparency procurement principles in global perspective globally, procurement is regarded as an old profession as compared to another profession in the world. being the old profession, it has also brought attention of historians. among important questions that need ascertainment among historians is, first of all, what are the origin procurement and its two principles. the second issue to be resolved is how procurement is aligned with the growth of large organisation, and trade in the ancient context. at global level, the question as to when and how procurement principles under discussion started, largely depend on when it is officially commenced. it is argued that procurement activities commenced and emergence of trade and other procurement businesses began 5000 years ago. this has been evidenced by various eminent authors in procurement like osei-afoakwa, baltos, and william-elegbe, to mention a few. all these authors, though in different angles, trace and discuss on the origin of the procurement principles that are covered in this research article. to adhere with procurement principles under discussion, there is a need to put in place procurement policies and practice that familiarize the growth of various organizations and that will also discourage bureaucratic procedures and rules. it was emphasized further that these rules be linked with standardized procedures and procurement documents. some authors such as wittig argue that for these procurement principles under discussion to be meaningful, should be linked to separation of owners and managers in business making, and this automatically necessitates the requirement of having transparency in public sector decisions and their operation in particular. as a result of existing diversity on activities related to procurements, some authors like aigheyisi and edore, are of the views that procurement originated from ancient china, rome, greece, middle east, britain, sweden and even france. other authors, with divergent views, such as callender, argue that procurement resulted from industrial revolutions. in general terms, it is our views that, procurement principles under discussion were not much realized and emphasized in the ancient eras. panizza is also of the view that, in western europe especially, accountability and transparency procurement principles were regarded as essential and basic prerequisites of a democracy based on the rule of law. britain, for example, has been a rich source of historical procurement in the world. britain has engaged, on many occasions, in negotiation, strategic alliances, competitive pricing and supplier management. in a similar note, carothers and moh'd masoud khartoum 218 brechenmacher have also discussed on importance of accountability and transparency procurement principles in the european context. the authors are generally of the view that in any procurement undertaking, there is a need for consideration of accountability, transparency, participation and inclusion for positive achievement of the value of money (vfm) in public procurement sectors. from maine’s view, the notion of contract in procurements has developed and associated with element of obligation. he is also of the view that the element of obligation contains ethical behaviors and this influence and becomes a foundation of legal relationships in public procurement. such element of obligation is also associated and much closely related to accountability and transparency principles in procurement undertakings by procuring entities concerned. smith, as among prominent author on public procurement, has also contributed on the market-management element of procurement. it is further stated that, until 20th century, britain had still experienced the problem of practitioners in purchasing transactions. it is also evidenced that, some organizations ignored the importance of purchasing for their own unjustifiable grounds. in this situation, more emphasis was put on procurement practitioners in performing the functions and other procurement activities as procurement professionals. this evidence signifies how accountability and transparency procurement principles were important as far british procurement history is concerned. in 1215, magna carta introduced the first standard of accountability in government. this forced king john to accept the basic principle that taxes should be raised without any consultation from wealthy subjects concerned. these efforts were made intended to enhance importance of accountability and transparency principles in public procurement in britain. many western nations, most of which use parliamentary systems, started adopting domestic laws by incorporating accountability and transparency procurement principles in their respective municipal laws by 1950s. in that, accountability and transparency procurement principles were later considered as basic criteria for membership in the councils of many european nations. 4. the evolution of procurement principles of accountability and transparency and general procurement reforms in mainland tanzania public procurement reform has been a core focus of the tanzanian government from early 1960s to date. from independence today public procurement has been given high premium due to the fact that it is directly linked to economic development as well as poverty reduction. as mlinga, has argued that many governments, tanzania inclusive, have embarked on making serious procurement reforms purposely, and with intention of building robust procurement systems in their respective countries. the procurement reforms were basically intended to bring, inter alia, streamlining and bring harmonization, both regulatory and institutional framework in public procurement sectors. as kihamba earlier stated, in the early 1960s and 1970s, public procurement system in tanzania was highly centralized, and almost of goods and services were procured and supplied by government agencies. procurement procedures were, however, characterized by a number of deficiencies that created loopholes for corruption and financial misappropriations. additionally, accountability on the part of office bearers was nearly non-existed. this was basically contributed by laxity in enforcing discipline at work, erosion of public service ethics, corruption, abuse and misuse of authority. in avoiding all above stated pitfalls, this research article examines contributions of various procurement reforms that have been carried out by the government with reference to accountability and transparency procurement principles evolution in mainland tanzania. 4.1. the evolution and procurement reforms in post colonial independence in mainland tanzania a public procurement reform simply means changing or amending of public procurement rules, regulations, policies, and standards in order to make some improvements in public procurement sectors. in many developing countries, public procurement reforms have been mainly attributed to rapid changes of economy, globalization and pressure from international donors’ old regulations that have been proved as ineffective in bringing expected changed and outcomes. the demands for international institutions were mainly intended to harmonize national and international procurement systems and eliminate weaknesses in public procurement such as corruption in public procurement sectors in mainland tanzania. the history of public procurement system and reforms is traced back to pre and postcolonial era in mainland tanzania. prior to the enactment of the public procurement act of 2001, public procurement was regulated by the “exchequer and audit” ordinance of 1961 and the financial orders part iii in public sectors. an examination on evolution of accountability and transparency procurement principles in mainland tanzania 219 this was essentially adopted from british colonial masters. in 1989, government of tanzania had embarked on public sector management reform process which consisted and included civil service reform, financial sector reform, planning and budget system reform in the country. luckily, in 1996, the country procurement assessment report which was prepared by the world bank identified a number of weaknesses in public procurement system in mainland tanzania. in that report, urgent procurement reforms were eventually recommended. as result of that the public procurement act 2001was enacted as extension of public finance act 2001, which intended mainly to regulate public procurement in mainland tanzania. the recommendations of the 2003 country procurement assessment report resulted to repeal of the public procurement act 2001. this reform resulted into enactment of the public procurement act 2004 with issuance and consideration of uncitral public procurement model law. this was taken as one among other drivers lead and contributed to enactment of public procurement act of 2011. recently ppa of 2011 has been amended to the public procurement (amendment) act, 2016. the amendment was put in place during the late president magufuli regime, among other things, to cover all weaknesses revealed in public procurement act, 2011 and make the additions discovered to be favorable. the 2016 public procurement reforms, took tanzania in another milestone, where for the first time, both accountability and transparency procurement were considered. it is on this basis that, accountability and transparency procurement principles evolution became a reality in the existing procurement regime. it was unfortunate that in many previous public procurement reforms that were made by the government, accountability and transparency procurement principles were, however, given little and less attention. the constitution of the united republic of tanzania, 1977 and other previous constitutions of 1961, 1962, 1964, and 1965, all contained a provision relating to financial matters of the government. the 1977 constitution of the united republic of tanzania, in a special way, included issues relating to procurement. despite the 1977 constitution of the united republic of tanzania containing provision relating to finance, yet the same 1977 constitution does not explicitly indicate on accountability and transparency procurement principles compared to the constitutions of other countries such as kenya. in law procurement reforms that were carried out in 2001, 2004 accountability and transparency procurement principles, which are important in steering a sound and robust procurement system, were however, not featured. the accountability and transparency principles were however only featured in the procurement policy of 2012. the procurement principles of accountability and transparency were later, in 2016 reforms, promulgated under the 2016 public procurement (amendment) act. the 2016 procurement reforms are evidenced to bear fruits in public procurement sectors in mainland tanzania. this has caused a number of foreign companies such as symbion power (llc) from united states of america, strabarg international from germany, oryx energies and tiper from switzerland, and many other companies, to have invested in tanzania. this has, in fact, also facilitated and encouraged even private sectors to engage with the government of tanzania in mega governments projects such as stigler’s gauge powers project and construction of sgr project, to mention a few. 5. conclusion and recommendations it is concluded that procurement reforms that have been carried out by the government since independence were purposely meant, among other reasons, to eliminate weaknesses and challenges that were experienced and become obvious in hampering tanzania to have a strong and robust procurement system. it is indeed concluded that the government of the united republic of tanzania has clearly made great steps in reforming the public procurement sector through the changes that have been carried for many years. the reforms that have been made so far are not the last and more reforms may be needed also in the future. the second stage of the public procurement reform which was carried out in 1996 was somehow fruitful on one hand, but it also had some weaknesses. this was carried out through the country procurement assessment report of 1996. it helped the enactment of the public procurement act of 2001, which brought a lot of procurement changes in mainland tanzania. this achievement does not, however, deny the fact that issues of accountability and transparency procurement principles evolution was not considered. this affected, in one way another, having a strong procurement system since procuring entities could continue undertaking procurement functions without consideration of procurement principles that are in fact very paramount for effective procurement functioning. as stated by mkinga, the speed of progress of implementation of the procurement reform and the legislative changes that were carried out had, however, left a number of gaps, which moh'd masoud khartoum 220 unless filled, those gaps will automatically negate the benefits of the procurement reforms and the achievements of the recent previous years. from findings and conclusion made, this work recommends that it is now time for accountability and transparency procurement that were put in place in 2016 are also recognized under the current constitution of the united republic of tanzania like in other countries as above highlighted. this work also recommends that all procuring entities and other procurement stakeholders that are engaged in various procurement processes must realize the importance of adhering and complying with accountability and transparency procurement principles as espoused by procurement laws in mainland tanzania. this works also recommends that procurement institutions such as public procurement regulatory authority (ppra) and other institutions mandated to undertake procurement oversights to ensure that all procuring entities conduct procurements with consideration of accountability and transparency procurement principles under discussion. references books: maine, h.s., ancient law, its connection with early history society and its relations to modern ideas, henry holt and company, 1906. maliganya, e., the next age of public procurement reforms in tanzania: looking for 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and development agenda”, united nations conference on trade and development, wto, 2012, p. 2. journal of international trade, logistics and law, vol. 4, num. 2, 2018, 35-44 35 implications of blockchain technology on marketing adnan veysel ertemel, (phd) istanbul commerce university, turkey received: october 10, 2018 accepted: november 25, 2018 published: december 15, 2018 abstract: trust issue gradually becomes more of a concern in the 21st century business environment. recent research sheds light on the erosion of trust to brands on a global basis. traditionally, trusted third parties take place to ensure the trust needed for business transactions to take place. digitization, advances in peer-to-peer networks and cryptographic technologies have advanced to such a point that exchange of currency, as in the case of bitcoin, and even value as in the case of property rights, securities, ownership etc. can be done over internet with blockchain technology serving as a trust layer baked into the protocol. blockchain technology serves as the missing trust layer in the evolution of internet. this paper explores implications of blockchain technology on marketing discipline from various aspects. the paper pinpoints the key strategies marketers need to adopt to survive in the rapidly evolving business landscape. finally, conclusions are drawn regarding future direction of marketing as affected by those technological advances. keywords: blockchain, digital marketing, marketing ethics, consumer trust, disintermediation 1. introduction historically, breakthrough society-wide technological advances have far reaching effects. not only do they bring about brand new ways to do business, but they also alter and raise customer expectations, hence changing the nature of the customer-brand relationship. for example, the internet permanently changed the way we perceive information phenomenon. with the advent of the internet, information consumption is no longer one-way communication process but rather is a two-way dialogue of the brands with the customers. likewise, blockchain is set to radically change consumer perceptions on internet medium by making the internet as a trusted means for transfer of value of any kind not just information. therefore, blockchain is to raise customer expectations on trustworthiness and transparency to new heights when conducting business with the brands. in the end, claims without proof will remain just claims and will have no value by themselves. blockchain is to trust as the internet is to information. it can be seen as the missing trust layer on internet protocol. trust is baked into the protocol using cryptographic technology such that not only information but also value (tangible or intangible assets like patents, property rights, ownership records, money etc.) can be transferred via the internet. the key innovation in blockchain technology is its ability to enable decentralized trustless transactions removing all the middlemen, also known as trusted third parties (ttp). this phenomenon, namely, the notion of disintermediation and decentralization paves the way to radically transform all types of activities where business is conducted on a global basis. because bitcoin and money transfer is the first killer app of blockchain, financial institutions come to mind first when trusted third parties are mentioned. however, blockchain promises to make all kind of middlemen, also known as trusted third parties, to become obsolete. this is also inclusive of giant technology platforms like google and facebook. as trusted third parties, they keep and monetize consumers’ personal data. although consumers are get accustomed to this phenomenon, in principle, consumers’ not really owning their personal data is unreasonable. like the original internet, blockchain has the potential to transform everything. blockchain is expected to have far reaching effects on our economy and society. that’s why it’s not characterized merely as a disruptive technology that attacks a business model with a better solution and overtakes incumbents firms quickly. but rather, blockchain is a adnan veysel ertemel 36 foundational technology; one having the potential to create new foundations for economic and social systems (iansiti, et. al, 2017). with blockchain many barriers including technological, organizational, and even societal are expected to become obsolete. blockchain is such a foundational technology that it has the potential to create new foundations for economic and social systems (iansiti et. al, 2017). therefore, blockchain is set to transform dozens of industries in the upcoming decade, pretty much the same way the internet did to communications industry. in sum, blockchain aims at replacing networks with markets where business of all kinds can be conducted in a trusted and transparent manner. more or less, there is some degree of distrust when we conduct business in our daily life even with our closest acquaintances. blockchain technology tackles this issue by providing an infrastructure for untrusted peers to securely transact with their counterparts by relying on cryptographically secured peer-to-peer distributed immutable ledgers, eliminating all intermediaries. blockchain ensures transparency and traceability of all activities by everyone in the network. in short, as opposed to a system that advises not to be evil, blockchain ensures a can’t-be-evil system. 1.1 erosion of trust to marketers recent research pinpoint that trust to marketers is at all time low level. the steady decline on the level of trust to marketers has come to such a point that only less than 20 percent of consumers have considerable or high level of trust to brands (gallup, 2012). likewise, c-level executives are found to be the least credible information sources (edelman, 2017). disappointingly, lack of trust negatively affect corporate reputation and hence brand image. confirming this trend, a recent survey revealed that lying or misinterpreting facts about a product or service and intentional wrongdoing by corporate leaders were found to be top two factors that negatively impact corporate reputation (edelman, 2017). in the pre-blockchain world, trust in transactions derived from individuals, intermediaries, or other organizations acting with integrity. let alone integrity, in online commerce, we can’t even know who our counterparties are. therefore, i is intermediaries that undertake the functions such as maintaining records, performing transaction logic to empower online commerce. visa, paypal, ebay and google are examples to such intermediaries, which harvest much of the value. 2. defining blockchain technology the blockchain technology combines cryptographic technology and peer-to-peer computing to deliver secure and direct, transactions without intermediaries. seebacher et al. (2017) define blockchain as a distributed database known as ledger, which is shared among and agreed upon a peer-to-peer network. distributed ledger is the main concept behind blockchain technology. every node in a blockchain network executes and records the same transactions, which are grouped into blocks. only one block can be added at a time, and every block contains a mathematical proof that verifies that it follows in sequence from the previous block. the data is time-stamped and highly tamper-proof once written, becoming more secure as time progresses and more “blocks” of data are cryptographically linked and added to the “chain”. zhu et. al (2016) mention that distributed ledgers serve as a database which offers “data security, transparency and integrity, anti-tampering and anti-forgery, high efficiency, low cost”. blockchain technology can be regarded as a brand new way of authenticating assets used in a transaction and can be potentially applied in numerous business activities. at its heart, it is all about the shift of trust from intermediaries into fully transparent processes. 2.1. evolution of blockchain technology swan (2015) defines evolution of blockchain technology in three distinct phases. according to this distinction, blockchain 1.0 refers to currency transfer over blockchain network. bitcoin is the killer application of blockchain 1.0. implications of blockchain technology on marketing 37 blockchain 2.0 refers to addition of programming logic known as smart contracts inside cryptographically secured blocks in blockchain. smart contracts are contracts that can be programmed directly onto the blockchain and automatically executed as terms are met. in short, smart contracts enable programming trust in business transactions. as a result, complex multi-party transactions can also take place without any intermediaries. there are numerous areas of application for smart contracts including supply chain integration, smart properties (blockchain enhanced internet of things), mortgages, titles etc. where business logic can be embedded. blockchain 3.0 refers to digital applications beyond finance and markets. blockchain 3.0 application areas include government, smart cities, health records, education, science etc. 2.2 key terms in blockchain technology 1.decentralization perhaps, the most noteworthy characteristic of blockchain technology is its decentralized nature. evans (2014) define blockchain shortly as a public decentralized ledger. blockchain’s decentralized nature comes from its peer-to-peer network structure coupled with cryptographically secured technology and consensus driven mechanism. consensus driven mechanism allows all parties to agree upon the state of data. this enables blockchain eliminate the need to all kinds of intermediaries. in such decentralized systems, no one party controls the system and data exists in multiple places. centralization brings order. decentralization, on the other hand, brings about more robust, efficient, secure and flexible systems (davidson et. al, 2016) 2.privacy blockchain promises to respect consumers’ privacy by giving them the right to control their personal data thereby preserving their identities from being monetized by third parties. blockchain enables users to cover their identities by pseudonymity. pseudonimity allows users to remain anonymous to the other parties in conducting transactions while providing their proof of identity on the protocol level. (iansiti et. al, 2017) 3.reliability the peculiar characteristic of blockchain that makes it reliable is that it keeps a shared, single reality of data across multiple locations across a network. as such, when a network node goes down, the system is not affected by this failure. this nature of blockchain makes it much more reliable than any trusted centralized institution. 4.immutability blockchain is, by nature, immutable in that, when a new block is appended to the chain, no one can alter the data (cucurull et. al, 2016). this is also called irreversibility of records; because blocks are chronologically linked to each other and available to all the nodes in the network, the records cannot be changed making the system more tamper-proof. 5.programmability with smart contracts with blockchain 2.0, not only data, but also programming logic can be securely kept and be autonomously executed as terms are met with predefined rules using smart contracts. in eliminating intermediaries, smart contracts are an essential and unique functionality of the blockchain. it has implications on numerous areas including settlements, supply chain integration, law, finance and markets. for example, currently two third of deloitte’s revenue comes from auditing. however, in blockchain, eliminating the need for all intermediaries is also inclusive of adnan veysel ertemel 38 auditing and settlement functions. smart contract concept can be extended to form decentralized autonomous organizations (daos) or decentralized autonomous corporations (dacs) in which decentralized network of autonomous agents perform tasks to run a corporation without any human involvement using a set of predefined rules (swan, 2015). 6.trust enabling coupled with the other attributes, blockchain’s foremost characteristic is its trust-enabling nature. seebacher et.al (2017) state that trust in business context is the expectation that counterparty behaves according to four principles of integrity; namely, honesty, consideration, accountability and transparency. honesty is critical in building lasting relationships with all stakeholders of the brand in a truthful manner, without lying through omission or obfuscation through complexity. consideration refers to both parties’ having good faith in business transaction by respecting to other party’s interests and concerns. accountability refers to making and honoring commitments made to stakeholders of the brand. it involves not putting the blame to others and owning it when it requires. a term closely related to accountability is traceability. traceability, also known as provenance is the ability to identify and verify the components and chronology of events in all steps of a process chain (skilton et. al, 2009). transparency refers to the extent to which information is readily available to both parties and also to others (awaysheh et. al, 2010). consequently, blockchain achieves trust via the shared transparency it provides on transactions, the integrity of data present within the system, and the system’s immutable architecture (seebacher et.al, 2017). all new verified and approved transactions are publicly broadcasted throughout the network, allowing users to interact directly with each other, without the presence of intermediaries (beck et. al., 2016; sun, et. al, 2016). 3. implications of blockchain technology on marketing having discussed the related terms, the remainder of this paper studies the implications of blockchain technology on marketing practices. 3.1. removing uncertainties by ensuring transparency and trust trust issue is the biggest challenge in today’s marketing environment. it becomes particularly important in ecommerce setting,. this is because of the fact that not being able to fully trust to the other party hinders the ability to implications of blockchain technology on marketing 39 conduct much more business than it can be currently done via online medium. as a consequence, despite substantial efforts, e-commerce adoption rate remains limited. as trust is crucial in online medium, blockchain technology is set to tackle this problem by resolving uncertainty (that leads to distrust) at different levels. these uncertainties and blockchain’s unique perspective to deal with are detailed below; 1. uncertainty about who the counterparty is whether offline or online, individuals have some degree of uncertainty when making business transaction with others. having witnessed to previous bad experience, consumers tend to mitigate the associated risks by avoiding making business with not-acquainted counterparts. this fact greatly limits the possibility to make business over internet because of uncertainties posed by internet medium. well-known brands like ebay and amazon serve as trusted third parties that consumers can rely on. having acquired consumers’ trust, in the long run, they gain the power to lock consumers into their platforms. because, a platform like ebay gradually accumulates one’s reputation score which serves as some sort of credibility. as a result, consumers become reluctant to switch to other platforms thereby, making the platform gain power. however, in reality, one’s data like credibility or reputation score is and should be owned by oneself. that is, that data should also be transferrable by the consumers to other platforms, hence lowering switching barriers. in fact, blockchain enables a notion like global credibility score which could be used by all parties that has potential to transact with someone. another risk that falls into this category is the risk of counterparty’s declared identity to be fake. blockchain eliminates this risk by applying pseudonymity; one’s showing their proof-of-identity on protocol level (iansiti et. al, 2017). yet another risk posed in e-commerce environment is that many forum sites lacks credibility. a big portion of the content is believed to be fake because some parties intentionally try to manipulate consumer perception in a negative or positive way about the businesses. with a blockchain based solution, with proof of identity, the system is able to trace and validate the real identity and hence credibility of the content creator 2. uncertainty in asset tracking across the supply chain when two parties have initiated a transaction, asset tracking is an issue where uncertainty problems might arise across the supply chain. with a single global network viewpoint, blockchain distributed ledgers serve as agreed upon reality among non-trusted parties. in this regard, transparent and real time monitoring of assets eliminate any uncertainties. 3. uncertainty about brand promises uncertainty about brand promises is reduced by blockchain in two dimensions, in strategic dimension, ensuring brand operates as promised and in visibility dimension achieving full transparency and traceability to the consumers. ensuring that brands keep their promises in the modern marketing environment, consumers increasingly demand more integrity and transparent business practices from brands. this can be attributed to the brands’ reluctance of acting with integrity and responsibly especially in the past decades. recent emission scandal of german automobile giant, adnan veysel ertemel 40 volkswagen can be given as a well-known example to such deceptive manipulation practices (siano et. al, 2017). the global erosion of trust to marketers can be reconstructed with a perspective that stops relying on human beings altogether and start building up a system that relies on fully automated processes instead. as exemplified with distributed autonomous organizations (daos) on top of blockchain, such automated systems makes human intervention, and as such breach from declared principles of conduct, impossible to happen. daos serve as a backbone for robotic process automation and artificial intelligence based systems of the future (swan, 2015). transparency and traceability by consumers blockchain also enables full transparency and traceability of the brand promises. for instance, in marketing 3.0 orientation, brands claim to be socially responsible, be it sincere or not (kotler et. al, 2010). in this regard, with blockchain, consumers will be able to instantly check the brands’ fund given to charities, check to what extent the brand is socially or environmentally responsible. ingredients of product of a brand could be irrefutably traced to see, for example, whether the product is really organic as stated. furthermore, consumers’ will be able to see whether the brand they prefer employs workers under acceptable conditions (i.e. no child workers). a blockchain based business, everledger tracks the provenance of individual diamonds from mining stage to the very final stage, even tracing the previous owners. other transparent measures consumers will be able to see indisputably include; customer complaint rates, customer satisfaction score, product defect rates, on time delivery rates. in short, claims without verifiable proof will remain as just claims. instead of those blanket statements, brands need to prove their claims with backed data. tapscott (2016), mentions that, in the past in the past, brands’ success depended on dressing. however, today, success depends on to what extent a brand undresses. additionally, for authentic and genuine brands, blockchain also serves as a means for counterfeit detection and hence brand protection. 4. uncertainty when things go wrong one of the fundamental reasons to have a trusted third party is to handle the situation when unexpected events happen. using smart contracts, blockchain also takes the role of trusted third parties to handle the settlement process. it does so by binding all parties to an undeniable programmable contract, that is; smart contract that involves if-then-else declarations. the smart contracts unfold and self-execute as events occur, hence coordinating and settling all the possibilities that can happen in a business transaction. for example, when one party in a business transaction doesn’t deliver the product as declared, the payment of the other party is automatically rolled back. 3.2. personal identity ownership 3.2.1. attention economy and technology addiction the current digital ecosystem is characterized as attention economy (davenport & beck, 2001). started from the early years of internet revolution, consumers prefer not to pay money in exchange for using digital platforms such as search engines, social media and video sharing platforms. they do, however, pay their attention to those platforms. in contrast to the explosion of data coming from everywhere, including social media platforms and data coming from internet of things devices, consumers’ time and attention is static, 24 hours a day, and doesn’t increase any more. this makes consumers’ attention scarcer and thus valuable. as consumers’ personal data becomes richer coming from various sources, it becomes beneficial to monetize valuable consumer data by profiling and trading to advertisers. using consumer data, personalization engines and artificial intelligence, consumers are analyzed at individual level and targeted with fine-tuned offers that they cannot refuse. psychologists had significant discoveries on how human brain works (ertemel, 2018). by exploiting these techniques, technology platforms design product experiences that capture attention and result in more addictive usage, hence technology addiction (eyal, 2014; ertemel, 2016; ertemel, 2017). as a result, attention economy puts consumers in an infinite loop where they fall victim to those technology platforms. implications of blockchain technology on marketing 41 3.2.2. blockchain and pseudonymity as a cure for attention economy blockchain can serve as a cure for this harmful loop by giving the ownership of consumers to consumers themselves. using pseudonymity feature of blockchain, consumers can store their own data in their own cryptographically secured wallet or smartphone and show their proof-of-identity on the protocol level and choose to remain anonymous to any other third party. any data with another party can be shared on a need-to-know basis. hence, consumers have complete control over their data, even be able to track who did what with their data. this concept, also known as self-sovereign-identity is realized by blockchain based projects like uport. for instance, if a third party needs to know whether a customer is at legitimate age to use their product, only that information, yes/no response to being legitimate inquiry is given to the third party, instead of revealing the customer’s birthday. this complete ownership of personal data opens up many possibilities. first and foremost, digital platform giants like google and facebook will no longer be able to monetize user data. in the traditional scenario, when consumers enter a not-so-familiar web site in digital medium, they choose to ‘facebook login’ or ‘google login’ to mitigate the risks and uncertainties associated with sharing their sensitive information with the untrusted party. this comes at the expense of sharing sensitive personal data with those trusted parties like facebook and google. however, with blockchain, there is not any need to share personal data with any third party including those platforms. instead of platforms’ monetization of attention, consumers, themselves, can monetize that attention. blockchain based basic attention token (bat) does exactly this; it rewards consumers for attention given to advertisements with bat crypto-currency. in order to track consumer attention, an internet browser (brave) has been developed. 3.3 true disintermediation with the advent of the internet, consumers at large were impressed with disintermediation made possible with ecommerce. disintermediation can be defined as the replacement of traditional trading mechanisms with alternate trading made possible with electronic intermediaries (stanton, 1999). internet has brought about electronic brokerage effect implying that as search costs are negligible on internet, those intermediaries are not needed any more. (malone et. al, 1987) however, new intermediaries have started to take place fulfilling the need to have a trusted third party. this new function, called re-intermediation involves providing a value add to the value chain by through e-commerce capabilities like information brokering, trust provision and search capabilities (bakos, 1998; sarkar, 1995) as previously stated in discussion of resolving of uncertainties, blockchain eliminates the need for centralized institutions for trust enforcement. this is also inclusive of transacting parties’ reputation scores, credibility etc. as a consequence, true disintermediation, rather than re-intermediation is expected to happen. furthermore, it will be possible for consumers to use a specific service from one brand and use remaining services from another. for instance, a bank customer might choose to migrate to digital wallet service of another bank and remain to use other services from his original bank. such a migration could happen in several minutes. as brands’ switching barriers disappear, the only way to differentiate for the brands is going to be by providing seamless customer experiences. 3.4. co-creation and monetization of value by customers traditionally, when new businesses start to gain traction in a two-sided market, they face a challenge achieving network effects. in network effects, as the number of nodes increase, the total value of the network increases as in the case of email, whatsapp, skype etc. however, reaching the critical mass is fairly difficult, hence building an enormous barrier to new entrants. for instance, when the number of sellers is relatively low, buyers become reluctant to use the network and vice versa. 3.4.1. network ownership effect blockchain technology has the potential to democratize starting a new business by coining a new concept, network ownership effects also known as token network effects (dixon, 2017). it does so by incentivizing all the stakeholders adnan veysel ertemel 42 of a project by rewarding for engagement to the network. catalini et. al (2016) explain this by stating that, relative to open source projects that rely on donations of time and resources, blockchain based projects offer direct, monetary incentives. as opposed to network effects, in network ownership effects, the ownership of the network is distributed to participants of the ecosystem using tokenization. utility consumers get from joining the network is not the only gain they receive. participants who need to own project tokens also gain by the increase in token price. when project is in its infancy, those who believe in the project’s story are inclined to buy its tokens while the price is cheap. as they own more tokens, they evangelize the project to others. as such, in the beginning ownership of the network by participants is the key driver for the network to gain momentum. figure 1: network ownership effect (adapted from dixon, c. (2017) after reaching the critical mass, network effects take place. naturally, at this point, token price increase and stabilize. as a blockchain based competitor to uber, la’zooz project is an example to this phenomenon. drivers are paid with zooz tokens in the network. at the beginning, drivers do not differentiate between accepting fiat currency or zooz token. gradually, as they collect more tokens and believe themselves as part the project, they start to evangelize the project to other drivers with a motivation to have financial gain. there are many blockchain based projects that employ complex mechanisms to incentivize all the stakeholders in the network. pazaitis et. al (2017) describe such systems as decentralized cooperation systems. implications of blockchain technology on marketing 43 figure 2: decentralized cooperation (adapted from pazaitis et al. 2017) in such systems, contributers and non-contributers earn and trade tokens to buy goods and services served by the community. as an example, blockchain based social media platform, steemit, rewards content creators and content curators with steem tokens. token earners can redeem their tokens in the marketplace. those who believe in the project collect steem tokens. the key to success in network ownership effects is making the audiences believe in the brand’s story and make them willing to be part of the story. consumers, especially younger generations tend to gather around specific causes they care about and are willing to actively participate by forming dynamic communities. as such, for brands to succeed in this age, in addition to a good gamification (mechanism) design, cause related marketing and storytelling is going to be among key marketing strategies (ertemel, 2017; ertemel, 2016). we can see the effects of these strategies on steemit project. the project has spent no marketing budget; instead, community members themselves authored a free e-book entitled steemit 101. the community self-organized an international festival – steemfest and even paid to advertise on billboard in chicago, us. furthermore, the steemit community created a 3rd party ecosystem for alternative interfaces and analytical tools to create a richer social media experience (bruckhman, 2016). in short, as opposed to vc-backed ownership, decentralized ownership of brands by global community of enthusiastic micro-shareholders create network ownership effects and can provide everything needed for the brands to succeed. 3.5. democratization of supply and cost reduction another way value can be co-created in blockchain is the state in which customers take the role of suppliers. undoubtedly, the ultimate form of collaborative economy is when old customers become new competitors. for example, decentralized cloud based storage initiatives on blockchain technology like storj and filecoin aim at democratizing the storage business by letting everyone with idle storage capacity to share their unused disk space and become suppliers. participants who share their disk capacity get monetary rewards with tokens. instead of relying on monopolies like amazon.com, democratization of supply is expected to lead to 90 percent decrease in cloud storage prices (epstein, 2017). catalini and gans (2016), blockchain allows market participants to perform costless verification, and thereby it lowers the costs of auditing transaction information. thus it makes it efficient to make transactions in the market places where it would previously have been inefficient due to low the transaction value compared to the transaction adnan veysel ertemel 44 costs. an example of this are different sharing economy platforms that require a verification of trust and mechanisms to monitor reputation and payment systems. 3.5.1.future directions next decade is expected to witness a breakthrough in blockchain and artificial intelligence technologies, known together as smart networks (swan, 2016). more or less, society at large and marketers and businesses in particular are expected to be affected seriously by these technologies. as those technologies, coupled with robotic automation are expected to transform the whole society, making mass digitization come true, uncertainties that stem from traditional structures relying on human beings need to be resolved. moreover, in internet of things vision, billions of smart things are to sense, respond and communicate with each other and human beings. this mandates that machines be able to trust to humans. but trust will be mandated on protocol level. therefore we will need to eventually migrate from don’t be evil system to can’t be evil system. 3.5.2.drawbacks of blockchain technology blockchain technology is still in its infancy and faces scalability problems. we need to wait at least for several years till the technology is matured enough to be production-ready scalable. on the other hand, not all blockchain based initiatives are necessarily decentralized. fairly centralized projects can also be designed and implemented on top of blockchain technology making central authorities even more powerful. this aspect deserves caution when assessing blockchain based projects. 4. conclusion iett blockchain brings about new promises and new threats to marketers. the modern marketing environment evolves such that customers are not merely on consumption side any more. instead, they can take the role of value creators. moreover, they can even take the role of brand ambassadors as a result of network ownership effects. in order to unleash this potential, brands have to change their perspective and adopt new strategies like designing gamification mechanism that rewards all participants for their engagement in the ecosystem. on the other hand, with blockchain, marketers face new challenges. customer data is envisioned to be owned by customers themselves making brand behavior easier than ever. seamless customer experience is the only key to differentiate for the marketers. all in all, brands have to appeal to audiences with their story and cause in order to succeed. this is the only way to make consumers unite and build up communities they care for and actively participate. on technological level, blockchain enables these concepts to come true. blockchain is still in its infancy and it will take some time until we see blockchain based projects on the mainstream. however, blockchain technology has a lot of serious implications for marketers that need to be studied from now on. references eboli, awaysheh, a.; 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(2016). analysis and outlook of applications of blockchain technology to equity crowdfunding in china. financial innovation, 2(1), 29. journal of international trade, logistics and law, vol. 3, num. 2, 2017, 36-43 the place of digital marketing on turkish small businesses serhat karatum, (mba) istanbul commerce university in istanbul, turkey received: nov. 07, 2017 accepted: dec. 08, 2017 published: dec. 09, 2017 abstract: in the 21st century, technology develops rapidly and continuously and it affects every aspect of our lives. marketing concept has been affected by these developments. what we want from marketing and reaching in an increasingly virtualized world is to be a lot faster than the past. also, new marketing channels have emerged as well. turkish small businesses, the building blocks of turkish economy, have the chance of addressing the marketing problems and solving the problems with the digital marketing channels. small businesses have time and cash money limitations and this restricts their development. it is aimed to inform turkish small businesses about turkish population’s digital channel usage and the benefits of using digital marketing channels. as a result, digital marketing is going to improve the speed of renewal process of the turkish small businesses and competition between them will improve the economy of turkey. keywords: small businesses, digital marketing, turkish businesses, communication, internet 1. introduction in the 21st century, marketing channels differentiated into a worldwide virtuality. in the first decade of the century, household computers became the most popular communication tool worldwide. that brought more advertisements into the worldwide web compared to written press. in late of these years, public communication networks like facebook, twitter came to our lives. in these networks, people can instantly contact or can share what happens in their lives. in 2010s, with the emergence of the smartphones and personal tablet computers, social media has become more popular. with the emergence of the smartphones and personal tablets, programmers have started to create mobile applications and websites which are suitable for the smartphone operating systems and smartphone explorers. the commercial brands, companies and even non-profit organizations benefited from the new form of the effective marketing which is digital marketing. the need for digital marketing of the companies instantly increased to a level that requires staying new and sustainable on the market. it is guessed that there are more than 2 billion smartphone users worldwide. this information shows the influence of the virtual world, the mixture of technologic gadgets and social media. one of the main problems of the small businesses globally is that they cannot promote themselves or market their products to their target customers. the reason for this is the minor gap between their income and expenditure. as the name implies, small businesses offer small amounts of product with less amount of operating costs and income to an inadequate range of their target customers. 2. what is digital marketing? digital marketing is the variation of marketing using channels utilized by digital devices to market the products and services of a brand and to connect the brand with the consumers. the primary objective is promoting brands by means of numerous digital media such as social media, short messaging systems – multimedia messaging systems, display advertising, viral videos and search engine marketing. 1 these channels are used to communicate in one-way 1 financial times, “definition of digital marketing” http://lexicon.ft.com/term?term=digital-marketing web access date 15.10.2017 serhat karatum communication which the feedback from the counterparts do not occur and the company only sends promoting message to the target; on the other hand, in a two-way communication, a company can send the message and the target can reply with a feedback or a proposal. (lunenburg, 2010:3) 2.1 how digitalizationinfluences marketing internet influences a business both operationally and strategically. supporting marketing tasks such as reducing costs of activities and minimizing the time of reaction to customer are important. in addition, processes of creating value and market position building of a business depend on actions within networks reached with internet. internet, especially social media networks impact on the marketing concepts, such as: (mazurek, 2014:18-19)  result of clear communication to both internal and external environment, business has the possibility of gathering accurate information of market to react market needs immediately.  interactive and clear communication of business to the environment, business has the opportunity to have compact relationship with other businesses and customers which can be considered as a part of the business because of the interactivity.  raising brand awareness and customer loyalty to the business by introducing the company right, marketing the product interactively. 2.2 brief history of digital marketing with the first production of the personal computer in 1981, the connection of the people to digital world was established. 14 years later, 16 million people started to connect into digital world via the internet. online stores emerged in the mid-1990s like ebay.com and amazon.com on which any corporation or person can sell their products via the internet. in december 1999, 248 million users were connected to the digital world. in june 2017, the number of users increased 15 times, with 3 billion 885 million, compared to the number of users in 1999.2 the short messaging system, also known as sms, was developed by friedhelm hillebrand and bernard ghillebaert in 1984. after 8 years of the system development, the first text message has been sent. short messaging system has 160 characters in one message; letters, numbers or symbols are counted as characters. (erickson, 2012) in the first decade of 21st century, social sharing platforms were born. these platforms have different aims such as status sharing to find previous or actual classmates and sharing videos to the internet users. to be precise, facebook launched in 2004, twitter launched in march 2006 and youtube launched in february 2005. social media networks establish communication between businesses and target customer groups. this communication creates an opportunity to find the right group for targeting campaigns by using profile information such as age, residence and interests. (kırcova, enginkaya, 2015: 25-26) 2.3 one-way digital marketing channels website e-mails and viral videos can be examples of the one-way communicative channel of digital marketing. a company website could be defined as the center of the brand in the online world. e-mailing can be used for different marketing purposes like the build-up for a brand or a company, developing and managing customer relationships or sharing information to forward the customers to the website. (karjaluoto – taiminen, 2015: 635) e-mail channel is normally a two-way communication tool between corporates and people, but when it is used for advertising to customers, it becomes a one-way communication tool. the reason for that is these advertisement mails are perceived as usually disturbing for receivers and they are categorized as spam and junk mails. therefore, it is more affective to use more advanced tools from websites and e-mail channels, named as search engine advertising and search engine optimisation. with search engine optimisation, you can improve a website’s search engine rank in organic results. also, with search engine advertising, you can put paid advertisements which are related to specific keywords on a search engine's results page.(karjaluoto – taiminen,2015: 635) search engine optimisation and search engine advertising require less company control in comparison with website, e-mail advertising or 2 internet world stats, “usage and population statistics” http://www.internetworldstats.com/emarketing.htm web. access date: 25.10.2017 the place of digital markting on turkish small businesses newsletters in one-way channels. in the beginning of 21st century, with the technological advancements, the appearance of mobile phones as a channel for marketing attracts both companies and customers to the mobile marketing. according to rogers, mobile marketing: “a set of practises that enables to organisations to communicate and engage with their audience in an interactive and relevant manner through any mobile device or network” (rogers, 2010:24-25). in mobile phones, short message services can be used as commercial sms which is designed only for sales and promoting businesses’ goods or products to customer whether or not permissible for the receiver. (takhar et.al, 2014:39) thus, sms marketing can be considered as a one-way digital marketing channel. on 4th of september 1998, google has launched the world wide web. it created a new channel in digital marketing by optimizing and putting unique keywords that advertise into one of the best search engines in the world. both search engine optimization and search engine advertising are commonly used among larger firms, but before the second decade of 2000s, their potential was not fully understood among small businesses in the world. (karjaluoto and leinonen, 2009) in turkey, small firms cannot form their own seo or sea because of lacking an experienced search engine marketing specialist on the marketing divisions. small enterprises may avoid seo because of its consultancy and additional fees, but seo and sea activity in google, which is one of the largest search engines in the worldwide web, can provide reputation and potential customers when internet users search with related keywords. 2.4 multidirectional digital marketing channels social media platforms (twitter, instagram and facebook) and blogs are the exquisite examples of a two-way communication channels in digital marketing thanks to their chance to create a profile for a corporate. with this ability, every size of business can connect to their target customers or present customers. the difference between one-way communication and two-way communication stems from the fact that the marketer-customer relationship turned upside down on social media platforms. the power has shifted from marketers to customers. (hennigthurauetal et.al, 2010) that is to say the requests and demands of customers from brands can form a two-sided communication which develops a beneficial atmosphere for marketing and customer satisfaction. social media has become an important part of an organization's marketing communications and branding (bruhn et al., 2012). the best example can be facebook which has become an important channel for engaging actual consumers and creating brand awareness on potential consumers. (malhotra et al., 2013: 18-20). 3. definition of small business and the statistics about small businesses in turkey on 19th of october 2005, the “regulation of definition and classifications of small and medium scale businesses" was published on turkish official newspaper with the number 2005/9617. the regulation granted the small and medium scale businesses in turkey named as kobi. kobi is an enterprise which has less than two hundred employees and its annual net sales revenue is less than 25 million turkish liras. 3 kobi has been classified into three subclasses as micro scaled businesses, small scaled businesses and medium scaled businesses. this classification depends on number of employees and the net sales revenue the business gathers in a year. the smallest of the businesses mentioned as kobi is the micro businesses which have up to 9 employees and below 1 million turkish liras annual net sales revenue. small businesses have less than 50 employees and lower than 5 million turkish liras net sales revenue. (resmi gazete, article 5, 2012) in 2014, 2.677.000 turkish businesses were active in industry and service sectors. 99.8% of these businesses were small or medium businesses. mostly, there are small and medium businesses in wholesale-retailing and motorized vehicle reparation sector with a rate of 39.2%. (tuik, 2016: 21540) in 2015, the micro and small businesses made a total of 19.4% of the exportation of turkish businesses. 32.4% of turkish small businesses renovated their marketing strategies in the year of 2014.4 that data show that enterprises need more effort to market and sell their 3 http://www.resmigazete.gov.tr/eskiler/2012/11/20121104-11.htm türkiye cumhuriyeti resmi gazete, “küçük ve orta büyüklükteki işletmelerin tanimi, nitelikleri ve siniflandirilmasi hakkinda yönetmelikte değişiklik yapilmasina dair yönetmelik” access date: 18.10.2017 4 http://www.tuik.gov.tr/prehaberbultenleri.do?id=18662 türkiye i̇statistik kurumu, “yenilik araştırması 2014” tablo-9 pazarlama yeniliği yapan girişimlerin uyguladıkları pazarlama yeniliği faaliyetleri access date: 17.10.2017 serhat karatum products or services in turkey and export to the neighbouring countries. in perspective of the turkish small businesses, the usage of internet and computer is as high as the turkish population’s usage. according to statistics institute of turkey, 95.4% of the small businesses, which have 10 to 49 employees, use computers and internet. thus, the small businesses in turkey have the suitable environment for digital marketing and e-commerce. turkish small businesses’ social media usage rate is at 44.5% in 2017. according to the turkish statistics institute, there is an increase of 8% in social media usage compared to 2016. turkish small businesses that use social media prefer social media networks rather than other channels with a rate of 96% which means nearly all the small businesses are using social media. somehow, the multimedia content sharing websites usage of turkish small businesses had a sharp decline from the rate of 42.6% to 32% between 2016 and 2017. on online sales, turkish small businesses’ usage seems too low when compared to the usage of social media or internet with a rate of 10.1%.5 3.1 marketing problems of small businesses in turkey in turkish entrepreneurship mentality, the only ambition that is to think about revenue is going to disappear over time. nowadays, turkish entrepreneurs who own a small business gradually possess the mentality of adding economical value with communal responsibility. somehow, turkish entrepreneurs are caring for their independencies and they want to stand on their own feet but this can cause a lack of communication. so, the small business entrepreneur cannot form a partnership in domestic or abroad markets. (kocabıyık – altunay, 2008) small businesses in turkey might lack marketing departments or experienced personnel on marketing departments. like some of the small businesses in production sector, they can only have financial, accounting and production employees. that will lead them into downsizing in a competitive market. if the downsizing of the business is constant in a competitive market, it means there is no much time left for them in the business world. organized marketing department and experienced or educated personnel in marketing departments are the connection between the brand and customers. (özgener, 2003) 4. digital turkey: the digital statistics and e-commerce summary of turkey turkey has a population of 79.815.000 according to statistics institutions of turkey6. with a rate of 60%, turkey has a digital population composed of 48 million internet users across the country. social media usage in turkey has the same level with the internet usage; 48 million of social media accounts were active in january 2017. the 89% of the population has mobile phone subscriptions, that is equivalent to 71 million people and 42 million of them use social media from their mobile phones actively.7 comparing to 2016, internet usage slightly rose by 4%, active social media usage from computers by 14% and from mobile phones 17%. 5 http://www.tuik.gov.tr/prehaberbultenleri.do?id=24863 turkish statistics institute, girişimlerde bilişim teknolojileri kullanım araştırması, tablo-8: sosyal medya uygulamalarını kullanan girişimler ve kullanılan sosyal medya uygulamaları 19.09.2017 web. access date: 28.10.2017 6 http://www.tuik.gov.tr/prehaberbultenleri.do?id=24638 türkiye istatistik kurumu, adrese dayali nüfus kayit sistemi sonuçlari 2016, 2017 access date: 29.10.2017 7 we are social & hootsuite, digital in 2017: western asia a study of internet, social media, mobile use throughout the region, 26.01.2017 https://www.slideshare.net/wearesocialsg/digital-in-2017-western-asia access date: 29.10.2017 the place of digital markting on turkish small businesses table 1: device usage of turkish population in january 2017 (hootsuite, we are social, 2017) note: produced by the author based on the data from we are social & hootsuite.com (2017), “digital in 2017: western asia a study of internet, social media, mobile use throughout the region” https://www.slideshare.net/wearesocialsg/digital-in-2017-western-asia according to this table 1, television (98%) is the most used digital device by the turkish population; however mobile phones (95%) are nearly as popular as television. hence, turkish people mostly use television and any kind of mobile phones, 75% of which are smartphones that support applications of social media channels. handheld (17%), desktop and laptop computers (51%) are left behind at the usage rates in spite of their respectable rates of usage. (table.1) according to table 2, turkish population spends 406 minutes on a daily basis using internet on a computer. it is more than the combination of mobile internet usage (179 minutes) and social media usage (181 minutes). although turkish population mostly prefers television, this usage research data show that the time they spend on television on a daily basis (134 minutes) is the lowest. (table.2) table 2: average daily time spent on devices and social media by turkish population (hootsuite, we are social, 2017) note: produced by the author based on the data from we are social & hootsuite.com (2017), “digital in 2017: western asia a study of internet, social media, mobile use throughout the region” https://www.slideshare.net/wearesocialsg/digital-in-2017-western-asia 0 20 40 60 80 100 120 digital device usage in turkey usage https://www.slideshare.net/wearesocialsg/digital-in-2017-western-asia serhat karatum 5. how digital marketing can be useful for turkish small businesses first, owner of a business who has the knowledge about technology is an important factor. (chao and chandra, 2012:128). if the business owner develops his/her own digital marketing skills, he or she can become versatile in digital channels of marketing which can lead to reaching for the target group more easily and more efficiently than the rival entrepreneurs in the sector. second, in the first years of the 21st century, e-mail marketing and sms marketing were popular. although they are still used by turkish businesses because of being easy and free or having a small fee to use, sending e-mails or sms without permission can lead into failure in reaching a part of a target group who delete the mails or messages without reading.8 what is worse is that without getting any permission to send sms or e-mail can bring penalties to the business and its owner. (resmi gazete, article 14) thus, these channels’ reaching ranges are limited in comparison with present digital marketing channels. social media has a lot more enriched content than e-mail or sms marketing. businesses are able to promote their products with multimedia resources or share their own website feeds including company news, updates, etc. on social media, businesses may react to target customers in a friendly way thanks to the interactivity of these platforms. according to statistics institute of turkey, the 39% of turkish enterprises used social media channels in 2015. these enterprises mostly used social media networks at the rate of 85%. multimedia sharing websites and blogs were used by the same enterprises at the rate of 32.3%. the most important fact is that 36.8% of small businesses, which have 10 to 49 employees, used social media channels.9 as a result, digital marketing establishes communication to the digital environment. all the customers, businesses or buyers can interact with each other and clear out any misunderstandings. this can save money and time for the businesses. according to the previous data, reaching to customers and promoting the products can be more efficient and precise, if the small businesses in turkey use digital marketing more. this can solve the marketing problems of turkish small businesses. 6. conclusion after gathering the statistical data and having information about digital marketing, turkish small businesses will surely become more interested in digital marketing in time. population of turkey has clearly become a digital population when one thinks about the fact that three people out of four have smartphones or one person out of two has a personal computer. the most noticeable data is that 60% of turkish population and 96% of turkish small businesses actively use social media channels. this shows us that the small companies can use the digital marketing to market their products more efficiently. in addition, whether it is on mobile or computer, social media has become a tremendous part of the people’s lifestyle nowadays. turkish people spend more time on social media than television; also, you can instantly react positively or negatively on social media with a comment or a message to the company profile. over time, turkish entrepreneurs will be more moderate to the digital marketing practices like social media marketing. besides, the turkish small businesses will be more competitive and communicative with their customers frequently and between each other by creating partnerships. eventually, the traditional marketing is going to be replaced by digital marketing because of technology’s rising on a stable trend and the quickly changing needs and behaviours of the customers. as a result, digital channels are the most used channels in marketing and the most effective channel which connect consumers and small businesses. 8 deniz r.baki, “yeni bir pazarlama yöntemi olarak elektronik posta pazarlaması” journal of i̇stanbul kültür üniversitesi, 2002 (p.1) 9 http://www.tuik.gov.tr/basinodasi/haberler/2016_59_20160511.pdf türkiye i̇statistik kurumu, girişimlerin %39'u sosyal medya uygulamalarını kullandı, 2016 access date: 27.10.2017 the place of digital markting on turkish small businesses references akar erkan, “sosyal medya pazarlaması sosyal webde pazarlama stratejileri” 2010 efil yayınevi (p.125) bruhn, m., schoenmueller, v. and schäfer, d.b. 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araştırması 2014” http://www.tuik.gov.tr/prehaberbultenleri.do?id=18662, 2015 (access date: 17.10.2017) we are social & hootsuite, digital in 2017: western asia a study of internet, social media, mobile use throughout the region, 26.01.2017 https://www.slideshare.net/wearesocialsg/digital-in-2017-western-asia (access date: 29.10.2017) journal of international trade, logistics and law, vol. 9, num. 1, 2023, 111-116 111 digital transformation processes of manufacturing enterprises in organized industrial zones: the effect of digital transformation on competitiveness in international trade adem kayar istanbul ticaret university, turkey i̇brahim baz istanbul ticaret university, turkey received: feb 20, 2023 accepted: april 18, 2023 published: june 01, 2023 abstract: today, enterprises producing in every sector are looking for ways to increase efficiency and quality in their manufacturing processes. in the globalizing world economy, competition conditions are increasing day by day, and the cost of each product produced is monitored and kept under control. most of the manufacturing enterprises operate in organized industrial zones (oiz). oiz, in order to ensure the structuring of the industry in suitable areas, to direct urbanization, to prevent unplanned industrialization and environmental problems, to use the resources rationally, to place the industrial types within the scope of a certain plan, to establish certain laws in the necessary administrative, social and technical infrastructure areas within the zoning plans of the previously determined land plots. it refers to the production regions of goods and services that are operated in accordance with the provisions of the law. it is observed that manufacturing enterprises operating in oiz regions face difficulties in digital transformation processes. these challenging processes can cause many manufacturing businesses not to switch to digital transformation. however, with the right planning and management of the manufacturing enterprises in the oiz, the digital transformation processes will be much easier, faster and less costly. manufacturing enterprises that complete their digital transformation processes gain advantages over their competitors in international trade in terms of performance and productivity gains. in this study, the digital transformation processes of the manufacturing enterprises in the oizs will be examined, and the difficulties experienced, the application methods and the advantages provided after digital transformation will be discussed. it is aimed to contribute to the digital transformation processes of manufacturing enterprises located in other oizs by examining the application methods of digital transformation in an exemplary manufacturing enterprise in detail. the advantages of manufacturing companies that have successfully completed digital transformation and their impact on competitiveness in international trade will be examined. keywords: industry 4.0, digital transformation in industry, organized industrial zones, production systems 1. introduction the first of these is the design and commissioning of all processes together with industrial automation systems and production management systems (mes), starting from the design of a newly established manufacturing company. in this case, there is no need for an additional digital transformation solution, as all processes in the manufacturing company are designed in a digital environment and commissioned accordingly. this situation provides a great advantage to the enterprise, all production processes can be monitored in the digital environment from the moment the production starts in the enterprise. the biggest disadvantages of this solution are the high initial investment cost, longer implementation and commissioning processes, and the need for technically qualified personnel. because of these, it is seen that the number of businesses that choose this solution is not very high. the second application we encounter is the enterprises that were established many years ago, manufacturing and at the same time wanting to implement industry 4.0 and digital transformation applications on their own production lines. in this study, the basic concepts and a sample application related to the application processes of both industrial automation and adem kayar & i̇brahim baz 112 control systems and the industry4.0 concept will be discussed. on the one hand, the difficulties experienced by the manufacturing enterprises in the digital transformation processes will be examined, on the other hand, the advantages of digital smart factories will be evaluated on a casting manufacturing company located in elazig osb. at the same time. the advantages of manufacturing companies that have completed their digital transformation processes compared to their competitors in international trade will be evaluated, and the advantages to be provided both in terms of performance and efficiency gains and production costs will be discussed. since industry 4.0, which is described as the age of digital industry, cannot be successful only as an academic or commercial enterprise, the triangle of academia-business-politics should be drawn solidly. with this article, it is aimed to raise awareness to many people in environments such as growth, employment, investment, business world, academia and government institutions & organizations and help the adaptation of this new level to be achieved in a successful and easy process. 2. digital transformation in industry digitalization is moving towards a completely different process with the rapid development of information technologies in recent years, especially with the introduction of smart phones into our lives. not a day goes by that a new application that we use in our daily life does not enter our lives. especially during the covid-19 pandemic, we can see how digital applications make our lives easier. the importance of digitalization and industry 4.0 was once again clearly understood during the covid-19 outbreak. it has been seen that it is very important for the sustainability of production in such epidemic disease conditions that the operations are carried out using minimum people at different stages of production (kayar, 2020). nowadays, when digitalization has entered our lives so intensely, the digitalization of production or digital transformation in production is encountered with industrial applications with the same intensity. digitalization and industry 4.0 are met with interest in almost every sector. when industry 4.0 was mentioned for the first time at the hannover fair held in germany in 2011, no one thought that the process would develop so quickly. we see that the rapidly developing digital transformation applications all over the world are now used in production lines. it is seen that iot, big data, autonomous robots, simulation, system integration, cyber security and augmented reality (ar) applications, which are considered as the main components of industry 4.0, are preferred for different purposes in different processes in different processes. especially in production lines where continuous production is made, digital transformation applications play an important role (kayar et al., 2019). the changes in social and economic systems that emerged with the rapid development of new technologies led to a global revolution known as the 4th industrial revolution. industry 4.0 is characterized by the rapid development of the internet of things (iot), artificial intelligence and machine learning; it radically changes human lifestyles and significantly contributes to the development of new production methods (ben arfi et al., 2021). nine different technologies, known as industry 4.0 components, are already used in different ways on production lines. however, with industry 4.0, manufacturing, isolated and optimized cells come together as a fully integrated, automated and optimized production flow, leading to greater productivity and changing traditional production relations between suppliers, manufacturers and customers and people (öztürk et al., 2019). iot, big data, autonomous robots, simulation, system integration, cyber security and augmented reality (ar)applications, which are the main components of industry 4.0, have been used extensively in production lines in recent years (kayar et al., 2019). industrial automation systems and digitalization are the most important elements for businesses that aim to increase efficiency in engineering and operations, reduce operating costs and improve product quality. when it comes to digitalization and smart manufacturing, manufacturing businesses around the world often have to address key 2. organized industrial zones and manufacturing sector organized industrial zones allocate private sector investments to certain regions in order to balance regional development. in addition, by meeting the land needs of developing industries, they support industrial production according to a certain program, thus forming an external economy. in addition, organized industrial zones contribute to national development goals by promoting the underdeveloped regions in which they invest in order to ensure regional equality (dursun et al., 2019). the development process and results in industrial areas in southern china differ from those in other land use areas due to the very different land and regulatory regimes. the stimulus of the 1980s producer economy was supported by simple zoning arrangements in many industrial zones that received little demand from developers in exchange for rapid investment. such an approach was adopted first in the shenzhen special economic zone (sez) and later in bao'an and longgang districts, dongguan, huizhou, and other guangdong export-oriented manufacturing cities (zacharias and ma, 2015). in the current global trend of industrial digital transformation processes of manufacturing enterprises in organized industrial zones: the effect of digital transformation on competitiveness in international trade 113 development, generating economic benefits is no longer the sole purpose of industrial development. increasing importance is given to the concept of harmonious and continuous development of the economy, environment and society and has begun to advocate the use of "eco-efficiency" to measure the relationship between economic value and environmental impact. an eco-industrial park has a sustainable relationship between the economic, environmental and social aspects of planning the exchange of material and energy resources of the industrial system, minimizing resource consumption and reducing waste emissions (pai et al., 2018). resource integration allows industries to promote cyclical operations that lead to the creation of sustainable systems. industrial parks integrate multiple processes in this way to achieve greater cumulative economic and environmental benefits that exceed those achieved by the independent operation of these processes. over time, technological advances, market fluctuations and regulatory changes can cause the processes and resources that make up a network to change (abraham et al., 2022). businesses operating in oizs can provide cost advantage, efficient use of country resources and prevention of technology waste, by providing many investments they make individually, such as license, hardware, internet, education, employment, energy and air conditioning system, by an organization and teams to be provided by the oiz managements. gebze organized industrial zone (gosb) management, which has successfully carried out these studies, has been providing technology services to manufacturing enterprises for many years. gosb management, which is a good example for turkey and the world, meets the technological infrastructure needs of manufacturing enterprises with its telecommunication, data center and security operation center services. 3. application example the project work for the industry4.0 digital transformation of production and maintenance processes in an iron casting factory located in elazig oiz has been examined. after this digital transformation application, the efficiency of the enterprise, performance increases, improvement of production and maintenance processes and the competitive advantages of the enterprise in the international market as a result of digital transformation were examined in detail. 3.1. the project summary in the digital transformation project, necessary studies were carried out to identify, collect, archive, monitor and report the data generated during the production and maintenance processes. the studies carried out during the transformation process carried out within the framework of industry 4.0, which provides up-to-date technology and industrial standards, are shown in (table 1) table 1. studies in iron casting plant no application areas and operations 1 supply and field installation of data collection digital infrastructure equipment 2 installation and commissioning of kiosk and andon stations 3 commissioning the mes application 4 polymer line digital transformation 5 core line digital transformation 6 cime casting line digital transformation 7 robot grinding line digital transformation adem kayar & i̇brahim baz 114 8 digital transformation of molding and sand preparation 9 digital transformation of laboratory unit 10 commissioning of forms and reports 11 commissioning of the periodic, breakdown and preventive maintenance module 3.2. system architecture and methodology a project study was carried out to transform the existing production and maintenance data in casting processes into meaningful values. in this study, all necessary digital activities were implemented as a transformation strategy. the data architecture from the machines is shown in (figure 1). figure 1: data collection architecture from machines 4. methodology of the research a digital transformation project is being carried out in an iron casting company operating in elazig oiz. the name of the project is “smart casting line”. oee (overall equipment effectiveness) calculation method is used to improve the processes of production lines. it is a measurement technique that shows how an operator can take advantage of a machine, meter or equipment. the following parameters will be taken into account when calculating oee: a) performance rate = (standard cycle time x production rate) / (planned production time – unplanned downtime) b) equipment availability rate = (planned production time – unplanned downtime) / planned production time c) quality rate = correct product rate / total production rate oee = performance x availability x quality the following calculations were made according to the b shift production data dated 23.05.2022 at the elazig plant. example of oee actual shift report is shown in (figure 2). performance calculation = a actual capacity= working time (s) / target production cycle (s) capacity = 317 units (60min x 275min /52sec) performance % = actual production (printed) / maximum production(capacity) x 100% performance % = 311 / 317 x %100 = % 98,11 availability calculation = b availability% = working time / shift time (planned) x 100% availability % = 275min / 480min x100% = 57.62% quality calculation = c quality % = (net spilled / printed mold) x (1 – injured number/net spilled) quality % = (282/311) x (1-0/282) = 90.68% oee= a x b x c = 98.11 x 57.62 x 90.68 = 51.26% digital transformation processes of manufacturing enterprises in organized industrial zones: the effect of digital transformation on competitiveness in international trade 115 figure 2: example of oee actual shift report 5. conclusion the biggest impact of digital transformation is traceability of production processes. after the digital transformation application, the malfunctions occurring in the enterprise can be monitored instantly and the technical personnel can intervene in a very short time. thus, we see that the downtimes in the manufacturing processes in the iron casting plant have decreased and the productivity has increased. as of december 2021, as a result of the improvement made in the production line as the achievement of the digital transformation mes application, 52 sec. the target cycle speed is 48 sec. it has been updated to approximately 10% performance increase. accordingly, the shift production capacity, which was approximately 554, increased to 600. as can be seen from these data, digital transformation applications not only enable the monitoring of production processes, but also increase the efficiency of manufacturing enterprises and create value for the enterprise. our manufacturing businesses will become competitive in international trade with the advantages of digital transformation, both in technology and in production costs. a traceable and curable production process will always provide advantages in terms of sustainability. in order to be aware of the features of the digital transformation project, such as scalability, interoperability, dissemination and ease of operation, accessibility and operational management, and ease of installation and learning of selected technologies, frequent digital transformation awareness trainings should be organized and a perception of transformation should be created as an organization. references abraham, e. j., al-mohannadi, d. m., & linke, p. (2022). resource integration of industrial parks over time. computers and chemical engineering, 164, 107886. https://doi.org/10.1016/j.compchemeng.2022.107886 ben arfi, w., ben nasr, i., khvatova, t., & ben zaied, y. (2021). understanding acceptance of ehealthcare by iot natives and iot immigrants: an integrated model of utaut, perceived risk, and financial cost. technological forecasting and social change, 163, 120437. https://doi.org/10.1016/j.techfore.2020.120437 dursun, m., goker, n., & tulek, b. d. (2019). efficiency analysis of organized industrial zones in eastern black sea region of turkey. socio-economic planning sciences, 68(october 2018), 100659. https://doi.org/10.1016/j.seps.2018.10.010 kayar, a. (2020). pandemi sonrası endüstri 4.0 ve dijitalizasyon: covid-19 ve otomotiv sektör analizi. içinde pandemi sonrası yeni dünya düzeninde teknoloji yönetimi ve i̇nsani dijitalizasyon (1. baskı, ss. 537–552). hiperyayın. kayar, a., ayvaz, b., & öztürk, f. (2018). akıllı fabrikalar, akıllı üretim: endüstri 4.0’a genel bakış. international eurasian conference on science, engineering and technology (eurasianscientech 2018) , november 22-23, 2018 ankara, turkey www.eurasianscientech.org, eurasianscientech, 1651–1658. kayar, a., öztürk, f., & kayacan, ö. (2019). fast fault solving methods in smart manufacturing lines with augmented reality applications. recent advances in data science and business analytics” (y-bis 2019 conference), 182–187. öztürk, f., kayar, a., & vatansever, a. (2019). advanced manufacturing with industry 4.0 applications. fifth international conference on advances in mechanical engineering : icame 2019 5 th international conference on advances in mechanical engineering istanbul 2019 , 17-19 december 2019, december 2019, 1243–1249. adem kayar & i̇brahim baz 116 pai, j. te, hu, d., & liao, w. w. (2018). research on eco-efficiency of industrial parks in taiwan. energy procedia, 152, 691–697. https://doi.org/10.1016/j.egypro.2018.09.232 şenkaya, h., & gürsoy, ö. (2018). industry 4 . 0 applications and digitalization of lean production. the annals of the university of oradea. economic sciences, tom xxvii 2018, 1, 124–134. zacharias, j., & ma, b. (2015). industrial zone development policy related to real estate and transport outcomes in shenzhen, china. land use policy, 47, 382–393. https://doi.org/10.1016/j.landusepol.2015.05.002 journal of international trade, logistics and law, vol. 9, num. 1, 2023, 117-123 117 the effect of export on brand values: panel tobi̇t approach banu baysel istanbul ticaret university, turkey elif güneren genç istanbul ticaret university, turkey received: march 09, 2023 accepted: april 18, 2023 published: june 01, 2023 abstract: in today's competitive conditions, companies that want to open up to international markets should offer their products to th e market by branding in order to protect and maintain their assets. having a strong brand is one of the most important issues that will enable companies to increase their exports in highly competitive environments. this study aims to investigate the relationship between the brand value of companies and especially exports and selected financial statement components. the panel tobit method was used in the study to investigate the association between the brand values of 24 manufacturing industry businesses traded on the bist 100 and their export and chosen financial ratios.as a result of the analysis, a significant and positive relationship was found between the brand values of the companies and their export, paid-in capital and stock returns. based on the knowledge that exports increase brand value, it emerges that companies should turn to investments that increase and develop brand value in export management. keywords: brand value, export, financial table, panel tobit model, brand finance method jel codes: m31, p33, g32, c23 1. introduction as a necessity of today's trade world, the search for a concept that will reveal its difference in order to distinguish the products and services produced from the others has led to the emergence of the brand concept (ercan, öztürk, & demirgüneş, 2011). although its history dates back to ancient times, the concept of brand started to gain the importance it deserves in the commercial life in the twentieth century. as of the twentieth century, research has begun on the benefits of branding (farquhar, 1990). the fact that companies that offer products that meet the needs of increasingly aware consumers require a tool to reveal their own identities has highlighted the significance of the brand concept (aracı & bekçi, 2017). since the competition between companies is realized through the brands they own, branding is now a necessity and an investment element of strategic importance. branding should be considered as a long-term investment and a strategic path should be followed accordingly. as the differences between the products manufactured by companies diminish, it is possible to have a different image thanks to brand details such as name, symbol, design, or sign that increase the value of the products apart from their functional purpose. as the factor that makes the difference, the brand provides distinctiveness and presents information about the product to the target audience (karpat, 2016) . brands not only enable products to differentiate from their competitors, but also increase the income and market share of companies, make customers less sensitive to price increases, increase profitability, customer loyalty, and increase the stock prices of companies (vanauken, 2003). businesses functioning in a globalizing world now need to brand and market their goods in order to preserve their existence and make them endure in the face of fierce competition (çelikten, 2008). capital movements and international trade activities are becoming increasingly important for countries in the current conditions, where globalization has transformed the world into a massive market. the resources to be provided by opening up to international markets will positively affect the welfare of the countries. for this reason, having a banu baysel & elif güneren genç 118 strong brand, which is one of the important components of opening to the international market, is one of the most important issues that will enable companies to increase their exports in highly competitive environments. companies must be able to establish a presence with their brands in both domestic and international marketplaces in order to conduct robust and long-term effective commercial activity there (mete, 2011). for exporting businesses, branding is of great importance as a factor that enables them to do business in the international market. while companies work as subcontractors to strong multinational brands with financial concerns before branding; with the change of trade conditions over time, they started to operate on their own, with the thought that the returns to be provided by their direct involvement in trade would be greater. directly operating businesses are at a point where they may capture a larger market share and compete no more on the basis of low prices but rather on design, quality, and innovation. this level emerges as the level at which companies maintain their existence with their brand (aktaş & akçaoğlu, 2005). 2. literature review brand value is the additional value that the produced product or service brings to the firm or consumers, the value added to or subtracted from the product or service, symbol, name, assets and liabilities belonging to the brand (aaker, 1991). it was in the 1980s that companies began to give more importance to brand value. it has been determined that in the increase in company acquisitions in those years, the companies found buyers at prices far above their balance sheet values and the reason for this increase was the intangible assets so brand value of the companies (kılınç & gökdeniz, 2019). brands have a significant impact on companies' ability to generate greater profits. brand valuation is therefore necessary for businesses, as it has a big effect on their profitability (arora & chaudhary, 2016). developing attitudes that will measure the value of a brand is important in many ways. first of all, since the brand is an element that can be bought and sold, the need to determine its value has arisen. secondly, brand investments that aim to boost brand value can be put to the test. ultimately, the determination of brand value enables the concept of value to be examined from a more detailed perspective (aaker, 1991). consumer behavior-based brand valuation methods, financial-based brand valuation methods, and hybrid brand valuation methods are the three main heading under which brand value can be calculated (gerekan & koçan, 2018). financial-based brand value refers to the present value of all future financial gains that the brand owner will derive from using the brand (ercan, öztürk, & demirgüneş, 2011). financial-based brand valuation methods are approaches that are planned to obtain a financial value for the brand, consist of purely financial approaches, and offer a brand valuation based on the same standards as companies and other commercial assets (king, 2002). brand valuation methods based on consumer behavior try to reveal which element will direct the consumer towards the brand by determining what motivations lie under the behaviors that cause consumers to buy products (baydaş, 2007) due to the fact that financial-based and consumer-based brand valuation models are insufficient and do not show the results fully, various consultancy firms have put forward mixed models that use financial and behavioral elements together. thus, mixed brand valuation models evaluated the root elements based on two different principles in the models (aydın & ülengin, 2011). interbrand model, brand finance model, financial world model, brand rating model are the prominent models among mixed brand valuation models. brand finance model; one of the frequently chosen models for brand valuation is the brand value model from the british consulting firm brand finance. this model focuses on the expected future operating profits of the brand (miller & muir, 2005). the reason why the model cares about future profits; past successes do not guarantee future success, so investors should consider future expectations more in their decision-making processes (haigh, 2000). the brand finance model consists of five phases. segmentation, financial forecast, bva analysis, ßrandßeta® analysis, valuation and sentiment analysis. following all of these analyses, the brand's share and risk within each segment are computed. the brand value is calculated by reducing the share of the brand within the intangible assets to their present values with the discount rate previously calculated (heberden, 2002). summaries of some of the studies on brand value are as follows: akbulut and paksoy examined the relationship between brand value and financial indicators in their studies. the relationships between the brand values of the companies in the study and the market price, earnings per share, net sales, profit before interest and tax, and profitability of assets were examined. as a result of the study, a statistically the effect of export on brand values: panel tobit approach 119 significant relationship was determined between brand value and profit before interest and tax (akbulut & paksoy, 2007). başgöze et al., in their study, examined the effects of brand equity on stock returns on companies traded in bist 100 between 2010-2014, using long-term risk-adjusted portfolio returns. as a result of the study, it was seen that the companies included in the brand finance 100 turkey report achieved extraordinary returns 7 months after the report was published (başgöze, yıldız, & camgöz, 2016). önder and genç investigated the relationship between the brand values of companies and selected income statement components. in addition, the relationship between the sector in which the companies operate and the brand value was investigated in the study. brand values were obtained from the brand finance 100 report. as a result of the study, there was a significant relationship between the brand values of the companies and their sales, operating profit and marketing expenses, but no significant relationship was found between foreign sales and brand value (önder & genç, 2021). in their study, özsaatçi and köse analyzed the relationship between the brand value and net foreign trade volume of the top 20 economies with the highest brand value between the years 2010-2017 using the dynamic panel data method. as a result of the study; it has been found that there is a positive relationship between the trade volume of the countries in the previous period and the trade volume in the current period. additionally, a favorable and reciprocal association between trade volume and brand value was detected (özsaatçi & köse, 2021). gerekan et al. investigated the relationship between brand equity and firm growth in their study. the sales operating income, r&d and marketing, sales and distribution expenditures of the companies included in the brand finance turkey 100 report between the years 2012-2018 have been accepted as company growth factors. as a result of the study; while increasing operating income caused a significant increase in marketing, sales, distribution, brand value, no significant relationship was found between increasing sales and brand value (gerekan, pehlivan, & koçan, 2019). 3. data and methodology the effect of the financial statement data of the companies in the study on the brand values was examined. in the period of 2011-2021, the brand values, export and financial statement values of 24 companies included in the brand finance turkey 100 reports and traded in the bist 100 were used. the companies used in the study consist of companies that are in the manufacturing sector and included in the annual reports of "brand finance" within the specified time period. the 24 companies included in the study were divided into 5 different groups according to their sub-sectors . exports, total sales revenues and paid-in capital values belonging to the companies were obtained from the “public disclosure platform” (kap), and their stock and market values were obtained from the “iş yatırım” website . the tobit model, which was developed by the economist james tobin and defined as the censored model in which the information belonging to the dependent variable exists only for some observations, is a non-parametric alternative to least squares regression. (liao, 1994). since it is an extension of the probit model, it was first named tobit by goldberger (1964) from the combination of tobin and probit names. while the tobit model assumes the existence of a latent variable y*, this variable is linked to the explanatory variable 𝑥i by the vector of parameters 𝛽, its distribution is normal, its mean is μ, and its variance is σ2. the model depends on assumptions u ∼ n(0, σ2 ) and y∗ ∼ n(μ, σ2 ). if the model is censored at the zero point, this creates the generalized form of censorship and takes the form of the 'standard tobit model'. (carson & sun , 2007). the standard tobit model is shown as in model 1, depending on the latent variable. 𝑦𝑖 = 𝛼𝑋𝑖 + 𝑢𝑖 𝑦𝑖 = ( 1 𝑦𝑖 ∗ > 0 0 𝑦𝑖 ∗ ≤ 0 ) (1) tobit's model contains both discontinuity and continuity. each of these variables are essentially continuous variables. however, since a part of the data set cannot be observed or is limited, that is, it is censored, the missing observations are replaced with zero. for this, it is put forward that the observation set has a discrete feature (maddala, 1986). although the dependent variables in these two structures are in the limited class of dependent variables, the sample banu baysel & elif güneren genç 120 they form is different. in the mentioned regression model, this concerns parameter estimation and results (koç & şahin, 2018). the dynamic tobit panel data model is considered in the form of honoré (1993), in model 2, the dependent variable with a one-term lag is on the independent variables side. 𝑦𝑖𝑡 ∗ = 𝛼𝑖 + 𝛽 ′𝑥𝑖𝑡 + 𝛾𝑦𝑖,𝑡−1 ∗ + 𝑢𝑖𝑡 (2) 𝑦𝑖𝑡 = { 𝑦𝑖𝑡 ∗ 𝑖𝑓 𝑦𝑖𝑡 ∗ > 0, 0 𝑖𝑓 𝑦𝑖𝑡 ∗ ≤ 0 (3) in this model, the error term uit is independent and same random distribution variables along i and in t. in the study, brand value (bv), export (exp), stock value (stc), market value (mv), total sales (ts) and paid-in capital (pc) variables are included in the model. in addition, dummy variables (di) were added to the model in order to determine whether there is a sectoral difference. it was decided to use the panel tobit model since the brand value, which is the dependent variable of the linear regression, could not be discovered constantly for 24 firms between 2011 and 2021 and could only be observed at specific periods. lbvit= { 𝐿𝐵𝑉𝑖𝑡 ∗ > 0, 𝐼𝑓 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ℎ𝑎𝑠 𝑏𝑟𝑎𝑛𝑑 𝑣𝑎𝑙𝑢𝑒 𝑑𝑎𝑡𝑎 𝑓𝑜𝑟 𝑡ℎ𝑎𝑡 𝑦𝑒𝑎𝑟 𝐿𝐵𝑉𝑖𝑡 ∗ = 0, 𝐼𝑓 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡 ℎ𝑎𝑣𝑒 𝑏𝑟𝑎𝑛𝑑 𝑣𝑎𝑙𝑢𝑒 𝑑𝑎𝑡𝑎 𝑓𝑜𝑟 𝑡ℎ𝑎𝑡 𝑦𝑒𝑎𝑟 } 4.empirical results descriptive statistics of the variables included in the study are given in table 1. table 1. descriptive statistics of variables variable mean std. dev. min. max. bv 226909871.2 377873149.1 7000000 1983000000 exp 1963985531 5574790434 6191421 54515151000 stc 18.73 40.57 0.12 342.04 mv 3917903917 7296341974 25344690 64930490000 ts 4858488245 9502080853 46320042 71101258000 pc 213385793 209359140 7441875 900000000 note: bv; brand value, exp; export, stc; stock certificate, mv; market value, ts; total sales, pc; paid-in capital. mean, standard deviation, minimum and maximum values of brand value, export, stock certificate, market value, total sales and paid-in capital variables used in the study are given in table 1. penguen gıda (2018) has the lowest brand value among the companies whose values are used in the study, while arçelik (2015) has the highest. the lowest export value among export values belongs to dardanel (2012), while the highest export value belongs to ford (2021). among the stock values, the lowest stock value belongs to bossa (2012) and dardanel (2013), while the highest stock value belongs to alarko (2021). among the market values, the lowest market value belongs to dardanel (2013), while the highest market value belongs to ford (2021). among the total sales revenues, the lowest total sales revenue belongs to dardanel (2012), while the highest total sales revenue belongs to ford (2021). among the paid-in capital values, brisa has the lowest paid-in capital value, while the highest issued capital value belongs to karsan. the model was performed on logarithmic data since the measurement units for the variables are extremely dissimilar. the effect of export on brand values: panel tobit approach 121 table 2 presents the findings of the random effect panel tobit model, which examines the effects of export values, selected financial ratios of companies in the main sector of the manufacturing industry, as well as the sub-sectors in which they operate, on brand values. in addition, the models in table 2 are the final model after testing the deviations from the assumption. table 2: panel tobit model of 24 firms for the years 2011-2021 model 1 model 2 brand value coefficients marginal effects coefficients marginal effects constant -5.3310** -7.2611 (2.4853) (2.5107) lstc 1.0050*** 0.1283 1.3772*** 0.254 (0.2982) (0.3214) lexp 0.5260* 1.1617 0.6891** 1.3073 (0.2990) (0.3452) lpc 0.8608** 0.2923 0.9180** 0.3186 (0.3764) (0.4109) met -0.9762** -0.8862 (0.4376) tex 1.3236** 0.1554 (0.6759) left co 31 31 non-co 233 233 log likelihood -606.5108 -600.9136 notes: lstc; stock certificate, lexp; export, lpc; paid-in capital, met; metal products, tex; textile. figures in parenthesis are standard errors. ***,** and * indicates significance at 1 %, 5 % and 10 % statistical levels respectively. in table 2, model 1 is the model without sub-sector dummy variables, and model 2 is the model with sub-sector variables. market value and total sales revenue, which were found to be insignificant in both model 1 and model 2, were excluded from the model. coefficient interpretation in tobit models is possible by calculating marginal effects. when model 1 is examined, it has been determined that stock returns, exports and paid-in capital have a statistically significant and positive effect on brand value. it is observed that the increases in exports, stock returns and paid -in capital increase the brand value, and the highest increase in brand value is due to exports. when model 2 is examined, it has been determined that this situation has not changed, and that the return on stock, exports and paid in capital have a statistically significant and positive effect on the brand value, and again, the biggest effect is caused by exports. in addition, under the manufacturing sector in model 2; food and beverage, other manufacturing, chemical and pharmaceutical sectors, which are insignificant among food and beverage, metal goods, textile clothing, other manufacturing, chemical and pharmaceutical sectors, were excluded from the model. it has been determined that the dummy’s created for the textile and metal goods sector are statistically significant. it is seen that t he brand value of the companies in the textile sector is positively affected, and the opposite is the case for the companies in the metal goods sector. banu baysel & elif güneren genç 122 5. conclusion companies nowadays boost their competitiveness by distinguishing themselves in the market via the use of their brand. however, developing a great brand is a time-consuming and costly process. planning and caution must be exercised in this process while making the investments required to establish and grow a brand. the businesses might suffer significant losses if the investments are unsuccessful. since a company's strong brand significantly affects its profitability, companies need to make brand valuation. since brand valuation is both a tradable component and a factor in testing whether investments in brands will improve their value, it should be calculated. at the same time, high brand values are an indication that companies are successful in their sectors. in this study, the relationship between the brand value of 24 companies in the manufacturing sector, traded in bist 100, and export and certain financial statement data was investigated. according to the results of the analysis, it has been determined that there is a significant and positive relationship between the brand values of the companies and their stock, export and paid-in capital values. among the variables used in the study, it has been determined that the variable that increases the brand value the most is exports, followed by paid-in capital and stock returns, respectively. from a sectoral point of view, while the metal goods sector affects the brand value negatively, the brand value is positively affected by the textile sector. the contribution of this study to the literature; 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(2011). the investigation of relationship between foreign trade and industry production index in turkey(1990-2010). journal of academic researches and studies, 3(5), s. 103-113. miller, j., & muir, d. (2005). the business of brands. john wiley & sons incorporated. önder, c., & genç, e. g. (2021). relationship between brand value and income statement components: a panel tobit analysis on bist companies. istanbul finance congress (s. 23-27). istanbul: press academia. doi:10.17261/pressacademia.2021.1480 özsaatçi, f., & köse, z. (2021). brand value as a new determinant of foreign trade. kahraman sütçü i̇mam university social sciences review, 18(2), s. 1379-1399. doi:10.33437/ksusbd.706303 vanauken, b. (2003). brand aid: an easy reference guide to solving your toughest branding problems and strengthening your market position. ny: amacom. appendix table a1: bist 100 companies according to sector groups sectors firms food, beverage and tobacco fabricated metal products textile, wearing apparel and leather other manufacturing industry chemicals, petroleum rubber and plastic products aefes, banvt, dardl, kent, pengd, tatgd, tukas, tborg, ulker alcar, asuzu, arclk, froto, karsn, otkar, toaso, ttrak bossa, yunsa adel aygaz, brisa, dyoby, goody journal of international trade, logistics and law, vol. 9, num. 1, 2023, 194-202 194 a study on the osh performance model in coal-fired thermal power plants nagihan ersoy uskudar university, turkey nuri bi̇ngöl uskudar university, turkey i̇smail ekmekçi̇ istanbul ticaret university, turkey received: april 19, 2023 accepted: may 16, 2023 published: june 01, 2023 abstract: coal-fired thermal power plants (ctpp) consist of many sections that are risky in terms of occupational safety. ctpp are also important part of electrical energy logistics systems. then it is of great importance to examine which parts of complex systems such as coal-fired thermal power plants are more important in terms of occupational health and safety. ctpp are divided into nine main sections as coal parking area, ash and slag disposal facility, boiler maintenance service, mechanical workshop, measurement and control service, turbine maintenance service, technical office, tea and rest room and use of company vehicles section. in this paper, a weigh ting and ranking study has been conducted in terms of risk analysis of nine departments in ctpp. for this purpose, accident statistics according to years were obtained from an actively working ctpp, and the results obtained with ahp and the risk significance weight values were compared with these results. since ctpp are very complicated and complex structures, it is of great importance to determine the risk levels of the departments more significantly and objectively from the point of view of ohs. from this point of view, ctpp were analyzed for the first time within the scope of ohs with the analytical hierarchy process (ahp), which is a multi-criteria decision-making (mcdm) method. according to the findings obtained in our study, coal parking area, ash slag disposal facility and boiler maintenance service were determined as the most risky sections in terms of ohs. with this study, a more effective assessment can be made in terms of ohs for ctpp, so that work accidents will be reduced, energy production will be carried out in a safer and more sustainable way. keywords: ahp, coal-fired thermal power plants, occupational health and safety, mcdm, energy logistics 1. introduction the electrical energy produced in coal-fired thermal power plants is the most critical component of modern life. the largest part of the electrical energy used in the world is covered by fossil fuels.coal-fired thermal power plants are planned according to the principle of continuous operation for electricity generation. coal-fired thermal power plants have been commissioned to balance the change in different renewable energy sources both in the world and in developing countries such as turkey since 2010 (yılmazoğlu and durmaz, 2013). compared to renewable energy plants, coal-fired thermal power plants are more complex systems and their operation and maintenance are more risky in terms of electricity generation. coal-fired thermal power plants, in general, are not compatible with change within the enterprise. in addition, the values and operating criteria of many of the equipment in their structures should be closely monitored and emergency intervention should be required. in coal-fired thermal power plants, the coal transported by belts to the coal parking area is dumped into different storage areas and kept for separation into special sizes. coal, which is converted into a homogeneous fuel to reduce the grain size is sent to the mills to be burned at the power plant with homogeneous mixing systems. coal in suitable grain size milled in the mill generates heat energy by a study on the osh performance model in coal-fired thermal power plants 195 burning in boilers, and the water heated in boiler serpentine pipes is converted into hot steam with the generated energy.in steam turbines, heat energy is converted into kinetic energy. with the kinetic energy in the turbine, electrical energy is generated in the generator connected to the turbine rotor. a coal-fired thermal power plant consists of departments with different functions and very different equipment in these departments. the main ones are; coal parking area, mills, boilers, turbines, mechanical workshop, electricity generators, cooling towers and auxiliary equipment (başaran, 2017). coal-fired thermal power plants have complex equipment that converts heat energy into mechanical energy. the place where electricity is generated is a generator connected to a steam turbine. coal-fired thermal power plants use energy obtained from steam. since all thermal power plants have thermal efficiency limited by carnot efficiency, they produce waste heat, and this waste heat must be disposed of to the environment by cooling towers and condensers (yılmazoğlu and durmaz, 2013). there are many important dangers and risks that may cause occupational accidents and occupational diseases in the departments of coal-fired thermal power plants. as a result of this, occupational health and safety in thermal power plants should be given serious attention in the electricity generation process. due to the fact that the risks in this energy sector are many and high, occupational health and safety should be given more importance in coal-fired thermal power plants and studies in this area should be increased (ersoy vd., 2022). the efficiency and safety of electricity production in coal-fired thermal power plants are very important. the number of occupational accidents in our country is still very high compared to developed countries, despite the improvements in occupational health and safety. occupational accidents in thermal power plants are an important and multidimensional problem. one of the important problems of working life in these places is work accidents that occur at work. a safe working environment is of importance from a human and social point of view. the history of occupational accidents in our country shows that technological investments, legal regulations, academic and scientific institutions, the state, industrialists and employees have failed to fulfill their duties in the field of occupational health and safety during the process. the reason for most of these work accidents that occur is that lessons have not been learned from previous work accidents. safe working environments can be created by analyzing accidents and taking preventive measures (horozoğlu,2017). the measures to be taken to minimize the losses caused by occupational accidents and to provide a safe working environment are called occupational safety. the purpose of occupational safety is to proactively protect employees, the workplace and production from all kinds of risks. there are many risk factors that threaten the health of employees in the workplace, which can cause occupational diseases and even deaths. occupational health and safety studies have a serious role in preventing occupational accidents and occupational diseases, providing physical and psychological satisfaction to employees, as well as increasing workplace productivity by providing a safe working environment. the fact that they conduct risk analyses for these studies at workplaces depends on their awareness of the current state or development of ohs-related methods and activities. in terms of determining the regions where coal-fired thermal power plants are the most risky from the point of view of ohs, ctpp are divided into 9 sections; then the sections where the most important and most accidents occur are statistically tabulated.it is shown by analyzing in 1. according to the values in this table, in the distribution of occupational accidents by units, it is observed that the most accidents occur at the coal parking lot, boiler maintenance service and ash slag disposal facility, respectively. the rankings of these departments in terms of the number of accidents vary by year. in order to eliminate the impact of this change and to be able to more objectively and scientifically sort the most risky sections in terms of osh in coal-fired thermal power plants, a weighting and prioritization study was conducted using the ahp method in this study. coal transportation band and coal parking area, cables in all services of the power plant, coal transportation in coal storage and conveyors, transformers, mills and boilers have been found to be a priority in terms of occupational safety. ersoy and his colleagues have seen in their studies that when the risks are prioritized, there are explosions, fires and electricity. they informed about the risks encountered in the energy sector and the measures to be taken. it has been emphasized that there are serious work accidents due to human errors during maintenance works at coalfired thermal power plants. the leading causes of human error have been found to be carelessness, inexperience, shift work, lighting, ventilation, maintenance culture, time pressure. in the studies they examined, they emphasized the serious safety and health conditions of working at height, installation under pressure and during operation as important activities. they explained the continuous improvement of performance in thermal power plants and the nagihan ersoy & nuri bi̇ngöl & i̇smail ekmekçi̇ 196 safety measures to be taken (ersoy vd., 2022). ctpp are hierarchically divided into sections in terms of osh risk factors and performance, and this analytical hierarchical structure model is illustrated in figure 1. coal transportation band and coal parking area, cables in all services of the power plant, coal transportation in coal storage and conveyors, transformers, mills and boilers have been found to be a priority in terms of occupational safety. ersoy and his colleagues have seen in their studies that when the risks are prioritized, there are explosions, fires and electricity. they informed about the risks encountered in the energy sector and the measures to be taken. table 1. distribution of occupational accidents in 2018-2021 for one of the ctpps units 2018 2019 2020 2021 2018-2021 number of accidents annual accident rates % number of accidents annual accident rates % number of accidents annual accident rates % number of accidents annual accident rates % avarage number of accidents average annual accident rates % coal parking area 14 35% 11 42% 7 37% 9 36% 10 35% ash slag disposal facility 8 20% 5 19% 3 16% 4 16% 5 17% boiler maintenan ce service 12 30% 9 35% 8 42% 10 40% 10 35% mechanic al workshop 4 10% 1 4% 0 0% 1 4% 2 7% measurem ent control 0 0% 0 0% 0 0% 0 0% 0 0% turbine maintenan ce service 1 2.5% 0 0% 1 5% 0 0% 1 3% technical office 0 0% 0 0% 0 0% 0 0% 0 0% tea and rest room 1 2.5% 0 0% 0 0% 1 4% 1 3% use of company vehicles 0 0% 0 0% 0 0% 0 0% 0 0% a study on the osh performance model in coal-fired thermal power plants 197 total 40 100% 26 100% 19 100% 25 100% 29 100% it has been emphasized that there are serious work accidents due to human errors during maintenance works at coalfired thermal power plants. the leading causes of human error have been found to be carelessness, inexperience, shift work, lighting, ventilation, maintenance culture, time pressure. in the studies they examined, they emphasized the serious safety and health conditions of working at height, installation under pressure and during operation as important activities. they explained the continuous improvement of performance in thermal power plants and the safety measures to be taken (ersoy vd., 2022). ctpp are hierarchically divided into sections in terms of osh risk factors and performance, and this analytical hierarchical structure model is shown in fig.it is shown in 1. figure 1. hierarchical structure of coal-fired thermal power plants in terms of ohs measuring the impact of technical and legal regulations on the ohs performance of coal-fired thermal power plants is an important problem. it is necessary to observe whether the changes made regarding ohs are taking coal-fired thermal power plants to a better place or a worse place. coal-fired thermal power plants are in the position of continuing their improvement studies with current situation analyses in order to maintain their assets effectively and efficiently. in the literature, when coal-fired thermal power plants want to measure the change in ohs performance from year to year, they usually look at a limited number of reactive indicators, such as the number of occupational accidents that occurred in previous years. sometimes the ohs performance of a thermal power plant is evaluated by an observation made at the power plant by an expert within a limited period of time. the current status information obtained by using a limited number of indicators for coal-fired thermal power plants does not indicate the actual performance of the power plant. there is no objective and sector-specific ohs performance measurement system that is accepted as a partner and can be used in a simple way. at this stage, the three most risky parts of coal-fired power plants in terms of ohs performance were determined by weighting with the ahp method. accordingly, it has been determined which sections should be given importance in terms of ohs in coal-fired power plants. thus, the basis for the development of an objective and practical ohs performance model proposal for coal-fired power plants has been introduced. 2. evaluation of the importance of the departments in the ctpp from the point of view of ohs 2.1. analytic hierarchy process(ahp) ahp is a multi-criteria decision-making technique that ensures that subjective and objective factors are considered in the decision-making process. ahp allows decision makers to participate actively in the decision phase and provides managers with a rational basis for their decision making. (dey,2010). solving problems related to ahp decision making is the most widely used method. same criteria used in decision making problems. importance scale and decision alternatives among decision makers evaluations may differ. this in solving decision problems involving diversity ahp can provide effective decision making. ahp is a common criterion of homogeneous elements or dominates pairwise comparisons by attribute is a measurement theory about the derivation of priorities (saaty,1990). nagihan ersoy & nuri bi̇ngöl & i̇smail ekmekçi̇ 198 the ahp was first introduced by myers and alpert in 1968 (myers and mark,1968). the ahp method was developed as a model by professor thomas lorie saaty in 1977 to solve decision making problems. the ahp method helps decision makers by showing the correlation between objectives, criteria, sub-criteria and alternatives to model the most complex problems in a multi-level hierarchical structure. ahp represents a problem as a hierarchical structure with the goal at the top. the next levels contain the criteria and sub-criteria, while the alternatives are at the bottom of the hierarchy. (srdjevic and srdjevic,2013). after the hierarchy is established, the criteria calculation of importance levels against each other makes. bilateral between criteria and alternatives in ahp thomas l. for the creation of comparisons. 1-9 scale reference created by saaty taken. the implementation steps of this method are as follows: 1.the problem is defined, and target is determined. 2. criteria and sub-criteria are determined. 3. alternatives (options) are determined. 4. based on the objectives, the main criteria and the lowest-level alternatives are created in a hierarchical structure. 5. in order to determine which of the alternatives and criteria has priority, a pairwise comparison between the alternatives and the criteria is made using the scale stated in table 2. comparison matrices (nxn) are of square matrix dimensions. the pairwise comparison scale in table 2 is used when constructing comparisons and matrices. (saaty,1986). 6. for each column in the pairwise comparison matrix, column totals are taken. the normalized matrix is formed by dividing the elements of the matrix by the corresponding column sum. 7. in the normalized matrix, each line created for alternative, or criteria totals are taken. the priority vector matrix is obtained by dividing by the number of criteria. 8. in the weight matrix obtained with the weight vector, the weight values of each criterion or alternative are multiplied by the column elements of the pairwise comparison matrix of that criterion or alternative to obtain the total weighted matrix. 9. when calculating the consistency ratio, the ci value is found first: ci=(λmax-n/(n-1) (1) where ci = consistency index(saaty,1990). 10. in the last step, the consistency ratio can be calculated by the combination of the values of the randomness scores and the combination of ci, where cr = consistency ratio and ri = randomness indicator. the consistency ratio in the ahp method should be less than 0.10. if the calculated value is greater than 0.10, the pairwise comparison matrix should be checked again, and the steps are repeated after the corrections to be made. 11. the highest value from the calculated values alternative suitable to us that can be chosen as a result shows the alternative. table 2. pairwise scaling coefficients for ahp numerical value definition explanation 1 equal importance two activities contribute equally to the objective 3 low importance of one over another experience and judgement slightly to moderately favor one activity over another 5 essential or high i̇mportance experience and judgment highly favor or take precedence over one activity. 7 the importance shown one activity is significantly favored over another, and its priority is shown in practice. 9 absolute importance evidence of preferring one activity over another is to the greatest possible degree. 2, 4, 6, 8 judgement value between two intermediate values they are preferences between 1, 3, 5, 7 and 9 weights. a study on the osh performance model in coal-fired thermal power plants 199 the most important step for reliable and accurate evaluation of ohs performance in coal-fired thermal power plants is expert it is the correct determination of the degrees of importance of the 9 sections in the ctpp relative to each other with the dual comparison matrix with their opinions. for this purpose, 12 experts who worked as ohs specialists in ctpp in different regions were asked to fill out a binary comparison matrix in the size of 9x9; the geometric averages of these obtained values were taken, and the importance weights of the sections were obtained using the super decision program. 2.2. methodology the process of determining the importance and weight levels of the departments in the ctpp from the point of view of ohs was carried out as follows:  firstly, the literature review was conducted and the occupational accidents in ctpp were examined in detail.  the risk factors that emerged from this literature review study were evaluated by face-to-face interviews with 9 ohs specialists who worked in ctpp.  in this part, which is the basis of our study, the analytical hierarchy process (ahp) method was applied to determine the priority weights of the departments in the ctpp in terms of osh and risk factors.  for this purpose, experienced ohs experts working in ctpp were interviewed and asked to evaluate the bilateral comparison surveys, which are a realistic and objective technique, according to the 1-9 scale of saaty.  after the geometric averages of the scores obtained from the experts were taken, the values were entered into the super decision program and evaluated in order to apply the ahp method to the results in the binary comparison matrix. thus, with the ahp method, it is aimed to evaluate the order of importance of coal-fired thermal power plants in terms of ohs by comparing each risk factor individually with the others by occupational safety experts and to determine the importance weights and solve the importance weights.  the important weight values of ctpp have been obtained from the point of view of ohs.  according to the results, the sections of the ctpp were sorted in terms of ohs; the results were compared with the accident statistical values and the values in the literature.  the final ranking results obtained have been discussed with experts and their suitability has been evaluated. according to the opinions received from experts, an analytical hierarchical structure has been established in terms of risk analysis for the 9 main departments in ctpp. according to this analytical hierarchical structure, 71 risk factors were determined at the coal park site, 47 risk factors at the ash and slag disposal facility, 68 risk factors at the boiler maintenance service, 79 risk factors at the mechanical workshop, 42 risk factors at the measurement control service, 84 risk factors at the turbine maintenance service, 54 risk factors at the technical office, 47 risk tea and rest room, 45 risk factors at the use of company vehicles, and as a result, a total of 546 risk factors were determined for ctpp . in this study, the weighting results of only 9 main sections for ctpp in terms of ohs have been given. in order to determine which of the 9 main sections is more important in terms of ohs in coal-fired power plants, the super decision program was used. the values and screenshot obtained from this program are shown in fig.3; comparative results are given in fig.4 and table.4. nagihan ersoy & nuri bi̇ngöl & i̇smail ekmekçi̇ 200 fig.3 : screenshot of superdecision results about ctpp analysis according to ohs subject figure 4 the i̇mportance weight of the departments in terms of osh of coal-fired thermal power plants sections of coal-fired thermal power plants have been analyzed within the scope of ohs with the analytical hierarchy process (ahp). it is consistent because the consistency ratio is 0.09923 <0.1. when the sections of coalfired thermal power plants were examined in table 4 in terms of osh risk factors, it was revealed that the section with the highest weight was the coal parking area (0.23566). after that, it was found that the most important departments of ctpp in terms of osh with ash slag disposal facility (0.23168), boiler maintenance service (0.16506), mechanical workshop (0.13623), measurement control (0.07027), turbine maintenance service (0.05919), technical office (0.04239), tea and rest room (0.03159), use of company vehicles (0.02793) are we can specify. table with the results obtained with ahp. it has been found that it is also compatible with the average values of 4-year accident statistics for a ctpp in 1. accident statistics show changes according to years; it is seen that the results obtained with ahp are more reliable in terms of risk weighting. 0 0,05 0,1 0,15 0,2 0,25 importance weights a study on the osh performance model in coal-fired thermal power plants 201 according to the results we obtained in our study, it was found that the most risky section in terms of ohs in ctpp is the coal parking area, and the least risky section is the use of company vehicles (table 4). table 4. the main sections of coal-fired thermal power plants in terms of ohs main sections criterion importance weights consistency ratio (cr) total accident rates % coal parking area 0.23566 0.07038 37 ash slag disposal facility 0.23168 0.04134 17 boiler maintenance service 0.16506 0.09591 35 mechanical workshop 0.13623 0.09645 7 measurement control 0.07027 0.09454 0 turbine maintenance service 0.05919 0.08982 3 technical office 0.04239 0.08092 0 tea and rest room 0.03159 0.09531 3 use of company vehicles 0.02793 0.09655 0 3. conclusion and discussion coal-fired thermal power plants in turkey are old and contain many risk factors and are seriously important in terms of occupational accidents. we have prioritized 546 risk factors that we have determined by conducting a comprehensive risk analysis in all departments of coal-fired thermal power plants on a departmental basis using the ahp method. one of the multi-criteria decision-making methods in coal-fired thermal power plants, ahp comprehensively 9 sections were analyzed and evaluated. thus, the 3 most important sections in terms of ohs ( coal parking area, ash slag disposal facility, boiler maintenance service) have been identified. the accidents that occurred between 2018-2021 at coal-fired thermal power plants were examined and according to the study, it was found that the accidents were mostly in the age group of employees aged 41 and older, and in the early years of primary school decedent employees, although in recent years, it was concluded that high school graduates had more accidents when the enterprise took care to employ qualified personnel. when we look at the days when accidents occur, it is noteworthy that there is a higher percentage of accidents on fridays. looking at the accident hours; it was observed that the number of accidents was higher during the night shift in the study. the study covers all units of coal-fired thermal power plants, and in the distribution of occupational accidents by units, it is observed that the accidents occurred first at the coal parking area 37.2%, boiler maintenance service 35.5% and ash slag disposal facility18.2%. it is seen that the distribution of occupational accidents by units we examined between 2018-2021 confirm each other with the order of importance we found the sections of coal-fired thermal power plants with ahp. according to the results obtained in our study, based on these three risky sections for coal-fired thermal power plants, the foundation of the work to create an ohs performance model to prevent work accidents has been laid. references başaran m. (2017), “kömür yakıtlı santraller”, türkiye: emo, 37-49. dey p.k. (2010), "managing project risk using combined analytic hierarchy process and risk map", applied soft computing, 10(4): 990-1000. ersoy, n., bingöl, n., & ekmekci, i̇. (2022), “kömürlü termik santrallerdeki i̇sg çalışmalarının değerlendirilmesi”, ohs academy, 5(2), 103-130. horozoğlu, k. (2017), “i̇ş kazalarının iş sağlığı ve güvenliği açısından analizi”, karabük üniversitesi sosyal bilimler enstitüsü dergisi, 8(2), 265-281. myers j. h. ve mark i. a. (1968), "determinant buying attitudes: meaning and measurement",pazarlama dergisi, 32: 13-20. nagihan ersoy & nuri bi̇ngöl & i̇smail ekmekçi̇ 202 saaty t.l. (2008), "analitik hiyerarşi ve analitik ağ ölçüm süreçleri: risk altındaki kararlara uygulamalar", european journal of pure and applied mathematics, 1(1): 125. saaty t.l. (1990),"how to make a decision: the analytic hierarchy process", european journal of operational research 48 (1): 9-26. saaty t.l. (1986), "analitik hiyerarşi sürecinin aksiyomatik temeli", yönetim bilimi, 32(7): 841855. srdjevic b. ve srdjevic,z. (2013), "ahp-grup karar vermede bireysel en iyi yerel öncelikli vektörlerin sentezi", applied soft computing, 13: 2045-2056. yılmazoğlu, m. z.ve durmaz, a. (2013), “soma a termik santralinin besleme suyu ön ısıtma uygulaması ile yeniden güçlendirilmesinin tekno ekonomik analizi”. yüksek lisans tezi, dumlupınar üniversitesi, kütahya microsoft word 06_makale(rana atabay).docx journal of international trade, logistics and law, vol. 1, num 2, 2015, 85-92 validity of linder hypothesis in bric countries rana atabay, (phd) istanbul medipol university, turkey abstract: in this study, the theory of similarity in preferences (linder hypothesis) has been introduced and trade in bric countries has been examined whether the trade between these countries was valid for this hypothesis. using the data for the period 1996 – 2010, the study applies to panel data analysis in order to provide evidence regarding the empirical validity of the linder hypothesis for bric countries’ international trade. empirical findings show that the trade between bric countries is in support of linder hypothesis. keywords: bric countries, linder hypothesis, panel data analysis jel classification: f11, f14, f15 1. introduction in the study, it is mainly investigated that the trade between bric countries was valid for linder hypothesis. according to this hypothesis, countries with similar standards of living will consume similar types of goods. the high-income countries, with large amounts of capital per worker, will therefore have similar tastes and largely trade with other high-income countries and poor countries will consume similar types of goods and trade largely with other poor countries. bric (brazil, russia, india, and china) countries to have specific importance in world trade, it refers to the emerging markets which are expected to become the world's strongest economies in the next 40 years. the abbreviation was first used by the chairman of goldman sachs asset management, jim o'neill, in his 2001 research report. in another 2003 report by the economists dominic wilson and roopa purushotaman, bric countries were expected to catch up with the g6 (france, germany, italy, japan, the uk and the usa) countries in less than 40 years, and would later on become the leading force for growing demand and spending power. given the human capital and natural resources in bric countries, this growth seems unavoidable. one of the reasons why they have such big potential is that india and china with their crowded population provide a high amount of output for the world economy despite their low per capita income. another reason is that these countries have the potential for economic growth (cooper, 2006; 2). these four countries are known to have apparent differences, which is one of the reasons why they have such potential. "the diversity among the bric countries, the balance between their abundant resources and foreign dependence as well as their geographic trends pave the way for their integration into the world economy." (o'neill, wilson, purushotaman, stupnytska, 2005; 3). however, there is still an uncertainty as to whether these countries will remain only an abbreviation or become integration. the differences among their economic performances, demographic structures and geopolitical interests raise questions about their performances as a group as well as individuals. as of 2010, south africa officially became a member nation of bric and the group was renamed as brics. this paper estimates the gravity model for bric countries over the period of 15 years, from 1996 through 2010. this model is a variation of the one used by choi (2002) to analyze the validity of linder hypothesis for these countries. the linder hypothesis claims that the countries with similar demand structures, measured by income per capita, trade more extensively between each other with the rest of the world. section ii provides a literature review. section iii presents the modified gravity model similar to choi (2002); discusses the data sources and gives a summary of the sample statistics. section iv presents the empirical results. section v summarize the paper’s results and discuss their implications. 86 rana atabay 2. literature review linder presents a different explanation for the direction of trade in differentiated manufactures. he argues that producers in each country manufacture goods to satisfy the needs of the consumers in that country. since not all consumers are alike and some prefer goods with different characteristics, international trade provides a means to obtain these other goods and benefit from a wider variety of goods (marrewijk; 2004, 344). while linder did not specify a formal model of his hypothesis, empirical tests of this theory have typically modeled some measure of trade intensity against the following variables: a measure of the size of each trading partner’s economy; a measure of relative prices between a given country and its trading partners; a measure of the difference in per capita incomes between a given country and its trading partners; and, relevant time-invariant factors such as distance (mcpherson et al; 2001). there have been a number of studies focusing on the empirical investigation of linder hypothesis. hanink (1988, 1990) used gravity models to show that international trade caused by market homogeneity. greytak and tuchinda (1990) examine the empirical validity of linder’s demand side model and found strong support for the linder hypothesis using interstate u.s. data. francois and kaplan (1996) found that general income levels rise, the relative volume of trade in manufactured consumer goods should rise, and the total volume of trade should rise, independent of changes in the intercountry difference between income levels, in their 36-country study of intra-industry trade. tang (2003) found support that the developed apec countries with similar per capita incomes tend to trade more with each other over the period 1985-1999 using a modified gravity model. mcpherson and et al (2001) provided new information on the linder hypothesis by focusing on developing countries and found support that five east african countries trade more intensively with others who have similar per capita income levels. rauh’s paper (2010) results reaffirmed the linder hypothesis for germany’s international trade with other european countries and the results suggested that eu membership hugely increases germany’s imports and exports. 3. emergence of bric’s and their role in the world economy bric refers to the emerging markets which are expected to become the world's strongest economies in the next 40 years. the abbreviation was first used by the chairman of goldman sachs asset management, jim o'neill, in his 2001 research report. in another 2003 report by the economists dominic wilson and roopa purushotaman, bric countries were expected to catch up with the g6 (france, germany, italy, japan, the uk and the usa) countries in less than 40 years, and would later on become the leading force for growing demand and spending power. given the human capital and natural resources in bric countries, this growth seems unavoidable. even though goldman sachs did not use any certain criteria in evaluating the performances of these four countries, the countries were recognized as "important developing countries" with a potential to become "a major force in the world economy" in 40-50 years after 2001 (wilson and purushotaman, 2003). one of the reasons why they have such big potential is that india and china with their crowded population provide a high amount of output for the world economy despite their low per capita income. another reason is that these countries have the potential for economic growth (cooper, 2006; 2). these four countries are known to have apparent differences, which is one of the reasons why they have such potential. "the diversity among the bric countries, the balance between their abundant resources and foreign dependence as well as their geographic trends pave the way for their integration into the world economy." (o'neill, wilson, purushotaman, stupnytska, 2005; 3). each of the bric countries has different characteristics. brazil, the largest country in latin america, possesses rich natural resources which will create the country's future economic impact. numerous countries, including china, make major investments in brazil to take advantage of its natural resources. russia, too, is rich in natural resources and has a strong workforce, especially in the fields of science and engineering. india and china have a significant amount of human capital, and the economies of these countries have been developing very fast (hitt, li, worthington, 2005). validity of linder hypothesis in bric countries 87 due to the favorable markets of the bric countries, firms in these countries have more bargaining power when setting up partnerships with multinational companies which seek to enter developing markets. bric firms not only get more information and resources compared to their foreign partners, but they are also likely to have relatively further capabilities especially in china and india. these countries can make use of their information and resources more quickly than their foreign partners. in addition, as they have more information and resources than their foreign partners, bric firms make use of the capabilities of less mature emerging markets. as a result, bric companies, compared to other emerging markets, have further advantages than multinational corporations (hitt, li, worthington, 2005). domestic policies and economies of the bric countries are also similar. while all are federal states, india has parliamentary democracy and brazil has the presidential system. china is the marxist people's republic whereas russia rules with an authoritarian democracy. each of the four of the economies has a political structure that has formed over the centuries, and they are all home to different cultural and religious traditions (armijo, 2007; 8). the heterogeneous structure created by such differences is one of the reasons why they are so successful. the importance of the bric countries results from their economic size. these are the largest economies outside the oecd and no other developing economy has an annual gdp of over $1 trillion. the three countries, except russia, have shown greater growth than most countries in the world during the 2008 crisis. as shown in table 3.1, china has become the world's largest exporter and the bric countries have increased trade among themselves. in 2010, chinese-indian trade exceeded 60 billion usd. in 2008, china became the largest market among east asia's rapidly industrializing countries. at the same time, it was the biggest producer of carbon dioxide with 6.5 million tones, which make up 22% of carbon dioxide emissions in the world. russia and india rank the third and the fourth. table 3.1 total trade volume between brics – 1996-2010, (000$) 1996-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 brachn 1.173.547.758 3.230.511 4.074.972 6.681.162 9.152.222 12.189.516 16.391.711 23.366.568 36.443.061 36.101.975 56.379.045 braind 224.948.004 828,198 1.226.920 1.039.440 1.208.622 2.340.844 2.412.844 3.122.782 4.665.945 5.605.938 7.734.723 brarus 401.940.026 1.566.919 1.680.250 2.055.381 2.466.082 3.639.565 4.385.982 5.450.706 7.984.849 4.280.668 6.062.751 chnbra 1.339.220.073 3.698.157 4.469.402 7.985.547 12.346.965 14.819.733 20.289.600 29.740.543 48.670.899 42.399.500 62.560.099 chnind 940.262.580 3.594.926 4.945.035 7.594.602 13.614.037 18.700.493 24.858.745 38.668.535 51.844.266 43.380.848 61.760.271 chnrus 4.574.186.812 10.669.266 11.927.432 15.757.995 21.225.527 29.101.226 33.386.814 48.218.473 56.908.611 38.796.723 55.526.067 indbra 211.660.554 501,494 700,461 700,928 1.203.496 1.852.974 2.452.518 2.777.501 4.409.879 4.679.202 6.890.546 indchn 1.145.905.166 2.750.091 4.151.453 6.182.287 10.149.771 17.350.853 23.468.231 34.067.749 41.679.950 40.983.423 58.689.107 indrus 576.226.349 1.318.180 1.316.853 1.481.224 1.846.241 2.742.637 2.746.567 3.608.591 5.542.070 4.402.043 4.984.776 rusbra 486.080.862 1.114.310 1.534.073 1.735.775 1.738.110 2.951.369 3.713.000 5.237.590 6.711.368 4.593.000 5.799.156 ruschn 1.053.264.478 7.242.513 9.238.075 11.566.269 14.851.298 20.312.327 28.668.000 39.573.250 55.916.050 39.528.880 58.813.800 rusind 658.397.390 1.665.952 2.127.472 3.320.090 3.153.291 3.098.398 3.893.000 4.342.640 6.945.062 7.461.454 7.548.989 source: comtrade database 88 rana atabay bric countries have a distinctive macroeconomic performance in the world economy. these four economies hold 40% of the total foreign exchange reserves in the world and are among the ten countries with the largest foreign exchange reserves. china has foreign exchange reserves worth 2.4 trillion usd and is the second largest net creditor after japan. when russia began its market reforms in 1992, it did not have any foreign exchange reserves. however, today russia holds 420 billion usd in its reserves. one sixth of foreign exchange reserves of the bric countries is enough to create a fund as large as the imf (the economist, 15th april 2010). their foreign assets protected these countries against the 2008 global financial crisis and turned them into financial powers. while western countries were struggling to cover their budget deficits and increasing debts, many investment banks recommended bric countries thanks to their stable public debt levels. to better understand the current position of the bric countries today, i believe the projected figures in the goldman sachs report of 2001 should be compared to current figures. according to the projections in the 2001 report, in case bric countries continued with their strong growth at the same speed, these countries would hold a larger share of the world's economy. the best-case scenario suggested that these countries would account for 8% of the world's gdp. however, according to world bank, this figure turned out to be 17% in 2010. china was estimated to reach germany's economic size, yet in february 2011 chine surpassed japan and almost doubled the german economy. brazil was estimated to reach italy's economic size. in 2010, brazilian economy passed italian economy and became the 7th largest in the world (table 3.2). in addition, despite their 2001 gdp worth 2.6 trillion usd, bric economies created a gdp worth over 11 trillion usd in 2010. table 3.2 gdp ranking of bric and g7countries 2000 2010 country ranking ranking country usa 1 1 usa japan 2 2 china germany 3 3 japan uk 4 4 germany france 5 5 france china 6 6 uk italy 7 7 brazil canada 8 8 italy brazil 9 9 india mexico 10 10 canada spain 11 11 russia source: world bank world development indicators gdp data in the past 50 years, the world economy has developed significantly. in the next 50 years, it is expected to continue to change as the bric’s share in the world gdp increases. when we compare bric economies with g6 economies, we can estimate that bric economies will reach half the size of g6 economies by 2025, and only the usa and japan will remain among the largest 6 economies of the world by 2050. it was also estimated that the bric countries would play a more significant role in determining world's economic policies and that they would become a part of a validity of linder hypothesis in bric countries 89 group like g7 or g8. however, this did not happen. the foreign affairs ministers of the four countries began political talks in new york in 2006 and the first bric summit was held in yekaterinburg, russia in 2009. in the second summit in 2010, the countries reached a consensus on the inclusion of south africa to the bric. in the 2011 summit, a series of decisions were agreed upon that would make these countries less dependent on the dollar. the population of the bric countries has more than doubled in the past 50 years. this increase is expected to slow down in the next few decades, except for india. despite expectations for an increase in the elderly population in developed countries, this increase is estimated to be get in the bric countries. by 2060, the average age will have increased from 40 to 44 in developed economies, and from 32 to 45 in the bric countries (wilson, burgi, carlson, 2011). an aging and shrinking labor market is expected to slow down the growth rate in the bric countries, which were responsible for over half of global growth in the past decade. in the goldman sachs report "the brics 10 years on: halfway through the great transformation" dated december 7, 2011, it is stated that global growth will reach a peak with a 4.3% increase in this decade and go down to 3.9% in 2020. the report points out that the longterm economic growth rate of the bric countries has probably reached its peak. it also states that a decline in the growth speed of the working age population in these countries will lead to a smaller labor supply. this situation will limit the potential growth rate for the bric countries. according to the report, even though the bric countries will join the usa and japan as the world's largest economies by 2050, it is expected that their contribution to the world’s economic growth will decline. 4. empiricial analysis: methodology and data the gravity model is frequently used in empirical studies on economic integration. the model is successfully applied also to capital flows between countries, migration and tourism. the model is based newton's "law of universal gravitation". newton's gravity model says that attraction between two bodies is inversely proportional to their masses and reversely proportional to the distance between them. according to the bilateral trade gravity model, in its most basic form, trade between two countries is inversely proportional to their gdps and reversely proportional to the distance between them (frankel, 1997; 50). according to the basic gravity model, the volume of trade between two countries is also a function of several variables including population, geographic distance, common language, common border, cultural proximity and common regional trade agreement (amin, hamid and saad, 2009;20). following the literature, the study applies a gravity equation with panel data. in the study, it is mainly investigated the trade between bric countries was valid for linder hypothesis. in order to analyze the validity of linder hypothesis for these countries, i adopt a modified gravity model similar to choi (2002) but add some variables such as population and crisis. = + + + + + + where the dependent variable is the ratioijt for the ratio of export volume from country i to j to the sum of these two countries’ gdp’s at the time period t. the independent variables are; linderijt is the ratio of the difference in per capita gdp to the sum of exporting and importing country’s per capita gdps at the time period t; pgdpsumijt is the sum of per capita gdp of both countries at the time period t; distijt is the distance between two countries i and j; popit is the total population and crisisit is the dummy variable showing the crisis years, 1997 and 2008; finally εijt is the residual. in this study, annual data for the period 1996-2010 from four bric countries were used. gdp and population data were collected from world bank world development indicators, foreign trade data from united nations commodity trade statistics database (comtrade), and the distance data from the website http://www.daftlogic.com/projects-google-maps-distance-calculator.htm. distances were calculated according to the "great circle" method in kilometers. the empirical study deals with 4 bric countries over the period 1996-2010 with 60 observations totally. 90 rana atabay table 4.1 descriptive statistics variables abbr. definition source ratio ratio a trade ratio defined as export from country i (exporting country) to country j (importing country) divided by the sum of country i’s gdp and country j ’s gdp at period t. comtrade database & world bank world development indicators linder hypothesis linder calculates the per capita income similarity between countries world bank world development indicators sum of per capita gdp pgdpsum calculates the sum of per capita gdp of both countries at the time period t. world bank world development indicators distance dist the distance between countries http://www.daftlogic.com/projectsgoogle-maps-distance-calculator.htm population pop total population of countries world bank world development indicators crisis years crisis shows the crisis years affected these countries; 1997 and 2008 author’s choice 5. empirical results the results obtained in the empirical analysis are in line with the earlier studies in the literature reviewed. all the coefficients are consistent with predictions. panel regression results show that the trade between bric countries is in support of linder hypothesis. all the variables are not stationary in level, but stationary in the first differences for the model. to determine which panel regression model to be chosen, chow and breush pagan (bp) test results have been given in table 5.1. while h0 hypothesis is pooled regression and h1 hypothesis is fem in chow test, in bp test h0 hypothesis is pooled regression and h1 is rem. table 5.1 panel regression estimation method selection test results test p value decision chow(f test) 0.124 ho accepted bp(χ2 test) 0.193 ho accepted as a result of both tests, the pooled regression has been approved for use. in this case, not only the need hausman test and pooled model estimation was analyzed using the egls (cross-section weights) algorithm. according to table 5.2, panel regression results show that the trade between bric countries is in support of linder hypothesis. linder, dist and crisis variables are negative and statistically significant. the finding of a negative and statistically significant effect of linder variable provides evidence in favor of the linder hypothesis. the finding of a negative and statistically significant effect of dist variable confirms the literature. the more distant the two countries are, the less they trade. the finding of a negative and statistically significant effect of crisis dummy variable reduces the trade volume between countries. pgdpsum and pop variables are positive and statistically significant. the finding of a positive and statistically significant effect of pgdpsum variable means that the richer countries tend to trade more. the finding of a positive and statistically significant effect of pop variable means that the more crowded countries tend to trade more. validity of linder hypothesis in bric countries 91 table 5.2 panel regression results variables coefficient dlinder -0.005208 ** (0.001222) dpgdpsum 1.03e-07 ** (1.21e-08) ddist -1.58e-07 ** (4.39e-08) dpop 2.72e-12 ** (1.01e-12) crisis (dummy) -0.000412 ** (0.000160) r-squared 0.439475 prob (f-statistic) 0.000006 observations 60 note: estimated standard errors appear in parentheses. ** indicate the significance at the 1% level.. 6. conclusion trade between bric countries is growing in each year and these countries have a potential to become the largest economies in the world. in this study, trade in bric countries has been examined whether the trade between these countries was valid for linder hypothesis by using modified gravity model. previous researches have found similar results. this study used an extensive dataset and a modified gravity model. it was found that countries with a smaller difference of per capita gdp tend to trade more. it was also found that richer and more crowded countries trade more. different from other studies, crisis dummy variable added and found that in crisis years which affected these countries, trade volume between them is reduced. references amin, r., mohd, z.h. and norma md. s., 2009. economic integration among asean countries: evidence from gravity model. eadn working paper, no.40, february. armijo, l.e., 2007. the brics countries (brazil, russia, india, and china) as analytical category: mirage or insight?. asian perspective, 31(4), pp.7-42. choi, c., 2002. linder hypotesis revisited. applied economic letters, 9, pp.601-605. cooper, j., 2006. russia as a bric: only a dream?. university of birmingham european research institute, european research working paper series, 13, july. francois, j. f. and kaplan s., 1996. aggregate demand shifts, income distribution, and the linder hypothesis. the review of economics and statistics, 78(2), pp.244-250. frankel, j. a., 1997. regional trading blocs in the world economic system. institute for international economics publ., october. greytag, d. and tuchinda u., 1990. the composition of consumption and trade intensities: an alternative test to linder hypothesis. weltwirtschaftliches archiv, 126(1), pp.50-57. hanink, d. m., 1988. an extended linder model of international trade. economic geography, 64(4), pp.322-334. hanink, d. m., 1990. linder, again. weltwirtschaftliches archiv, 126(2), june, pp.257-267. hitt, m.a., li h. and worthington w.j., 2005. emerging markets as learning laboratories: learning behaviors of local firms and foreign entrants in different institutional contests. management and organization review, 1, pp.353-380. marrewijk, c. v., 2004. international trade & the world economy. oxford university press: ny. 92 rana atabay mcpherson, m. a., redfearn m.r. and tieslau m. a., 2001. international trade and developing countries: an empirical investigation of the linder hypothesis. applied economics, 33, pp.649-657. o’neill, j., wilson d., purushothaman r. and stupnytska a., 2005. how solid are the brics. global economics paper no.1341, goldman sachs, december. rauh, a., 2010. empirical analysis of the linder hypothesis: the case of germany’s trade within europe. the american economist, 55(2), fall, pp.136-141. tang, d., 2003. economic integration among the asia-pasific economic cooperation countries: linder effect on developed and developing countries (1985-1999). the international trade journal, 17(1), 19-49). “the trillon-dolar club”, 2010. the economist, [online]15 april. available at: http://www.economist.com/node/15912964 [accessed 25 july 2011]. thursby, j. g. and thursby m.c., 1987. bilateral trade flows, the linder hypothesis, and exchange risk. the review of economics and statistics, 69(3), august, pp.488-495. wilson, d., burgi, c. and carlson, s., 2011. population growth and ageing in the brics. goldman sachs global economics, commodities and strategy research, 11(05), pp.1-4. wilson, d. and purushothaman r., 2003. dreaming with brics: the path to 2050. global economics paper no. 99, goldman sachs, october 1. journal of international trade, logistics and law, vol. 3, num. 1, 2017, 11-21 performance-based task appointment model in urban public transportation: the case of iett ahmet fuat taşdemir, (msc) istanbul commerce university, turkey i̇smail ekmekçi, (prof.) istanbul commerce university, turkey received: jan. 14, 2017 accepted: jan. 23, 2017 published: june 1, 2017 abstract: provision of quality services in urban public transportation has become a significant field of research to be analysed separately, particularly for metropolitan cities where population and other components of traffic are rapidly increasing. quality of public transportation operators can be figured out with the help of various parameters. among those, human resources undoubtedly have a significant role. fulfilment of operators’ strategic aims and targets is in direct proportion to performance and satisfaction of employees. with an innovative approach, this study aims to suppose a new, performance-based task assignment model that grounds on the target to achieve a fair work distribution by analysing general directorate of iett’s current “task assignment process for drivers”, which manages urban public transportation of istanbul metropolitan city. this model identifies specific performance indicators and gives points to the drivers according to competency. new software has been developed with an algorithm to allow drivers to choose the routes they will work on, depending on their competency points. with 184 drivers, 22 routes and 135 buses, iett sarigazi bus terminal has been chosen as the pilot area of this new idea of “self-appointment”. keywords: iett, urban public transportation, motivation, rewarding, performance evaluation, staff scheduling, preference 1. introduction as the most crowded city of europe, istanbul is one of the most significant centers of trade and thus transportation, with an approximate population of 15 million and a ridership of 28 million. provision of quality services in urban public transportation has become a significant field of research to be analysed separately as the living areas within the city has expanded towards the outer sides and the current urban transportation system has fallen behind the developments. quality of services is a significant fact for public transportation operators and this fact is composed of various parameters. among these parameters, human resources and management undoubtedly have significant roles. the concept of human resources management has evolved to a different level within the last years. organizations has been aware of the fact that an efficient management of human resources is a key factor to succeed, to survive and even step forward within the modern competitive market. organizations can be carried to success by the achievements and performances of people (employees). today a number of organizations are allocating great amounts of budgets to ensure employees’ satisfaction. the reason is the idea that an increase in satisfaction will lead to better motivation, efficiency and loyalty. satisfaction and performances of employees can only be obtained in a peaceful working environment. providing such an environment requires challenging processes and high performance of management. modern and innovative organizations apply performance-based management systems to increase employees’ satisfaction and performance. performance based management systems develop a competitive but fair environment, enable self-evaluation of 12 ahmet fuat taşdemir, i̇smail ekmekçi employees and take necessary steps to make up deficiencies. on the other hand, performance based management systems also reward employees with high performances in various ways, following an evaluation process. these rewards are generally given as premiums in addition to wages. this study brings a different perspective to rewarding and creates a new model called as “self-appointment” that enables employees to choose the routes they will work on, according to monthly performance values. within the scope of this performance-based task assignment model that grounds on the target to achieve a fair work distribution by analysing general directorate of iett’s current “task assignment process for drivers”, iett sarigazi bus terminal have been chosen as the pilot area of this new idea of “self-appointment”, with its 184 drivers, 22 routes and 135 busses. 2. staff scheduling staff scheduling is one of the key components of planning processes for both public and private organizations. besides the budgetary aspects, this process should also be considered with its emotional side as it directly related with humans. due to the advances in technology, today’s work force scheduling has been concentrated upon the minimization of costs and this fact has led to a number of new research studies. staff scheduling does not only consist of creating schedules of shifts and daily tasks, but also aims to preserve quality of services, provide satisfaction for both customers and employees. organizational and legal amendments, competency and preferences of employees, labor demand and many other factors complicate the staff scheduling process. the optimum staff scheduling should be as effective as possible in task appointment. in this way costs will decrease while employees and customers become more satisfied. today, organizations need auxiliary tools within decision-making processes to ensure high levels of employee satisfaction, for the true employees and in true periods of time, with a true cost as well. this auxiliary system would typically include various components such as electronic tables and database tools created with mathematical models and algorithms. a large number of commercial software packages are available to help organizations in this context. particularly in our field, which is the field of transportation, a canadian company (hastus) provides staff scheduling, operation management and reporting services while a germany-based software (ivu) brings all scheduling and appointment functions together for the staff and vehicles in a single system that is widely used in all europe. south american countries, on the other hand, frequently use a spanish software (goal system). this software, as all the others do, provides an optimum bus and driver optimization. a large number of studies have been conducted on staff scheduling methods since 1950s. for this reason, there is also a large quantity of resources in this field, available within the literature. the first study was conducted by edie (1954) on sufficient numbers of cabinet operators to meet various service requirements during different times of the day. dantzig (1954) focuses on linear programming to create time schedules for vehicle cabinet operators and has conducted many other research studies to apply this approach to larger-scaled problems. aggarwal (1982) explains staff planning processes, specific restrictions and solutions in the field of service industries. another research compares workforce scheduling programs with intuitive methods and linear programming methods (bechtold, 1991). al-tabtabai and alex (1997) discuss how a construction company dealing with multiple projects could apply genetic algorithm methods to appoint workforce for a specific problem. aickelin (1999) analyses problem-specific knowledge to develop a genetic algorithm approach for a problem in appointing nurses. main theme of this study is balancing feasibility features and the cost of solutions. typical genetic algorithms may yield negative results. in order to prevent these negative results, problem-specific information should be introduced to the problem in different ways. the most effective variant of the algorithm supposed in this study revealed a possibility over %99 of producing an optimum solution (aickelin, 1999). performance-based task appointment model in urban public transportation: the case of iett 13 3. performance evaluation and rewarding performance evaluation is a system that manages organizational performance evaluation processes including measuring employees according to the criteria determined within the light of aims and competencies, having feedbacks and conducting reporting procedures. performance evaluation system is a tool that is used by organizations to measure individual performances and to help employees deliver outstanding performances. fındıkçı, i̇. (1999) states that “performance evaluation aims to evaluate individuals as a whole, considering all relevant aspects, to reward successful ones and to give opportunity to make up deficiencies”. the main principle of performance evaluation is not to punish individuals due to failures but to reward them after achievements. performance evaluation is also a procedure to collect organizational data relevant to the level of performance delivered by an employee during work hours (waxin and bateman, 2009). it is also a process that is used to value and thus contribute to task performances of individuals. performance evaluation is a part of performance management systems that depends on the targets determined together with employees. performance evaluation is described as a system of periodical controls that evaluates employees’ performance levels in specific tasks and creates an opportunity for an early response (jordan, 2009). 3.1. performance rewarding rewarding is a significant motivator that should be emphasized when individual performances are discussed. rewarding includes appreciations for hard works, growth and development. in other words, rewards are acquisitions of an employee as a result of delivering a better performance than expected in a specific task. according to lundy and cowling (1996), the concept of reward includes both direct labor wages and indirect acquisitions of employees. these rewards are the wages given for the efforts and capabilities of employees in line with the contract signed between employer and employees and described as external rewards. on the other hand, organizational rewards include internal rewards such as status, admiration, company membership, safety, career, development, sense of appreciation and success. rewarding is not only based on material values. this system is related with both internal and external motivation that includes monetary and non-monetary rewards. a research study conducted in united kingdom regards the connection between wages and performances as a significant and indispensable concept for the employer and professional staff (armstrong, 1993). 4. a different perspective in rewarding: performance-based task appointment model with an innovative approach, the supposed model aims to create a new, performance-based task assignment model that grounds on the target to achieve a fair work distribution by analyzing general directorate of iett’s current “task assignment process for drivers”, which manages urban public transportation of istanbul city. this model identifies specific performance indicators and competency points that will be given to the drivers according to the data of task completion during the operation period. new software has been developed with an algorithm to allow drivers to choose the routes they will work on, depending on their competency points. with 184 drivers, 22 routes and 135 buses, iett sarigazi bus terminal has been chosen as the pilot area of this new idea of “self-appointment”. aims of the suggested system are as follows; to systematize task writing, to ensure “a fair distribution of work”, to create a “transparent” structure, to “increase competitiveness” with the point scoring system, to obtain better “labor efficiency” by increasing performances, to increase motivation, satisfaction and knowledge of employees, to ensure the “peace in working environments”, 14 ahmet fuat taşdemir, i̇smail ekmekçi to increase “customer satisfaction”, to improve quality of services. 4.1. determining and weighting performance criteria strategic aims and targets of the organization, potential improvements in quality of services and labor efficiency as well as potential contribution to employees’ skills and development were the factors considered during the determination process. as a result, seven staff performance criteria that can be called shortly as smart (specific, measurable, acceptable, realistic, temporal) were identified. all of these criteria are numerically measurable. these performance criteria were weighted by thirteen experts within the relevant field, with the use of ahp (analytic hierarchy process). as a result, competency points were obtained for each employee. employees have an access to their competency points and can make objections about the points through the “e-şoför” (e-driver) system. this transparent approach facilitates participation of the staff and creates an opportunity for a timely response in cases of mistaken data entered into the system. figure 1 weights of performance criteria route completion: route-km completion has the largest weight (%33) among all the criteria. this term describes the rate of completed services, excluding the lost operational kilometres (completed km/planned km). punctuality: this term explains completion of services in time. this rate is obtained through the akyolbil system managed by fleet managers that controls the punctuality of vehicles (-1, +3 minutes) and conformity with the scheduled durations between source and destination points. approved investigation reports: this term describes the reports about violations that impair the quality of public transportation. passengers’ satisfaction (crm): this data is obtained through passengers’ complaints about drivers’ violations during the operation of public transportation services. fleet violation reports: these reports are prepared by the fleet management center about violations conducted by the drivers within the period between beginning and end of services. performance-based task appointment model in urban public transportation: the case of iett 15 the number of workdays: this is the number of days when drivers are expected to work during a month. for this model, the number of workdays that might affect employees’ performances was determined as 22, excluding weekends and off-days. exceptions about the staff were not considered within the scope of this measurement. the number of suggestions: these are suggestions related with significant points identified by drivers during the operation of public transportation services and aim to improve the quality of services. each employee is supposed to report at least one suggestion. the accidents, which are highly critical for operators, were included as a general factor (multiplier) within the study. in addition, seniority years were not considered within the study but occasionally used to differentiate employees with same points and preferences. 4.2. software development (sis) sis application was developed using asp.net on microsoft .net platform. c# was used as the software language and the front interface was created using various techniques including javascript, html (hyper text mark-up language), ajax (asynchronous javascript and xml), css (cascading style sheets), and query. the application was developed in a multi-layered structure and consists of three different layers, namely data layer, business process layer and presentation layer. data layer of the application operates on the ms sql server. database object models were designed during the development process of the data model, using the sybase power designer tool. the project was hosted by windows server 2012 on the iss (internet information services) and opened to public access after necessary penetration tests were conducted. through this application, drivers who work for the regional directorates of iett may choose; bus routes they demand to work on, type of services (with rest breaks, direct, morning single, evening single), off-days (rest days), type of substitute driver (in normal services: a partner driver). to summarize, drivers have a right to choose all preferences that do not negatively affect the services through this application. 4.3. pilot scheme with 184 drivers, 22 routes and 135 buses, iett sarigazi bus terminal has been chosen as the pilot area of this new idea of “self-appointment”. in order to properly test this new model, meetings were held to discuss current progress of the system and to exchange ideas with the significant shareholders of the general directorate of iett, labor unions. then, a training schedule for drivers was created. training programs were designed to allow groups of ten participants in order to ensure better understanding of the topics. the participants were informed about the advantages of this system both for the staff and the organizations. on the other hand, training programs were used to break the resistance of the staff, particularly encountered during the periods of transition. giving necessary information for the shareholders and completing the training programs, the process was furthered with the phase of preferences. 4.4. test phase and measurement of service points the process was divided in two phases as 1st and 2nd terms of preferences to be done according to performance points. if 75% of the staff is appointed in 1st preference term, 2nd term will not be carried out. 16 ahmet fuat taşdemir, i̇smail ekmekçi as the preferences were considered for the first time with this model, which is based on monthly performance points, the placement process was carried out according to the average points of the last six months. moreover, there was not any list of base points for the services as it was to be the first term for determining preferences. after the necessary preparations for the software were completed, employees were asked to choose their preferences to test the model. as a result of the test phase of preferences, 60% of 184 employees working for sarigazi terminal were appointed to preferred tasks after the 1st and 2nd preference terms, while rest of the staff was randomly placed into remaining services. employees decided their preferences after analyzing the preference lists which contain all details about relevant services. in the 1st preference term, 51% of all employees were appointed to the services they preferred. however, a 2nd term was carried out as the 75% condition had not been fulfilled. appointment process was concluded after the 2nd placement which was done randomly in line with certain restrictions and criteria. analysis of the preference process is given in table 1. table 1. benchmark test results of worker placement test analysis sarigazi terminal performance-based placement analysis number of participants preferential placement random placement alternate 184 111 54 19 order of preference 1st placement 2nd placement 95 16 normal with rest breaks normal with rest breaks 32 63 8 8 1st preference 10 16 5 2nd preference 8 8 4 1 3rd preference 4 8 1 4th preference 7 1 5th preference 2 4 6th preference 3 7th preference 3 8th preference 4 9th preference 2 2 10th preference 1 11th preference 2 12th preference 2 13th preference 4 2 14th preference 2 3 15th preference 2 total 32 63 8 8 base points of services were also determined according to the results obtained through the test process (table 2). these base points revealed most preferred types of services and thus contributed to the actual preference process. performance-based task appointment model in urban public transportation: the case of iett 17 table 2. list of service points 4.5. actual preference process problems encountered during the test phase was analysed before the actual preference process. as a result of this analysis, frequent mistakes of employees were identified and necessary steps were planned to improve deficient sides. it was revealed that multiple parameters caused confusion for the employees during the preference process. therefore, the necessary steps were taken as follows: the preferences were prepared as a package and a user-friendly interface was developed. counselling offices were established in order to facilitate the process and analyse possible complaints. perception management meetings were held with the employees and representatives of labor unions in order to manage the transition period. work distribution manager converted services offered to the rotation groups of the current program into packages according to status of tasks such as being performed in a work day, on saturday, sunday and off-days and entered this data into the sis software to create preference forms. employees could view service and sign-board information, beginning and end hours of related bus services that could be chosen through the interface of preference list according to its type (with rest break – normal). employees could also view compatibility of preferred services with the days they do not work. the software was adjusted to allow employees prefer services according to this list (figure 2). workday route number service number service duration beginning of the service end of the service terminal point 11 761 11/761/with rest break 480 05:45 19:00 altuni̇zade 85,83333 11 770 11/770/station line 480 15:15 22:30 yeni̇doğan 87,16667 11 769 11/769/station line 480 06:50 14:00 yeni̇doğan 87,5 11 771 11/771/with rest break 480 07:10 20:10 yeni̇doğan 89,83333 122d 6174 122d/6174/station line 440 16:00 22:30 sarigazi̇ garaji 61,83333 122d 6175 122d/6175/ with rest break 475 06:30 20:10 ş.şahi̇nbey 86,83333 122m 6215 122m/6215/ with rest break 480 06:30 19:00 ş.şahi̇nbey 77,33333 122m 6213 122m/6213/ with rest break 480 06:10 18:30 ş.şahi̇nbey 85,33333 18 ahmet fuat taşdemir, i̇smail ekmekçi figure 2. list of preferable service packages actual preference process was launched after the necessary adjustments were applied to the system interface and preference lists. if any route is transferred from one terminal of iett to another, the directorate may exchange employees of those terminals as well. as a result of this transfer policy, the number of employees working for sarigazi terminal decreased from 184 to 173. performance points of these 173 employees were measured according to the data of 11th month (november) and the preference process was launched by sarigazi terminal directorate. thanks to the necessary adjustments made according to experiences, a pleasing result was obtained. 80% of all employees was placed after the 1st preference term, thus a 2nd term was unnecessary. findings of the analysis on actual preference process are given below (table 3). table 3. analysis of results obtained in sarigazi terminal’s actual placement process sarigazi̇ termi̇nal performance-based placement analysis number of participants preferred placement random placement not placed 173 139 19 15 order of preference with substitute driver with rest break according to tendencies random 64 75 10 9 1st preference 41 2nd preference 23 3rd preference 13 performance-based task appointment model in urban public transportation: the case of iett 19 4th preference 17 5th preference 6 6th preference 4 7th preference 7 8th preference 2 9th preference 7 10th preference 5 11th preference 6 12th preference 1 13th preference 3 14th preference 1 15th preference 3 total 139 5. analysis of results results obtained through the pilot scheme of the model were found as satisfying. it was observed within this process that a large number of drivers working for sarigazi terminal increased their performance points. it was identified that average point of 178 employees working for sarigazi terminal was 91,8 in the 9th month while this figure increased up to 93,1 and 95,8 in the 10th and 11th months respectively (table 4). table 4. performance points variations of performance criteria that were used in measurements are given in figure 3. an increase in a number of criteria can be seen when it is analysed in detail. 91,8 93,1 95,8 89,0 90,0 91,0 92,0 93,0 94,0 95,0 96,0 97,0 average performance points 9th month performance points 10th month performance points 11th month performance points 20 ahmet fuat taşdemir, i̇smail ekmekçi figure 3. performance criteria variations the increase in performance points reveals an improvement in quality of services as well. it is because of the positive impacts of improvement in performance criteria on passenger services. for instance, any improvement in punctuality shows the level bus drivers conform to the schedules. an increase in crm points that represent complaints of passengers reveals the satisfaction level. to summarize, any positive change in performance indicators identified to measure employees’ performances carries general performance of organizations to optimum levels. this model also stimulates self-control skills of employees. in this case, employees started to express suggestions about possible improvements in the services. in addition, this system allowed us to obtain rough data of the implementation process, as a result of the cross checks. we can even say that the competitive environment that occurred after the application of this model raised awareness among the employees of the importance of duties they perform. 5. conclusion and evaluation general directorate of iett, which provides round-the-clock urban transportation services in istanbul, operates 848 different bus routes. these routes show differences according to the districts and regions they are operated in, as well as their levels of difficulty. for instance, while most of the drivers are reluctant to work on congested lines of d100 motorway, which are also called as minibus routes, and demand for routes heading to rural areas is rather high. there is no criterion to measure drivers’ competency to work on easy or challenging routes within the current system. drivers are appointed to all the routes in turn, with a rotation system. round-the-clock services bring about several challenges for the drivers. most of the employees demand not to work on saturday or sunday to have enough time to spend with their wives and children. but, although the number of services declines, the system requires some of the drivers to work in weekends. in addition, there is not any criterion to choose the drivers who may take holidays in weekdays and the ones who may not. 9 6 ,1 9 9 ,4 9 9 ,4 7 1 ,3 8 2 ,7 7 2 ,7 9 9 ,2 9 5 ,6 9 9 ,7 1 0 0 ,0 7 0 ,1 9 3 ,2 7 3 ,6 9 9 ,8 9 8 ,1 9 9 ,2 1 0 0 ,0 7 5 ,4 9 5 ,0 8 7 ,2 9 9 ,1 p e r f o r m a n c e c r i t e r i a v a r i a t i o n s 9. ay 10.ay 11. ay in v e st ig a ti o n r e p o rt s f le e t v io la ti o n r e p o rt s c r m p o in ts s u g g e st io n p o in ts n u m b e r o f w o rk d a y s p u n ct u a li ty c o m p le ti o n o f r o u te s 9th month 10th month 11th performance-based task appointment model in urban public transportation: the case of iett 21 the current system does not identify any criterion about these highly important issues for drivers, such as the determination of workdays and levels of difficulty. while the rotation system can be reasonably explained to some extent, determination of off-days is a complicated process to clarify. this situation makes employees to question fairness of the work distribution system, results in rumors among them, disturbs the peace of working environment and negatively affects employees’ performances. the decrease in employees’ performances also reflects on the quality of services. the supposed model is grounded on the target to increase employees’ performances. this can only be obtained by giving an end to the rumors among the employees and helping them understand that the work distribution is conducted fairly. therefore certain performance criteria were determined and employees were asked to make their own preferences through this new “self-appointment” system. as a result, employees could change the routes they can work on, according to the numerical values of their monthly performances. this new performance-based task appointment model does not allow any kind of human interference and conducts all processes in a transparent way. thanks to this performance-based task appointment model, employees started to use their own self-control senses and question the current system. it was also identified looking at the decrease in passenger complaints that drivers developed a tendency to improve themselves analyzing their own performance points and deficiencies. they could even realize the errors within the system and contribute to its improvement as well. references aggarwal, s. (1982). a focused review of scheduling in services. european journal of operational research, 9(2):114–121. aickelin, u. (1999). genetic algorithm for multiple-choice optimisation problem. phd thesis, university of wales swansea. al-tabtabai, h. and alex, a. (1997). manpower scheduling optimization using genetic algorithm. in proceedings of the 1997 4th congress on computing in civil engineering, pages 702–709, philadelphia armstrong, michael (1993), human resource management: strategy and action (london: kogan, page limited). bechtold, s. e., brusco, m. j., & showalter, m. j. (1991). a comparative evaluation of labor tour scheduling methods. decision sciences, 22(4), 683-699. dantzig, g. (1954). a comment on edie’s traffic delay at toll booths. operations research, 2:339–341. edie, l. (1954). traffic delays at toll booths. journal operations research society of america, 2(2):107–138. fındıkçı, i̇. (1999). i̇nsan kaynakları yönetimi. i̇stanbul: alfa basım. goal system, http://www.goalsystems.com/en/goalbus/ hastus, http://www.giro.ca/en/solutions/bus-metro-tram ivu, www.ivu.de/fileadmin/ivu/pdf/aktuelles/broschueren/ivurail_tr_web.pdf jordan, k. (2009). performans değerlendirme harvard business school press pocket mentor, çev: melis i̇nan, i̇stanbul: optimist yayınları. lundy olive, cowling alan (1996). strategic human resource management, routledge, london, waxin, m. f. ve bateman, r. (2009). “public sector human resource management reform across countries: from performance appraisal to performance steering?”, european j. international management, c.3 s.4, s.495-511. http://www.goalsystems.com/en/goalbus/ http://www.giro.ca/en/solutions/bus-metro-tram http://www.ivu.de/fileadmin/ivu/pdf/aktuelles/broschueren/ivurail_tr_web.pdf journal of international trade, logistics and law, vol. 8, num. 2, 2022, 133-153 133 the effect of technology capacity concept on competitiveness in international trade kerim tolgahan narin istanbul commerce university, turkey received: september 16, 2022 accepted: october 28, 2022 published: december 01, 2022 abstract: for countries to produce products with high added value in international trade, they must integrate their technological competencies into their production systems. in addition, innovative technologies are one of the most important factors for firms and organizations that produce high value-added products competing in the international market to be one step ahead of their competitors in the market. in the world, consumer behavior and expectations are changing very rapidly due to cultural transformations with the “next-gen cul-ture” realities. firms and organizations that carry out production and manufacturing activities in the international markets should integrate these dynamic customer expectations and requests into their processes in the fastest way, but with high technology. in addition to this situation, manpower and working culture also emerge as the most important concepts for the organization to benefit from the relevant technological investments at the maximum level. at this point, the concept of technology capacity emerges. the concept of technology capacity can be used to differentiate or explain the organizations efficiency and capabilities against to its competitors like many organizations did previously with using different concepts: current production capacity, quality certi-fications, and manpower capacity and quality in competence. in addition to this situation, it can be posi-tioned as a new concept that firms that want to use these investments made by the field of technology in the market as a distinguishing factor in the field of competition, should measure within their existing organiza-tions. keywords: technology capacity, innovation, change management, international trade, industry 4.0, artificial intel-ligence, firm valuation. 1. introduction within the scope of this study, the effect of technology investments on international trade and the posi-tive contribution of this effect to the competition score will be mentioned. the equivalent of technology investments in the field of investment will be expressed with a concept that shows the technological compe-tence and suitability expressed by the technology capacity. the concept of technology capacity can be defined as the feasibility of new technology. this concept will be used to measure the efficiency of technology investments. in this context, the use of technology investments in foreign trade will pave the way for its use as an instrument to increase competitiveness in foreign trade operations. in other words, the technology capacity is expected to be high for a permanent and sustainable competitive advantage, as the speed of implementation of a new technology will be accompanied by the speed of adapting to the changes in the expectations of the market and its customers. institutions with high technology capacity will be able to access new markets at the right time, with the right audience and at the most optimum cost, by being open to technological investments, which is the most important distinguishing component of the age and competition. in this study, we will investigate the effect of the concept of technology capacity, which is briefly de-scribed above, on the foreign trade volume. as a result of this research, we will examine in which areas and with which technological investments the concept of working technology capacity will have a positive ef-fect on foreign trade transactions. at the same time, we will examine how sustainable competition will be negatively affected if the technology capacity is low. kerim tolgahan narin 134 in the last part of the study, it will also be discussed how institutions with high technology capacity contribute positively to the valuation of companies in terms of asset valuation. in this sense, it will be shown that technological investment has a positive effect on both the intellectual capital of a company and its sustainable competitiveness in the market in today's world. in addition to this situation, it will be exam-ined in exceptional cases where the technology capacity is high, and the competitiveness is weak. 2. technology investments in international trade 2.1. alternative energy sources most of the international freight transport is carried out by sea, ports are one of the most im-portant components of all type of transport. in these transportation activities, environmental problems are likely to occur due to activities. these environmental problems some of them are air and water pol-lution. these environmental problems originating from the ports and the equipment’s that are used for the international trade. some societies have been established to reduce the number of international con-ventions however since the human needs and consumption behaviors are changing using trade path got increased in the last decades (felicio et al., 2022). as an example, from the implementations from all around the world; with the green-eco port approach, which has started to become widespread in turkey also, it is aimed to disseminate environ-mentally friendly technologies, to minimize the environmental impact of ship and port operations, to save energy and as a result, a more sustainable transportation (uçdu and kılıç, 2022). making and im-plementing environmental-oriented strategic decisions increases the power of businesses and provides competitive advantage. because environmental awareness is a concept that directly appeals to the cus-tomer, and customer satisfaction is one of the most important issues that should be addressed by busi-nesses today. at the same time the optimization of ports is directly affecting energy consumption (fang et al., 2022). in addition to this situation, it has been revealed how important the role of ports, which is the most important component of international trade, both in the covid period and after the covid period, in this process and processes (kurniawati, 2022). in addition to this situation, the fact that ports are man-aged by using sustainable resources in the same processes will also minimize the cost pressure on products and services at the same rate. in addition, the most important function of international trade is the creation of the supply chain between countries. the green supply chain is important for creating a sustainable supply chain (gawusu et al., 2022). increasing efforts of both consumers and institutions to prevent environmental problems caused by the danger of depletion of natural resources and pollution are the most important motivation points in the implementation of green supply chain. with the deple-tion of resources, people have sought to obtain the energy they need from unlimited sources, namely the sun and wind, in order to cause as little harm as possible to the environment and living things and to leave a livable world for the future as much as possible (badakhshan et al., 2022). shipment and lo-gistics industry representatives and researchers have started to work on the use of alternative energy systems on ships in order to fulfill the obligations of international conventions, to turn to cleaner ener-gy sources against increasing environmental awareness and to use cheaper energy sources due to rising energy costs (vakili et al., 2022). electricity generation from solar energy is realized by pv panel and electricity generation from wind energy is realized by wind turbine. today, although the use of such renewable energy sources is encountered in ships with low power needs, it is now seen that renewable energy sources are used in ships engaged in commercial activities. the decrease in costs in this area is also directly pro-portional to the decrease in investment costs in other renewable energy sources. however, the point that should not be overlooked here is that the applications of these technologies in the field of ship-building engineering should be prioritized, especially in sea transportation, where it is important that both wind, wave energy and solar energy will be easy to reach on ships. this will also lead to a de-crease in logistics costs and an increase in the diversity of international trade. 2.2. using blockchain technologies blockchain is a digital infrastructure used/shared to securely store data and exchange data with third parties. such blockchains can be considered as a specific type of distributed database (tekin, öztürk and bahar, 2020). international trade is changing and transforming with the effect of technology. turkey, which creates value in international trade with its production power, has opportunities and risks in front of it. we can summarize the main features of blockchain technology as follows. the effect of technology capacity concept on competitiveness in international trade 135 recursive storage: blockchains are used to share data within an ecosystem. every participant of the ecosystem is expected to participate in the global infrastructure by providing resources to store the data, i.e., a node containing a local copy of the blockchain content. therefore, several synchronized copies of the information distributed in the network are available to guarantee the flexibility of the in-formation. decentralized control and full consensus: blockchains are used to share data in decentralized and horizontal ecosystems, meaning there is no single hierarchical leader with strong control over the ecosystem or infrastructure. no single actor can add or change information to the blockchain without approval from other participants. this process relies on predefined algorithms that ensure reliable veri-fication of new transaction entries by multiple actors. immovability, authentication and timestamping: blockchains rely on cryptography to secure information stored and in circulation. stored data must be explicitly validated, irreversible, and timed. anything saved on a blockchain cannot be changed or deleted (aslam et al., 2021). blockchain applications basically are grouped into three categories: process and document management, sharing product origin information with reliable and reliable sources, and payment sys-tems. process and document management; manual, time-consuming and paper-based processes are still dominant in the logistics sector and foreign trade. trading goods and sharing documents and data at every stage of the logistics lifecycle are required. this process can cause serious delays in trade. blockchain technology connects all parties in the trading ecosystem. blockchain-based monitoring sys-tems enable actors to record, share and access information easily and in a timely manner, reducing con-gestion and minimizing customs and inspection delays (vurdu, 2021). product origin and protection of ethical values; the final consumer also wants to be sure of the originality of the product they buy. authenticity tracking in blockchain technology makes it easy to track and trace every step of the value chain in luxury goods. blockchain-based startups have devel-oped different platforms to trace the origin and authenticity of luxury goods (mcdaniel and norberg, 2019). blockchain-based e-origin documents for internationally sold goods reduce the risk of false declarations, making processes simpler, transparent and secure. in the service produced with this tech-nology, key stakeholders including a country's chamber of commerce, trade partners, logistics provid-ers can instantly and securely do e-origin shopping (zhai and tan, 2021). blockchain enables instant exchange of thousands of certificates of origin. in doing so, it eliminates customs duty fraud, document verification costs, and streamlines, accelerates and secures processes that help stakeholders track the origin of goods (owis, 2021). payment systems: the letter of credit process involves costly operational processes with con-stant communication and extensive paperwork between multiple counterparties, banks, shipping com-panies. it is necessary to successfully coordinate the actors of the process and the process in order to eliminate inefficiencies, reduce complexity and transaction costs. while traditional letter of credit pro-cesses takes 5-10 days, it has been seen that the process is completed in a day in sample applications (wang, 2021). while blockchain technology improves speed and processes, it aims to eliminate paper-work and thus reduce errors and fraud cases that occur in the process. cross-border payment processes usually take several days and are affected by exchange rate fluctuations. making cross-border payments is costly because banks do not always cooperate directly with each other. therefore, they work with intermediary banks to facilitate indirect transfer. intermedi-ary banks charge a fee for this service from the total transfer amount (huang, yang and zhau, 2022). in this traffic, there are delays in daily transactions, errors occur, international trade is directly affected, and costs increase. blockchain solutions in trade finance aim to connect banks, companies, trading partners, payment providers, asset exchanges, transfer foreign currency in a transparent, secure, and al-most free international transaction system (topcu, 2021). blockchain technology can pave the way for redesigning costly and inefficient processes, lead-ing to more visionary systems that can touch more people more directly. today, it is seen that studies are carried out to use blockchain technology in different applications in the fields of banking, energy, logistics, agriculture, and transportation (fridgen et al., 2018). all these industries are open highly motivated about the international trade. so, this reason at the end of the day blockchain will be must for logistics and international trade to fulfil the complete end to end requirements from other industries. kerim tolgahan narin 136 2.3. internet of things applications in customs and trade technology, which has been developing at an increasing rate in the twentieth century, created the internet in the last quarter of the century. the developing internet has changed the way of doing business all over the world, has completely solved the communication problem and created new areas. with the twenty-first century, great transformations have started through the internet and digitalization has been integrated into all areas of life (fonseca, 2022). commercial activities have also been affected by this digital transformation, and as a result, great transformations and opportunities have emerged for entrepreneurs and businesses. internet of things; it refers to a dynamic global network infrastructure with identities, physical properties, virtual personalities of physical and virtual objects, capable of using smart interfaces and seamlessly integrated into communication networks, with self-configuring capabilities based on stand-ard and interoperable communication protocols (akinyoade and eluwole, 2019). that is, almost every object you can think of has rfid, gps, etc. the foundations of a system are laid in which they can make decisions and implement applications by sensing the environment by means of sensors using technologies, generate data, and share these decisions and data with each other and people by connecting to the internet, and apply the instructions coming directly or over the inter-net. almost all supply chain and logistics process processes can be transformed or increased in ef-ficiency with iot. the first things that come to mind are the real-time tracking of containers, the use of container data for optimal stacking, the transition to automated terminals, the shortening of the time re-quired for customs procedures, etc. can be sorted (aydınocak, 2022). applying iot to logistics operations has a significant impact. we can monitor the status of as-sets, cargo and people across the value chain in real time. we can measure how these assets are per-forming at the level of instantaneous changes (papachashvili, 2018). we can automate business pro-cesses to eliminate manual interventions, increase quality and predictability, and reduce costs. we can optimize the interoperability of people, systems and business assets and coordinate their activities. another area that can benefit from iot is warehouses. warehouses are both important junction points for foreign trade transactions and are subject to special security criteria by customs administra-tions (ma, 2018). in this respect, making warehouse operations based on iot using rfid technology will increase efficiency and cost advantages for operators and users, as well as increasing security and facilitating inspection for the customs administration. while rfid technology facilitates international trade and increases the speed of transactions, on the other hand, it provides important opportunities for customs administrations in the fight against arms and drug smuggling and commercial smuggling, as it provides effective and real-time traceability of these transactions. from this point of view, since the customs administrations will have detailed in-formation about the movement of the goods, they can direct their limited resources to other operations where they can use them more efficiently (bernacchi and torello, 2019). thanks to the online monitoring to be used in the logistics sector, it is foreseen that the unreg-istered money, which reaches billions, will be brought into the economy. thanks to the informatics-oriented systems used in logistics and transportation, processes are now automatically controlled, while autonomously working driverless trucks, autonomous ships, pilotless aircraft, deliveries with drones and cloud technology can solve all kinds of problems (intal and pangestu, 2019). 2.4. artificial intelligence for risk management risk means the probability of an event occurring that could result in a loss or damage situa-tion. it is synonymous with danger and is used for events that are expected to occur in the future, but whose occurrence is not known with certainty. risk is a concept related to the future because the future expresses uncertainty (torres, david and bowman, 2002). risk analysis is the identification, analysis, and evaluation of the effects of uncertainties in the process of achieving the objectives of a person, a project or a company. after all, creating profits and plans also means managing risk. all uncertainties on the way to the goal can turn into risks that require management. can risks be eliminated? unfortunately, this is not possible. however, although risks cannot be eliminated completely, they can be reduced. this is possible with risk management (vose, 2008). risk management, risk analysis and risk assessment; necessary measures are taken in advance so that the danger can be eliminated. because avoiding risk is cheaper than paying the price. the effect of technology capacity concept on competitiveness in international trade 137 the first step in dealing with risks is intellectual preparation. it is important to follow the mar-ket, technological developments, political and economic developments to be prepared for where risks may come from. it is necessary to develop the foresight ability, as well as to prepare for how to act in the face of different developments. therefore, scenario and simulation studies are particularly useful. the active and efficient use of simulation and game theories, which are also necessary in international trade, and the active and efficient use of artificial intelligence are very important in terms of managing and managing risks (savinov and taranovskaja, 2020). one of the important tools to manage risks is to share them. for example, the main reason why many high-risk giant projects are carried out by consortia is risk sharing, not financing. one of the tools of risk management is to operate in different business lines or different markets. risk manage-ment is one of the important reasons why companies operating in emerging markets, where political, sociological, and economic risks are higher, operate in more different business areas than those operat-ing in developed markets. in developed markets and stable economies, the focus is more important. risky environments bring opportunistic approaches, while stable environments bring strategic focus and competency development to the fore. in summary, managing risks is an issue that the company management should systematically address to achieve sustainability and success. for this reason, it is important to reflect the risk man-agement to the business perspective of the managers and to the business processes. those who can manage risks well will also be successful in their business. crisis and risk management are processes that are handled with different understandings and approaches but feed each other. unlike risk man-agement, which involves planning for future situations, crisis management involves reacting to nega-tive situations during and after they arise (narin, 2020). with all these facts and circumstances about risk and crisis, we need to find an innovative way to relate crisis and risks throughout the decision-making process. the innovation acceptance process, which defines the necessary stages for an individual to reduce uncertainty and decide about an innova-tion, consists of many steps. at this point, risk management should be planned with innovative tech-nologies in an area such as international trade, where each stage contains hundreds of different risks (meltzer, 2018). when we look at foreign trade, we see that artificial intelligence applications provide significant benefits in all areas including the production, sale, storage, transportation, stock control, quality control, packaging, and customs processes of products. improvements in these processes have especially cost-reducing and time-wasting effects. e-export emerges as an area where artificial intelligence technologies are widely used. e-export, which is one of the important developments brought by digitalization, develops by being supported by artificial intelligence technologies (ferencz, gonzalez and garcia, 2022). 3. growth limitations and issues in international trade reforms to facilitate foreign trade vary according to the current situation of the countries. to facilitate foreign trade effectively, it is necessary to identify the problems first, and then develop solu-tions in accordance with international standards for the solution of these problems. to facilitate trade and implement futuristic and innovative technologies, the relevant countries and those responsible should make changes in the legislation and the laws in which the practices are defined. if these changes are not made, countries and institutions will fall behind the times and will directly affect their competi-tiveness in the market (cherniwchan and taylor, 2022). many countries want to reform only in certain areas due to limited opportunities or fear of conflicts of interest and criticism. as a result, the impact of the reforms is limited. it would be appropriate for governments to prepare a comprehensive reform program that addresses the problems encountered with a holistic approach and to implement these pro-grams gradually in order of priority (forrest and liu, 2022). facilitating foreign trade makes it necessary to carry out studies on issues that fall under the mandate of many public institutions. for these studies to be carried out quickly and successfully, the relevant institutions should work in coordination. inter-agency coordination is a problem in many countries. the main reasons for this are that some institutions are not open to change, there is a conflict of authority among institutions, and the institutions do not look forward to coordination due to the concern of loss of authority. another problem is experienced in the structuring of the relevant institu-tions (tian et al., 2018). specialized units should be established within the customs administrations in subjects such as risk management, information technologies and modern control methods. as in many areas, the inade-quacy of qualified workforce negatively affects the facilitation of foreign trade. especially the lack of expert personnel in areas such as risk management, control methods and information technologies make it difficult to apply modern methods in these kerim tolgahan narin 138 areas (moudatsou and garcia, 2022). national inno-vation systems become increasingly dependent on each other day by day. the absence of sufficient number and quality of local talent limits its interaction with the rest of the world and isolates the sys-tem from the drivers of technical change and competitiveness. the extent to which developing coun-tries can connect with global learning and knowledge networks is determined by their national level of innovation. these forces can differ greatly from each other, and these differences can persist for long periods of time (melitz and redding, 2021). the early stages of development require the development of internal innovation capabilities in the public and private sectors, and multinational firms can play an important role in strengthening the national innovation system (dotta and munyo, 2019). however, foreign entrepreneurs cannot always carry out high-level technological activities in the country with capital inflows. many developing countries have long had foreign direct investment for resource generation. what is new is the tendency of multinational firms to expand their r&d to some developing countries. invisible barriers are rules that must be followed for public health or safety in foreign trade. but it can also be used to restrict im-ports. by requiring many documents or necessary actions, the entry of some goods into the country is reduced. also called administrative and technical barriers (alazzam, 2021). therefore, in fact, all ob-stacles, and constraints in front of the growth and development of international trade can be solved with the technologies mentioned in the previous sections. in addition, these technological investments allow the institution to show its own intellectual capital with the concept of technological capacity to represent suitability and competence. 4. technology capacity concept 4.1. technology as a value in a world where production processes have spread to a global scale, knowledge has increased in basic inputs, and life has begun to flow through social and industrial network structures, the place and effect of innovation in the formation of welfare is a vital issue for which policies and strategies have been developed in all countries of the last years. it is a term used to measure the welfare generated by a firm, sector/sub-sector (for example, manufacturing sector/metal fabrication) or the economy in general. accordingly, the added value creat-ed by a firm is calculated by subtracting the cost of goods and services purchased from the firm's return on sales. at the firm level, added value is the value a firm obtains by converting the goods and services it buys into purchasable products (daniels, 1996). value added, which is also used as a measure of productivity, is the only measure of "output" in international comparisons of economies or sectors at the macro level (rai and patnayakuni, 1997). gross domestic product, which represents the whole output of a country, includes the value added of different industries (sectors) and is the sum of the added values of individual institutions (farhadi and ismail, 2011). the number of physical outputs in the type of units produced may be considered sufficient as a measure of efficiency in the production process. however, this indicator alone does not reflect the "value" of the product in the eyes of the customer. added value, on the other hand, is a measure of the efficiency of production as well as the additional welfare created by the firm (sütçü, karşıyaka and burhan, 2019). the increasing understanding of the power of knowledge as a production input to create added value, especially its role in the development of innovative products, and the increasing development and multilateral nature of the network of relations created by the convergence of the relationship be-tween innovation processes and the market, increases the importance of "technology transfer" in pro-duction and service processes (abdurazzakov et al., 2020). for companies in competitive markets, the fact that technology transfer is an integral part of their vision and strategy has become their reason for existence (yun, 2010). as a solid foresight for the future, it can be said that only companies that take the ability to acquire, absorb and reproduce knowledge at a higher level to innovative product process-es among their main competencies will be successful. information and technology suppliers of the r&d process are other stakeholders that contrib-ute to the creation of added value. the expectations of the stakeholders in the process will help define the values created for each one. innovation can also be defined as the transformation of ideas into commercial returns (archibugi and iammarino, 2002). based on this definition, it can be said that a significant part of the added value created by innovation is formed in the commercialization process. firms should analyze these factors when they plan to develop a new product as investment re-quirement, cash flow, risk, return on investment differ in these approaches. however, mostly compa-nies adopt one of these approaches the effect of technology capacity concept on competitiveness in international trade 139 without calculating because there is no "choice of the method of commercialization of innovation" (pellikka, 2014) in their decision processes and with their established habits. in this case, the probability of failure will be high. although there is no ready-made recipe for choosing the right method, a holistic analysis of the industry, innovation and risks related to the new product must be made. when this analysis is done by considering all three factors together, it is possible for the firm to exceed its profit the most. the first role of technology emerges in the product development process. with the technolo-gies selected or developed in practice, it has been ensured that product costs are reduced, advantages are provided in terms of physical weight and usage in design, and the process is accelerated (tiernan and peppard, 2004). the efficiency and adequacy of the product development process has been made possible using information technologies on a large scale. at this point, the use of technology in the field of foreign trade allows the full application of the value of the technology described above. in other words, technology is applied to add value to the company and industry where it is applied. the main purpose of this investment is to increase the added value and to increase the profitability and competitiveness in the market with this increased added val-ue. on top of this, e-export emerges as an area where artificial intelligence technologies are wide-ly used. e-export, which is one of the important developments brought by digitalization, develops by being supported by artificial intelligence technologies. businesses operating in the field of e-export can use artificial intelligence to produce creative solutions on their websites and offer a better experience to their customers. industrial production, logistics and supply chains powered by artificial intelligence make it possible for businesses to be more competitive in the international arena (falk and hagsten, 2015). in this way, companies can increase their exports. in summary, the concept of capacity, which constitutes the content of this study, is the value added of technology. technology capacity can be defined both in the short term (with its impact on products and services) and in the long term by increasing the suitability of the company to other tech-nologies that are likely to be implemented in the next stages. 4.2. definition of technology capacity concept the concept of capacity expresses the maximum amount of production that an enterprise can achieve in a certain period (usually taken as a year) by using its available resources. capacity is the ex-pression of the factors of production held by an enterprise with a certain measure (zhao, song and li, 2018). in addition to this situation, the concept of operating capacity, which has more to do with technology; it can be defined in terms of “production quantity” and in terms of “costs”. the amount of goods and services produced by the enterprise in a certain period by bringing together the production factors such as money, raw materials, materials, machinery, labor and information in the most appro-priate way; it refers to the capacity of the enterprise (karakaş, 2019). at this point, we will examine the impact of technological investments on the concept of operational capacity, the next stage of this defi-nition. in addition, before we can determine the technology compliance level, we also need to define the leveling of the capacity. accordingly, it expresses the production level or production power in a certain period. business capacity is a concept that expresses the ability and possibilities of enterprises to produce a certain good or service with a certain measure (wang et al., 2019). the production unit is often used as a measure of capacity, but our study will show the effect of technology on this power. within the scope of this study, we should also talk about how technological investments affect different capacity concepts. because the main purpose of technological investment should be to affect the positive change of different capacitive situations. to give an example, it will be to increase the benefit of the technological investment to be made for the use of idle capacity and accordingly the in-crease in the added value to be created by the capital. it is not possible to reach the theoretical capacity since there are many other activities that needs to be handled as an operational activity like; maintenance-repairs, waiting, pauses, assembly and adjustments, getting ready to work, etc. due to operational interruptions. due to these reasons 100% of the working capacity of the machines or enterprises cannot be filled (özçelik, 2019). when these activity interruptions are removed from the theoretical capacity, the “normal (prac-tical) capacity” is reached. normal capacity is the capacity that emerges after a technological invest-ment has met all ideal conditions kerim tolgahan narin 140 (çağal, 1994). as it can be understood from the definitions above, it is expected that every technological investment will reduce all the waiting, pauses and losses in transi-tions that negatively affect the capacity at this point. the actual or actual production capacity of the enterprise in any period is called “actual capaci-ty”. (temel, 1997). normal (practical) capacity always gives the “achievable production quantity”. while the actual capacity may be below the practical capacity due to decreases in demand, disruptions in production, the actual capacity may exceed the practical capacity due to the increase in demand due to seasonal fluctuations in demand. at this point, technological investments should be flexible and manageable in periodic processes. production technologies are flexible and suitable for scaling to in-crease capacity; it will show that the technology capacity of the institution is high. if the production amount, that is, the actual capacity of the enterprise in a certain period, is be-low the normal capacity, the difference is called the "idle (empty) capacity" of the enterprise (orhan and bozdemir, 2009). at this point, technological investments should be planned at the point that will activate these idle capacities of institutions. the most important example of this situation is the elimi-nation of waiting times and queues in production systems and the capacity planning of a line to mini-mize these waiting times. the determination of idle empty capacity at the foreign trade point with arti-ficial intelligence will also play an important role in reducing costs in terms of logistics management. the state of the production technology of the enterprise also affects the capacity closely. ca-pacity size should be planned to consider sufficient technology. in capacity planning, technological possibilities should be evaluated from two perspectives. in the first case, keeping the capacity size at a certain level is limited by the applied production technology. production below this capacity becomes meaningless especially due to the high cost. today, technology; it is defined as a process that covers the transformation of the data of basic and applied sciences into production within creative processes, their use and the analysis of their social effects (carroll, 2017). at this point, technological capacity can be defined as the whole of the processes that include the measurement of all the factors that will be realized in order to reveal all the capabilities and capabil-ities of the institution (çetindamar and günsel, 2009). in this sense, technological capacity will include different motivation and analysis points for each industry branch. within the scope of this article, the effect of technology capacity on foreign trade will be emphasized. the table below summarizes how technological investment in different capacity concepts af-fects: table 1 capacity concept with and cross relation capacity concept technology investment impact theoretical capacity the relationship between theoretical capacity and technology capacity is the relationship that emerges with the method of direct calculation. since the theoretical capacity forms the basis of technological investments, its calculation with real-time data will enable the theoretical capacity to emerge as the closest capacity to the real capacity. in this sense, it will enable the investments made to be used at the highest level in terms of technological capacity. the concept of technology capacity will also make a difference in terms of measuring technological competencies (kachru, 2009). real capacity it is expected that the real capacity and accordingly the technology capacity will increase with technological investments. in this sense, as the technology capacity increases, the real capacity will increase (markowich, 1979). in cases where it does not increase, this technology will require rethe effect of technology capacity concept on competitiveness in international trade 141 evaluation in case the technological competence level of the institution does not match, focusing on the improvement points that emerge as a result of this evaluation and completing the relevant actions (niles, 2014). actual capacity technological investments have no direct effect on the increase in actual capacity. however, if the investments made include improvements in product quality and sales processes indirectly, it will have a positive effect in the medium and long term. the same situation will cause the actual capacity to decrease in parallel with the decrease in product quality. the concept of actual capacity may change periodically (primrose, 1988). companies with high technological capacity are those with a flexible technological infrastructure that can predict these periods and produce complementary products and services during these periods (qin and wang, 2006). idle capacity it is the type of capacity that technological investments will be most interested in and have the most impact. while technological investments increase technology capacity and competence, they also aim to reduce idle capacity. in this sense, an efficient and effective technological investment reduces the idle capacity and paves the way for the institution to produce products with high added value (wang et al., 2013). with a correctly calculated theoretical capacity, a decrease in idle capacity will be inevitable as a result of increased actual capacity. optimum capacity the effect of technological investments on optimal capacity may be at the point of increasing product quality. in this sense, technological investments made by an institution working with optimal capacity can be at the point of reducing its costs, producing value-added products and increasing its profitability (fine and freund, 1990). since the optimal capacity is the point at which the cost of a one-unit increase in product production capacity has a minimum effect on the cost of products and services, the increase in capacity after this point will unfortunately reduce the rate of increase in revenues. therefore, optimal capacity can be the maturity point (asl and ulsoy, 2003) of institutions. however, since new technological investments to be made will focus on product variety and quality, the increase in technology capacity of institutions working with optimal capacity in this kerim tolgahan narin 142 sense has a positive direct effect on their income. 5. technology capacıty impact in internatıoanal trade 5.1. technology capacity differentiators in this section, the definition of the variables that affect the capacity of technology investments will be made. these variables will also be evaluated in terms of technology capacity. in addition to this situation, the effect of foreign trade in terms of its effects on technology capacity will also be exam-ined. table 2 cross relation of technology capacity and technology differentiators • isa-95 architecture: this is a framework that will represent the automation standards with respect to having a support in industry 4.0. • financial and capital: this is the representation of companies’ financial readiness to make investments. • raw material: this is one of the most important factors that has an impact on the produc-tion capacity. • knowledge and competence: this is a point to identify the technology capacity impact on human resources in the company. on top of this the scope of the technology that will have an impact on the capacity has been included in the vertical site. these technologies will be interreacting in different departments, organiza-tions, assets and resources in the company. 5.1.1 capital capital accumulation, technological development and employment growth are the main deter-minants of economic growth. the fact that employment growth is highly dependent on investments as well as population growth makes technological development and capital accumulation factors critical elements of economic growth (battisti, del gatto and parmeter, 2018). in its most general form, capital accumulation or capital stock can be defined as the capacity of a production unit to produce goods and services in a certain period. although the dependence of pro-duction capacity on capital accumulation is relatively weak, especially in some service sectors and ag-riculture sector where labor (labor force) is used intensively, it is very difficult to talk about a produc-tion activity without capital accumulation (malinvaud, 1953). isa-95 architecture financial and capital raw meterial knowledge, competance and talent hyper automation cloud and edge artificial intelligence metaverse and virtual reality blockchain data privacy and security the effect of technology capacity concept on competitiveness in international trade 143 capital accumulation constitutes one of the most important sources of technological develop-ment and increase in employment, therefore it has a critical importance in the processes of economic growth and social development (kaldor, 1961). in this sense, for technology investments to be sustainable and continuous, the capital struc-tures of companies and institutions must be very strong. because technology is the most important part of a rapidly developing and changing process. technological investments cannot be made in a very short term and at once, as in the past. today, technological investments must be handled within a cer-tain transformation process, because a very large technological investment does not result in any way from today to tomorrow. a technological investment has various stages of development and implemen-tation. these phases should be evaluated from every angle and handled at the right time and with the right financing model. today, very different technological investments can be made because technolo-gy offers different development and change opportunities to institutions and companies in many differ-ent fields. institutions should prioritize these opportunities, considering their own capital and strategic goals, and according to their strategy and capital structure. otherwise, a mistake that may occur during the investments will fundamentally affect the transformation process and cause a deterioration in the capital structure. for this reason, the fact that technology investments can be made in the right order and at the right time depends on the capital structure and at the same time directly affects the change in the capital structure. these activities include high-budget and long-term research and development activities. it is important for the sustainability of the enterprises that the companies have a capital structure to finance these activities. capital structure decisions of enterprises are related to capital budgeting and working capital decisions (yapa abeywardhana, 2017). therefore, the capital structure is of great importance both in determining the market value of the enterprise and in measuring its risk. since strategic flexibility (de toni and tonchia, 2005) is the ability to respond to the oppor-tunities and threats arising from the changes in the market with the technological uncertainty arising from the changes in technology, the technological capacity of the institutions that are strategically flex-ible on their technology capacity will be high. it is expected that the technology capacity will be strong, as the capital structure that is manageable and will be affected by the risks in the least way will also ensure strong strategic flexibility (galbraith, 1990). the strategic flexibility of exporting and importing enterprises also depends on their success in international trade, the price and characteristics of the goods and services subject to trade, the deliv-ery methods, the technical knowledge of the enterprise, the risk of the enterprise and the legal regula-tions, as well as the financial resources related to foreign trade activities. technological investments have a direct impact on technology capacity. 5.1.2 labor today, when technology management is very important in enterprises, as a result of evaluating and measuring technological competence, enterprises need to use some evaluation methods in order to determine their own capacities and to see their deficits. it is possible to get better results by making competency-based evaluations instead of the methods used mostly within the scope of performance evaluation. since the multidimensional effects of the developments in information and communication technologies extending to economic growth are seen, it should be stated that the improvements in labor productivity as a result of the developments in information and communication technologies play a role in the reshaping of the economic structure (solocha, 1991). another new challenge for labor markets, both at the global and national level, is adapting to digital transformation. based on the prediction that the whole world will meet with the 4th industrial revolution by the first quarter of the 21st century, it is thought that adaptation to digital transformation will also deeply affect the labor markets (mantulenko, zotova and makhovikov, 2020). in the axis of the risks of the future due to uncertainty and the new opportunities created by in-formation and communication technologies, it is of great importance how to raise human capital for the labor market of tomorrow and which knowledge and skills should be invested in this sense. by evaluating the positive and negative effects of technology on jobs holistically, precautions should be taken today both in terms of the workforce employed in jobs and professions that may disap-pear due to routine/task-oriented technologies, and to prepare for the jobs and professions of the future with the skills needed in terms of technology's potential to create new jobs (rajnai and kocsis, 2017). kerim tolgahan narin 144 with the effect of technological changes, there are transformations on a global scale in todays and future jobs, in labor supply with demographic and migration dimensions, in employment relations with the effect of changes in work, in social reconciliation with the distribution and security of income. the technology-driven transformation in production forms increases the demand for qualified labor and reduces the demand for medium and low-skilled labor in jobs subject to automation and reduces the share of medium-level qualified jobs and wages in employment, especially in developed countries. with the developments in digital technologies, new professions and ways of doing business are emerg-ing, and countries are changing their labor legislation to include different forms of flexible working. these developments create new job opportunities for young people on a global scale. after the important industrial revolutions in the production sector, countries and companies had to keep up with these global changes and developed some strategies in order to maintain their su-periority in the increasing competitive conditions. the accelerated digitalization process with the spread of new technologies and the increase in efficiency provided by these technologies; it changes the way of doing business, organizational struc-tures, the quality of the products and services produced and the places where production is made (mu-thusami and srinivsan, 2020) new technologies have a significant impact on labor markets on a global scale, by eliminating existing employment on the one hand and creating new employments on the other. in this context, companies that has high technology capacity should be developed that supports young people in secur-ing employment, which is critical for future socioeconomic progress. the issue is about the labor required for the development of technology independent of indus-tries. in this sense, it should be aimed to maximize the technology capacity of societies in all areas of the country independent of industries. otherwise, inter-sectoral interaction and technological develop-ment will be disrupted, and this situation is thought to affect foreign trade fundamentally due to the lack of technological incompatibility between sectors also. 5.1.3 machinery due to the increasing competition, today's businesses abandon the classical production meth-od, "the model based on economies of scale on the basis of multiple production” and turn to the pro-duction of fewer and differentiated products that will meet the expectations of the market (schmiedbauer and biedermann, 2020). in this respect, it can be mentioned that there is a direct rela-tionship between the product life cycle and technological developments. as a result of this relation-ship, product life cycles are getting shorter and product variety is increasing rapidly. the design, simulation, and analysis of the products to be made in the manufacturing sector, business plans and accounting issues are primarily carried out in the digital environment. along with digitalization, machines can do and report many jobs. for example, by using robots in manufacturing (akyazi et al., 2020), more difficult, complex, and risky works can be done, and these works can be monitored digitally. those working in the sector who can use the digital environment in the field of manufacturing are now preferred. they can make many predictions by combining the obtained data in digital environment. re-cently, a profession called data mining has emerged. data mining is the work of extracting useful in-formation from large-scale data (kusiak and smith, 2007). it can also be defined as the search for corre-lations that can enable us to make predictions about the future from large data piles using a computer program. for the machinery industry, digitalization can be defined as the integration and active use of advanced technologies into systems, as well as the emergence of smart products and services as a result of innovative business models (pini, 2011). companies generally have a waste-intensive structure in production. although they follow the production and flow with programs such as erp, they prefer a labor-intensive structure instead of modernizing their production systems, due to losses, rework, malfunctions, wastage items such as loss-es, reworks, malfunctions, transportations that are ignored due to factory layouts, movements, interme-diate stocks and product stocks, and hidden losses that affect production costs cannot be tracked or monitored and no action is taken against them. it is seen that it is necessary to use lean production techniques in production processes and to work on process improvement. in companies that are far from these systems, the labor-intensive structure in production also shows itself in the quality organization and stages. companies generally focused on quality control ac-tivities in order to control the problems they could not control and solve in production, and at this stage, very expensive and error-prone methods such as visual control and 100% control were applied. the effect of technology capacity concept on competitiveness in international trade 145 statistical process control methods, digital control methods and failure mode and effects analysis (fmea) required for root cause studies for quality problems are rarely used in the sector. im-provement activities with the direct participation of employees, such as kaizen studies and individual suggestion systems for the solution of quality problems, are not very common. from this perspective, the machine parks in the production systems and all the work processes that will complete these machine parks have a direct impact on digital capacity and technology capaci-ty. technology capacity should not be designed only to measure how much digital data a machine park has produced. because the production output of a machine park has a direct effect on the products and services, and therefore, the same level of digital competence should be provided in measuring the quality of these products. in addition to this situation, the maintenance and repair of the machines should also be followed by digital processes in the same way and predictive maintenance should be possible. if these competencies are not possessed, the technology capacity will be low since the process of purchasing digital machines is not digitalized end-to-end. 5.1.4 raw material many of today's developing economies have abundant natural resources, it is seen that only a few of these economies base their long-term development strategies on resource-intensive sectors. this is probably since these countries think that they will never be able to move from low value-added raw material production and export to more developed industries. for companies to be highly productive, raw material flexibility must be high. for raw material flexibility to be high, it is necessary to use technology intensively in processes and r&d studies where material science is used. as this situation will keep the strategic flexibility of the companies at a high level, it will reduce their costs at the raw material point and eliminate their dependence. in this sense, it is expected that the technology capacity of companies with high productivity will increase at the same rate. in this case, since the company will be minimally affected by the raw material crises in the market, the income of the companies will be sustainable, and they can produce products with high added value. in this way, high value-added product production, high strategic flexibility and at the same time sus-tainable high-income targets will be achieved in institutions with high technology capacity. effective use of material technology is essential for groundbreaking research and innovative products (tomita, 2009). one of the most important factors affecting the success of the work done is to choose the material suitable for the purpose correctly, and to use it in the most correct way by knowing the properties of the material. especially in today's industrial sectors, the mechanical properties of ma-terials (tension, tensile, compression, elastic limit, flexibility, durability, hardness) are not only criteria for selection, but also come to the fore in physical, chemical, thermal-electrical properties (çiltepe, gürbüz and şeker, 2012). materials management is a core supply chain function in every organization. basically, materi-als management is the capability that firms use to plan their total material requirements. plan is the keyword. the process behind materials management is scheduling and is an essential component of erp solutions used to manage stocks and production (akindipe, 2014). the purpose of the process is to stay ahead to see future problems. being ahead will provide a seamless chain of components for pro-duction to produce goods for customers on time. inventory is the natural products of raw materials, semi-finished products, products, or assets that a company has to produce. keeping stock is one of the cost items of manufacturing companies (silver and zufferey, 2005). like every cost, inventory should be kept under control without raising al-ternative costs. while keeping enough stock to meet the production demand, logistics, storage, wear, etc. trying to reduce costs. inventory management is one of the factors that positively affect technology capacity. because stock management also ensures that raw material management is kept at an optimum level (michalski, 2008). keeping the raw material at an optimum level will ensure that the financial management is healthy, sustainable, and predictable. businesses with this financial model can offer high value-added products to the market at competitive prices, especially since they ensure that production costs are kept at the lowest level. stocks have been viewed as a positive asset for many years and have not been given much attention by businesses. however, this situation has been changing in recent years and modern production techniques have been used effectively and efficiently in the light of digital applications in enterprises with high technology capacity. even after raw materials have been evaluated and purchased, the function of raw material man-agement will continue. as part of the support given to the production process, enterprises with high technology capacity also kerim tolgahan narin 146 focus on the waste of raw materials. in this sense, the production stages where waste occurs and the changes that will minimize this waste should be determined and corrected with the advantages brought by high technology. 5.1.5 real-time information considering that the raw data from the production floor forms the basis of all production re-ports, companies need to eliminate possible shortcomings when collecting this data. automated pro-duction data collection systems help with this. thanks to the production data collection systems, the margin of error is minimized and the da-ta yields much healthier results. collecting production data automatically will help eliminate these problems. if you have several different machines and controllers, you will need several different data acquisition systems that need to integrate a third-party software. many proprietary aggregation systems require special serial networking and client software (white, 1982). data acquisition systems in a modern production include a data logger, a transaction manager, a database, and a report generator. these programs typically run together on a single server. some con-figurations run the database on a separate server. today's digital process control systems offer the op-portunity to leverage extensive data. to be useful, systems for collecting data in production must be capable of turning this information into actionable information. process systems that are operated and maintained based on actionable information are more reliable and more profitable. production data collection systems vary according to needs. for example, some systems need a historian who can quickly record large volumes of data; there are no others. many involve analysis and reporting; others simply export data to existing or preferred analysis and reporting systems. in addition to the collection of scalable production data, the basic rule for any production man-agement system and the production planning subsystem or quality management system to function cor-rectly is to close the opened work orders in a timely manner as the relevant operations are completed. in other words, it is the timely and accurate receipt of production confirmations from the production site (delen, 2014). in this sense, it would not be a mistake to say that the information collected at a very high lev-el in one day is the most important asset to improve the technology capacity of the enterprise. this data is as important as the capital structure of the business. because all technological strategies and trans-formation scenarios will be built on all this data. at this point, big data projects will be the most im-portant technological investment of foreign trade processes that can make a difference. big data describes a large amount of data, whether regular or irregular, that complicates the functioning of everyday work. as a result of the analysis of big data, better strategy and decision-making opportunities are provided for studies (delen and ram, 2018). industry 4.0 includes technologies that leverage big data and artificial intelligence to feed ma-chine learning systems. today, manufacturers, in order to achieve product perfection; it tries to achieve business intelligence through the collection, analysis and reporting of all data (jayaratne, 2021). thanks to big data, predictive models are created for new products and services. for these models, da-ta and analytics from focus groups, social media, test markets, and early store rollouts are used. developing the potential of big data in your own production environment is a rewarding, if not easy, process. it's not enough to just collect data and create a few charts. it is necessary to filter production-related information from the data and present it to the right target audience in the right way. the key is to transform data into useful information. this should be done in close collaboration be-tween data science experts and experts in the manufacturing process. only in this way can a solution that is popular, frequently used and creates long-term value be developed. in this context, in order to ensure capacity increase and sustainable technological capacity in-crease, it is necessary to establish systems with the necessary analytical capabilities to collect data and store this collected data, in addition to transforming this stored data into meaningful and valuable in-formation. this is necessary at least as far as a strong capital to develop sustainable growth, strategic flexibility and value-added products. the effect of technology capacity concept on competitiveness in international trade 147 5.2. business processes management impact on technology capacity the new business environment, fraught with multidimensional and interrelated systematic challenges, is defined by an extensive division of labor. as a result of much research, it is seen that the biggest enemy of sustainable productivity and success in the rapidly changing business world is the in-creasingly complex business models. evaluating inefficiencies in business processes is an important step for companies to grow. at this stage, the process is viewed from a bird's eye view and a general photograph is taken. with the identification of areas open to development, the growth of companies ac-celerates, their reputation and business continuity increase. a series of activities or activities that have inputs, add value to them, and produce outputs are processes. the process and its elements should be defined to ensure good control over the process. how the process works, how many people work, what are the constraints in the processes are deter-mined, performance parameters, risks, location, document, digital tool, stakeholder activity, process connections and other tools are determined (li, merenda and venkatachalam, 2009). is the system actively used, is there a problem in the process flow, what are the factors that de-lay the process, what are the factors that hinder the good operation of the process should be determined can be the questions that needs to be asked during the analysis. in this case, all processes that directly affect the digital capabilities and capabilities of the en-terprise will be analyzed with healthy and manageable processes. the processes developed after these analyzes and reaching the level of technological maturity will increase the technological capacity of the enterprise. the increase in the technological capacity of the processes will ensure that the relevant pro-cesses become strategically flexible along with the flexibility brought by technology. in an organization that has identified and started to manage its processes, the first thing to do about the process handled in the continuous improvement cycle is to examine the current state of the process. it is then decided whether to redesign the process or to make minor changes to the existing process (moço, 2018). at this point, it is also important how much the concept of continuous improvement is sup-ported in terms of technological investments. in this case, when technological investments are consid-ered as a part of continuous improvement, the technological capacity of the institution will increase in a sustainable way (brown and rusk, 2019). this will enable the business to be a part of the necessary change and transformation in the field in which it operates. especially after covid, there have been revolutionary changes in the way of doing business. in order to keep up with this change, the ways of doing business need to be analyzed and designed in ac-cordance with renewed customer expectations. because businesses applying this approach were able to quickly change their way of doing business during the covid pandemic. in this case, it is the most im-portant proof of how sustainable the current business models are even in the most catastrophic envi-ronment. in the changing world order, the way of doing business may need to be redesigned according to both local and global risks. in this case, artificial intelligence and big data supported crisis and risk management should be integrated into process improvement processes. in this way, risks can be deter-mined at the source. at this point, the most important instrument required for sustainable improvement is the data that needs to be collected in real time. we can also define the data to be used in the improvement of processes as process mining (van der aalst et al., 2007) process mining can be considered as a relatively new technology that can bring process man-agement to the agenda and make it a focal point in companies. businesses that can use the concept of real-time process mining in their foreign trade processes will also maximize their technology capacity as they will be strong in strategic flexibility. 5.3. technology impact on human resources management information technologies, which are developing day by day, continue to find more and more places in our lives. human resources are one of the areas where information technologies are increas-ingly used in business life as well as in daily life. as a matter of fact, as technology changes every as-pect of our lives, it is not surprising that it also has a huge impact on human resources. companies to-day are leveraging the latest human resources technologies to attract and recruit new candidates, retain more of top-performing employees, and provide support in workplace management and administration. within the scope of this study, competition must be experienced at the highest level in order to operate in the field of international trade. to be able to have a high technology capacity is to have the human resources to realize the kerim tolgahan narin 148 technology used and applied. because the diversity and depth in human resources will enable institutions to be strategically flexible and, in this sense, to increase their tech-nology capacities at the same time. the fact that the management of human capital can also be managed with the opportunities and capabilities brought by technology will increase the end-to-end technologi-cal capacity of the institution. human capital management describes the comprehensive approach a company takes to manage its most asset, its employees. this approach refers to both the strategic and technological elements needed to address a wide variety of human resources-related activities (kalinina and valebnikova, 2017). appropriate human capital management plans help companies strategically manage their work-force productivity. this strategy is essential for companies that want to use their human capital assets with maximum efficiency. when this strategy is combined with technology, it also has a direct impact on the production capacity of institutions. because the high idle capacity in technology-intensive ways of doing business is mostly due to the insufficient use of this technology, that is, to having insufficient and uneducated manpower. admittedly, processing on paper or transferring information between dif-ferent systems takes longer. you can see that time equals money, especially when you consider how many hours your human resources team spends entering data or correcting errors caused by manual processes. the right human resources technology can save your human resources team a lot of data en-try and administrative tasks (mihova and ivanova, 2020). this way, instead of spending time on com-plex hr processes, you can plan for your growing workforce, for example, or help managers identify and retain the best talent. the data collected from the employees will be used in determining the strategic human re-sources policies, extracting the employee experiences, and determining the changes to be made. effi-ciency will be increased with more participatory and satisfied employees by creating an employee pro-file that will guide decision making. with this big data provided, it becomes possible to determine em-ployee performance, process improvements, talent transformations and required new talents. at this point, the important thing is to establish flexible and quick-learning organizations that can meet the needs of tomorrow rather than the skills needed today. in addition to this situation, big data technolo-gies are also used for the loss of employees who are likely to leave their jobs. considering that human resources management is a function that emerged because of the industrial revolution, it will be inevi-table that there will be a transformation in human resources management with digitalization (gospel, 2009). unfortunately, it is not enough to invest only in machinery in the field of competition for the ef-fective and efficient use of technology at the point of international trade. of course, in addition to this situation, we will also need to examine the impact of technology on human resources processes through blockchain and artificial intelligence (tambe, cappelli and yakubovich, 2019) where there is big data. because only having data will not be enough in this sense, artificial intelligence technology is needed to measure the performance of employees and to keep this measured performance on the block-chain architecture, even to group the same positive or negative performance owners and to investigate the reasons and to offer personalized solution suggestions for these reasons. 5.4. technology impact on infrastructure and equipment management in industrialized countries, the creation of industrialization value is shaped by what is now called industry 4.0, which is the fourth stage of industrialization. this development follows the third industrial revolution that started in the early 1970s and relies on electronics and information technolo-gies to realize a high level of automation in production. industry 4.0 reveals the smart production economy of the future based on digital transformation dynamics (kannan et al., 2017). organization of businesses that want to be ahead in global competition in the world of the future, smart robots that will work in production and distribution processes, artificial intelligence systems to be used in r&d, sales, marketing and management processes, internet objects that will enable them to exchange information with the outside world, and that will ensure that all these smart systems work together in harmony. they will be able to succeed with a team of designers, software developers and practitioner experts who have the necessary skills. at this point, so to speak, the place where all the technological capacity of the enterprise takes place is the entire production systems. the production system of the enterprise is therefore the medium where all the output of the technology capacity is used. manufacturing execution systems (shojaeinasab et al., 2022) is the name given to a structure formed by information technology (it) systems that support the basic production process in a manufacturing facility. these applications fill the gap between erp systems and production equipment control, dcs systems, plc systems, scada systems. digitalization in the manufacturing industry has the potential to create value with ef-ficiency and productivity increases at every stage of the value chain. while digitalization offers im-portant opportunities for regions and businesses that have made progress in this area, it also poses a great threat to regions the effect of technology capacity concept on competitiveness in international trade 149 and businesses that have not taken a step in this area. in the digital transfor-mation process of the manufacturing industry, it is necessary to use digital technologies efficiently, ef-fectively, and effectively in order to be in a competitive position in production. at this point, the tech-nology capacity basically focuses on how effectively and efficiently all the components in the integra-tion architecture work. it is also important to measure how flexible an architecture it is designed to re-spond to different markets and expectations in terms of its impact on foreign trade. in the digital trans-formation process of the manufacturing industry, technologies such as "artificial intelligence, autono-mous robots, big data and advanced analytics, cloud computing, augmented and virtual reality, internet of things, additive manufacturing, new generation smart sensor technologies and cyber security" will contribute to added value, efficiency, profitability, it is seen as the leading technologies in maximizing quality and many similar elements. in this sense, the technological capacity of an institution is related to how harmonious, effective, and efficient the above-mentioned areas are used. this harmony and effi-ciency can be handled under 3 main headings in the isa95 framework (hannola et al., 2017). 1. hierarchical model: the hierarchical model in isa-95 provides a convenient way to structure and align information from different levels of the company. in today's environment with data lakes, uns, and systems that collect information from multiple cells, lines, sites, sites, and even organizations, this organization is very useful when organizing information and annotat-ing it. 2. information model: models in isa-95 can be very complex and detailed. these models cover multiple structures, including personnel, equipment, physical assets, and materials. it also co-vers the disciplines of production, maintenance, quality, and inventory. the isa-95 specifica-tion defines interrelationships. 3. data flow; defines data flow from different functional models. these functional models can be in a single system or in separate systems depending on the organization and production en-vironment. when integrating with separate systems, it is important to identify the use case, then the data requirements of the source and target system, and then define the execution or trigger event. 6. conclusion within the scope of this study, the concept of technology capacity has been tried to be examined by considering the concepts of strategy flexibility and capacity in enterprises that carry out foreign trade activi-ties. in this context, the concept of technology capacity was basically defined as a study on measuring all digital solutions and concepts that affect capacity and strategy. the concept of technology capacity emerges as a concept that may differ in each industry branch, due to the differing application areas. but at this point, there is a common industrial standard for all manu-facturing and manufacturing enterprises. thanks to this standard, which is defined as isa-95, the integration of use cases within the scope of industry 4.0 and accordingly digitalization of all manufacturing and produc-tion enterprises is made with a certain standard. in this sense, apart from the factors that affect capacity and strategic flexibility, the isa-95 audit, and assessment results of institutions guide the institutions about the capabilities and capabilities of the technology capacity within the scope of digitization of manufacturing and industrial systems. apart from these issues, the audit and assessment performed for the technology capacity must be able to be done continuously to reach the result and purpose. it is very important that such processes are handled within the scope of continuous improvement. because at this point, it is necessary for institutions to carry out change management effectively and efficiently and with the same motivation and excitement throughout the organization. in addition, this study, which will be considered as a part of continuous improvement, also needs to be handled within the scope of automation. because, in order to determine its suitability for variable market and world conditions, it will be necessary to obtain the 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in indonesia in 1992, the government has made laws and regulations related to islamic banking. sharia banking is regulated in law no.21 of 2008 concerning islamic banking. two systems regarding banking apply in indonesia, namely of conventional system and sharia system. one of legal products inspired by sharia economic practices in indonesia birth is law no.21 of 2008 concerning islamic banking. since of establishment islamic banks in indonesia in 1992, the government has made laws and regulations related to islamic banking. sharia banking is regulated in law no.21 of 2008 concerning islamic banking. two systems regarding banking apply in indonesia, namely of conventional system and sharia system. keywords: bankruptcy; sharia; bank 1. introduction one of legal products inspired by sharia economic practices in indonesia birth is law no.21 of 2008 concerning islamic banking. since of establishment islamic banks in indonesia in 1992, the government has made laws and regulations related to islamic banking. sharia banking is regulated in law no.21 of 2008 concerning islamic banking. two systems regarding banking apply in indonesia, namely of conventional system and sharia system. this law regulates in legal detail basis and types of businesses that can be operated and implemented by islamic banks more islamic financial institutions develop in indonesia, the greater possibility disputes between islamic financial institutions and customers.[1] completion of disputes in the sharia economy can be reached by litigation and non-litigation pathways. the litigation path is a dispute resolution through of trial process in court, while non litigation is a completion disputes without a trial that is outside court. this is based on the article 55 paragraph (1) law no. 21 of 2008 on sharia banking stating that completion the sharia banking disputes was conducted by court in a religious judicial environment in paragraph (2) stated that in terms parties have been commemorated a dispute completion as well as referred to in paragraph (1),dispute resolution will done in accordance with the contents acad. after decision of mk number 93 / puu-x / 2012, the completion sharia banking dispute is litigated by religious court, a while nonlitigation be handled by arbitration or dispute alternatives. inconsistency case settlement bankruptcy and suspension of payment debt sharia economy in indonesia 73 in law no. 21 of 2008 the sharia banking was not at all regulating bankruptcy dispute and delays of debt payment (pkpu) in sharia banking. as for asset bankruptcy and pkpu in sharia banking has a reference of law court by court commerce in public justice. uk-pkpu are used as a reference in completion bankruptcy dispute and delays of debt payments obligations in their before or after impression of law no.21 year 2008 on sharia banking.[2] when referring to article 2 paragraph (1) law no.37 in 2004 on bankruptcy and delays debt payment obligations (uk-pkpu), it’s that stated debtor has two or more credits and does not pay at least one debt that has been incompatured and billed, stated by bankruptcy, and for pleasures its own or above persecution of one or more credits.[3] if the intended case is critericity sharia bankruptcy economy,the court in question shall be rural religious court. this is in accordance with mandated article 49 letter (i) law no.50 year 2009 on the second changes no.7 years 1989 on religious courts, which declare that authority and task to check, adjust, and completed the problem muslims, including among of sharia economic crimes given to rights court. the existence of civil courts aims to complete be matter that arises among community members.cases that occur has a variety forms; that are with regard to denial or solving agreement,legal acts,proprietary disputes, divorce, bankrupt,abuse authority by authorities that are detrimental to be particular part, and so forth.[4] throughout in civil laws the syariah economic dispute, including it’s concerned that original accompaniment is based on islamic law, it remains the authority rights religious assistance. if it is concerned with criminal issue, the general court is authorized to solve it. with regard to middle-parties, both of muslims and non-muslims,if held shariah, nontermimmen must be subject to existing law. this means of subdued ourselves to volunteer islam. 2. methods this type research is normative legal research with legislation approach and conceptual approach.[5] 3. discussion description of completion sharia economic dispute change which is absolute authority rights religious court,the district court has no authority to resolve syariah's economic dispute. for that,the sharia economic crops are largely dominated by sharpening shares that have also inserted a dispute agreement by inserting district court as an institution that has authority in execution should be reviewed.[6] completion islamic bankruptcy distribution threaty haits can be solved by palace dilan religion based on mandate existing laws. especially on issue pailit paper (ppp) and delay debt payments (pkpu) semeketet sharia economics who became authority religious court, applicable law. the event shall not fully use applicable law in district court and not fully using law event specifically rights court, but specifically using the laws event regulated by uu.37 year 2004 on bankruptcy and delays of debt payment obligations.[6] this is what causes inconsistent because this time crochetic in shariah economy becomes authority commercial court (district court) and not authority rights religious court. the point of intersection authority that occurs between commercial court and the religious court in examining and adjudicating bankruptcy cases and pkpu in sharia economic disputes actually lies in the realm mixing of general civil law (conventional) into the realm of special civil law which uses sharia economic law principles. as a result, the expansion of the application of general civil law to area of islamic economic law creates an element of legal uncertainty. bankruptcy law that has been applied so far is in a general perspective, namely all individuals or corporations that experience bankruptcy so that it does not distinguish whether bankruptcy is conventional or bound by sharia economic contracts in the contract. bankruptcy in the perspective of sharia economic law itself, occurs in sharia financial institutions or individuals who enter into agreements with sharia economic contracts seen as part of a form of "dispute" which is the jurisdiction of the religious courts in the general sense of article 49 letter (i) of law no.3 of 2006 concerning amendments to law no. 7 of 1989 concerning the religious courts. according to m. natsir asnawi, as long as the details are not explained, the meaning of word "dispute" must remain in its general meaning, namely covering all forms of disputes that have occurred and may occur in the field of sharia economics.[7] the linking point of authority in religious courts and commercial courts in dealing with sharia economic bankruptcy disputes occurred as a result of expansion the competence in religious courts into the realm of public law in context of sharia economic law. the principle of islamic personality is no longer understood as an individual muslim an sich, but has been interpreted as a non-muslim personality or a conventional legal entity that voluntarily submits itself and suud fuadi & thohir luth & sihabudin & siti hamidah 74 binds its contractual agreements based on sharia economic contracts. the expansion of competence religious courts into the realm of sharia economic law has penetrated the boundaries of the general civil law area which has so far been a role model law for indonesian people so that the potential for mixing of general civil law areas with sharia economic law is increasingly clear.[8] the point of link by authority to adjudicate in bankruptcy cases and pkpu in islamic financial institutions lies in the occurrence sharing of authority between commercial court and the religious courts, wherein the uuk-pkpu is decided by commercial court by not distinguishing between bankruptcy in conventional financial institutions and islamic financial institutions, while based on uu no.3 year 2006 mandates the settlement of sharia economic disputes to religious courts and the phrase words sharia economic disputes in law referred to are all other types of civil disputes in field of sharia economics, including in this case bankruptcy disputes and pkpu based on sharia contracts. after the decision constitutional court number: 93/puu-x/2012 dated 29 august 2013, which basically states that sharia banking disputes are absolute authority in religious courts, it is no longer possible to settle sharia banking disputes through litigation within general courts including through the commercial courts. all types of islamic banking disputes have become absolute authority of religious courts to try them, including pkpu disputes and islamic banking bankruptcy. in accordance with legal provisions of sharia economic bankruptcy should be with decision of religious court. several cases of bankruptcy and/or postponement of sharia economic debt payment obligations (pkpu) were actually settled in the commercial court which incidentally is a special court within general court environment.[9] some examples of bankruptcy cases in sharia contracts that were resolved in commercial courts include the following: 1. case of note: 13 / pailit / 2013 / pn. jkt.pst. between petitioners pt. bank syariah bukopin with pond. haseda braindindo, type bankruptcy case, registered to court commerce jakarta on february 18, 2013 2. case of note number: 6 / pkpu / 2013 / pn.jkt-pst between applicant pt. bank syariah bukopin with pond. haseda braindindo, type clay debt debt payment, registered to code commerce jakarta center dated march 6, 2013 3. case of note number: 10/pdt.sus/pkpu/2013/pn.niaga.jkt.pst jis no.10 / pdt.sus/pailit/2013/pn.niag.jkt.pst and no.421k/pdt.sus-pailit/2013, between pt applicant. bank bni syariah with pondi e chandra, type clay debt debt payments, registered to jakarta niaga court on march 6, 2013 4. case of note number : 57 / pkpu / 2013 / pn.jkt.pst between petitioners pt. bank bni syariah with pond. rolika caterindo, cs, type clay delay debt payment obligations, registered to court commerce jakarta on september 10, 2013 5. case of note 20/18/201/2015 pt.jkt.pst between petitioners pt. bank bni syariah with pond. prahaja panca vano, type change change total number 20 / pkpu / 2014 / pn.jkt.pst between petitioners pt. bank bni syariah with pond. prahaja panca vano, type clay delay debt obligation plan 6. case no. 12 / pdt.sus-pilitil / 2017 / pn.niaga.smg between applicants soeparno hadi martono with panesta cooperative savings borrowing blop formabillah as respondent. type of application is bankruptcy. one of the cases above which has become the concern of the general public regarding bankruptcy cases and postponement of sharia debt payment obligations is case number: 10/pdt.sus/pkpu/2013/pn.niaga.jkt.pst jis no.10/pdt.sus/pailit /2013/pn.niaga.jkt.pst and no. 421 k/pdt.sus-bankrupt/2013, between the petitioners pt. bank bni syariah with the respondent purdi e chandra. the commercial court at the central jakarta district court in this case has handed down the provisional pkpu decision number: 10/pdt.sus/pkpu/2013/pn.niaga.jkt.pst. purdi e chandra through his attorney filed an appeal to the supreme court for the decision of the central jakarta district court number: 10/pdt.sus/pkpu/2013/pn.niaga.jkt.pst. jo. number: 10/pdt.sus/bankrupt/2013/pn.niaga.jkt.pst. the supreme court read out the decision of the supreme court of the republic of indonesia number: 421 k/pdt.sus-bankrupt/2013 which was pronounced on 13 november 2013. decision of supreme court republic of indonesia number: 421 k/pdt.sus-bankrupt/2013 pronounced on november 13, 2013, holding: 1. declare that the cassation request from cassation petitioner purdi e. chandra cannot be accepted; 2. punish case application to pay cost case in this cass level rp 5,000,000.00 (five million rupiah); inconsistency case settlement bankruptcy and suspension of payment debt sharia economy in indonesia 75 the financing agreement signed by pt bni syariah and purdi e chandra is a murabahah financing agreement.[2] this murabahah financing agreement should refer for fatwa of the national sharia council of indonesian ulema council number 04/dsn-mui/iv/2000 concerning murabaha. the decision of panel of judges at central jakarta commercial court is not in sync with the murabahah agreement which was fatwaed by dsn mui where in fatwa of national sharia council of indonesian ulema council number 04/dsn-mui/iv/2000 concerning murabahah, especially point seven concerning bankruptcy in murabahah, it is stated: "if the customer has been declared bankrupt and fails to settle his debt, the bank must postpone bill until he becomes able to return, or based on an agreement. fatwa of national sharia council the indonesian ulema council number 04/dsn-mui/iv/2000 concerning murabaha is a technical guideline for all islamic financial institutions that provide financing with a murabaha contract to their customers and is based on the legal basis of al-quran and the hadith of rasulullah saw. so that even though it is a fatwa in nature, because it is based on the legal basis of the al-quran and hadith which are legal values that live in society, especially islamic law, it must be used as a reference by judges in dealing with bankruptcy disputes in islamic banking.[2] the discrepancy between the contract and settlement of this dispute is due to fact that none of judges who tried purdi e chandra case had a background in handling sharia economic disputes, so it is very possible that settlement disputes in this case, especially materially, does not adhere to sharia economic principles. the background of judges in field of handling sharia economic disputes is very necessary so that dispute resolution adheres to sharia economic principles. article 55 paragraph (3) law no.21 of 2008 which confirms "dispute settlement as intended in paragraph (2) may not conflict with sharia principles", so that a background in field handling sharia economic disputes must be owned by the judge adjudicating this sharia banking bankruptcy dispute. the example in case above is sharia economic case that should be resolved with religious courts. the facts explain that case was decided by commercial court. from the perspective of position and scope of classification, the existence of commercial court is a general court environment. the commercial court is a special court, similar to other special courts within general court environment.[10] settlement of bankruptcy and sharia economic pkpu by commercial court as a special court within general court environment is not in accordance with and not in sync with formulation of article 49 letter (i) of law no.3 of 2006 concerning amendments to law no.7 year 1989 concerning the religious courts which mandates that sharia economic disputes become absolute authority of religious courts. courts judge according to law without discriminating against people.[11]the authority to adjudicate of sharia economic cases absolute authority religious courts. absolute authority concerns the distribution of powers between judicial bodies, judging from type of court, concerning the granting powers to adjudicate.[12] islamic economic bankruptcy contains elements of islamic economics, so that it becomes part of islamic economics [13] which should be absolute authority of religious courts to decide on it as long as said bankruptcy case contains elements of islamic economic disputes, including bankruptcy cases with elements of islamic banking disputes. based on what has been explained above, there are several inconsistencies in settlement of bankruptcy cases and suspension of obligations for payment of sharia economic debt in the commercial court. the first inconsistency is contract used in bankruptcy cases and the sharia economic pkpu, because everything related the sharia economy used is a contract in accordance with sharia principles such as mudharabah, murabahah, wadiah, musyarakah, salam, istisna, ijarah, ijarah muntahiyah bit tamlik, hawalah, and qardh. second, is the authority to adjudicate where based on article 49 of law no.3 year 2006 concerning amendments to law no.7 year 1989 concerning the religious courts and constitutional court decision no. 93/puu-x/2012 that authority of the sharia economy is absolutely the authority of religious court. third, related to be competence of judges in handling sharia economic disputes which include sharia economic bankruptcy cases.judges in their decisions are obliged to consider every case according to islamic sharia by presenting syar'i arguments which form the basis for examining and deciding cases. 4. conclusion the inconsistency bankruptcy case settlement and postponement of sharia economic debt payment obligations in the commercial courts,as explained above, is a challenge for the religious courts in handling bankruptcy disputes and islamic economic pkpu. so to answer challenge of bankruptcy authority and sharia economic pkpu, on the one hand it is absolute for religious court officials, especially judges, to work even harder to increase knowledge, improve skills in field of bankruptcy law and sharia economic pkpu and recognize operationalization the sharia economic suud fuadi & thohir luth & sihabudin & siti hamidah 76 activities, and on the other hand another is responsibility of supreme court to conduct judicial technical improvement training in field of bankruptcy and sharia economic pkpu for judges and clerks of religious courts as soon as possible. references f. syarif, “perkembangan hukum 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[online]. available: https://resmilitaris.net/menuscript/index.php/resmilitaris/article/view/121/63 m. musrifah and m. khairunisa, “penyelesaian sengketa ekonomi syariah melalui arbitrase syariah,” al-amwal, vol. 9, no. 1, 2020, doi: 10.36341/al-amwal.v9i1.142. m. mukharom, d. triasih, and d. septiandani, “peran lembaga alternatif penyelesaian sengketa dalam menyelesaikan sengketa ekonomi syariah,” salam: jurnal sosial dan budaya syar-i, vol. 7, no. 2, 2020, doi: 10.15408/sjsbs.v7i2.14894. f. wahyudi, “the quo vadis of banckrupty settlement and pkpu laws on sharia banking,” jurnal hukum dan peradilan, vol. 8, no. 1, 2019, doi: 10.25216/jhp.8.1.2019.1-20. g. anand, k. leksono s. aditya, and b. oktafian abrianto, “problematika aplikasi ekonomi syariah dalam rezim hukum kepailitan di indonesia,” jurnal bina mulia hukum, vol. 2, no. 1 se-articles, 2017. lilik mulyadi, perkara kepailitan dan penundaan kewajiban pembayaran utang (pkpu) teori dan praktik. bandung: alumni, 2020. u. prasetya, “analisis asas audi et alteram partem dalam proses persidangan perkara perdata (perkara nomor 20/pdt.g/2019/pn pwr),” amnesti jurnal hukum, vol. 2, no. 2, 2020, doi: 10.37729/amnesti.v2i2.657. a. puspita, “mengenali kewenangan atau kompetensi pengadilan dalam menangani perkara,” bahasan.id, 2019. e. widjajati, “penyelesaian sengketa kepailitan menurut hukum perbankan syariah,” ahkam : jurnal ilmu syariah, vol. 15, no. 1, 2019, doi: 10.15408/ajis.v15i1.2855. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 191-200 191 the role of supply chain transparency among supply chain analytics capabilities elif canbaz dinçer lojistik a.ş., i̇stanbul, turkey sümeyye çi̇çek vural yıldız technical university, i̇stanbul,turkey cemil çeli̇k dinçer lojistik a.ş., i̇stanbul, turkey murat çemberci̇ yıldız technical university, i̇stanbul,turkey received: october 30, 2022 accepted: november 29, 2022 published: december 01, 2022 abstract: nowadays, to take advantage the huge amounts of data collected, companies have started to adapt analytics tools to useful insight their operations and their service level. such companies attempt to learn from collected data about current and historical processes to define future operational decisions. even though the importance of supply chain analytics and data-driven decision-making capabilities is recognized by companies, there is a lack of empirical studies. this study demonstrates the role of supply chain transparency (sct) in the relation between analytics capabilities. the data were gathered from the online survey and were analyzed with partial least squares structural equation modeling (pls-sem) using smart-pls. the results suggest that the existence of significant relation between analytical capabilities in plan, source and make, deliver and the mediating effect of supply chain transparency on these relationships. keywords: supply chain analytics capabilities, supply chain transparency, big data analytics 1. introduction in today's highly competitive business environment, firms are being challenged by the ongoing globalization. the globalization leads to the rapid changes on customer demands and markets, business models (chae et al., 2014). these consequences also increase the volume of generated data day by day. research and literature about the data analytics are still in early stages. up to date, various terms were used to define analytic capabilities that enable companies to analyze data to obtain useful insights. these terms could be listed as follows, big data analytics, supply chain analytic capabilities, business analytics (srinivasan and swink, 2018, fisher et al., 2012, agarwal and dhar, 2014). as a result, most of the companies are planning to boost the information technology structure with big data solutions (dubey et al., 2021, raj kumar reddy and gunasekaran, 2021, davenport, 2001). big data refers to highvolume, high-velocity, and high-variety data sets also known as 3vs (jha et al., 2020). these voluminous real-time and almost real-time data are regularly generated in different forms and from individual sources, such as communications (social media interactions, search engines), business (online transactions, reports, billing data), internet of things (sensors) (jha et al., 2020, agrawal et al., 2021, chen et al., 2012). over the years, data-driven decisions have received much attention in all field of business management so big data analytics provide to increase the quality of services while reducing operational costs (moldagulova et al., 2020, arunachalam et al., 2018). big data impact on various businesses including retail and ecommerce, finance, advertising, logistics and transportation, natural resources (addo-tenkorang and helo, 2016, wamba et al., 2017). among them, logistics and elif canbaz & sümeyye çi̇çek vural & cemil çeli̇k & murat çemberci̇ 192 transportation sectors are the most advantageous of the using analytics capabilities due to its dynamic processes (borgi et al., 2017, ittmann, 2015, lekić et al., 2021). b2b companies like logistics require not only faster delivery but also more operational transparency. transparency in the supply chain (sct) is the ability to track movement of products from the manufacturer to the end-user. the main purpose is to enhance and strengthen the supply chain by ensuring that all stakeholders, including the customers, are easily accessed with product-related data (shafiq et al., 2020). on the other hand, there is a lack of study that analytics capabilities can improve supply chain transparency as well as firm performance (zhu et al., 2018). herein, this study determines the role of supply chain transparency in the relation between analytics capabilities. findings were based on a qualitative analysis of data collected via online 5 point-likert survey (1=strongly disagree to 5=strongly agree). structural equation modeling was performed with a sample of 100 survey participants from different companies. 2. conceptual framework this study investigates potential use of supply chain analytics capabilities in various areas of supply chain operational reference model (scor, apics 2017) which includes planning, making, delivery and sourcing (trkman et al., 2010, zhu et al., 2018, chae and olson, 2013). trkman et al. (2010) determined these areas of analytics capability as independent variables and explained their impact on supply chain performance. zhu et al. (2018) examined the analytics capabilities in planning indirectly impacts on supply chain transparency via analytics capabilities in source, make, and delivery (zhu et al., 2018). li and co-workers investigated the positive impact on both supply chain quality performance and business performance of five decision areas (plan, source, make, deliver, and return) of the scor model (li et al., 2011). zhou and co-workers examined the structure of supply chain processes on the scor model, and they empirically validate this model. following relationships were suggested; the plan process positively impact on the source, make, and deliver processes and the mediating effect of each other (zhou et al., 2011). lockamy and mccormack investigated the effects of scor metrics on supply chain performance, their study suggested that the planning process has a great importance to all other areas (lockamy and mccormack, 2004). in this research, we propose a framework of analytics capabilities in planning directly impacts on other processes (analytics capabilities in source, make, and delivery) through supply chain transparency. all things considered; this study attempts to determine how supply chain transparency effect on the relationship between analytics capabilities. by examining this question, this study represents supply chain analytics capabilities can employ to enhance supply chain performance (davis-sramek et al., 2010, chae and olson, 2013). trkman et al. (2010) and zhu et al. (2018) divide supply chain analytics capabilities for four categories, in this paper these categories were referred as “analytics capability in plan (acp),” “analytics capability in source (acs),” “analytics capability in make (acm),” and “analytics capability in deliver (acd)”(zhu et al., 2018, trkman et al., 2010). the other variable is supply chain transparency (sct). 2.1. analytics capability in plan acp addresses to forecast customer demands and market trends. demand prediction and supply planning play a vital role in the field of planning process (chae and olson, 2013). planning is the major activity also refers to scheduling, finance, distribution (kusrini et al., 2019b). decisions in the planning phase could affect the whole supply chain processes, either positive or negative (li et al., 2011). supply chain planning process should use the realtime and historical information to balance supply and demand, according to (narasimhan and kim, 2001) and (fawcett et al., 2011) information sharing could improve supply chain management and integration. literature suggests that the planning process is a critical for supply chain to achieve a firm’s strategic goals (zhou et al., 2011). 2.2. analytics capability in source acs refers to the measure supplier performance, supplier agreements, how to manage our inventory and handle our relationship between suppliers (hasibuan et al., 2018). acs phase is a process that provide products and services to acquire cover the planned or actual demand (gamoura et al., 2019, kusrini et al., 2019a, fosso wamba et al., 2015). source is critical especially for manufacturing firms. academic researchers suggest that the long-term relationships the role of supply chain transparency among supply chain analytics capabilities 193 with suppliers should be established (chen and paulraj, 2004, prahinski and benton, 2004). a better relationship with supplier lead to more accurate information and quality inputs (zhou et al., 2011). 2.3. analytics capability in make acm includes production processes, managing the finished-products network, equipment, and transportation (trkman et al., 2010, kusrini et al., 2019b). acm step covers the entire processes of transforming the demand of the end user into the product. moreover, acm includes employee skills, knowledge and technology management skills for improve to customer satisfaction and competitiveness (li et al., 2011). 2.4. analytics capability in deliver acd is process related to the distribution of services to the customer, also includes warehouses, orders, transportation. this step valuable for firm performance measurement due to its direct relationship with customer demands (trkman et al., 2010, zhu et al., 2018). acd includes management systems such as transport, warehouse, order, and demand (stewart, 1997). capability of sharing real-time information about the products with the stakeholders and customers, as well as increasing visibility, has a vital role supply chain management (zhou et al., 2011). 2.5. supply chain transparency supply chain transparency covers the process information of the product from raw material to the end user (montecchi et al., 2021, bai and sarkis, 2020). source planning capabilities provide firms to evaluate supplier performance. to take advantage of analytical capabilities in source planning can boost supply chain transparency and enhance the relation with suppliers (wang et al., 2016). in addition, inserted transparency into production process can enhance the operational efficiency (egels-zandén et al., 2015). 3. research model and hypotheses figure 1. a research framework of supply chain analytics capabilities in order to measure the concepts used in the research model, some scales in the literature were adapted. to measure analytics capability in plan, source, make and deliver, and supply chain transparency, the scales adopted from (zhu et al., 2018) were used. supply chain planning must involve the exact demand for the product or services. proper elif canbaz & sümeyye çi̇çek vural & cemil çeli̇k & murat çemberci̇ 194 planning reduces any uncertainties or misunderstandings for source planning, production planning and deliver (lockamy and mccormack, 2004, zhu et al., 2018). supply chain transparency is a way in which analytics capabilities in plan impacts analytics capabilities in source, make, deliver. both the scor model and the academic researchers suggest there is a relationship among the supply chain analytics capabilities (lockamy and mccormack, 2004, zhou et al., 2011). effective planning processes influence the implementation of source, make and delivery processes and could enhance the supply chain transparency. thus, following hypotheses were proposed: h1: there is a positive relationship between acp and acs h2: there is a positive relationship between acp and acm h3: there is a positive relationship between acp and acd h4: there is a positive relationship between acp and sct although h1, h2, h3 directly from the scor model, mediating effect of sct on these relationships can contribute the literature. even if information sharing is easier ever than before, transparency remains challenging for the supply chain management. on the other hand, recent studies showed that transparency can improve supply chain performance under the right conditions (kauppila et al., 2020, ahmed and omar, 2019, sodhi and tang, 2019, montecchi et al., 2021). h5: sct mediates the relationship between acp and acs h6: sct mediates the relationship between acp and acm h7: sct mediates the relationship between acp and acd 3.1. the analysis and results in this study, data were analyzed with partial least squares structural equation modeling (pls-sem) using smartpls (v. 4.0.8.3.) software to test the research model. pls-sem can analyze multiple relationship at the same time and allows working with non-normally data and smaller sample size. for all these reasons, pls-sem was preferred for the analysis of the study. a two-step analysis process was followed to test the model. in the first step, the validity and reliability of the constructs were evaluated with the measurement model. then, the hypotheses were examined in the structural model, which is the second step. 3.2. measurement model to evaluate the measurement model, the reliability and validity of the model and constructs were examined according to the procedure recommended by (hair et al., 2013). firstly, factor loadings, cronbach's alpha and composite reliability values were computed for each construct. according to (hair et al., 2013) loadings should be above 0.70 and loadings below 0.40 should be removed from the model. as table 1 shows, the majority of factor loadings were above 0.70, except for acp7 (0.665), acm16 (0.684) and acm17 (0.646), which were still greater than 0.40. next, internal consistency reliability was measured through cronbach’s alpha and composite reliability values. all constructs have cronbach’s alpha and composite reliability values above the threshold of 0.70 (table 1). these results confirm internal consistency reliability and indicator reliability. table 1: validity and reliability of constructs constructs items loadings α cr ave analytics capability in plan (acp) 0.806 0.866 0.564 acp1 0.782 acp2 0.793 acp3 0.752 acp5 0.757 acp7 0.665 analytics capability in source (acs) 0.749 0.819 0.604 acs12 0.711 the role of supply chain transparency among supply chain analytics capabilities 195 acs13 0.878 acs15 0.731 analytics capability in make (acm) 0.846 0.893 0.629 acm16 0.684 acm17 0.646 acm19 0.815 acm20 0.897 acm21 0.889 analytics capability in deliver (acd) 0.845 0.897 0.686 acd23 0.840 acd24 0.801 acd25 0.931 acd26 0.727 supply chain transparency (sct) 0.885 0.921 0.744 sct34 0.903 sct35 0.821 sct37 0.875 sct38 0.848 notes: α = cronbach’s alpha, cr = composite reliability, ave = average variance extracted average variance extracted (ave) values were calculated and all values were found greater than 0.50, indicating that constructs have acceptable convergent validity (table 1) (hair et al., 2013). the discriminant validity was evaluated by both heterotrait-monotrait ratio (htmt) (henseler et al., 2015), and fornell and larcker criterion (fornell and larcker, 1981). all the htmt values of constructs were below the threshold level of 0.85 (table 2). looking at table 3 for fornell and larcker criterion, aves’ square root values (values in diagonal) were higher than respective inter-correlations (values in off-diagonal), which meets the criterion for discriminant validity. consequently, both htmt and fornell-larcker criterion results confirm discriminant validity. table 2: heterotrait–monotrait ratio (htmt) acd acm acp acs sct acd acm 0.698 acp 0.735 0.694 acs 0.552 0.588 0.602 sct 0.623 0.566 0.585 0.357 table 3: fornell-larcker criterion acd acm acp acs sct acd 0.828 acm 0.593 0.793 acp 0.619 0.588 0.751 acs 0.498 0.544 0.567 0.777 elif canbaz & sümeyye çi̇çek vural & cemil çeli̇k & murat çemberci̇ 196 sct 0.549 0.495 0.503 0.404 0.862 note: bold elements show square-root of the ave 3.3. structural model pls sem was performed to test research hypothesis. a bootstrapping procedure with 5000 bootstrap subsamples was applied using smartpls (v. 4.0.8.3.) to assess collinearity, variance inflation factor (vif) values were examined and all the vif values were found below the threshold of 5. this signified there is no multi-collinearity problem with the model. r² value is a measure for predictive power. it represents the amount of variance in the dependent variable explained by all the independent variable linked to it (hair et al., 2013). the r² values for acd, acm, acs, and sct are 0.459, 0.399, 0.340, and 0.253, respectively. according to (chin, 1998), r² values described as follows: substantial (0.67), moderate (0.33) and weak (0.19). the effect size (f2), another measure to evaluate the model, was also examined (table 4). effect size indicate the change in the r2 when a specified construct removed from the model (hair et al., 2013). (cohen, 1988) classified the effect size as small (0.02), medium (0.15) and large (0.35). after the evaluation of the structural model, both direct and indirect paths were tested. as shown in table 4, all the direct paths of the model h1, h2, h3 and h4 are statistically supported, and acp is positively related to acs (β = 0.438, p<0.01), acm (β = 0.456, p<0.01), acd (β = 0.460, p<0.01) and sct (β = 0.503, p<0.01). table 4: hypothesis results hypothesis paths β std. dev. t statistics p values f2 results h1 acp -> acs 0.483 0.174 2.773 0.006 0.268 supported h2 acp -> acm 0.456 0.155 2.950 0.003 0.255 supported h3 acp -> acd 0.460 0.145 3.170 0.002 0.292 supported h4 acp -> sct 0.503 0.107 4.685 0.000 0.339 supported to test the mediation effect of sct the bootstrapping method was conducted. the test results of indirect paths h5, h6 and h7 are expressed in table 5. according to findings sct mediates the relationship between acp and acm (β = 0.133, p<0.10), and also acp and acd (β = 0.159, p<0.05). h6 and h7 are supported according to these results. however, h5 is rejected, because the mediation effect of sct between acp and acs is not significant. table 5: mediation effect total effect direct effect path β p values β p values acp -> acs 0.559 0.002 0.483 0.006 acp -> acm 0.590 0.000 0.456 0.003 acp -> acd 0.619 0.000 0.460 0.002 indirect effect hypothesis and paths β std. dev t statistics p values bi [2,5%; 97,5%] results h5 acp -> sct-> acs 0.076 0.068 1.130 0.259 -0.101 – 0.188 not supported h6 acp -> sct-> acm 0.133 0.075 1.768 0.077 0.003 – 0.298 supported h7 acp -> sct -> acd 0.159 0.075 2.117 0.034 0.029 – 0.325 supported 4. conclusion the results represent that acp is valuable for companies in implementing supply chain analytics in source, make, and deliver with mediating effect of supply chain transparency (zhu et al., 2018). this study provides insights into the relationship between supply chain analytics capabilities (acp, acd, acm, acs) taking into consideration of sct. as with all survey-based studies, this study has some limitations. one of the main explanations is companies who survey participants are still in the early stages of deploying analytics capabilities into their operations. the companies the role of supply chain transparency among supply chain analytics capabilities 197 were in turkey and operating in different sectors. so, future research is encouraged to be data collected from different countries but the same sectors. accuracy and consistency of results could be increased. to sum up, the results suggest that: acp has direct and positive effect on analytics capabilities in source, make, and deliver; sct is positively mediates the relationship between them. nevertheless, it does not support to mediating effect on relationship between acp and acs. the planning phase represents to enhance a whole strategy for the supply chain management, while the source, make and deliver phases specialize in the major needs for performing that plan. appendix supply chain analytics capabilities are evaluated using a 5-point likert ranging from 1 (strongly disagree) to 5 (strongly agree) acp analytics capability in plan adapted from (zhu et al., 2018) acp1 does your organization have the analytic capability to measure supply chain performance? acp2 does your organization have the analytic capability to measure the impact of different supply chain strategies on supply chain performance? acp3 does your organization use adequate analysis tools to inform decisions? acp4 does your organization have the analytic capability to assess customer profitability? acp5 does your organization have the analytic capability to assess product profitability? acp6 does your organization have the analytic capability to assess variability of demand for your products or services? acp7 does your organization use mathematical methods (statistics such as time series analysis) to forecast demand? acp8 is a forecast developed for each product or service in your organization? acp9 is a forecast developed for each customer in your organization? acp10 does your demand management process make use of customer information? acp11 is demand forecast accuracy measured in your organization? acs analytics capability in source adapted from (zhu et al., 2018) acs12 does your organization have the analytic capability to support assessment and documentation of supplier relationships? acs13 does your organization have the analytic capability to support sharing of planning and scheduling information with suppliers? acs14 does your organization have the analytic capability to support collaboration with your suppliers to develop sourcing requirements? acs15 does your organization have the analytic capability to measure and share supplier performance information? acm analytics capability in make adapted from (zhu et al., 2018) acm16 does your organization have the analytic capability to support internal integration? acm17 does your organization have the analytic capability to support updating supplier lead times monthly? acm18 does your organization have the analytic capability to support the use of constraint-based management methodologies? acm19 does your organization have the analytic capability to measure levels of production planning adherence? acm20 does your organization have the analytic capability to support scheduling among sales, manufacturing, and distribution? acm21 does your organization have the analytic capability to support the integration of your customers’ planning and scheduling information with yours? acm22 does your organization have the analytic capability to enabling production planning at the “item” level of detail? acd analytics capability in deliver adapted from (zhu et al., 2018) acd23 does your organization have the analytic capability to track the percentage of completed customer orders delivered on time? acd24 does your organization have the analytic capability to measure “out of stock” situations? elif canbaz & sümeyye çi̇çek vural & cemil çeli̇k & murat çemberci̇ 198 acd25 does your organization have the analytic capability to support assessment and documentation of distribution network relationships? acd26 does your organization use mathematical tools to assist in distribution planning? acd27 does your organization have the analytic capability to capture distribution management process measures? acd28 does your organization have the analytic capability to assess the performance of distribution network participants? sct supply chain transparency adopted from (zhu et al., 2018) sct31 our suppliers provide us with operational plans (e.g. distribution plans, production plans) regarding the products they produce for us. sct32 our major suppliers provide us with detailed product design information sct33 our major suppliers collect operations information (e.g.: batch size, run quality, transfer quality, buffer stock, available machines, machine breakdown time) 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exporting eu vehicle to china junzhu lin china university of petroleum 266580 qingdao, china huajie liu china university of petroleum 266580 qingdao, china received: august 16, 2018 accepted: october 10, 2018 published: december 15, 2018 abstract: china, the world’s largest developing country, is the world’s important force to promote the development of the global economy. in the context of globalization and the rapid change of the pattern, china's strategic position is becoming more and more important. however, as the rise of unilateral, world trade frictions are increasing. in the future, eu should focus on the china’s trade and economic cooperation with foreign common policy and guiding principles and should pay attention to expand export and import cooperation between ch ina, and what’s more based on china’s huge potential market needed, eu should pay more attention on the car filed. due to the background of american’s unilateral protectionism, the trade relations between us, eu and china become more and more strained, therefore in order to achieve the purpose of mutual benefit and win-win results between china and eu, we need to further strengthen china-eu comprehensive strategic partnership. keywords: trade war, eu-china trade, car demand market, influence factor 1. introduction with the intensification of competition in the international market, trade protectionism is strengthened constantly. considering the us policy of trade protectionism has become increasingly frequent, subtler and complicated that europe and china both face trade barriers from the united states and in will of their important component of the world economy, strength cooperation between china and europe are benefit for maintenance world free trade, multilateralism and justice international order. the key point is when the trade frictions occur, whether china and europe can find an appropriate channel to maintain economic stability, whether the two sides can find a sally port to solve the problem by further strengthening economic and trade cooperation. under the current international situation, europe faced increased automobile import tariff from us government, and at the same time, china increase automobile import tariff for us made car. based on those trade barriers and china’s huge potential car market, europe should consider export vehicle to china. this paper mainly analyses under the current china-us-eu trade situation, offered eu vehicle manufacturer a new opportunity---export more vehicles to china as a sally port1.the remainder of this paper is organized as follows, analyzes the influencing factors and gives suggestions for eu vehicle manufacturer to increase its chinese market share. 2. three factors 2.1. political factors china which is a country has a peace and stable political environment in developing economy, in the context of globalization and the rapid change of the pattern, the trade relationship between china and eu are increasing closely and its strategic position in china’s foreign cooperation is becoming more and more important. moreover, because junzhu lin, huajie liu 2 of china is committed to peaceful development, eu vehicle manufacturer does not have to worry their export product or customers would be disturbed or cancelled by war or trade war. based on china's stable political and social situation, eu vehicle manufacturer does not need worry about leader's replacement will bring unrest and disturb export trade. this is due to china government has establish and consolidate the party and state leaders of the retirement system, meanwhile, china which is a country ruled by law and making the country built on the basis of generally accepted rules and institutions2. moreover, china does not have situation like instability countries, for example, existence of individual long-term dictatorship and family hereditary rule, this is one important reason that caused some countries people strong dissatisfaction and opposition their political power2. since china established, at leader's replacement period, never appeared upheaval in this country. all these build a good macro environment for eu vehicle manufacturer to develop business in china. since accessing to the world trade organization's (wto) in 2001, china has tried its best to fulfill the obligation of wto rules and gradually opened domestic market, which will further improve the investment environment for foreign3. china's series of tax reduction measures are as follows, since january 1, 2005, china cancelled car importing quota management, and continue to reduce tariffs on auto imports. since july 1, 2006, the import tax rate of the car, suv and bus, have been reduced from 28% to 25%, and the import rate of auto parts was reduced to 10%, such as vehicle's components, chassis and low gas engine4. moreover, at present, based on the background of the trade war between china and us and wto regulation, china keep open its domestic market up, especially on the vehicle market which is the first time to reduce tariffs in the past 12 years. the detailed regulations are as follows, ministry of finance website was released on may 22. since july 1, 2018, import tariffs on vehicle have been reduced to 15%, and the tax rates of the component of the car are reduced to 6%5. however, these benefits are not for us, china has decided to impose 25% tariff for product imported from us, which include cars and its components6. it can be seen that based on these favorable polices it is really a good chance for eu vehicle or manufactory to entry china7. jianguo wei who was china commerce undersecretary said that since the end of 2001 china join the wto, china fulfilled its wto accession commitments and reduce vehicle imports tariffs for three consecutive years 2. moreover, in 2004, import quota of vehicles and their key components are reached $10.494 billion 2. in 2009, chinese government cancel the auto parts import management policy and the actual cut auto parts import tariff reduce to 10%. since september 1, 2009, china government has abolished the “automotive industry development policy" in the relevant provisions of the parts import management. based on a series of policy to reduce tariffs also its huge consumer market (we analysis this factor at 2.3 consumer preference factors) china's auto production and sales ranked first in the world in 20188. since twenty-first century trade between china and eu are among the most dynamic and harvests in the many fields of cooperation after china joined the wto, which is developed rapidly, based on the larger base and has doubled in about every 3 years. now we seen "made in china" is everywhere in european market. according to the statistics of ministry of commerce of the people’s republic of china department of european affairs, china's annual growth rate of import and export to the eu is above 11.4% from 2016 to 2017 data are given in table 19. furthermore, askci consulting co., ltd.’s data (2012 to 2015) given in table 2 means that eu has become china’s largest trading partner and the united states is in the second position10. table 1 trade statistics of china and european countries in 1-12 months of 2017 unit of amount: ten thousand dollars national import and export volume export volume import volume accumulated over the same period last year±％ total volume 410,450,385 226,352,200 184,098,185 11.4 7.9 15.9 europe 66,102,684 37,916,560 28,186,124 10.5 9.5 11.9 28 eu countries 61,691,575 37,204,153 24,487,422 12.7 9.7 17.7 influence factors of exporting eu vehicle to china 3 table 2 list of trade volume between china and europe, china and american from 2012 to october 2015 year total import and export of china's foreign trade($ billions) total import and export of chinaeu trade($ billions) proportions （%） total import and export of trade between china and the united states($ billions) proportions （%） 2012 38669.8 5460.4 14.1 4846.8 12.5 2013 41608.7 5590.4 13.0 5210.0 12.5 2014 43030.4 6151.4 14.3 5551.2 12.9 jan.oct.2015 32269.64 4646.83 14.4 4614.56 14.3 in recent years, under the chinese government “going out” strategy, a number of chinese outstanding enterprises have begun to go out of the country and invest in the eu countries, such as huawei, zte and haier. due to these investments, china has become the eu's net direct investment country for the first time in 2015 and has invested 6.3 billion euro in the eu data which are given by the statistics of the european bureau of statistics (eurastat), main while, the eu's investment in china was fell to 6 billion euros at the same year 10. china has free trade area (fta) in order to make a fairer and reasonable environment, chinese government established a free trade area and given privileges policy for foreign companies located in these areas. privileges include reduced corporate income tax rates, tax holidays, lower land use fees and simplified entry and exit. for example, companies in free trade area tax saving is average 45%. what’s more, in order to promote the development of automobile parallel import trade, chinese government taken three measures which is less requirements for the authorized documents of the imported automobile factory, less restrictions on the number of parallel imported cars and simplified factory inspection requirements8. these measures are announcement by the state regulatory commission and published in < pilot reform measures for parallel import vehicle china compulsory certification (ccc) certification in fta> in 201611. under these series of support policy for import car, compared with 2016, the number of parallel imported cars in china increases 29.8% and reaches 172 thousand and the data is given in fig 1. therefore, fta is a good choice for eu vehicle manufacturer to export finished vehicle to chinese market as well as provides sustained strong policy support. fig. 1 2014-2017 year parallel import car market share junzhu lin, huajie liu 4 the following question is there are 11 free trade zones in china, and which one is the best for eu vehicle? as we seen, no matter tianjin or shanghai’s free trade zone, the approved area is limited; but hainan which is the whole province and hainan province given more beneficial policy, like <the implementation scheme for parallel import of haikou port> which is published by hainan provincial government in july 5, 2018. the public notice is announcing that hainan port will give support to vehicle manufactory on customs clearance12, household registration, taxation, financial support and after sales service, government also will take the construction of the free trade area (port) as an opportunity to win a total of 10 thousand cars parallel imports in 2020, with sales exceeding 7 billion yuan12. based on before analysis, we can see that hainan port is the best choice in total 11 fta for eu vehicle manufacturer to export parallel vehicle. 2.2. economic factors china has a huge potential consumer market for vehicle and its component. from 2001 to 2016, china's vehicle sales increased from 2.36 million to 28 million13. as show in fig 2 in 2016 global car sales 9385.46 million, increased 4.7% over 2015. fig 3 shows that chinese market is a leading vehicle sales market in the world, total sold 28 million vehicles, accounting for 29.86% of the world's total sales13. until 2017, chinese market consumed 30% of the world's cars, moreover, since 2009, china's auto sales have been ranked first in the world for nine consecutive years. which means, the consumption for cars are huge in china, also with the development of china's economic (e.g. the average growth of china's gdp is 6.9% per year14), the potential market for car demand is huge in china. fig. 2 global car sales fig. 3 automobile sales & growth in china influence factors of exporting eu vehicle to china 5 during 2009 to 2016, china has import cars from 42million to 142.3million, it is almost up 3 times within 7 years, and then, back to a million or so. in 2016, decreased to 107 million vehicles, which was down by 3.4% from the same period15. in 2017, the total sales volume of imported cars in chinese market exceeded 120 million, increase about 15% over the same period last year, and the above data is show in fig 4. however, the sales of domestic cars are growing steadily; it can be found in fig.5 that since 2008 to 2017, domestic car sales are growing steadily16. compared with domestic cars and joint venture vehicle, the price of the imported car is more expensive. moreover, the high price is owing to import vehicle tariffs, excise duty, value added tax (vat) and transportation fees17. however, this situation will be changed in 2018, import tariffs on vehicle are reduced to 15%, the tax reduction range was 40% and 25%, the tax rates of the component of the car are reduced to 6%, and the average tax reduction rate reached 46%18. however, tax benefit is not including cars from usa. that is really attractive news for eu vehicle manufacturer, which means eu vehicle’ s price is more competitive compared with cars import from usa. for example, the deprecation range of martha lahti provided by martha lahti china official website is between 5.5 and 139 thousand yuan. take tesla model s and model x as an example, the price is overall increased between130 and 257 thousand yuan. fig.4 number of imported cars in china in recent years fig.5 domestic car sales also, compared fig 1and fig 4 can reach the following conclusion, even the total number of imported cars has declined from 2015-2016, but the number of parallel imported cars has keep steady growth. number of parallel imported car increase of 29.8% over the same period. as one can observe, china has a huge automobile consumption market and many preferential tax policies for imported cars, specially for parallel imported car. therefore, european manufacturers can through parallel imported cars to reduce prices and increase market share. junzhu lin, huajie liu 6 in addition, consumer in china like to spend money on cars from eu than other countries. specially, with the escalation of trade war between china and us, chinese consumer’s preferences have been affected, and the market share of us models has been impacted15. fig 6 is given that about 30% first-time car buyer chose national and german brand cars, about 35% consumers chose german brand cars at their second time consumption, ahead of other brands (include chinese national brand). we may wonder why more and more chinese choose german cars? that is because except national sentiment, but also the quality19. especially people who are born after 1980, they are like to spend money on german brand car. in their eyes, german is an important part of eu, to some degree, it represents the level of eu made, and they feel that eu made always with good quality and good ‘’taste’’. for example, made in germany, means precise design, exquisite workmanship and advanced technology as well, like bmw, benz and volkswagen; french car which is elegant, avant-garde and romantic, like citroen, peugeot, renault, bugatti; made in england, obviously – gentle, like aston martin, bentley, jaguar and rolls-royce. no matter that brand, this generation like “eu made”. more important is that post-80s has become the major car consumer groups in china, which means with the growth of this generation's economic capability, eu vehicle manufacturer will get huge potential consumer. fig. 6 chinese consumer national choice for auto brands in 2017 in addition to exporting economic vehicles to china, european manufacturers also need to consider luxury cars, specially to high developed cities20. in high developed cities , lots of people are seek special, high-class, even private tailor. in their eyes, luxury car always means “cool”,”attractive” and even “owner’s social status”. until 1 january, 2017, luxury car rankings in various chinese provinces, top three is beijing, shanghai and zhejiang province, the data of rank are given in table 3. as we can see shanghai is a core city of our country, international economic, financial, trade, shipping, science and technology innovation center. shanghai is one of the largest cities in the world, no matter its population or economic, in 2017, social consumption is about 2 trillion yuan. in 2017, guangzhou's gross domestic product (gdp) amounted to 2 trillion yuan, it’s total retail sales of social consumer goods, household deposits and account among ranks on the top three in china. total retail volume of consumer goods in the city is about 871 billion yuan. hangzhou is the capital of zhejiang province, with the development of high-tech enterprises, such as alibaba, hence, the internet economy has become a new point in hangzhou’s economic groth. in 2016, hangzhou’s gdp amout to 1.1trillion yuan, in 2017, it’s social consumption was about 572 billion yuan, we see that, in east of china, no matter its ecnonmic capability or it’s consumption capacity, hangzhou is second only to shanghai. as we can see those cities have high level of economic, and consumer here have stronger purchase power. eu vehicle manufactroy can develop luxury market in these cities by parallel import luxury car, also can use their high quality or special services to attractive consumer, specially in first-lin cities. by imporve the quality of consumer service to establish customer's sense of trust and increase customer stickiness. table 3: provincial ranking---luxury car sales influence factors of exporting eu vehicle to china 7 f12 lp700 mousse rolls-royce phantom maybach super sports car total 1 beijing 44 78 183 385 140 30 860 2 shanghai 55 72 104 285 89 46 651 3 zhejiang province 45 67 133 270 43 7 565 4 guangzhou province 36 52 87 135 20 19 349 5 sichuan province 19 29 137 135 24 2 346 6 fujian province 7 33 102 99 19 4 264 2.3. consumer preference factors in this section, we will analyze which region prefers to consume eu vehicles in china. in addition, by analysis local consumer preference choosing car model21. regional selection criteria include the location being in a major city, commercial center of china or close to high developed areas where with high gdp, high consumption. location with high quality of infrastructure, with good delivery or locations with high developed22. at the same time, we also should consider professional competition. in 2007, compared with other types of models, suv sales keep high growth and increased 13.3% than last year which data is given in fig 7. it has been keep 8 years’ growth since 2009 and the market share of suv has exceeded 42% in 2018. however, sales of other models are not optimistic, it can be found in fig 8 that auto-car dropped 2.5%, mpv dropped 17.1%, crossover car dropped 20%23. moreover, the newest data shows, suv keeps good sales in last year and months, but china’s auto cars production and sales both decreased in the last 8 months of 2018. it can be see that suv market keep continues hot. for eu vehicle manufacturer can by launch suv products, product newstyle products and guarantee the differentiated of the product to improve the competitive of their vehicle and improve market share of suv. the next content will be analysis size of suv, motive power, suv's brand and regional to find customer preference. fig. 7 suv market penetration junzhu lin, huajie liu 8 fig. 8 different car model sales following we will analyze the sales volume of different types of suv in 2017 and its data can be found in fig 9. we can see that sales volume of compact suv accounts for 39.17%, small suv and medium suv are 23.75% and 25% respectively23，and among of them compact suv are close half of the scale. why chinese like to buy compact suv? that is because compared with automobile, driver drive compact suv got more space and feel more comfortable; moreover, as "tow-children policy", chinese need more space to pick up children; except those before reason, also because as the development of china, more and more people choose self-driving travelling. compared with auto mobile, compact suv is the better choice not matter for its space or its practicability for travelling. for example, chinese national brand hover h6, it sales continue to rise in recent years. therefore, eu vehicle manufacturer can consider export compact suv to china, fig. 9 diff. size of suv sales analysis as fig 10 showed that total sales volume of energy vehicles is 777 thousand and increased 53% in 2017 than last year. moreover, sales in december were particularly large which was sales 163 thousand and increase of 55% over the same period last year24. among of them pure electric car total sales 652 thousand vehicle annual and mixedelectric car total sales 125 thousand vehicle annual. we can see that compared with other motive power of car, chinese consumer prefers pure electric car35. throughout the year consumer like to buy new car in december that is may be for celebrate chinese new year. for eu vehicle manufacturer can try to catch the opportunity and export pure electric car to china, especially at the end of year that is a good time to promote new products. influence factors of exporting eu vehicle to china 9 fig. 10 energy car sales volume however, sales of energy vehicle in china was not always smooth going which is great influenced by the policy16. from year 2012 to 2015, the sales volume of energy vehicle increased from 12 thousand to 331 thousand that is increased steadily24. in 2016, the cumulative sales of energy vehicle reached 507 thousand, which is far exceeding the sales volume in 2015; however, its growth speed decreased that is because subsidy policy changed. in 2017, because of market preference change to energy vehicle that this market got a new growth. now, in 2018, new subsidy policy of energy vehicle has been published which is improve vehicle subsidy for high mileage car, which means higher mileage car can get more subsidy. for example, mileage over 400 km can got 50-thousand-yuan subsidy in 2018, instead of 30.8 thousand yuan in 2017. except this good news for eu vehicle manufacturer, but also no need to face strong competitor which from us, like tesla. that is because of the trade war between china and us, chinese government canceled policy preferences for us. here, we take tesla as an example, in 2017, tesla sales over $2 billion in china and which is accounted for 20% of the world's share25, but this situation will be changed in 2018 which is tariffs on imported cars from united states have risen by 40% since july 6. through before analysis, we see that eu vehicle manufacturer got a big chance in 2018. firstly, because of subsidy that chinese consumer would like to choose mileage energy care, which means eu vehicle manufacturer can export this type of car to china; secondly, with high tariffs and no government subsidy, the price of us made vehicle will increase. especially tesla’s consumers that will be choose other substitutes because of its high price. that is a good chance for eu vehicle manufacturer to product similar product subsisted tesla and increase chinese market share. through before analysis, we can see that chinese consumer like buy pure electric car, even sales volume are influenced by subsidy policy, but compared with petrol vehicle it has speed up fast, low cost of use and protect environment’s characteristics, more and more people would like to choose energy vehicle. customer in china prefer pure electric car than others, and what brand do they like? in 2017, auto sales top ten that is seven models comes from national brands, only three joint venture brands enter the list which is volkswagen, buick and nissan and data is given in fig 11. saic volkswagen cumulative sales of 332 thousand vehicles and increase of 38.2%, which is rank fourth in the total rankings and first in joint venture brand in 2017. it can be see that china has market need for eu vehicle and consumer prefer eu vehicle than japan and us made. in the first factor, we analyze and conclude that on the background of china-us trade war, which is a good time for eu vehicle manufacturer to get more market shares form us car brand26. in the second factors we analyzed consumer will consider quality a bit more on their second-time purchase. in order to achieve the purpose of reducing price and improve market share, eu vehicle manufacturer can consider product type of vehicle or auto parts localization to reduce production costs, junzhu lin, huajie liu 10 fig. 11 diff. suv brand sales volume in 2017 except those factors, there is another factor needs to be considered --regional. through above analysis, we can see that suv and pure energy vehicle are very popular in china, and this phenomenon is more outstanding in the first tier cities. car purchase analysis report about first-tier cities user in china (2016 edition) state that the growth rate of vehicle in the biggest city is higher than other cities, specially, suv and the auto-car’s growth rate which is 3.17% and 4.11% higher than others. however, mpv is lower 3.04% than national level, which means, suv and auto-car got more opportunity in first-line cities. hence, eu vehicle manufacturer should be considering export more kind of suv models to first-line city in china as their preference. fig.12 first-line city car sales compared with other cities in 2017, energy car sold more than 24.9 thousand in first-line cities that can be found in fig 13. compared with fig 10 data we can see that first-line cities sales volume account for 32% of all energy car sold in china. influence factors of exporting eu vehicle to china 11 fig. 13 2017 energy car sales volume in first-line cities as analysis on regional factor, we can see that first-line city is the most important substantial of car sales market in china. one important reason for consumer in first-line city choose pure energy suv car is that they can get free license plate27, like shanghai, buy pure energy car can avoid limit license plate policy. the second reason may because the implementation of “two-child policy” which means family need more space for children. hence, eu vehicle can catch this opportunity, export pure energy suv car to those cites and grab market share. 3. conclusion through above analysis, we can see that eu vehicle manufacturer can choose hainan port entry china to catch policy support, like tax support and customer service. those supports can reduce vehicle’s price for customer and improve its completion. moreover, increase parallel car’s volume to china is also good, as more and more customers are looking for good quality instead of low price. eu vehicle manufacturer can also develop luxury car market in china and parallel export to china, because part of chinese like extravagant lifestyle and numbers of them are quite big. most important for eu vehicle manufacturer is that they should develop and export high mileage pure energy car to china. one reason is catch new subsidy policy in china, another reason is that it is a good chance to replace tesla’s market share in china. moreover, it can be inferred that chinese consumer prefer pure-electric suv and especially in the first-tier cities. therefore, eu vehicle manufacturer can export pure-electric suv to china, especially to the fist-tier cities and that is because these cities have high consumption capacity and market demand. in addition, the best time to launch new product is better before chinese’s new year that is because many chinese like to change car or purchase new car on that time. this paper also confirms the generally held understanding that export eu vehicle to china, in present some attractive factors and unique challenges. overall, export vehicles to china proved to be attractive--stable and peace political, the county is stability; good business opportunity, large potential market and attractive economic policy; and keep 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of transaction costs on post-harvest maize value chain performance among kongwa district council maize smallholder farmers in dodoma region. the study adopted a survey research design where a sample of 88 respondents obtained through multi stage sampling was used in the study. questionnaires and interview were used as data collection tools whereas multiple regression technique was applied to establish the existence of the hypothesized relationship. it was revealed that transportation and middlemen costs affected post-harvest maize value chain performance in terms of profits, output sales and post-harvest losses in the area while information costs did not. moreover, multiple regression revealed that profit earned by farmers was the major effect of transaction costs on post-harvest maize value chain performance while post-harvest losses was not. the study recommends to the government and all associated stakeholders to take various measures focusing on reducing transaction costs such as improvement of transportation infrastructures and establishment of well-equipped market areas near farmers. keywords: transaction costs, post-harvest value chain, performance, smallholder farmers, maize 1. introduction 1.1. background information agriculture is the bed rock of every country economic sector because it plays a major role in providing food for the population, employment opportunities, export earnings and high contribution to the nation’s gross domestic product (oparinde and daramora, 2014). in the world, agriculture employs about 40% of the active population globally and it persists to be a strategic sector in the development of most developing countries where more than 60% of the population in sub-saharan africa, asia and the pacific is highly dependent on it while in latin america and high income economies the ratios are estimated at 18% and 4%, respectively (world bank, 2006). in almost all african economies, agriculture is one of the important and crucial sector for attaining economic growth and is a key sector in ensuring poverty reduction at both household level and country level (jagwe et al., 2010). according to leyaro and morrisey (2013) the sector is viewed as a main vehicle in any national economic strategy for combating poverty and hence gives a need for increased agriculture productivity. however, apart from its significant contribution in the country economy, and although the demand for agriculture products continue to increase the sector has been faced with several constraints and the production of both food and cash cops has remained stagnant or has increased at a very slow rate (kaini, 2004). maize is one of the key important cereal food crops in agriculture economy in the world and used as both staple food for human beings, feed for animals and other industrial raw materials (simiyu, 2014). maize ranks third position next to wheat and rice in the world with respect to area while its productivity surpasses all other cereal crops. maize prisca pascrates rutatola & leonada raphael mwagike 152 is grown in 70 countries of the world (patil et al., 2007). and it is one of the world’s leading crops cultivated over an area of about 142 million hectares with a production of 637 million tons of grain (kaini, 2004; maziku, 2019). in order to ensure that maize production achieves its objectives and perform satisfactory, what is produced in one area need to be consumed in another area, where a product moves from the producer to the consumer incurring a number of transformations and transactions along a chain of interrelated activities called value chain in which value is added successively at each stage and various costs incurred at each transaction (sitko et al., 2011). at each stage of transformation and transaction various costs are incurred which acts as constraint towards the value chain performance making high transaction costs to be a common and key constraint towards crop value chain performance in developing countries (okoye et al., 2016; patil et al., 2007; eskola, 2005). moreover, alam and kausar, (2016) stipulated that in developing world although maize production is increasing at a satisfactory rate, the crop value chain performance is still not satisfactory due to high transaction costs. this is due to the fact that majority of the farmers reside in remote areas characterised with poor transportation and market infrastructures, presence of middlemen and lack of reliable information on market and potential exchange partners leading to high transaction costs making it a major constraint towards farmers to full participate in the market thus, hindering the transfer of the commodity from surplus area to shortage area (key et al., 2000; oumaet al., 2009; alam and kausar, 2016). according to musah et al., (2014) access to market information is among the transaction cost variable that affect farmers market participation and the value chain performance, caused by existence of many layers and poor connections between producers and consumers. information standards and quality assurance present a major challenge at many points in the maize value chain leading to high transaction cost (wilson and lewis, 2015). this makes information access to be costfull affecting contract and transactions undertaken by farmers (jagwe et al., 2010). information related costs constitute 70 percent of the total transaction costs, which is 15 percent of the total production cost incurred by the farmers (silva et al., 2008). furthermore, along the crop value chain transportation is an important factor in agricultural development all over the world as it is the only means by which food produced at farm site is moved to different homes as well as markets (tunde and adeniyi, 2012; jagwe, 2011 ). however, when road quality is poor, long distance from farm to market and transport means are not readily accessible, transport costs tend to be higher leading to transportation costs being a major component of transaction costs affecting agriculture (canwat, 2014; jagwe, 2011). consequently, high transportation cost is among the long term recognized source of agriculture inefficiency and as despite of decreasing the profit of farmers selling commodities to traders, but also often cause non existence of markets in rural areas (suzuki and sexton, 2005). moreover, due to barriers of farmers’ access to market information as well as poor transport infrastructure it has made the farmers to rely on middlemen in getting market information and selling their crops and thus incur middlemen costs (ismail et al., 2015; mwagike and mdoe, 2015). middlemen costs is a kind of transaction costs incurred by farmers in form of charges paid by smallholder farmers in order to access information and other market procedures due to the fact that middlemen are the ones with accurate information on prices and arrival of buyers (ismail et al., 2015). according to patil et al., (2007) high transaction costs has various negative impacts on maize value chain which include smallholder farmers to not fully participate in the market, lower farmers income, less contribution of agriculture to economic growth and post-harvest losses which are approximately 7-10 per cent at the farm to market level and addition 4-5 per cent at market and distribution level, making the amount of maize losses around 3-4 million tonnes of maize which is 4% of the total grain loss. as a consequence, with the increasing concern with regards to reducing poverty in the world, lowering transaction costs within the value chain is one of the key elements to ensuring growth in agriculture which will in turn have a significant impact in reducing poverty (silva et al., 2008). and, in order to make a significant contribution to economic growth, the sector needs to be commercialized to enable smallholder farmers to fully participate in markets and enabling improvement in value chain through reduction in transaction costs (jagwe et al., 2010). and therefore, this paper focuses on addressing transaction costs affecting post-harvest maize value chain performance specifically transportation costs, information access costs and middlemen costs; its impact on maize post-harvest value chain performance in terms of sales volume, profit and post-harvest losses and; suggesting ways to overcome in kongwa district council (kdc). the findings of the study serves as inputs to agriculture policy makers and the effect of transaction costs on post-harvest maize value chain performance among maize smallholder farmers in tanzania 153 associated stakeholders to formulate various strategies of improving the maize value chain through reduction of transaction costs which lead to agriculture improvement hence poverty reduction and an increase in national income. 1.2 problem statement maize is the most important food crop in the country and the main subsistence crop grown by more than 50 percent of tanzanian farmers and ranks the 5th among all agricultural commodities grown (maziku, 2019). tanzania is considered to be a potential maize producer for the whole east african and enables the country to be ranked among the top 25 maize producing countries in the world (barreiro-hurle, 2012; abate, 2014). however, despite the significance of the crop to the country and people economy and wellbeing, post-harvest maize value chain performance is still low and faced with several constraint one being high transaction cost (ismail et al., 2015). transaction costs refer to the proportional or fixed costs incurred during market exchange (azam et al., 2014). according to eskola (2005) and sendall (2007) high transaction costs is a well-known problem in the developing world including tanzania and is among the challenges affecting farmers and the crop value chain as a whole. in the country maize value chain is faced with various transaction costs such as high transportation cost, local production taxes paid to the government and to the market, maize markets and market information system as well as obtaining service from the middlemen (wilson and lewis, 2015; ismail et al., 2015). tanzania farmers along the maize value chain face various transaction costs affecting post-harvest maize value chain performance which include information costs relating to seeking and gathering information and services which make farmers subjected to low prices and hence low profit (ismail et al., 2015; wilson and lewis, 2015). transportation costs leading to reduction in quality and high number of post-harvest losses in farm and on transit (wilson and lewis, 2015; key et al., 2000). and middlemen costs which also make farmers subjected to low price and enlarge the gap between price paid to farmers and that to be received by middlemen (ismail et al., 2015). hence, in order to reduce agriculture challenges both national and international initiatives should focus on reduction of transaction costs (ouma et al., 2009). high transaction costs affect the whole value chain and has impact on farmers involvement in the agricultural market leading to poor market access and participation, the selection of channels and institutional arrangements for marketing, customers’ fulfilment, affect price paid and received hence low profit, quality reduction and post-harvest losses on the farm and during transportation (omiti et al., 2009; key et al., 2000; canwat, 2014; wilson and lewis, 2015; ismail et al., 2015; alama and kausar, 2016). therefore, as among the challenges facing maize smallholder farmers in dodoma region are high transaction costs specifically high transportation costs and lack of market information (urt, 2012). and, whichever effort to improve maize distribution through reduction in transaction costs will facilitate the improvement of welfare of majority tanzanians (ismail et al., 2015); this study was conducted to analyse the effects of transaction costs on post-harvest maize value chain performance where it hypothesised that there is a significant relationship between transaction costs and post-harvest maize value chain performance. 2. research methodology 2.1 study area and target population this study was conducted in dodoma region specifically at kongwa district council because kongwa is the leading maize producing district in the region with a planted area of about 108,568 ha during 2007/2008 season (urt, 2012). also in kongwa district it is where the kibaigwa international grain market (kigm) belongs which is the largest international market in tanzania where the market approximately collects between 74,205 to 116,205 tons of maize annually (ismail et al., 2015). the target population of this study were the smallholder farmers households producing maize crop in kongwa district council in dodoma region. the study targeted smallholder farmers because they are the ones who are highly affected with transaction costs as they are vulnerable to poor road infrastructure, long distance to the market, inadequate market information and weak institutional set up (wilson and lewis, 2015). 2.2 research design and sampling procedures the study adopted a survey research design which enabled the researcher to gather data from several households at a particular period in time regarding the study topic. the strength of using survey lies on the fact that it enabled the researcher to collect data from a large population in an economical way, facilitated the establishment of relationship prisca pascrates rutatola & leonada raphael mwagike 154 between studied variables and generalization of the results to the population (greener, 2008.). also the design facilitates the collection of quantitative data which can be analysed by using both descriptive and inferential statistics (saunders et al., 2009). multi stage sampling technique was adopted by the researcher to select the respective sample. in the first stage kongwa district was purposively selected as it is the highest annual maize production district in the region comprising of largest maize planted area and highest number of smallholders farmers growing and selling maize crop (urt, 2012). in the second stage three villages were selected basing on the distance from kigm namely lengitojo, makawa and kibaigwa and lastly, maize producing smallholder farmer’s households were randomly selected in each selected village from the list given by village executive officers giving a sample size of 88 farming households. the researcher adopted this sampling technique from various authors who conducted related studies on agriculture and specifically maize crop including (okoye et al, 2016; musah et al.,2014, oparinde and daramola, 2014) 2.3. data sources and methods in this study both primary and secondary data were collected by the researcher. primary data concerning respondents profile, transportation, middlemen and information costs incurred; factors influencing the given costs and effects of transaction costs on post-harvest maize value chain performance was collected directly from the smallholder maize farmers in the district through questionnaire and interview methods. secondary data was collected from published and unpublished reports from various sources such as president office-rural authority and local government (po-ralg), kongwa district council office website, kigm offices, bulletins, journals, research papers and articles relevant to the study. from the sources the researcher collected data on the district maize production status, prevailing market prices for several years, information on households growing maize crop, quantity for maize sold in the respective markets, information on how the market operates, transaction cost challenges facing farmers in the district and the mechanisms adopted to minimize the challenges and to ensure efficiency of the market operations. 2.4. measurement of variables in the study transaction cost was attributed by transportation, information and middlemen costs as the independent variables of the study. transportation costs under this study is attributed by distance to the markets, quality of the roads and local availability of transport facilities, whereas, information costs is influenced by nature of information source, type of information sought and information costs causative factor. also, the study depicts that frequency of sell through middlemen, type of middlemen costs incurred and middlemen cost causative are among the indicators of middlemen costs as part of transactions costs that affect the post-harvest maize value chain. the dependent variable post-harvest maize value chain performance was measured by three indicators namely sales volume, profit and the quantity of post-harvest losses per bag of maize. these three were used as performance measures to determine the effect of transaction cost on performance of post-harvest maize value chain in the study. sales volume was measured in bags of maize sold per farmer (mwagike, 2015). profitability as indicator of efficiency was measured as the difference between selling price and total post-harvest transaction costs incurred per bag of maize sold (mwangi, 2015). whereas, post-harvest losses were determined by the difference between bags of maize harvested versus the quantity of maize final used for consumption or sale (canwat, 2014). 2.5. data analysis methods the study used both qualitative and quantitative method of analysis to analyse the collected data basing on the nature of the data collected in the study area .qualitative data collected through interview were analysed through description, narrations, explanations and interpretations where by respondents responses were interpreted by the researcher and explained to make a meaning. qualitative data focused on several themes including the type of transaction costs incurred, the main cause of incurring the given type of transaction costs and how did the costs affect post-harvest maize value chain performance. quantitative data collected through questionnaire was analysed in form of descriptive and inferential statistics. the descriptive statistics involved the use of frequency distribution tables where frequencies and percentages basing on respondents responses were displayed. type of responses, frequencies and percentages of the responses regarding transaction costs on post-harvest maize value chain performance in kdc smallholder farmers were analysed. this enabled the researcher to describe and make comparison of the variables in numerical means (saunders et al., 2009). the inferential statistics entailed the testing of hypotheses by using several tests of significance to determine at what the effect of transaction costs on post-harvest maize value chain performance among maize smallholder farmers in tanzania 155 level of validity conclusion from the sample can be drawn (kothari, 2004). in the study the researcher used chisquare tests and multiple regression analysis as the selected types of inferential statistics. multiple regression analysis was used to determine the effect of transaction costs on post-harvest maize value chain performance as adopted by other scholars who conducted similar studies of assessing the effects of independent variables on the dependent variable (mwagike, 2015; mwangi, 2015). multiple regression assumptions namely normality, homoscadicity and mutlicollinearity were tested by the researcher before the conduct of the analysis to reduce over and under estimation of significance level or type i and type ii error (osborne and waters, 2002). in equation form the multiple regression model is presented as follows: y = α +β1x1 + β2x2 + β3x3+ ε where y= the dependent variable performance, x1, x2 and x3 represents the independent variables namely transportation costs, information costs and middlemen costs respectively, while β1, β2and β3 are variables coefficients of determination, ε is the error term estimated and α is the constant figure. 3. results and discussion 3.1 transaction cost on post-harvest maize value chain performance the study wanted to find out from respondents on whether transaction cost has impact on post-harvest maize value chain performance. results indicated that 80% of respondents agreed that transaction costs has impact on postharvest maize value chain performance, 2% responded no and 6% responded i don’t know. table 1: transaction cost impact on post-harvest maize value chain performance response frequency percent yes 80 90.9 no 02 2.3 i don’t know 06 6.8 total 88 100.0 also, the study wanted also to find out among the three transaction costs namely transportation cost, information costs and middlemen costs which one has high impact on post-harvest value chain performance. the results indicated that transportation costs has high impact reported by 62.5% of respondent, middlemen costs by 30.7% of respondents and information costs by 6.8%. this implies that transportation costs is the highest transaction cost affecting farmers, followed by middlemen costs and lastly information costs. table 2: transaction cost with high impact on post-harvest maize value chain performance response frequency percent transportation costs 55 62.5 information costs 6 6.8 middlemen costs 27 30.7 total 88 100.0 moreover, the study wanted to determine the main effect of transaction costs on post-harvest maize value chain performance. table 3 indicated that 34.1% of respondent said that transaction costs has high effect on sales volume, 55.7% on profit earned by farmers and 10.2% leads to post-harvest losses. this implies that transaction costs incurred has high impact and affect profit earned by farmers that is the difference between post-harvest costs incurred and income earned. prisca pascrates rutatola & leonada raphael mwagike 156 table 3: main effect of transaction costs on post-harvest maize value chain performance response frequency percent has impact on sales 30 34.1 has impact on profit earned by farmers 49 55.7 leads to post-harvest losses 9 10.2 total 88 100.0 3.2. hypothesis testing relationship between transaction costs and post-harvest maize value chain performance the hypothesis of the study stated that: h0 there is no significant relationship between transaction costs and post-harvest maize value chain performance. h1 there is significant relationship between transaction costs and post-harvest maize value chain performance. the researcher tested this hypothesis by examining the association between transaction costs and post-harvest maize value chain performance by using multiple regression technique. each performance indicator variable namely profit, sales volume and post-harvest losses was tested against the three transaction costs variable namely transportation, information and middlemen costs to establish their association. 3.2.1. model analysis on effect of transaction costs on profit multiple regression analysis was used to determine the effect of transaction costs on profit indicator of post-harvest maize value chain performance. the post-harvest value chain performance was analysed in terms of transportation costs, information costs and middlemen costs as follows: table 4: model summary on effect of transaction costs on profit model summary model r r square adjusted r square std. error of the estimate 1 .691a .477 .457 7.80634 a. predictors: (constant), transportation costs, information costs, middlemen costs b. dependent variable: performance r square tells us how much variance of post-harvest value chain performance in terms of profit is explained by transportation costs, information costs and middlemen costs. from the findings in table 8 the value of r square was 0.477 indicating that there was variation of 47.7% on post-harvest value chain performance profit indicator due to changes in transportation costs, information costs and middlemen costs. from the findings shown in table 8 it is stipulated that there exists relationship between the study variables as shown by r value 0.691. table 5: anova on effect of transaction costs on profit anovaa model sum of squares df mean square f sig. 1 regression 4340.046 3 1446.682 23.740 .000b residual 4753.234 78 60.939 the effect of transaction costs on post-harvest maize value chain performance among maize smallholder farmers in tanzania 157 total 9093.280 81 a. dependent variable: performance b. predictors: (constant), transportation costs, information costs, middlemen costs the model is significant at f= 23.74 and p=0.000 indicating that post-harvest value chain performance profit indicator can be predicted by transportation costs, middlemen costs and information costs and signifying that there is a significant relationship between the studied variables. table 6: coefficient analysis on effect of transaction cost on profit coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 14.445 7.172 2.014 .047 transportation costs -.572 .122 -.491 -4.695 .000 information costs -.040 .049 -.068 -.812 .419 middlemen costs -.946 .339 -.287 -2.793 .007 a. dependent variable: performance from table 6 it was revealed that holding transportation costs, information costs and middlemen costs, post-harvest value chain performance in terms of profit would be at 14.445. all factors were found to have negative regression coefficients (-β), indicating that they have negative impact on profit. a unit increase in transportation costs would lead to a decrease in profit by 0.491, a unit increase in information costs would decrease the profit by 0.068 and a unit increase in middlemen costs would decrease the profit by 0.287. transportation cost was found to have high effect to profit when other variables variances are controlled for as it has the largest beta standardised coefficient of 0.491. only transportation costs and middlemen costs variables were significant as their significance value was less than 0.05 (p<0.05) indicating that transportation costs and middlemen costs are the main transaction costs with effect on profit indicator of post-harvest maize value chain performance and not the information costs. 3.2.2. model analysis on effect of transaction costs on sales multiple regression analysis was used to determine the effect of transaction costs on sales indicator of post-harvest maize value chain performance. the post-harvest value chain performance was analysed in terms of transportation costs, information costs and middlemen costs as follows: table 7: model summary on effect of transaction costs on sales volume model summaryb model r r square adjusted r square std. error of the estimate change statistics r square change f change 1 .721a .520 .511 .558 .520 59.120 prisca pascrates rutatola & leonada raphael mwagike 158 a. predictors: (constant), transportation costs, information costs, middlemen costs b. dependent variable: performance r square tells us how much variance of post-harvest value chain performance in terms of sales is explained by transportation costs, information costs and middlemen costs. from the findings in table 7 the value of r square was 0.520 indicating that there was variation of 52% on post-harvest value chain performance sales indicator due to changes in transportation costs, information costs and middlemen costs. from the findings shown in table 4.35 it is stipulated that there exists relationship between the study variables as shown by r value 0.721. table 8: anova on effect of transaction costs on sales volume anovaa model sum of squares df mean square f sig. 1 regression 55.217 3 18.406 59.120 .000b residual 51.058 164 .311 total 106.275 167 a. dependent variable: performance b. predictors: (constant), transportation costs, information costs, middlemen costs the model is significant at f= 59.12 and p=0.000 indicating that post-harvest value chain performance sales indicator can be predicted by transportation costs, middlemen costs and information costs and signifying that there is a significant relationship between the studied variables. table 9: coefficient analysis on effect of transaction cost on sales volume coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .400 .209 1.915 .057 transportation costs -.520 .117 -.595 -4.448 .000 information costs -.013 .122 -.015 -.110 .913 middlemen costs -.423 .060 -.383 -7.008 .000 a. dependent variable: performance from table 9 it was revealed that holding transportation costs, information costs and middlemen costs, post-harvest value chain performance in terms of sales volume would be at 0.4. all factors were found to have negative regression coefficients (-β), indicating that they have negative impact on sales volume. a unit increase in transportation costs would lead to a decrease in sales by 0.595, a unit increase in information costs would decrease the sales by 0.015 and a unit increase in middlemen costs would decrease the sales by 0.383. the effect of transaction costs on post-harvest maize value chain performance among maize smallholder farmers in tanzania 159 transportation cost was found to have high effect to sales when other variables variances are controlled for as it has the largest beta standardised coefficient of 0.595. only transportation costs and middlemen costs variables were significant as their significance value was less than 0.05 (p<0.05). 3.2.3. model analysis on effect of transaction costs on post-harvest losses multiple regression analysis was used to determine the effect of transaction costs on post-harvest losses as a postharvest maize value chain performance indicator. the post-harvest value chain performance was analysed in terms of transportation costs, information costs and middlemen costs as follows: table 10: model summary on effect of transaction costs on post-harvest losses model summaryb model r r square adjusted r square std. error of the estimate 1 .734a .538 .530 .547 a. predictors: (constant), transportation costs, information costs, middlemen costs b. dependent variable: performance r square tells us how much variance of post-harvest value chain performance in terms of post-harvest losses is explained by transportation costs, information costs and middlemen costs. from the findings in table 4.38 the value of r square was 0.538 indicating that there was variation of 53.8% on post-harvest value chain performance postharvest losses indicator due to changes in transportation costs, information costs and middlemen costs. r is the correlation coefficient which shows the association between the study variables. from the findings shown in table 4.38 it is stipulated that there exists relationship between the study variables as shown by r value 0.734. table 11: anova on effect of transaction costs on post-harvest losses anovaa model sum of squares df mean square f sig. 1 regression 43.743 3 14.581 38.022 .000b residual 63.276 165 .383 total 107.019 168 a. dependent variable: performance b. predictors: (constant), transportation costs, information costs, middlemen costs the model is significant at f= 38.022 and p=0.000 indicating that post-harvest losses performance indicator can be predicted by transportation costs, middlemen costs and information costs and signifying that there is a significant relationship between the studied variables. prisca pascrates rutatola & leonada raphael mwagike 160 table 12: coefficient analysis on effect of transaction cost on post-harvest losses coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 1.091 .213 5.128 .000 transportation costs -.515 .131 -.590 -3.944 .003 information costs -.187 .065 -.174 -2.865 .075 middlemen costs -.015 .136 -.016 -.108 .914 a. dependent variable: performance from table 12 it was revealed that holding transportation costs, information costs and middlemen costs, postharvest value chain performance in terms of post-harvest losses would be at 1.091. all factors were found to have negative regression coefficients (-β), indicating that they have negative impact on post-harvest losses. a unit increase in transportation costs would lead to a decrease in post-harvest losses by 0.590, a unit increase in information costs would decrease the post-harvest losses by 0.174 and a unit increase in middlemen costs would decrease the postharvest losses by 0.016. transportation cost was found to have high effect to post-harvest losses when other variables variances are controlled for as it has the largest beta standardised coefficient of 0.590. only transportation costs variable was significant as their significance value was less than 0.05 (p<0.05). in the study the three transaction costs variable namely transportation costs, middlemen costs and information costs were tested on their effect on the three post-harvest performance indicators namely profit, sales and post-harvest losses. from the study most respondents (90.9%) agreed and were aware that transaction costs have impact on postharvest maize value chain performance. this supports alam and kausar, (2016) study which stipulated that in developing countries despite the fact that maize production is escalating at a satisfactory rate, the crop value chain performance is still not adequate due to high transaction costs. among the three transaction costs variables used in the study transportation costs was found to be the main contributor of high transaction costs incurred by farmers as it had the significant relationship with all the three postharvest maize value chain performance indicators namely profit, sales and post-harvest losses. this was supported by frequency table presentations which indicated that transportation cost is the main transaction cost affecting postharvest maize value chain performance in terms of sales volume, profit and post-harvest losses due to unfavourable transportation variables present in the study area including long distance to the market and poor quality of the roads. this supports the studies of canwat (2014) and jagwe (2011) which indicated that when road quality is poor, great distance from farm to market and transport means are not easily available, transport costs tend to be high making transportation costs being a major component of transaction costs affecting agriculture. however, information costs was found to have less impact on post-harvest maize value chain performance in the study area. this opposes the study of silva et al (2008) which found that information related costs constituted 70 percent of the total transaction costs, which is 15 percent of the total production cost incurred by the farmers. and supports alam and kausar (2016) study that information costs is unobservable type of transaction costs which may be difficult to be noticeable during the given transaction. moreover, among the three post-harvest maize value chain performance indicators used in the study namely profit, sales volume and post-harvest losses; transaction costs incurred by farmers was found to affect more the profit indicator as it affected the profit incurred by smallholder farmers in the study area more than the other two indicators. this is in line with the study of nkhori (2004) which indicated that transaction costs affect profit earned by farmers which consequently affect farmer’s income. this was emphasized by respondents through interview that in the past they had wide market from other east african countries especially kenyan traders who were buying crops at favourable prices (the average price was between 550 to 650 tshs) making the transaction cost impact on profit not very high observed as the revenue received was reasonable; but, currently they rely only on local traders who due the effect of transaction costs on post-harvest maize value chain performance among maize smallholder farmers in tanzania 161 to the country economic condition they pay a very low price (usually ranging from 350-400) making the output profit after the deduction of transaction costs from the revenue to be very low. for example during the survey data the average price for 1 kg of maize ranged from 385-390tshs with uncertainty of falling due to an increase in maize harvests unlike past years were it was reported to reach 600tshs. generally, the study revealed that the transaction costs incurred by farmers made them earn less profit than anticipated, affect the level of sales volume and sometimes lead to post-harvest losses which all act as restraints on post-harvest maize value chain performance. this supports the transaction costs theory which state that there is always economic costs on each transaction incurred between the parties which calls for various mechanisms to be undertaken to reduce the impact of the costs (abdul-halim et al., 2012). also, this finding supports the studies of sendall (2007) and eskola (2005) who found that costs incurred at each stage of transactions act as constraint towards value chain performance making high transaction costs a main hindrance towards crop value chain in developing countries. 4. conclusion, recommendation and policy implication 4.1 conclusion from the findings transportation and middlemen costs were proved to have significant relationship and affected post-harvest maize value chain performance in terms of sales volume by decreasing the number of maize bags sold and profit earned by smallholder farmers by reducing the residual income after cost deduction. however, despite the fact that farmers incur a little amount of information costs the study failed to establish a clear relationship between information costs variables and post-harvest maize value chain performance. also it is proved that among the three types of transaction costs transportation costs was found to affect all the three post-harvest maize value chain performance indicator and was found to have significant relationship with all the three post-harvest performance variables. based on the findings, the study concluded that transaction costs have negative impact on post-harvest maize value chain performance in kongwa district council has it affect the performance in terms of profit earned by farmers, sales volume brought to the market and less leading to post-harvest losses. thus, as maize is the leading cultivated crop in the area transaction costs made smallholder farmers not to gain the anticipated social and monetary benefits from the crop and hence calls for various efforts to be undertaken to ensure the costs incurred are reduced. also, findings of the study contributed to transaction cost theory as they were able to point out the major costs affecting post-harvest maize value chain performance which is in line with the theory focus of analysing the transaction costs and suggesting measures and mechanisms on how to reduce them 4.2 recommendations the study recommend on various mechanisms to be taken by the government and appropriate bodies to improve rural roads infrastructure to ensure they are passable during both seasons of the year as it would facilitate the improvement of quality of the roads hence reduction in transaction costs incurred by farmers. also, the local government authorities to ensure the creation of favourable and well equipped marketing area near the villages so as to reduce the distance to be travelled by the farmers to access the kigm which is the only big and well furnished local markets in the area. this could lead to reduction of transportation costs caused by long distance to the market. the kigm should adopt appropriate mechanisms to ensure proper monitoring of middlemen behaviours and activities in the market so as to reduce exploitative behaviours to farmers and reduction of middlemen cots. information sharing mechanisms and sources used by the kigm management should be improved so as to ensure farmers have accurate and timely information on price, quantity and quality needed and arrival of buyers. this would lead to reduction of information asymmetry problem hence reduction of information costs incurred by farmers. 4.3 policy implications the findings produced by this study possess practical implication for the central government, local government authorities, maize traders and smallholder farmers as could be used to create conducive environment for the maize value chain. this facilitates the formulation and enactment of various policies regarding reduction of transaction costs in maize crop which could lead to agriculture value chain performance improvement. prisca pascrates rutatola & leonada raphael mwagike 162 references abate, t (2014). maize in tanzania: breakthroughs yet to come. a quarterly bulletin of the drought tolerant maize for africa project. dt maize publication, vol. 3, issue no. 3. alam, m and kausar, a (2016). transaction cost analysis of maize marketing in bangladesh. asian journal 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and law, vol. 9, num. 1, 2023, 88-97 88 the effect of logistics collaboration on logistics performance in the mro industry in indonesia qadria candra daeng malebby universitas trisakti , indonesia wahyuningsih santosa universitas trisakti , indonesia triwulandari sd universitas trisakti , indonesia received: feb 06, 2023 accepted: march 28, 2023 published: jan 01, 2023 abstract: this study clarifies the effect of supplier selection and information sharing on logistics performance mediated by logistics collaboration in the mro industry in indonesia. the independent variables used in this study were supplier selection and information sharing. meanwhile, the logistics collaboration variable is used as a mediation variable. and the dependent variable in this study is logistical performance. the sample in this study was 123 respondents from the logistics, procurement, and purchase of aircraft parts divisions at mro companies in indonesia using purposive sampling techniques. the data analysis model used is the structural equation model (sem). therefore, this study examines supplier selection, information sharing, logistics collaboration, and logistics performance in the mro industry in indonesia. the result of this study is that there is a positive influence of supplier selection on logistics collaboration, there is a positive influence between information sharing and logistics collaboration, there is a positive influence between logistics collaboration and logistics performance, there is a positive influence between supplier selection and logistics performance, and there is no influence between information sharing and logistics performance. the indicators in this study are adjusted to the business criteria of the mro industry itself. keywords: aviation, mro, logistics, procurement 1. introduction the maintenance, repair, and overhaul industry, hereinafter referred to as mro is an industry engaged in the aviation sector. in the civil aviation sector, mro is defined as "the performance of duties necessary to ensure the continuous airworthiness of an aircraft, including any or a combination of repairs, inspections, replacements, defect repairs, and the embodiment of modifications or repairs." the airline owns or leases its fleet, hoping that every available fleet can operate properly. but without forgetting the periodic maintenance on each of its fleets if it is on the ground. outsourcing aircraft mro operations to professional maintenance service providers has become a trend in the aviation industry, as the practice allows airline companies to focus on profitable passenger and cargo transportation service operations and meet the mandatory needs of aircraft mro (qin et al., 2020). due to high quality and safety standards, preventive maintenance of aircraft is essential. demand for parts arises either when random component failures occur or when components undergo preventive maintenance over their lifetime. the aircraft industry manages a large number of high-value parts characterized by unpredictable and nonstationary demand. in addition, unique parts are characterized by a high risk of obsolescence and high shortage costs. the unpredictable demand for inventory for such parts messes up the business of long-term suppliers. without good collaboration with the suppliers, it will be affected to waste more time and money. global demand for spare parts, the effect of logistics collaboration on logistics performance in the mro industry in indonesia 89 traceability ( for safety reasons), and high out-of-service ( for grounded aircraft) costs all exacerbate the difficulty of efficient parts inventory management in the mro industry (ghadge et al., 2018). procurement of mro parts that can be issued with one-time use on a single aircraft can lead to high inventory storage costs, and the process of overhauling rotatable components with long service cycles involves long lead times. in particular, some mro parts are expensive with a long service life, which can be rotated between different aircraft after repair. on the other hand, multiple parts are for single use on a single aircraft and their service life ends after being unloaded from the aircraft. in this case, maintaining sufficient spare parts and minimizing inventory costs are very important for mro companies (eltoukhy et al., 2017; ghadge et al., 2018). thus punctuality and cost efficiency are two major issues that exist in this mro industry in running an aircraft maintenance and repair business. so the logistics performance that supports aircraft parts procurement activities has an important role in the operational processes in the mro company's business process. supplier selection and information sharing are part of a series of activities in logistics collaboration, but in this study, researchers will focus on these two independent variables as part of the logistics collaboration that mro companies carry out in the early stages of logistics collaboration. supplier selection and information sharing are independent variables where researchers argue that these two activities are the starting point to achieve a good and sustainable collaboration, especially in the field of logistics procurement of aircraft parts in mro companies. meanwhile, logistics collaboration is one aspect of the success of logistics activities in the provision of aircraft spare parts, especially in aircraft repair and maintenance activities that have characteristics that are difficult to determine the demand. this study will be aimed at how logistics performance is influenced by logistics collaboration as mediation, as well as supplier selection and information sharing as independent variables. this study subjected mro running their business in indonesia, through the association iamsa (indonesia aircraft maintenance service association). iamsa has 31 memberships all around indonesia, the questionnaires are shared through the association's secretariat. 2. literature review 2.1. supplier selection this supplier selection process begins with the identification of the needs that the company has as a potential buyer and the prospective supplier will provide information that can be offered (ograh et al., 2021). the buyer will evaluate the supplier by several criteria (aharonovitz et al., 2018). regulation is a mandatory criterion for the evaluation of any supplier and can essentially be considered a risk mitigation activity in addition to the operator's assessment (holkeri, 2020). so it can be concluded that this supplier selection process is an important part of subsequent activities so that the company gets supplies that meet the required criteria and can avoid losses or losses in the future in logistics activities that can result in the core business of the mro industry, namely aircraft repair, and maintenance. quality control of the required supply can also be started from this process, to then be evaluated regarding the supply received later, especially for mro companies. 2.2. information sharing information sharing is believed to be beneficial for decision-making in the supply chain as well as company success (lai et al., 2020). not only aiming to improve the performance of a company but sharing this information is also useful in collaborative activities between buyers and suppliers. the more intensely companies share information with their suppliers, the more the company's ability will increase. the existence of information-sharing activities with collaborating partners can also improve company performance (kirono et al., 2019). as well as managing complex supply chains, companies can integrate sharing of this information between partners to reduce unnecessary spending in collaboration (lai et al., 2020). this information-sharing activity is useful not only within the company, but it can also be useful for external companies, especially in collaboration with suppliers or other partners who work with the company. in addition to achieving common goals, effective information sharing can also 2.3. logistic collaboration collaboration refers to two or more parties working together by integrating and sharing information in their business processes and improving shared performance (lai et al., 2020). collaboration can lead to improved performance in the supply chain. companies build collaborative relationships with their supply chain partners to achieve efficiency, qadria candra daeng malebby & wahyuningsih santosa & triwulandari sd 90 flexibility, and sustainable competitive advantage that ultimately leads to improved company performance (kirono et al., 2019). therefore, collaboration in the supply chain sector, especially for logistics activities, is needed, in addition to improving the performance of each collaborating company as well as sharing risks and increasing efficiency, flexibility, and achieving sustainable competitive advantages. and with this collaborative activity in logistics, the mro company will also get supplies of both spare parts, components, or logistical support needed for the company's core business. 2.4. logistic performance logistics performance indicators and criteria include cost, time, and reliability, which can be used to measure the performance of logistics operations among partners in the supply chain. (aharonovitz et al., 2018). logistics is one of the main sectors of economic development because the performance of logistics directly affects growth and development (karaduman et al., 2020). several specific criteria are very important, including on-time delivery, lead time, error-free delivery, scheduled delivery fulfillment, order filling rate, broken orders, urgent order delivery, delivery in periods of high demand, short transit times, availability of cargo space, vehicle, and container conditions (aharonovitz et al., 2018). it can be concluded that logistics performance is the result of measuring the index of logistics activities located in an enterprise and even a country. the results obtained from logistics activities in a company, in this study logistics performance can be measured through how logistics activities can support the core business of the mro company in carrying out repairs and maintenance of aircraft that require the availability of aircraft parts or components. figure 1: research framework source: author’s description 3. hypotheses development 3.1. supplier selection and logistic collaboration to achieve collaboration, companies must select the optimal suppliers by aligning their needs and capabilities between organizations (aharonovitz et al., 2018). companies can no longer be limited to their resources; they must cross boundaries to find suppliers with specific capabilities that meet their needs and that help them achieve responsiveness through coordination, flexibility, and collaborative capabilities between organizations. of course, in the world of aviation, as explained earlier, regulation is very much a necessity in every aspect of its operations, including spare parts needed in the process of aircraft maintenance and repair. for the parts needed by the mro company to meet the categories of regulations, the company must choose suppliers that are also within the standards of the applicable regulations. h1. there is a positive influence between supplier selection and logistics collaboration. the effect of logistics collaboration on logistics performance in the mro industry in indonesia 91 3.2. information-sharing and logistic collaboration information related to logistics activities should be shared within and across organizational boundaries to facilitate decision-making with logistics partners (lai et al., 2020). shared decision-making has been defined as the process by which supply chain partners coordinate activities in supply chain planning and operations to maximize supply chain performance. it generally refers to planning, integrating information, solving problems, and developing rules and regulations, and procedures (shahbaz et al., 2018). given that companies cannot survive without collaboration along the supply chain, the sharing and integration of logistics information has been considered an important driver of shared decision-making, which in turn improves the performance of logistics services and the performance of organizations (viet et al., 2018) h2. there is a positive influence between information sharing and logistics collaboration 3.3. logistic collaboration and logistic performance the results showed that is and collaboration partially affect supply chain performance. the existence of collaboration can improve company performance (kirono et al., 2019). classify supply chain collaboration into strategic systems and collaborations. both system collaboration and strategic collaboration were found to have a positive impact on supply chain responsiveness, whereas the impact of collaboration on market performance was mediated by supply chain responsiveness (lai et al., 2020). with the speed of delivery of spare parts with this logistics collaboration, researchers argue that there will be a positive influence on the relationship of this logistics collaboration variable with logistics performance in mro companies. h3. there is a positive influence between logistics collaboration and logistics performance. 3.4. supplier selection and logistic performance the ability of suppliers affects the reduction of costs, profitability, and flexibility of buyers, as well as their responsiveness to market changes. in addition, partners who connect their capabilities are likely to see their performance improve. for logistics managers, ensuring that suppliers can offer the necessary capabilities is critical to achieving a high level of service. the relevance of the selection of effective suppliers shows that logistics customer service greatly affects operational and marketing performance (aharonovitz et al., 2018). thus, with the selection of the right supplier, the researcher argues that there is a relationship between the supplier selection variable and the logistics performance in the mro company. h4. there is a positive influence between supplier selection and logistics performance. 3.5. information sharing and logistic performance sharing information with supply chain members includes the exchange of information on operations management (e.g. material flow, order entry, shipping, billing) as well as the exchange of estimates and plans (gelderman et al., 2020). there is an influence of integration/collaboration on information sharing and supply chain performance as well as the role of information sharing in achieving performance. examine the relationship between collaboration, information sharing, and supply chain performance. the results showed that information sharing and collaboration partially affect supply chain performance (kirono et al., 2019). h5. there is a positive influence on information sharing and logistics performance. 4. methodology the data used in this study is cross-sectional data on mro companies in indonesia. this study analyzes the variables of supplier selection and information sharing as independent variables, logistic collaboration as mediating variables (intervening variables), and logistics performance as dependent variables. questionnaires created using google forms are distributed via email, linkedin, and whatsapp. and the answer to the respondent will go on the google spreadsheet data. this study sample refers to the assumption of 5 x n (observed variables/indicators) (hair et al., 2019). this study consisted of 28 statement indicators, then 5 x 28 = 140 samples were needed. however, in the limited time and source of respondents, the total number of respondents who managed to get was 123 respondents. the characteristics of respondents in this study include gender, age of respondents, respondents' occupation, and respondent’s length of service. qadria candra daeng malebby & wahyuningsih santosa & triwulandari sd 92 table 1. demographic characteristics by gender respondents‘ gender frequency percent valid percent cumulative percent valid male 84 68.3 68.3 68.3 female 39 31.7 31.7 100.0 total 123 100.0 100.0 source: spss ver. 26 table 2. demographic characteristics by age respondents‘ age frequency percent valid percent cumulative percent valid >50 years old 7 5.7 5.7 5.7 20-30 years old 63 51.2 51.2 56.9 31-40 years old 51 41.5 41.5 98.4 41-50 years old 2 1.6 1.6 100.0 total 123 100.0 100.0 source: spss ver. 26 table 3. demographic characteristics by occupation respondents‘ occupation frequency percent valid percent cumulative percent valid manager 19 15.4 15.4 15.4 senior manager 5 4.1 4.1 19.5 staff 88 71.5 71.5 91.1 supervisor 11 8.9 8.9 100.0 total 123 100.0 100.0 source: spss ver. 26 table 3. demographic characteristics by length of service respondents‘ occupation frequency percent valid percent cumulative percent valid < 5 years 31 25.2 25.2 25.2 >15 years 9 7.3 7.3 32.5 10 15 years 10 8.1 8.1 40.7 5 10 years 73 59.3 59.3 100.0 total 123 100.0 100.0 source: spss ver. 26 5. data analysis 5.1. goodness-of-fit testing with the sem model is carried out in stages. if the right model has not been obtained, then the previous model needs to be revised. the importance of revising the sem model arises due to the presence of problems from the analysis process. a problem that may arise is the problem regarding the inability of the developed model to produce unique estimates. if the problem arises in the sem analysis, it can be identified that the study does not support the structural model formed. thus the model needs to be revised by developing existing theories to form a new one. the results of the goodness-of-fit test using amos software version 24. based on the results of testing the feasibility of the model, it was found that based on the value of sig. prob., rmsea, and cmin/df, a goodness-of-fit model was concluded. therefore, the testing of theoretical hypotheses can continue. therefore, the testing of theoretical hypotheses can continue. of the several model feasibility tests, the the effect of logistics collaboration on logistics performance in the mro industry in indonesia 93 model is said to be feasible if at least one of the model feasibility test methods is met (hair et al., 2019). in an empirical study, a researcher is not required to meet all goodness-of-fit criteria but depends on the judgment of each researcher. 5.2. validity and reliability table 4. validity results supplier selection logistic collaboration ss_1 0.662 valid lc_1 0.809 valid ss_2 0.697 valid lc_2 0.780 valid ss_3 0.643 valid lc_3 0.653 valid ss_4 0.690 valid lc_4 0.710 valid ss_5 0.638 valid lc_5 0.526 valid ss_6 0.548 valid lc_6 0.781 valid ss_7 0.658 valid lc_7 0.751 valid information sharing logistic performance is_1 0.644 valid lp_1 0.747 valid is_2 0.706 valid lp_2 0.796 valid is_3 0.687 valid lp_3 0.604 valid is_4 0.719 valid lp_4 0.821 valid is_5 0.694 valid lp_5 0.839 valid is_6 0.775 valid lp_6 0.618 valid is_7 0.651 valid lp_7 0.725 valid source: spss ver. 26 based on table 4 validity tests for all instruments of the variable can be said to be valid based on the value of the loading factor > 0.50. in other words, these statements have internal consistency so that they can form the construct of each of these variables. as for the basic reliability test of decision making, if cronbach's coefficient alpha ≥ 0.60 then the statement in the questionnaire is feasible to use (construct reliable). whereas if cronbach coefficient alpha < 0.60 then the statements in the questionnaire are not worth using (construct unreliable). table 5. reliability results variable coefficient cronbach's alpha decision supplier selection 0.721 reliable information sharing 0.821 reliable logistic collaboration 0.836 reliable logistic performance 0.851 reliable source: spss ver. 26 based on the reliability test table above, it can be said to be reliable based on cronbach's alpha value ≥ 0.60. in other words, these statements have internal consistency so that they can form the construct of each of these variables. qadria candra daeng malebby & wahyuningsih santosa & triwulandari sd 94 6. hypotheses testing hypothesis testing is used to determine the presence or absence of influence between independent variables and dependent variables. h0: variables that affect, have no significant effect on the variables affected h1: variables that affect, have a significant effect on the variables affected. the basis for making the decision is if the probability (significance) α > 0.05 then h0 is supported, while if the probability (significance) α < 0.05 then ha is supported. figure 2. hypotheses test results source: amos ver. 24 table 6. hypotheses results hypotheses estimate p-value one tail decision h1. there is a positive influence between supplier selection and logistics collaboration ,897 0.000 supported h2. there is a positive influence between information sharing and logistics collaboration ,342 0.000 supported h3. there is a positive influence between logistics collaboration and logistics performance ,175 0.003 supported h4. there is a positive influence between supplier selection and logistics performance ,415 0.001 supported the effect of logistics collaboration on logistics performance in the mro industry in indonesia 95 h5. there is a positive influence on information sharing and logistics performance ,028 0.262 not supported source: amos ver. 24 based on table 6 the results of the hypothesis test can be concluded as follows; in hypothesis 1, it is known that the size of the estimate of supplier selection with logistics collaboration is 0.897, meaning that the higher the perception of supplier selection, the higher the perception of logistics collaboration. the test results showed a p-value of 0.000 < 0.05 (alpha 5%) so it was concluded statistically at a 95 percent confidence level that there was a significant positive influence between supplier selection and logistics collaboration, this is in accordance with the hypothesis proposed. the p-value <0.05 so that h1 is supported, which means that supplier selection has a positive and significant effect on logistics collaboration in the mro industry in indonesia. in hypothesis 2, it is known that the estimated amount of information sharing with logistics collaboration is 0.342, meaning that the higher the perception of information sharing, the higher the perception of logistics collaboration. the test results showed a p-value of 0.000 > 0.05 (alpha 5%) so it was concluded statistically at a 95 percent confidence level that there was a positive influence between sharing information on logistics collaboration, this is in accordance with the hypothesis proposed. the p-value <0.05 so that h2 is supported, which means that information-sharing activities have a positive and significant effect on logistics collaboration in the mro industry in indonesia. in hypothesis 3, it is known that the size of the estimate of logistics collaboration has a positive effect on logistics performance is 0.175, meaning that the higher the perception of logistics collaboration, the higher the perception of logistics performance. the test results showed a p-value of 0.003 < 0.05 (alpha 5%) so it was concluded statistically at a 95 percent confidence level that there was a significant positive influence between logistics collaboration on logistics performance, this is in accordance with the hypothesis proposed. the p-value <0.05 so that h3 is supported, which means that logistics collaboration has a positive and significant effect on logistics performance in the mro industry in indonesia. in hypothesis 4, it is known that the size of the estimate of supplier selection with logistics performance is 0.415, meaning that the higher the perception of supplier selection, the higher the perception of logistics performance. the test results showed a p-value of 0.001 < 0.05 (alpha 5%) so it was concluded statistically at a 95 percent confidence level that there was a significant positive influence between supplier selection on logistics performance, this is in accordance with the hypothesis proposed. the p-value <0.05 so that h4 is supported, which means supplier selection has a positive and significant effect on logistics performance in the mro industry in indonesia. in hypothesis 5, it is known that the estimated amount of information sharing with logistics performance is 0.028, meaning that the higher the perception of information sharing, the higher the perception of logistics performance. the test results showed a p-value of >0.5 then the hypothesis was rejected. 7. discussion so it can be concluded that the results of the research on the influence of supplier selection and information sharing on logistics performance with logistics collaboration as a mediating variable in the mro industry in indonesia are as follows: h1: there is a positive influence between supplier selection and logistics collaboration. it can be seen in the results, the selection of suppliers has a positive effect on logistics collaboration. with the resulting estimation value, the relationship between supplier selection strongly affects logistics collaboration. so in another sense, the selection of the right supplier for the mro company can have a significant increase in their logistics collaboration. supplier selection is an important activity in the early stages of logistics collaboration with companies in the mro industry in indonesia, in this study stated that supplier commitment is an important indicator to be able to choose suppliers that suit the company's needs to achieve a good collaboration in the future. h2: there is a positive influence between information sharing and logistics collaboration. based on the results of statistical testing, information-sharing has a positive effect on logistics collaboration. with the resulting estimation value, the relationship between information-sharing activities affects logistics collaboration quite qadria candra daeng malebby & wahyuningsih santosa & triwulandari sd 96 strongly. information-sharing activities in logistics collaboration with companies in the mro industry in indonesia are also important, but in this case, of course, there are limits to the information that can be shared. based on the results of the statement indicators, sharing information through electronic media is an important thing that mro companies need in increasing collaboration with their partners. with information-sharing activities, it is hoped that the cooperative relationship between mro companies and their partners can make good and sustainable cooperation to be able to support the operational activities of their respective companies, especially in logistics activities. h3: there is a positive influence between logistics collaboration and logistics performance. based on the resulting estimation value, the relationship between logistic collaboration affects logistics performance quite weakly. the existence of logistics collaboration in companies in the mro industry in indonesia affects increasing the company's logistics performance. it can be seen from this research how the company's logistics collaboration with its partners can improve the logistics performance of mro companies in the core business. h4: there is a positive influence between supplier selection and logistics performance. based on the results of statistical testing, with the resulting estimation value, the relationship between supplier selection strongly affects logistics performance. the right supplier selection can improve good logistics performance for companies in the mro industry in indonesia. that means this supplier selection activity affects the overall results of the company's logistics performance. it can be said that this activity has an important effect on the logical activities of companies, especially mro companies, in which case researchers conduct research in indonesia. h5: there is no influence between information sharing and logistics performance. based on the results of the hypothesis test, states that information-sharing does not affect logistics performance in mro companies in indonesia. 8. conclusion based on the results of research and discussion obtained from the previous chapters, it can be concluded that:  supplier selection activities have a positive and significant effect on logistics collaboration in the mro industry in indonesia.  information-sharing activities with company partners have a positive and significant effect on logistics collaboration in the mro industry in indonesia.  logistics collaboration has a positive and significant effect on logistics performance in the mro industry in indonesia.  supplier selection activities have a positive and significant effect on logistics performance in the mro industry in indonesia.  more information-sharing activities carried out will not always have a good influence on logistics performance, such as some information that is not related to logistics activities also cannot support the increasing logistics performance in the company. however, information-sharing activities with company partners do not affect the performance of logistics in the mro industry in indonesia. 9. managerial implications the results of this study have implications that can be considered for the management of companies in the mro industry in indonesia to be able to improve logistics performance. based on this research, it is proven that the initial stages of logistics collaboration such as supplier selection and information sharing are important things that can improve logistics performance in the end. especially in the mro industry where the supply of spare parts and components is needed in aircraft maintenance and maintenance. however, it can also be concluded that informationsharing activities in mro companies have proven to have no direct effect on logistics performance, which means that information-sharing activities can still be carried out but within certain limits in providing information. only information that focuses on logistics activities is needed. 10. final considerations and limitations this research is limited to sharing information that occurs from mro companies with their partners, not researching information-sharing activities internally in the company. there is no indirect relationship between supplier selection the effect of logistics collaboration on logistics performance in the mro industry in indonesia 97 and information sharing on logistics performance mediated by logistics collaboration in the mro industry in indonesia. based on the limitations above, the researcher's suggestions for further research progress are research can be carried out with the relationship of information sharing activities divided into 2 parts, namely information sharing activities internally and externally in the company. and further research can conduct research with additional hypotheses for the indirect relationship between supplier selection and information sharing on logistics performance mediated by logistics collaboration in the mro industry in indonesia. 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(2018). the value of information in supply chain decisions: a review of the literature and research agenda. computers and industrial engineering, 120, 68–82. https://doi.org/10.1016/j.cie.2018.04.034 journal of international trade, logistics and law, vol. 3, num. 1, 2017, 87-102 a hybrid model proposal for personnel performance evaluation process under fuzzy environment burak fahir memik, (mssc) istanbul commerce university, turkey berk ayvaz, (phd) istanbul commerce university, turkey received: apr. 12, 2017 accepted: may 11, 2017 published: june 1, 2017 abstract performance evaluation process is becoming more and more important for today's organizations because of directly influencing the organizations performance. the performance evaluation process is a multi-criteria decision-making problem due to involving the qualitative and quantitative criteria. in this study, topsis (technique for order preference by similarity to ideal solution) and analytical hierarchy process (ahp) in fuzzy environment are suggested as an integrated model for the personnel performance evaluation problem. the proposed model provides convenience for the executives in the personnel performance evaluation stage. keywords: performance evaluation, multi criteria decision making, fuzzy logic 1. introduction in recent years, the competition among the organizations has increased due to the globalization effect, technological advances, economic and social reasons. under these conditions, it is now deemed as a need by the organizations to establish more efficient and effective systems, meaning more successful systems compared to their competitors. there are many factors having an impact on the success of an organization, yet one of the most important factors is the employed human source. the organizations, being aware of this matter, must focus particularly on the personnel performance issue while measuring the performance of critical points in their systems. the term "performance evaluation" has been discussed for the first time during early 1900s in usa, and started to be used scientifically with the studies of frederick taylor. the term "performance evaluation" has started to draw the attention of both organizations and also the academic researchers in the recent years. the personnel performance evaluation is a multi-criteria decision-making problem, which involves both numerical and non-numerical criteria within. since the non-numerical criteria is not based on the subjective evaluation of the decision maker, the evaluation based on such criteria may variate depending on the decision makers. this matter prevents the performance evaluation phase to be objective. fuzzy decision multi-criteria decision-making methods have been used because of the fact that certain criteria as designated within the performance evaluation phase involves uncertainty, and that they are based on the subjective opinions of the decision makers. in this study, a detailed review of literature is presented concerning the personnel performance evaluation on next chapter. on the third chapter, information about the fuzzy analytical hierarchy process (ahp) and fuzzy topsis are provided, suggested as the solution of the problem. the fourth chapter comprises of the results and analyses of a case study, in which the suggested model is applied during the personnel evaluation process of a company, carrying on business in manufacturing sector. 88 burak fahir memik, berk ayvaz 2. literature review on this part of the study, the literature review conducts related to the performance evaluation are analyzed. eraslan and algun (2004) formed four main criteria for white-collar workers in a company, which are personal criteria (work experience, following the orders, respecting to the superiors, taking initiatives, leadership, marital status, saving behaviour, bringing the family problems in work environment), behavioral criteria (working in cooperation and in harmony, dependability, taking responsibility, improving the subordinates, communication with the customers, creativity, protection of the office supplies, social relations, disciplinary punishment), technical criteria (knowledge & skill levels, protecting the machinery, tools and equipment, supervision requirement, having the ability to work in different lines of business) and general criteria (work attendance and resistance to stress). on the other hand, the personal criteria, behavioral criteria, technical criteria and productivity & efficiency criteria have been used for blue-collar workers. the ahp method was used for performance evaluation in the study. camgoz and alperten (2006) applied the 360 degree performance evaluation method, as one of the human resources practices. the following criteria have been analyzed as evaluation criteria in the study: personal integrity, technical skill, analysis, leadership, motivation, implementation, contribution to personal development. kadak (2006) used the ahp method for the performance evaluation problem of the sales department employees in a company in pharmaceutical industry. sixteen sub-criteria were used under the following main criteria: sales based targets, member based targets, skill based targets. these sub-criteria are as follows: sales target realization, revenue alteration, active member, campaign-target realization, number of mistakes, revenue alteration of the members with lower revenue, online ordering member, informed member, communication, adaptation to teamwork, job-tracking and finalization, personal development. dagdeviren (2007) divided the factors to be used in personnel evaluation with fuzzy ahp method, as occupational and personal factors in his study, discussing the exchange knowledge, foreign trade knowledge and legislation knowledge as occupational factors, while discussing the matters of taking initiative, perception, analytical thinking, physical appearance as personal factors. demirtas (2009) offered a new model for the performance evaluation system of engineer officers in turkish armed forces. three main evaluation criteria are discussed in this study, as personal, martial and inner criteria, while the subcriteria are as follows: creativity, communication, experience, leadership, researching, sense of responsibility, initiative, sticking by the disciplinary rules, decision-making skills on politeness and kindness, physical and mental endurance, success in the auditing process, task knowledge and dominance, planning skills, organizing skills, tracking and control skills. akcakanat (2009) focused on the performance evaluation problem in a police department in his study. in this study, twenty one evaluation criteria in total are determined by discussing the basic and administrative skills. kayhan (2010) analyzed the employee performance by using the fuzzy ajp and fuzzy topsis methods with two separate normalization techniques in his study. the performance evaluation criteria are discussed in four groups in the study as follows: basic competence criteria, first-stage administrative competence criteria, mid-level administrative competence criteria and top-level competence criteria. "teamwork, communication, innovation, problem solving and decision making, customer centricity, loyalty to his/her job" criteria are used as basic competence criteria, while "performance management, work development, decision making and crisis management, representation and effectiveness, planning and organization, corporate culture and awareness" subcriteria are applied as administrative competence criteria. moon et al. (2009) developed an evaluation system with fuzzy logic method for performance evaluation problem in military in the study. the main criteria of service evaluation, sophisticated skills, growth potential and innovation are used in the performance evaluation process. balli et al. (2009) developed a fuzzy extern system in order to evaluate the annual performance of employees in an organization in his study. the following criteria are discussed during practical process: self-confidence, adaptation, resolution, skills, responsibility criteria. ozdaban (2010) created a fuzzy decision model on work evaluation and personnel evaluation in his study. twelve subcriteria are designated under four main criteria, while fifty other criteria are determined under these subcriterias. the main criteria comprise of skills, responsibility, effort and work conditions. mohammed analyzed the performance evaluation of academic personnel in his study (2010), and based on the following main criteria: "research, education and service criteria". manoharan et al. (2011) used the following criteria on a study carried out on the performance evaluation in a company manufacturing automotive parts: work knowledge, continuity, cost efficiency, versatility, relations between individuals, adaptation, teamwork, conciliation, a hibrid model proposal for personnel performance evaluation process under fuzzy environment 89 collaboration. in this study, the fuzzy multi-criteria decision-making technique was used. gungor and biberci (2011) used the 360 degree performances evaluation and ahp method. the criteria used in this study are as follows: leadership, occupational & technical skills, adaptation to changes, communication skills, human relations, result accomplishment, personnel training. kara (2011) used 360 degree performance evaluation method in his study and put it into practice for mid-level managers. the criteria of leadership, task management, adaptation to changes, communication, human relations, result oriented, personnel training and developing were used. gorener and tepe (2014) used the ahp and moora methods for personnel selection problem. graduation, computer skills, competence level, foreign language level, projected generated concerning the job definition, experience, references, face-to-face meeting, interview, social activities are discussed as evaluation test criteria. espinilla et al. (2013) designated eleven criteria for personnel performance evaluation. these criteria comprise of productivity, sales amount, average off-time, company introduction, interest in training, work management, customer services, responsibility, initiative, exemplifying, personal appearance. tore (2014) designated fourteen performance criteria concerning the performance of employees in banking sector. these criteria are as follows: completing the work on time, good-humoredly communication with the customers, having a good knowledge store on its profession, vocational-trainings received, type of graduation, graduation grade, working hours, assigned department, personnel number in the department, number of customers coming to the branch, type of transactions carried out in the branch, specifications of the site where the branch is located, working hours in the branch. samuel et al. (2014) focused on the performance evaluation of academic personnel. the main criteria of academic competence, publications, educational & research studies, contributions, corporate belonging, specialties are discussed in his study. the fuzzy decision system is used for the evaluation process. kang and shen (2015) discussed the work performance, occupational behaviors, competence and corporate belonging criteria in the study carried out on personnel performance evaluation. karadag albayrak and senger (2015) carried out a study on personnel evaluation with gray relation analysis method. the personnel performance criteria, which were used in the study, are as follows: professional knowledge store level, professional quality level, professional quantity level, tendency to collaboration, level of entrepreneurism, level of work responsibility, level of work commitment, as well as the decision-making skills. 3. problem definition and the methodology the following criteria are decided to be used for personnel evaluation problem based on the literature review and the discussions with experts: communication, teamwork, job responsibility, business development, problem solving and decision making, technical knowledge and skills, honesty (see table 1). table 1 performance evaluation criteria performance evaluation criteria description reference communication (c1) transferring the message from one to another by means of emotions, thoughts, information and behaviour in any way and in any form camgöz ve alperten (2006);kayhan (2010); yıldız ve aksoy(2015) teamwork (c2) the ability to work by cooperating and harmonizing for the ones by thinking the key to success is a team work. demir (2009); mohammed (2010); kayhan (2010); yıldırım (2015) job responsibility (c3) the ability to fulfill the responsibilites and embrace the work which the one works for. eraslan ve algün (2004); demirtaş (2009); espinilla v.d.(2013); şimşek vd.(2014) 90 burak fahir memik, berk ayvaz business development (c4) the ability of firm providing all possibilities that accommodates for the worker to present proposals and create new ideas mohammed (2010); kayhan (2010); yıldırım (2015) problem solving and decision making (c5) the ability to think all the alternatives in case of any crisis in the frame of rationality, sound judgements and problem solving. demir (2009); demirtaş (2009); kayhan (2010); karadağ ve senger. (2016) technical knowledge and skills (c6) the ability to have technical data and information for the relevant position in the firm. eraslan ve algün (2004); camgöz ve alperten (2006); güngör ve biberci (2011); yıldırım (2015) honesty(c7) with the aim of sustainability of the work and healty information that spreads to managers, co-workers and employees , it is the ability to be honest and clear when it comes to transferring the message within the frame of the work. küçü (2007); ekin (2014) on this chapter of the study can be found the methods suggested for personnel performance evaluation problem. 3.1. fuzzy ahp ahp is one of the multi-criteria decision-making methods used in modelling the unstructured problems in many fields like social, economic, political and management sciences (saaty, 1980). the ahp method has been criticized many times since it is argued that it remains incapable of handling the uncertainties encountered during the parried comparison process, although the calculations are made based on the knowledge of decision maker (deng, 1999; kahraman, 2003). for this reason, the theories of ahp and fuzzy logic are combined, and certain studies have been carried out for determining the criteria degree of the decision maker based on his/her personal judgement, thus naming these studies as fuzzy ahp (yang and chen, 2004). in fuzzy ahp method, the value ranges are utilized for determining the paired comparison rates instead of definite numbers, differently from the traditional ahp method (bender and simonovic, 2000). the experts are stating their opinions with non-graphic analyses, which in factis a more realistic alternative, instead of a definite numerical statement on a certain subject. these non-graphic analyses comprise of triangular fuzzy numbers, indicating the judgement range (gu and zhu, 2004). when the literature in considered from this point of view, the first study on ahp was carried out by van laarhoven and pedrytez (1993) with triangular fuzzy numbers. then, buckley developed a model in ahp with trapezoidal fuzzy numbers (1985). the steps to be taken in fuzzy ahp method are as follows (kahraman, 2004): range of objects = the object represents the main criteria when considered from the point of main objective, while representing the sub criteria when viewed from the point of main criteria. in accordance with the grade analysis by chang, each and every object is analyzed one by one, the grade analysis is performed for each objective and respectively . the grade analysis values for each object are expressed with the following serial (kahraman, 2004). these values are triangular fuzzy numbers. 1st step: first, the fuzzy values are defined, as object based. a hibrid model proposal for personnel performance evaluation process under fuzzy environment 91 (1) for getting this result, the following additional fuzzy process is performed. (2) for getting this amount, the fuzzy addition is performed for these values: (3) taking the reciprocal of the above stated vector is stated as follows: ; (4) i, m, u values indicate the triangular fuzzy numbers.(i=lowest value, m=most probable value, u=highest value) 2nd step: probability is indicated as follows: and it is also stated as follows: (5) in order to compare the ve values, ve values are required. 3rd step: the possibility of the convex fuzzy number to be higher than the k convex fuzzy number is stated as follows: (6) ; i=1,2,3,…,k in case for each k=1,2,3,…,n; k≠i; , the weight vector will be as follows: ( 7) 4th step: the weight vector is normalized through normalization process. the w value received here is not the fuzzy number, but it is the number indicating certainty. (8) 3.2.1. liou and wang method the total integral value method based ranking method suggested by liou and wang in 1992 (kaptanoglu, 2005). 92 burak fahir memik, berk ayvaz calculation algorithm of total integral values for triangular fuzzy numbers is as follows: ] ( 9) the value is taken in the range [0,1] for "a", which is defined as the optimism index of the decision maker. the higher "a" index is used for an optimistic decision maker, while this value is used for pessimistic decision maker, when it gets lower. 3.2 fuzzy topsis topsis is a multi-criteria decision making method, developed by c. l. hwang and k. yoon (1981). while it is the closeness to be found for ideal solution in topsis method, which is based on finding and selecting the alternative that is the most probable ideal solution, the distance is analyzed in terms of positive and negative ideal solution (hwang and yoon, 1981). in this method, it is argued that the fuzzy logic can be utilized to become free of subjective judgments of decision makers, and the first study on this matter was carried out by negi in 1989 through the usage of triangular fuzzy numbers with topsis method in his ph.d. dissertation. after then, this method has been used in many decision making problems. the triangular fuzzy numbers can be utilized in topsis method, and the trapezoidal fuzzy numbers are frequently utilized, as well. the fuzzy topsis method can be defined as a method for evaluating and ranking of alternatives based on many decision criteria under certainty by more than one decision maker, thus making the right decision for the selection. the grades of the criteria used for evaluating the importance of criteria are stated with non-graphic variables. the used non-graphic variables and used variables, as triangular fuzzy numbers, can be found on table 2 and table 3 (ying ming wang, 2006). table 2 non-graphic variables for importance level of criteria, and the relevant triangular fuzzy numbers (chen et al., 2006) linguistic variable triangular fuzzy numbers trapezoidal fuzzy numbers absolutely low (0, 0, 0.1) (0, 0, 0.1, 0.2) low (0, 0.1, 0.3) (0, 0.2, 0.2, 0.3) medium low (0.1, 0.3, 0.5) (0.2, 0.3, 0.4, 0.5) fair (0.3, 0.5, 0.7) (0.4, 0.5, 0.5, 0.6) medium high (0.5, 0.7,0.9) (0.5, 0.6, 0.7, 0.8) high (0.7, 0.9,1) (0.7, 0.8, 0.8,0.9) very high (0.9, 1, 1) (0.8, 0.9, 1.0, 1.0) table 3 non-graphic variables for importance level of criteria, and the relevant triangular fuzzy numbers (chen et al., 2006) linguistic variable triangular fuzzy numbers trapezoidal fuzzy numbers very bad (0, 0, 1) (0, 0, 1, 2) bad (0, 1, 3) (0, 2, 2, 3) medium bad (1, 3, 5) (2, 3, 4, 5) a hibrid model proposal for personnel performance evaluation process under fuzzy environment 93 fair (3, 5, 7) (4, 5, 5, 6) medium good (5, 7, 9) (5, 6, 7, 8) good (7, 9, 10) (7, 8, 8, 9) very good (9, 10, 10) (8, 9, 10, 10) in here, k x decision maker is equal to dr (r=1,..,k). is for the importance level on kj (j=1,.., m) through j. criteria by r. decision maker. indicates the level of i. alternative ai (i=1,…,n), based on the value given by r. decision maker concerning j. criteria. the fuzzy topsus method comprises of the following steps (chen et al., 2006): 1) for personnel performance evaluation process, k x decision maker is to be designated. the designated k x decision maker designate(s) the personnel performance evaluation criteria based on the literature review. 2) the importance of selection criteria and evaluation of the alternatives for each criteria by the k x decision maker is to be calculated using the equation (10) and (11): (10) (11) 3) a fuzzy decision matrix is formed for criteria and alternatives. (12) (13) 4) the fuzzy decision matrix is normalized for the personnel with linear scale conversion. (14) as the set of b benefit criteria and c cost criteria: , (15) , (16) eğer (17) eğer (18) 5) the weighted-normalized fuzzy decision matrix is calculated by multiplying the criteria weight with normalized fuzzy decision matrix elements i=1, 2,…., m and j=1,2,….,n (19) (20) 6) the positive fuzzy ideal solution (a*) and the negative fuzzy ideal solution (a--) is found. 94 burak fahir memik, berk ayvaz (21) (22) and j=1,2,….,n (23) 7) the distance of each alternative from and is calculated. , i=1,2,….,m (24) ,i=1,2,….,m (25) d(.,.)the difference between two fuzzy numbers 8) closeness coefficient is calculated for each alternative. , i=1, 2,…., m (26) 9) a ranking is applied between the alternatives based on the closeness coefficient 3. the proposed model in this study, the presented integrated model for personnel performance evaluation includes two-phased, the criteria weight is designated with fuzzy ahp method on the first phase. on the second phase, the ranking for the personnel performance is provided via the fuzzy topsis method. the flow diagram of the integrated model suggested in this study can be seen on figure 1. a hibrid model proposal for personnel performance evaluation process under fuzzy environment 95 figure 1. flow diagram of the proposed model step 3.3: calculate (+) and (-) ideal solutions step 3.4: estimate the distance of each alternative from (+) and (-) ideal solutions step 3.5: obtain the relative closeness (cc) of each alternative and rank the alternatives based on cc values personel performance evaluation adım 1.1: determine the decision making group from managers and engineers step 1.2: determine the criteria for personel performance evaluation step 2.1: perform pairwise comparisons for criteria and alternatives step 2.2:compute the geometric average of decision makers’ evaluation step 2.3:obtain the fuzzy weights of each criterion and perform defuzzification step 3.1: obtain the normalized decision matrix step 3.2: calculate the weighted (weights are obtained from step 2.3) normalized decision matrix 96 burak fahir memik, berk ayvaz 4. application the presented method in this study was applied on the personnel performance evaluation process of a company, which is a leading organization in its field in turkey. the fuzzy ahp is used during the weighting phase of personnel performance evaluation criteria, seven criteria (c=1,..,7) were determined by three decision maker for the performance evaluation of seven employees (p=1,..,7) working in the technical marketing department of the company with fuzzy topsis method on the second phase. performans değerlendi̇rme c1 c2 c3 c4 c5 c6 c7 p1 p2 p3 p4 p5 p6 p7 figure 2: hierarchical structure of performance evaluation 4.1. calculating the criteria weights using the fuzzy ahp step 1: on this phase the phase of criteria weighting the fuzzy ahp method is utilized, the decision makers were asked to compare each criteria with each other and to state these comparisons based on the scale on table 4. the data obtained based on the comparisons made by three decision makers can be found on table 5. table 4 the importance level of triangular fuzzy numbers absolutely more importance (7,9,9) very strongly more importance (5,7,9) strongly more importance (3,5,7) weakly more importance (1,3,5) equal importance (1,1,1) weakly more importance (1/5,1/3,1/1) strongly more importance (1/7,1/5,1/3) very strongly more importance (1/9,1/7,1/5) absolutely more importance (1/9,1/9,1,7) a hibrid model proposal for personnel performance evaluation process under fuzzy environment 97 table 5 integrated evaluation matrix in which the criteria are compared via paired comparison method. criteria c1 c2 c3 c4 c1 (1,00; 1,00; 1,00) (3,98; 6,08; 7,61) (0,57; 0,79; 1,22) (0,48; 0,75; 1,00) c2 (0,13; 0,16; 0,25) (1,00; 1,00; 1,00) (1,71; 2,60; 3,98) (1,44; 2,32; 3,66) c3 (0,82; 1,26; 1,75) (0,25; 0,39; 0,58) (1,00; 1,00; 1,00) (1,00; 1,91; 3,56) c4 (1,00; 1,33; 2,08) (0,27; 0,43; 0,69) (0,28; 0,52; 1,00) (1,00; 1,00; 1,00) c5 (1,61; 2,29; 3,56) (1,00; 1,44; 1,71) (1,00; 1,33; 2,08) (1,44; 1,71; 1,91) c6 (0,49; 0,82; 1,91) (0,52; 0,70; 1,00) (0,52; 0,78; 1,44) (0,52; 0,78; 1,44) c7 (7,00; 9,00; 9,00) (7,00; 9,00; 9,00) (7,00; 9,00; 9,00) (7,00; 9,00; 9,00) criteria c5 c6 c7 c1 (0,28; 0,44; 0,62) (0,52; 1,22; 2,03) (0,11; 0,11; 0,14) c2 (0,58; 0,69; 1,00) (1,00; 1,42; 1,91) (0,11; 0,11; 0,14) c3 (0,48; 0,75; 1,00) (0,69; 1,29; 1,91) (0,11; 0,11; 0,14) c4 (0,52; 0,58; 0,69) (0,69; 1,29; 1,91) (0,11; 0,11; 0,14) c5 (1,00; 1,00; 1,00) (0,84; 1,10; 1,71) (0,11; 0,11; 0,14) c6 (0,58; 0,91; 1,19) (1,00; 1,00; 1,00) (0,11; 0,11; 0,14) c7 (7,00; 9,00; 9,00) (7,00; 9,00; 9,00) (1,00; 1,00; 1,00) step 2: the data on table 5 are calculated with the equations stated on the 1st step of fuzzy ahp method, and stated as in table 6. table 6 the fuzzy numbers obtained on the 1st stage of fuzzy ahp c1 c2 c3 c4 l 0,05871663 0,050555307 0,036850934 0,032818372 m 0,104198136 0,083253832 0,067288601 0,052781226 u 0,181739643 0,159416918 0,132811932 0,100391961 c5 c6 c7 l 0,059269652 0,031768127 0,363554115 m 0,090018952 0,051103493 0,55135576 u 0,161648938 0,108443553 0,733996455 step 3: for finding the probability the equation no.: 5 is utilized. the probabilities as found are indicated with the following equations. v(c1) ≥ v(c2)=1 v(c1) ≥ v(c3) =1 v(c1) ≥ v(c4) =1 v(c1) ≥ v(c5) =1 v(c1) ≥ v(c6)= 1 v(c1) ≥ v(c7)= 0 v(c2) ≥ v(c1) =1,276 v(c2)≥ v(c3) =1 v(c2)≥ v(c4) =1 v(c2)≥ v(c5) =1,284 v(c2)) ≥ v(c6) =1 v(c3) ≥ v(c4) =1 v(c3) ≥ v(c5) =1,09 v(c3) ≥ v(c6) =1 v(c3) ≥ v(c7) =0 v(c4) ≥ v(c1) 0,82 v(c4) ≥ v(c2)=1,01 v(c4) ≥ v(c3) =1,30 v(c4) ≥v(c5) =0,83 v(c4) ≥v(c6) =1 v(c4) ≥v(c7) =0 v(c5) ≥ v(c1) =1,39 v(c5) ≥ v(c6) =1 v(c5) ≥ v(c7) =0 v(c6) ≥v(c1) =0,82 v(c6) ≥v(c2)=1,518 v(c6) ≥v(c3) =1,218 v(c6) ≥v(c4) =1,298 v(c6) ≥v(c5) =0,826 v(c6) ≥v(c7) =0 v(c7) ≥v(c1) =1 v(c7) ≥v(c2)=1 v(c7) ≥v(c3) =1 98 burak fahir memik, berk ayvaz v(c2)≥ v(c7) =0 v(c3) ≥ v(c1) =1,085 v(c3) ≥ v(c2)=1,22 v(c5) ≥v(c2)=1 v(c5) ≥v(c3) =1 v(c5) ≥ v(c4) =1 v(c7) ≥v(c4) =1 v(c7) ≥v(c5) =1 v(c7) ≥v(c6) =1 step 4: the weight vector is obtained as stated in equation 6. then this weight vector is normalized, thus being stated as following. however, since each and every criteria except for one receives the value of "0", the ranking is not performed as per cheng, but the ranking method by liou and wang, mentioned in the literature, is used, which we think is more suitable. the weight vector with cheng ranking method: and the raking method, as per liou and wang, can be found as follows: , defined as the optimism index of the decision maker, is taken as 0,5 in the range of [0,1]. this is calculated with the formula in figure 9, thus having the following results. the weight vector as per these values: when this vector is normalized: 4.2. analysis of performance evaluation with fuzzy topsis method three decision makers designated each personnel for designated criteria with the non-graphic variables as in table 7. and in table 8 can be found the non-graphic variables in terms of triangular fuzzy numbers. table 7 evaluation of personnel by the executives with verbal expressions evaluation criteria personnel decision makers d1 d2 d3 c1 p1 (f) (g) (vg) p2 (f) (vg) (mg) p3 (f) (g) (g) p4 (mb) (vb) (g) p5 (g) (vg) (vg) p6 (mg) (g) (g) p7 (mg) (mg) (g) c2 p1 (f) (mg) (mg) p2 (f) (g) (mg) p3 (mg) (g) (mg) p4 (mb) (b) (mg) p5 (g) (vg) (g) p6 (mg) (g) (mg) p7 (g) (g) (mg) a hibrid model proposal for personnel performance evaluation process under fuzzy environment 99 c3 p1 (f) (vg) (g) p2 (f) (g) (g) p3 (f) (g) (g) p4 (f) (f) (g) p5 (mg) (vg) (g) p6 (mg) (g) (g) p7 (g) (vg) (g) c4 p1 (f) (mg) (g) p2 (f) (mg) (g) p3 (f) (mg) (g) p4 (mb) (b) (g) p5 (mg) (g) (vg) p6 (f) (f) (g) p7 (mg) (g) (g) c5 p1 (f) (mg) (g) p2 (f) (mb) (g) p3 (f) (f) (g) p4 (f) (f) (g) p5 (mg) (g) (g) p6 (mg) (f) (g) p7 (f) (f) (g) c6 p1 (mg) (f) (g) p2 (f) (f) (mg) p3 (mg) (mg) (mg) p4 (g) (g) (g) p5 (g) (mg) (vg) p6 (mg) (mb) (mg) p7 (mg) (g) (mg) c7 p1 (mb) (b) (vg) p2 (vg) (vg) (vg) p3 (g) (vg) (vg) p4 (g) (vg) (vg) p5 (vg) (g) (vg) p6 (vg) (vg) (vg) p7 (vg) (g) (vg) table 8 the fuzzy numbers obtained after the personnel evaluation evaluation criteria personnel decision makers d1 d2 d3 c1 p1 (3,5,7) (7,9,10) (9,10,10) p2 (3,5,7) (9,10,10) (5,7,9) p3 (3,5,7) (7,9,10) (7,9,10) p4 (1,3,5) (0,0,1) (7,9,10) p5 (7,9,10) (9,10,10) (9,10,10) p6 (5,7,9) (7,9,10) (7,9,10) p7 (5,7,9) (5,7,9) (7,9,10) c2 p1 (3,5,7) (5,7,9) (5,7,9) p2 (3,5,7) (7,9,10) (5,7,9) 100 burak fahir memik, berk ayvaz p3 (5,7,9) (7,9,10) (5,7,9) p4 (1,3,5) (0,1,3) (5,7,9) p5 (7,9,10) (9,10,10) (7,9,10) p6 (5,7,9) (7,9,10) (5,7,9) p7 (7,9,10) (7,9,10) (5,7,9) c3 p1 (3,5,7) (9,10,10) (7,9,10) p2 (3,5,7) (7,9,10) (7,9,10) p3 (3,5,7) (7,9,10) (7,9,10) p4 (3,5,7) (3,5,7) (7,9,10) p5 (5,7,9) (9,10,10) (7,9,10) p6 (5,7,9) (7,9,10) (7,9,10) p7 (7,9,10) (9,10,10) (7,9,10) c4 p1 (3,5,7) (5,7,9) (7,9,10) p2 (3,5,7) (5,7,9) (7,9,10) p3 (3,5,7) (5,7,9) (7,9,10) p4 (1,3,5) (0,1,3) (7,9,10) p5 (5,7,9) (7,9,10) (9,10,10) p6 (3,5,7) (3,5,7) (7,9,10) p7 (5,7,9) (7,9,10) (7,9,10) c5 p1 (3,5,7) (5,7,9) (7,9,10) p2 (3,5,7) (1,3,5) (7,9,10) p3 (3,5,7) (3,5,7) (7,9,10) p4 (3,5,7) (3,5,7) (7,9,10) p5 (5,7,9) (7,9,10) (7,9,10) p6 (5,7,9) (3,5,7) (7,9,10) p7 (3,5,7) (3,5,7) (7,9,10) c6 p1 (5,7,9) (3,5,7) (7,9,10) p2 (3,5,7) (3,5,7) (5,7,9) p3 (5,7,9) (5,7,9) (5,7,9) p4 (7,9,10) (7,9,10) (7,9,10) p5 (7,9,10) (5,7,9) (9,10,10) p6 (5,7,9) (1,3,5) (5,7,9) p7 (5,7,9) (7,9,10) (5,7,9) c7 p1 (1,3,5) (0,1,3) (9,10,10) p2 (9,10,10) (9,10,10) (9,10,10) p3 (7,9,10) (9,10,10) (9,10,10) p4 (7,9,10) (9,10,10) (9,10,10) p5 (9,10,10) (7,9,10) (9,10,10) p6 (9,10,10) (9,10,10) p7 (9,10,10) (7,9,10) (9,10,10) step 5: averaging the fuzzy numbers obtained after the personnel evaluation by the executives as in table 8, the weight for each criteria is multiplied, thus being designated as in table 9. table 9 average normalized fuzzy decision matrix c1 c2 c3 c4 p1 (0,05;0,07;0,08) (0,04;0,05;0,07) (0,05;0,07;0,08) (0,04;0,06;0,08) p2 (0,05;0,06;0,08) (0,04;0,06;0,08) (0,05;0,07;0,08) (0,04;0,06;0,08) a hibrid model proposal for personnel performance evaluation process under fuzzy environment 101 p3 (0,05;0,07;0,08) (0,05;0,07;0,08) (0,05;0,07;0,08) (0,04;0,06;0,08) p4 (0,02;0,03;0,05) (0,01;0,03;0,05) (0,04;0,05;0,07) (0,02;0,04;0,05) p5 (0,07;0,09;0,09) (0,07;0,08;0,09) (0,06;0,08;0,09) (0,06;0,08;0,09) p6 (0,05;0,07;0,09) (0,05;0,07;0,08) (0,05;0,07;0,09) (0,04;0,05;0,07) p7 (0,05;0,07;0,08) (0,05;0,07;0,09) (0,07;0,08;0,09) (0,05;0,07;0,09) c5 c6 c7 p1 (0,04;0,06;0,08) (0,04;0,06;0,08) (0,03;0,04;0,05) p2 (0,03;0,05;0,06) (0,03;0,05;0,07) (0,08;0,09;0,09) p3 (0,04;0,05;0,07) (0,04;0,06;0,08) (0,07;0,09;0,09) p4 (0,04;0,05;0,07) (0,06;0,08;0,09) (0,07;0,09;0,09) p5 (0,05;0,07;0,09) (0,06;0,08;0,09) (0,07;0,09;0,09) p6 (0,04;0,06;0,08) (0,03;0,05;0,07) (0,08;0,09;0,09) p7 (0,04;0,05;0,07) (0,05;0,07;0,08) (0,07;0,09;0,09) step 6: the distance of each alternative to fuzzy positive and negative ideal solution is calculated with equation 23 and 24. table 10 distances to fuzzy positive and negative ideal solution d*( distances to fuzzy positive ideal solution) d(distances to fuzzy negativeideal solution) 0,229062923 0,260942134 0,209623049 0,241272657 0,189221675 0,236180538 0,271193026 0,191138313 0,103162733 0,211066264 0,186178887 0,244599881 0,154206618 0,212702723 step 7: the closeness coefficient for each alternative is calculated with the formula in equation 25, and the following results are obtained for each personnel via these calculations. table 11: closeness coefficients personnel cc (closeness coefficients) p1 0,532529472 p2 0,535096373 p3 0,555193487 p4 0,413422792 p5 0,671695694 p6 0,567808581 p7 0,579714659 the personnel is ranked as p5>p7>p6>p3>p2>p1>p4 as per their closeness coefficients. according to this ranking, the personnel with the highest performance value is "p5", and the rest of which can be found on the above stated ranking. 5. conclusion human resources management has a critical role in the activities of an organizations, and the need for qualified human source is constantly increasing, while the measurement of personnel performance is becoming more and 102 burak fahir memik, berk ayvaz more important with the rapidly changing and developing technologies & innovations. one of the most importance practices in the management of human resources is the performance evaluation. including many qualitative and quantitative evaluation criteria, the performance evaluation process is the multi-criteria decision making problem. in this study, a model, in which the fuzzy ahp and fuzzy topsis methods are utilized, is suggested for the personnel performance evaluation problem. for putting this study into practice, seven performance evaluation criteria were designated for seven personnel in a company, and these seven employees were subjected to an evaluation within the framework of designated criteria by three executives. the suggested model is two-phased; the fuzzy ahp method is utilized for designating the importance of performance evaluation criteria on the first stage, while on the second phase, the fuzzy topsis method is used for evaluating the candidates. with these calculations, the personnel, with the code "p5", received the highest closeness coefficient value of 0.5325. in the studies to be carried out in the future, such multi-criteria decision making methods as vikor, electre, dematel in fuzzy environment can be developed for human resources performance evaluations. 5. references camgöz ve alperten, 2006, 360 derece performans değerlendirme ve geri bildirim: bir üniversite mediko-sosyal merkezi birim amirlerinin yönetsel yetkinliklerinin değerlendirilmesi üzerine pilot uygulama örneği, cilt:13, sayı:2, celal bayar üniversitesi i̇i̇bf, manisa demir, 2009, hemşirelik hizmetlerinde performans değerlendirme sisteminin oluşturulması ve bir model önerisi (yüksek lisans tezi), i̇stanbul üniversitesi, sağlık bilimleri enstitüsü, i̇stanbul demirtaş, 2009, askeri fabrikalarda çalışan mühendis subaylara yönelik yeni bir performans değerlendirme model önerisi, erciyes üniversitesi i̇ktisadi ve i̇dari bilimler fakültesi dergisi, sayı: 34, temmuz-aralık 2009, ss.381396 ekin, 2014, promethee yöntemi i̇le personel seçimi ve bir uygulama (yüksek lisans tezi), marmara üniversitesi, sosyal bilimler enstitüsü, i̇stanbul eraslan ve aygün, 2005, i̇deal performans değerlendirme form tasarımında analitik hiyerarşi yönetimi yaklaşımı, journal of the faculty of engineering and architecture of gazi üniversitesi , cilt:20, sayı:1, ankara espinilla, 2013, a 360-degree performance appraisal model dealing with heterogeneous information and dependent criteria, information sciences, volume 222, 10 february 2013, pages 459–471 ekin, 2014, promethee yöntemi i̇le personel seçimi ve bir uygulama (yüksek lisans tezi), marmara üniversitesi, sosyal bilimler enstitüsü, i̇stanbul güngör ve biberci, 2011, 360 derece performans değerlendirme yönteminin ahp analizi i̇le karşılaştırılması ve bir uygulama, üas11, xi. üretim araştırmaları sempozyumu, i̇stanbul ticaret üniversitesi, eminönü-i̇stanbul, 23-24 haziran 2011 pp:371-381. http://www.sciencedirect.com/science/journal/00200255 http://www.sciencedirect.com/science/journal/00200255/222/supp/c journal of international trade, logistics and law, vol. 9, num. 1, 2023, 134-142 134 innovation capability as key to competitive advantage: relation of product innovation capability, process innovation capability, and firm performance aslıhan canbul yıldız technical university, türkiye murat çemberci yıldız technical university, türkiye received: march 21, 2023 accepted: april 29, 2023 published: june 01, 2023 abstract: in the technological products and services market, which operates under rapidly changing market conditions and where competition is intense, firms need to offer well-developed innovative products and services to the market in order to maintain their existence in the long term. however, firms need to have a range of internal capabilities to produce these innovative products and services. the key for firms to keep up with the intense competitive environment and to achieve the firm performance, which is the ultimate goal of each firm, is possible with the presence of product innovation capability and process innovation capability, which are the two sub-dimensions of innovation capability. in our study, the relationships between product innovation capability and process innovation capability, which a re the two subdimensions of innovation capability, and firm performance were examined. the combination of product and process innovation capability plays a critical role in the success of firms. at this point, the complementary feature that exists between both abilities gains importance. the research was conducted with 220 questionnaires collected from the middle/senior managers of 120 firms operating in the field of technology. the data were analyzed by partial least squares method in smartpls4 program. the results reveal that product innovation capability and process innovation capability have a positive impact on firms' performance. keywords: process innovation capability, product innovation capability firm performance, smartpls4 1. introduction technology firms need to produce products and services that require intense innovative resources and expertise in the competitive market conditions in which they operate. developing new products and services is an expensive and risky process for firms. for this reason, firms operating in global market conditions and intense competition have to be aware of the importance of developing new products and responding to market demands as soon as possible in order to survive, be successful and provide a sustainable competitive advantage in the long run. brown and eisenhardt, 1995). product innovation capabilities and process innovation capabilities that firms must have to realize these processes are important internal capabilities. most academics see innovation as a goal for firms to gain competitive advantage and sustain growth. for this reason, it is seen that there is an increasing trend in innovation and innovation capabilities in the management and industrial economics literature (chen, 2004). on the other hand, firms' innovation capability (product innovation capability and process innovation capability) is considered one of the most important internal resources that can result in superior firm performance (perna, baraldi, & waluszewski, 2015). without such internal capabilities, it is not possible for a firm to respond to rapidly changing market conditions (najafi, tavani, 2018). the basis of the study is based on resource-based theory. the resource-based theory says that firms with valuable, rare, imitable and non-substitute goods and services will provide a competitive advantage and will continue to exist in the long term. theoretically, it is stated that only firms with certain internal capabilities (i.e. product innovation capability, process innovation capability) can achieve superior performance (barney, 1991; hamel and prahalad, 1994). these abilities are acquired through internal experience and are provided by experimental acquisition. innovation capability as key to competitive advantage: relation of product innovation capability, process innovation capability, and firm performance 135 innovation capabilities are special and imitable assets of firms (wang, ahmed, 2007). innovation capabilities are at the heart of firms creating value for themselves, storming creative destruction over competitors and driving progress for society. (brown and eisenhardt, 1997; ahuja and katila, 2001). 2. literature review drucker (1985) defined innovation as the act of giving talent and resources the capacity to create wealth. he also stated that innovation and capabilities develop together by creating synergies with each other. solheim (2017) stated that innovation is the activity of gradual realization of many interrelated innovations that arise as a result of a longterm process. the concept of the ability to innovate was first used by burns and stalker (1961) to refer to the ability to successfully align new ideas, products, and processes with internal processes in an organization. a firm's ability to create a steady stream of innovation may be more important than ever in allowing a firm to develop or maintain a competitive advantage due to increasing levels of competition and declining product lifecycles. in an environment of intense competition, the profits created by any innovation may be temporary (greenhalgh and longland, 2005). conversely, the relatively rapid flow of many innovations over time can enable the firm to continue to generate high levels of profitability (barczak, 1995; roberts, 1999). for these reasons, effective management of the innovation process remains a focus for managers and business researchers (bogner & bansal, 2007). the concept of innovation capability has been expressed in different ways by researchers. lau et al. (2010) defined the concept of innovation capability as the development and implementation of new products and appropriate process technologies that enable a firm to generate long-term profits, meet market needs, and eliminate competitive threats. lerro et al. (2009) defined innovation capability as the ability to continually transform ideas and information into new systems, processes and products that will benefit firms and their stakeholders. saunila et al. (2014) expressed the ability to innovate as the innovation potential that firms can realize. product innovation is the introduction of a good or service to the market by improving its existing features according to its planned uses (edquist et al., 2001). product innovation; it is also defined as the introduction of ne w products to the market by the organization. according to another definition, product innovation is to produce and sell new or better products (edquist et al., 2001). the primary goal of product innovation is to gain competitive advantage, ensure long-term success, and deliver value to the customer through the commercialization and development of new products and services (rainey, 2005). innovation capability is recognized as a critical organizational capability that enables a firm to effectively allocate resources to create value, and it has been shown to have a positive effect on firms' performance (yang, c.-c., 2012). in various empirical studies, it is claimed that innovation capability can positively improve the financial performance of firms in areas such as sales growth, profitability and market share (clayton and turner 2000, hult et al. 2004, tuominen and hyvönen 2004, jenssen and randoy 2006, panayides 2006). product innovation means significantly improving the existing features of a service or good, adding new features suitable for its use, or introducing a new good or service to the market. product innovations can be realized by utilizing new information and technologies, or by adapting existing knowledge and technology combinations to new areas. product innovations reflect new options and improvements that businesses incorporate into their product mix. in this type of innovation, the word "product" encompasses both goods and services. (oecd and eurostat, 2005). a production process consists of process equipment, material inputs, labor, task specifications, work and information flows, etc., used to produce a product or service (utterback, abernathy; 1975). knighton (2018) defined process innovation as new or significantly improved production, supply chain and production processes and pointed out that process innovation is the source of organizational innovation in the competitive process of the firm. process innovation is the use of new techniques, methods, materials, input mechanisms, information flow mechanisms and equipment in the production of a product or the delivery of a service (afuah, 2020). while product innovation reflects changes in the final product or service offered by the organization, process innovation represents changes in the way organizations produce final products or services (cooper, 1995). process innovations are not limited to firms building teams or making acquisitions. it also creates significant changes in business processes and practices. for organizations, process innovation is the replacement of an existing technology or process with a new process or technology that requires significant costs. incorporating innovation into organizational processes and routines incurs significant costs. this can sometimes lead to higher costs than the initial setup of the business process (bunduchi, smart; 2010). aslıhan canbul & murat çemberci 136 in addition, firms' innovation capabilities (product innovation capability and process innovation capability) are considered one of the most important internal resources that can result in superior firm performance (perna, baraldi, & waluszewski, 2015). without such internal capabilities, it is not possible for a firm to respond to rapidly changing market conditions (najafi, taze, 2018). firms' capacity to develop and use their innovative capabilities is widely accepted as a critical determinant of firm performance and competitive advantage (bettis and hitt, 1995 ; helfat and peteraf, 2003; voss, 1994). numerous classifications have been made for types of innovation, but one of the most widely accepted among them is the organization for economic co-operation and development oecd (2005) classification in the oslo manual, which distinguishes four types of innovation. within this classification, innovation types are grouped under four headings: product innovation, process innovation, organizational innovation and marketing innovation. considering the activities of firms that exchange technological activities and information in the light of these classifications, it is appropriate to use the technological innovation classification (product and process) in this study. the capability to innovate is often recognized as an important tool for achieving superior performance in competitive market conditions (lyon and ferrier, 2002). the long-term survival of firms and their capability to achieve firm performance depends on their success in the search for technological competitiveness. the pursuit of technological competitiveness, on the other hand, depends on product innovation and productivity based on improving the quality that firms will develop internally (antonucci, pianta, 2002). the prerequisites for increasing the performance of the firm are the introduction of new ideas, their improvement, the reduction of production costs, the introduction of well-designed, developed and implemented innovations (naala, et al., 2017). there is substantial evidence that innovators perform better than firms that do not innovate (baldwin and gellatly 2003; goudi et al., 2003; hoffman et al., 1998; klomp and van leeuwen 2001; mansury and love 2008; prajogo 2006; roper et al., 2002). firms need to implement a culture of effective innovation within the organization to achieve greater impact on their overall performance. organizations that implement this type of innovative culture stay ahead of their competitors because these innovations ultimately positively impact other variables such as business performance, marketing performance, and overall financial performance. this helps organizations grow on a larger scale (alam et al., 2013). bayus et al. (2003) showed in their empirical studies that product innovation has a significant positive effect on firm performance. andries and czarnitzki (2014), britton (1989) and de propris (2002) found in their studies that product innovation ability has a positive effect on firm performance. they found that firms with new product innovation that make big sales with a new product experience an increase in performance. based on their research on brazilian firms, goedhuys and veugelers (2008) found that "product innovation also translates into superior sales and growth rates". abazi-alili et al. (2017) and gërguri-rashiti et al. (2017) found that product innovation has a positive effect on firm performance. two other studies conducted by stoevsky (2005) and roud (2007) in bulgaria and russia, respectively, showed a positive relationship between product innovation and firm performance.in this direction, the study puts forward the following hypothesis: h1: there is a positive and significant relationship between product innovation capability and firm performance. literature researchers and existing studies have focused on the fact that process innovation leads to cost reduction and increased production volumes to gain efficiency (kurkkio et al., 2011; lim, et al., 2006). in addition, process innovation contributes to reducing development times for products (pisano, 1996). process innovation also adds direct value to customers through improved product quality and reliability (gopalakrishnan et al., 1999). high-intensity process innovations in the market provide stronger price competition and positively change the demand curve of product innovations with greater demand gap. at the same time, process innovations increase the efficiency of labor and capital and reduce production costs (smolny, 2003). product innovation capabilities and process innovation capabilities have different information characteristics (kraft, 1990). in high competition conditions, unless newly developed products are protected by patents, competitors can develop and market them rapidly (kotabe, 1990). however, it is not possible for competitors to imitate process innovations easily. because process innovations are mostly managed internally (ie it depends more on soft knowledge and people skills). process innovations are more easily kept secret and less visible to competitors (kotabe, 1990; kraft, 1990; zahra, 1993). a firm that currently dominates the market does not have much to gain from its competitors. therefore, while firms will make little profit by introducing new products, they can save more costs from any process innovation they see fit (scherer, 1983). this has a positive effect on firm performance. in addition, innovation capability as key to competitive advantage: relation of product innovation capability, process innovation capability, and firm performance 137 the empirical findings obtained in the study by tajeddin, k. (2016) revealed that process innovation is an important determinant of firms' business performance. process innovation also adds direct value to customers through improved product quality and reliability (gopalakrishnan, et al., 1999). this also leads to productivity gains. these different results provide a positive effect on a firm's competitive structure (frishammar, et al.; 2012).in this direction, the study puts forward the following hypothesis: h2: there is a positive and significant relationship between process innovation ability and firm performance. 3. methodology research model and hypotheses the aim of the study is to reveal that firms' innovation ability (process innovation and product innovation) creates on firm performance, which is the ultimate goal of each firm. the model created to examine the relationship between process innovation capability and product innovation capability is given in figure 1. figure 1: research model in order to examine the relationships between the variables in figure 1, the hypotheses of the research were formed as follows:: h1: there is a positive and significant relationship between product innovation capability and firm performance. h2: there is a positive and significant relationship between process innovation capability and firm performance. data collection tool and data set in order to test the hypotheses proposed in the research, research scales published in social sciences citation index (ssci) indexed journals were used. the prepared questionnaire consists of three parts and 33 questions. in the first part of the questionnaire, there are statements about firm performance, in the second part product innovation capability, and in the third part, there are statements about process innovation capability. the questionnaires were shared with the lower/middle and senior managers of the firms operating in the field of technology and 220 questionnaires were obtained. a 5-point likert scale was used to evaluate the research structures and the participants were allowed to respond with an ordinal scale with the options (1) strongly disagree, (2) disagree, (3) undecided, (4) agree, and ( 5) strongly agree. the data collected in the study, which was carried out with a total of 220 participants, were subjected to path analysis with the partial least squares structural equation model (pls-sem) and the results were interpreted. firstly, confirmatory factor analysis, validity analysis and path analysis were performed using the smartpls 4.0 structural equation model (sem) statistical package program. first of all, outer loading values are examined for validity. while this value above 0.60 is sufficient for factor analysis, the acceptance value for the smartpls program is 0.708 (hair et al., 2007). when the relevant column of the table is examined, it is seen that all values are above 0.708. cronbach's alpha, rho_a and composite realiability aslıhan canbul & murat çemberci 138 values are examined for the internal consistency reliability of the model. for convergent validity, average variance extracted (ave) values are examined. cronbach's alpha values and reliability coefficients are checked, and the cronbach's alpha value must be higher than 0.50 in order to meet the internal consistency criterion (hair et al., 2007). all cronbach's alpha values were above 0.50. it is sufficient that the rho_a coefficients, which show whether the indicators in the factors are reliable or not, have a value above 0.70 (dijksra & henseler; 2015). the values found above 0.70 indicate that the indicators are reliable. the reference value to be provided for the composite reliability values is 0'70. the fact that all of these values are above 0'70 indicates the structural suitability of the model. if the concordance validity (ave) values provide a value above 0'50 for each variable, it shows that the model has concordance validity. according to the values in table 1, this condition is fulfilled (hair et al., 2017, henseler et al., 2016). the fact that the values in table 1 are above 0.50 indicates that the concordance validity is provided. r square value expresses how much the variables explain the change in each other, and an r square coefficient of 0.25-0.50 is considered a weak explanation, 0.50-0.75 is considered a medium, and above 0.75 a strong explanation ratio (hair et al., 2011, henseler 2009). the values obtained from the analysis above 0.75 indicate a strong level of explanation. table 1: values table of factors latent variable indıcators outher loadings cronbach’s alpha rho’a composite reliability (ave) r square t statis. prin prin 1 0.885 0.934 0.926 0,925 0,712 51.034 prin 2 0.890 47.613 prin 3 0.907 61.784 prin 4 0.878 55.938 prin 5 0.890 62.138 psin psin 10 0.875 0.970 0.926 0,960 0,749 50.986 psin 11 0.899 67.324 psin 2 0.784 24.053 psin 4 0.865 46.927 psin 5 0.891 51.284 psin 6 0.897 59.623 psin 8 0.914 74.534 psin 9 0.897 65.256 fp fp1 0.777 0.967 0.967 0,965 0,696 0,807 30.521 fp10 0.844 45.764 fp11 0.887 68.594 fp12 0.835 45.104 fp13 0.840 42.585 fp2 0.828 30.492 fp3 0.856 35.028 fp4 0.788 55.581 fp5 0.847 57.429 fp7 0.818 37.214 fp8 0.842 65.834 fp9 0.847 45.871 studies have shown that discriminant validity (dicriminant validity) is insufficient to represent discriminant validity to a large extent due to the low sensitivity of considering the fornell-larcker criterion, which are two standard approaches in the literature, and the evaluation of cross-loadings (henseler et al., 2015). innovation capability as key to competitive advantage: relation of product innovation capability, process innovation capability, and firm performance 139 there are three approaches to discriminant validity in the literature. two of these are the fornell-larcker criterion and the evaluation of cross-loading. however, due to the low sensitivity of the evaluation of these two criteria, they were largely insufficient to represent discriminant validity (henseler et al., 2015). the third criterion in the literature for discriminant validity is the heterotrait-monotrait ratio (htmt) criterion. this criterion effectively defines the lack of discriminant validity with high sensitivity rates (henseler, ringle, sarstedt, 2014). according to this definition, htmt values should be below 0.90 (henseler et al., 2015). the values related to the htmt criteria reached in the light of the tests performed are summarized in table 2. table 2: htmt criteria results fp psin prin fp 0.879 psin 0.826 0.832 prin 0.885 0.818 0.898 as can be seen in table 2, it is seen that discriminant validity is provided because all htmt values obtained in the analysis are 0.90. table 3: path coefficients original sample (o) sample mean (m) standard deviation (stdev) tstatistics p values psin -> fp 0.509 0,545 0.097 5.220 0.000 prin-> fp 0.183 0,302 0.079 2.375 0.018 in table 3, t-test values showing whether the indicators are significant in explaining the variables individually are given. the results of the structural model evaluation obtained in the analysis made through the smartpls program are given in figure 1. a t-test value greater than 1.96 at a significance level of 0.05 indicates that the indicator is significant (dülgeroğlu & başol, 2017). according to the results of the relationship analysis, it was determined that the relationship between process innovation ability and firm performance (β; 0.509, t; 5.220 p; 0.000) was positively significant, and h1 hypothesis was supported in this direction. again, according to the results of the analysis, product innovation ability and firm performance (β; 0.183, t; 2.375 p; 0.018) were observed and h2 hypothesis was supported accordingly. 5. conclusion we suggest that firms should develop their product innovation capability and process innovation capability in order to adapt to the innovative developments taking place in rapidly changing market conditions. thanks to these capabilities, firms can catch developments outside their own organizations and adapt them to their own internal processes. managers should create an innovative organizational culture in order to realize successful innovation processes within the firm and provide motivation and training to employees in this direction. a firm's ability to develop new products and processes is crucial to its success in today's highly competitive business environment. acquiring innovation capabilities has become an important strategic goal for organizations that want to increase their performance and maintain their competitive advantage. however, acquiring innovation skills is no easy task. it requires significant investment in research and development, as well as the recruitment of highly skilled professionals who can drive innovation. also, innovation is not a one-time event, but a continuous process that requires constant attention and investment. firms must continually strive to improve their innovation capabilities and stay ahead of the curve to maintain their competitive advantage. this can be achieved in a variety of ways, including partnering with universities and research institutions, investing in employee training and development aslıhan canbul & murat çemberci 140 programs, and fostering a culture of innovation within the organisation. by taking these steps, firms can increase their performance, attract top talent, and remain competitive in the ever-changing business environment. references afuah, a. 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(1993). innovation strategy and financial performance in manufacturing firms: an empirical study. production and operations management, 2(1), 15-37. microsoft word 03_makale(anna_konert).docx journal of international trade, logistics and law, vol. 1, num. 2, 2015, 51-66 work time of a crew in european and polish law piotr kasprzyk, (phd) civil aviation authority, poland anna konert, (phd) the lazarski university, poland magdalena barbara rycak, (phd) the lazarski university, poland abstract: employee fatigue increases over time, and contributes to situations that endanger health and even life. under the determinants of health, the human working environment is mentioned, including the working time, schedule, shifts, rest periods as well as the work pace. the aim of the article is to analyze the existing provisions regarding working time in aviation and it has been restricted to civil aviation mobile personnel, which is understood here as crew members on board of a civil aircraft, employed in a member state. keywords: working time, schedule, shifts 1. introduction the length and organization of working times affect employees’ health as well as determining the time remaining for personal life, relaxation, studies and participation in cultural life. employee fatigue increases over time, and contributes to situations that endanger health and even life. under the determinants of health, the human working environment is mentioned, including the working time, schedule, shifts, rest periods as well as the work pace. in the classification of health determinants by the experts committee of the world health organization, leisure, rest and recreation are mentioned as needs whose fulfillment significantly affects the health of the population.1 in the case of mobile/flying personnel, the rules regulating working and resting times of flight crews are linked to flight safety. the personal scope of this study has been restricted to civil aviation mobile personnel, which is understood here as crew members on board of a civil aircraft, employed in a member state2. 1 see: m. gasińska, czas pracy jako czynnik zdrowia i bezpieczeństwa pracowników – próba przybliżenia problemu, [w:] czas pracy w przedsiębiorstwie. wyniki badań nad rozkładami czasu pracy i zdrowiem pracowników (work time as a factor of health and safety of employees – problem presentaion, in: working time in a company. results of working time schedule and employees’ health research, collective work edited by h. strzemińska, instytut pracy i spraw socjalnych (institute of labour and social affairs), warszawa 2002, p. 80-101. 2 see clause 2 point 2 of the agreement appended to the regulation 2000/79/we of 27 november 2000 concerning the european agreement on the organization of working time of mobile workers in civil aviation concluded by the association of european airlines (aea), the european transport workers' federation (etf), the european cockpit association (eca), the european regions airline association (era) and the international air carrier association (iaca) (oj ec l 302 of 01.12.2000, p. 57). 52 piotr kasprzyk, anna konert, magdalena barbara employers organizing the work of mobile personnel face the difficult task of reconciling the need of ensuring the continuity of passenger services, including on long-haul flights, with the safety standards governed by eu regulations as well as working time standards regulated at national levels. what attracts early attention at the first reading of legal acts regulating the working time frames of flying personnel is the casuistry of these regulations, as well as their dispersion over multiple legal acts in different areas of law (i.e. administrative and labor law), making it difficult to interpret and understand the legal standards of the regulations. this is in conflict with the latin rule “de minimis non curat lex”3 and eradicates any academic legal interest in the issues related to the working time of flying personnel4, which have not been studied comprehensively so far. moreover, the large number of regulations relating to the time allocation of aircrew personnel, used both by the eu and national employers, is unlikely to stimulate the proper interpretation and application of the provisions. this paper aims principally at outlining the laws regulating the given topic, the scope of their regulation and their mutual links, as well as introducing the major concepts used by employers. a complex analysis of the whole body of laws regulating the working time of crew members in air transportation would require a monograph to be developed by specialists in both labor and aviation law as well as by practitioners organizing the work of aircrews. another purpose of this publication is to arouse interest in the discussed field among researchers and to initiate extensive research on aircrew members’ working times. 2. aircrew working times and flight safety according to scientific evidence, the fatigue of flight crew members seriously jeopardizes air safety and endangers passenger safety. fatigue increases reaction time to stimulus, causes concentration problems as well as intellectual processing difficulties. the effects of fatigue can be compared to those caused by alcohol consumption. analyses carried out by the us federal aviation administration (faa) show that the risk of an aircraft accident in a flight duty lasting more than 13 hours is five times higher than in a 9-hour long duty5. we do not need to look far to find specific cases illustrating the impact of fatigue on flight safety. fatigue of the aircraft crew, resulting from a very short night stay, was considered to be a major contribution to serious incidents during a flight on the national route from bydgoszcz to warsaw in 2006.6 as a result of a misunderstanding, the crew lost data from the board indicator instruments, and were under conditions without visibility. the commission investigating this incident recommended amending the working time provisions in force at the time in poland, emphasizing the necessity to “pay due regard to physiological needs of the aircrew bodies as well as to flight safety requirements”. as explained in the final report, flight crews’ working hours at different times of day are very often different from those commonly acknowledged as most favorable from the point of view of work physiology and personal needs. another inconvenience is the irregularity of hours and the duration of work performed onboard an aircraft, combined with the necessity to stay, also overnight, away from the homeport. the need to take into account the results of the research when establishing new provisions on mobile crew working times, results not only from the recommendations of safety investigators, but is directly expressed in international and union legislation. 3 the principle means that law does not concern with trifles, as it cannot regulate all, even the smallest, legal issues. the law should limit its concern to major issues. (see m. kuryłowicz, słownik terminów, zwrotów i sentencji prawniczych łacińskich oraz pochodzenia łacińskiego [glossary of latin terms, sayings and legal latin phrases or of latin origin], zakamycze, kraków 2002, p. 103). 4 it was explained by com that "duty time" per regulation 3922/1991 corresponds to "working time" as per directive 79/2000. hence, both provisions do not conflict but complement each other. there is no annual ceiling of duty time foreseen in ftl because only short term fatigue is considered as impacting flight safety." report of the air safety committee meeting on euops brussels, 06 december 2007, 6. 5 j. h. goode, are pilot at risk of accidents due to fatigue? journal of safety research 2003; 34(3). 6 the final report of the serious incident no 359/06, available on the website of the state commission on aircraft accident investigation http://pkbwl.mir.gov.pl/files/0/30518/2006_359_rk.pdf work time of a crew in european and polish law 53 3. international regulations on working times of mobile staff in civil aviation the legal act regulating issues related to working hours in aviation at an international level is annex 6 to the convention on international civil aviation, signed in chicago on 7 december 19447. according to art. 37 of the convention, state parties to the convention need to cooperate in order to ensure the highest practicable level of harmonization of provisions, standards, rules of conduct and organization regarding aircraft, staff, air routes and support services. this is the standard in all cases where such harmonization can facilitate and improve air navigations. by virtue of the provisions of this convention, the international civil aviation organization (icao) was created, whose member countries have committed themselves to facilitate air navigations by the application of international standards and safety recommendations laid down by icao.8 these standards and recommended practices are provided in the form of nineteen annexes to the chicago convention. with regards to commercial air transport, the standards and recommendations provided in annex 6 to the convention (operation of aircraft, part i, international commercial air transport – aircraft) constitute an essential tool. it should be noted that the convention on international civil aviation has been ratified by poland on 20 november 1958, and, as indicated in the government’s declaration on 20 august 20039, poland is bound by annex 6. subsequent editions of part i of this annex were repeatedly published in the official journal of the civil aviation authority10. part 9.6 of annex 6, part i includes a recommendation for the purpose of fatigue management, which indicates that the state of the operator should establish rules containing restrictions to be applied on flight times, flight duty periods and rest periods for crew members. it is underlined that such provisions must be based on scientific principles and knowledge, and, where possible, aimed at ensuring an appropriate level of vigilance among crew members when performing their duties onboard. the recommendation is repeated in point 4.2.11.2 of annex 6, which requires the operator to establish flight and duty time restrictions, and to develop a rest scheme in compliance with the rules approved by the state of the operator and included in the operations manual. basic definitions for duty, duty period, flight duty period, and flight time are provided in chapter i (definitions) and are further detailed in annex a, containing guidance material for the development of prescriptive fatigue management regulations”. according to this material, flight time, flight duty period, duty period limitations and rest period requirements are established for the sole purpose of ensuring that the flight crew and the cabin crew members are performing at an adequate level of alertness for safe flight operations. according to point 4.2.1., a crew member is a person appointed by the operator to perform duties on board during the flight duty period. a licensed crew member who is charged with duties essential for the operation of an aircraft during a flight duty period is defined as a flight crew member. a crew member who performs duties for the interest of passenger safety as assigned by the operator or the pilot-in-command of the aircraft, but who does not act as a flight crew member, is a cabin crew member. 7 journal of laws 59.35.212 with later amendments. 8 z. galicki, charakter prawny międzynarodowych wzorów i zaleceń metod icao (the legal character of international standards and recommendations on methods by icao), warszawa 1971; m. żylicz, prawo lotnicze międzynarodowe, europejskie i krajowe (international, european and national aviation legislation); lexis nexis, warszawa 2011, p. . 9 government’s declaration dated 20 august 2003 on the effective character of the annexes to the convention on international civil aviation, signed in chicago on 7 december 1944, – journal of laws 03.146.1413 101) legal notice no 5 of the president of the civil aviation authority on annexes to the convention on international civil aviation, signed on 7 december 1944, – journal of laws civil aviation authority of 06.2.13; 2) legal notice no 13 of the president of the civil aviation authority on annexes to the convention on international civil aviation, signed on 7 december 1944, – journal of laws civil aviation authority 2008.6.58; 3) legal notice no 3 of the president of the civil aviation authority on publication of the text of annex 6 to convention on international civil aviation, signed in chicago on 7 december 1944 – journal of laws civil aviation authority 09.5.128; 4) legal notice no 14 of the president of the civil aviation authority on publication of the text of annex 6 to convention on international civil aviation, signed in chicago on 7 december 1944 – journal of laws civil aviation authority 09.18.206. 5) legal notice no 13 of the president of the civil aviation authority on publication of the text of annex 6 to convention on international civil aviation, signed in chicago on 7 december 1944 – journal of laws civil aviation authority 14.51 54 piotr kasprzyk, anna konert, magdalena barbara it has been pointed out that, in establishing the provisions in question, two types of fatigue should be taken into account, which both need to be prevented: 1) transient fatigue – which is dispelled by a single sufficient period of rest or sleep; 2) cumulative fatigue – which can occur after incomplete recovery from transient fatigue over a period of time. being fully rested is not only the right of each crew member, but is also a duty. the operator should not require a flight crew member to operate an aeroplane if it is suspected that the flight crew member is fatigued to the extent that the safety of the flight may be adversely affected. a flight crew member, in turn, should not operate an aeroplane in such a case. according to point 2.3.1 of annex a, the definition of a flight duty period (fdp) is intended to cover a continuous period of duty that includes a flight or series of flights for the flight or cabin crew member. it is meant to include all duties a crew member may be required to carry out from the moment he or she reports for duty, until he or she completes the flight or series of flights and the aeroplane finally comes to rest and the engines are shut down. this is the so called flight duty period (fdp), which is defined as the period from the moment when the flight crew member or the cabin crew member reports for duty including a flight or series of flights and until the flights end and engines are shut down, after the last flight, in which the person performed his or her duties as a member of the flight crew or of the cabin crew, has come to an end. thus it includes the necessary pre-flight operations, the flight period, the approach and the nature of the operation. a flight duty period does not include the period of travelling time from home to the point of reporting for duty. time spent positioning at the behest of the operator is part of a flight duty period when this time immediately precedes a flight duty period. thus, if there is an intervening rest period, the time spent positioning is not included in the flight duty period. positioning means the movement of a non-operating crew member from one place to another as a passenger (in the passenger cabin) at the behest of the operator. the term is synonymous to “deadheading”. it is the case when the crew member is needed by the operator in an airport different from the one where he or she is at the given moment. in addition, it is necessary to ensure rest periods, subsequent and/or prior to duty, during which flight or cabin crew members are free of all duties for the purpose of recovery from fatigue. it has been pointed out that rest periods should not include standby if the conditions of standby do not enable flight and cabin crew members do not have adequate opportunity to recover from fatigue. standby, in turn, is a defined period of time during which a flight or cabin crew member is required by the operator to be available to receive an assignment for a specific duty without an intervening rest period. the start time and end time of standby should be defined and notified sufficiently in advance. national regulation should precisely define the period of advance notice. also the maximum length of any standby should be indicated. the time spent being available should not be counted as a duty. it is when flight and cabin crew members are required to be available for contact over a brief period of time to receive instructions concerning a possible change of roster. moreover, it has been indicated that in formulating regulations or rules governing flight time limitations, the balance and division of various tasks to be performed among the flight or cabin crew members should be taken into account. duty rosters are lists provided by an operator of the times when a crew member is required to undertake duties. they should be prepared and published sufficiently in advance to provide flight and cabin crew members the opportunity to plan adequate rest. work time of a crew in european and polish law 55 the operator should nominate a home base for each flight and cabin crew member, from where the flight and cabin crew member will normally start and end a duty period or a series of duty periods. duty includes all tasks carried out at the behest of the operator, including pre-flight preparation, conduct of the flight, administrative actions, training, positioning, and standby when it is likely to induce fatigue. according to the national legislation, the flight time, the duty period and the flight duty period must be limited. flight time (block time) is the total time from the moment an aeroplane first moves for the purpose of taking off until the moment it finally comes to rest at the end of the flight. flight time, as it is defined here, is synonymous with the terms “block to block” time or “chock to chock” times, which are in general usage. the material indicates the need to determine the maximum flight time: 1) in any flight duty period; 2) in any 7 consecutive days or in any 28 consecutive days; 3) in any 365 consecutive days. a duty period starts when a flight or cabin crew member is required by an operator to report for a duty (reporting time) and ends when that person is free from all duties. however, it has been proposed that the travelling time spent by a flight or cabin crew member, in transit between the place of rest and the place of reporting for duty, is not counted as duty, even though it is a factor contributing to fatigue. it is necessary to specify the maximum duty hours within 7 and 28 consecutive days and the maximum flight duty period, with the latter differing between cabin and flight crew members. the maximum duty periods may be extended in unforeseen operational circumstances at the discretion of the pilot-in-command. an unforeseen circumstance is an unplanned event that is beyond the control of the operator, such atmospheric phenomena, equipment malfunction, or air traffic delay. in formulating the extent to which extensions may be permitted, the balance and division of various tasks to be performed among crew members, as well as the quality of available rest facilities, should be taken into account. it is also necessary to determine the minimum resting periods preceding the flight duty period. rest provisions should take into account the impact of time zone crossings and night operations. in the provisions of annex 6, the concept of the “state of the operator” is used with reference to the entity obliged to take particular measures for increasing flight safety. as it is specified in recommendation 4.10.8 in chapter 4 of annex 6 icao, the operator should keep records of all his flights and cabin crew members, flight periods, flight duty periods, duty periods and rest periods, in the period defined by the state of the operator. thus, certain obligations will apply to operators, including employers. the terms of aircrew member employment are not determinant of the personal scope of the provisions in the convention. 4. eu regulations on aircrew working times11 since 2002, the transfer of powers to european communities for legislating in the field of air safety has been proceeding. one of the main arguments for establishing laws in the field of air safety at the community level was the recognition, derived from proportionality principles, that the implementation of icao norms and recommendations would be more effective and more advantageous, if the provisions are established at the level of the european communities12. 11 see also v. križan, some aspects of working time of workers in transport in slovak and european labour law, available at: http://www.law.muni.cz/sborniky/dp08/files/pdf/mezinaro/krizan.pdf 12 see the preamble to regulation (ec) no 3922/1991 and 1592/2002. 56 piotr kasprzyk, anna konert, magdalena barbara relevant eu provisions in the area of aircraft operations, including those regulating work and rest periods of crew members, were adopted under regulation 1899/2006 of the european parliament and the council in 12 december 200613 amending regulation 3922/91 on the harmonization of technical requirements and administrative procedures in the field of civil aviation14. detailed rules on the duty periods of aircraft crew members were laid down in part q of annex iii of council regulation 3922/91 in 16 december 1991, on the harmonization of technical requirements and administrative procedures in the field of civil aviation (so called eu-ops)15. the annex contains definitions of the concepts “duty”, “duty period”, “interval”, “flight duty period” or “standby”. understanding these concepts allows a deeper analysis of other work time systems in aviation. a duty is any task that a flight or cabin crew member is required to perform as an aoc certificate holder16. the certificate authorizes an individual to provide scheduled or non-scheduled commercial passenger and freight services as well as sanitary and medical transport services. any operator wishing to provide public transport using aeroplanes must obtain it. duties include all tasks to be carried out by crew member, insofar as they concern the activities of the provision of scheduled or non-scheduled commercial flight transport services. a duty period is a period that starts when a flight or cabin crew member is required by an operator to report for or to commence a duty, and ends when that person is free from all duties17. a single day free of duty includes 2 local nights. local night means a period of 8 hours between 10pm and 8am local time. the duty period includes, among others: 1) the flight duty period (fdp) – is the period when a person performs his or her duties onboard an aircraft as crew member of this aircraft. it commences when a crew member is required to report for duty that includes a flight or a series of flights and which finishes when the aeroplane finally comes to rest at the end of the last flight18. 2) the interval – is a period free from any duties, and is shorter than the rest period19. 3) standby – is a defined period of time during which a flight or cabin crew member is required by the operator to be available to receive an assignment for a flight, positioning or for another duty without an intervening rest period20. a) airport standby – should be taken into account to calculate the total number of duty hours21. b) standby outside an airport (i. e. standby in a hotel) – to an extent determined by the relevant authority22. 4) positioning – is considered as part of the duty period23. it is the period of time spent on transferring a nonoperating crew member from place to place at the behest of the operator, excluding the travel time. 13 regulation (ec) no 1899/2006 of the european parliament and council of 12 december 2006 amending the regulation (eec) no 3922/92 on harmonization of technical requirements and administrative procedures in the field of civil aviation, eu journal of laws l 06.377.1 14 journal of laws ec l 373 of 31.12.1991, with later amendments. 15 the content of the annex has been provided for in the commission regulation 859/2008 of 20 august 2008. (eu journal of laws l 254 of 20.09.2008, p. 1). 16 ops.1.1095 (1.4) 17 ops.1.1095 (1.5) 18 ops 1.1095 point 1.6 19 ops 1.1095, point 1.3 20 ops 1.1095 point 1.14 21 ops 1.1125 point 1.2 22 ops 1.1125 point 2.1 23 ops 1105 point 5.1. work time of a crew in european and polish law 57 5) other activities carried out at the behest of the operator, related to the commercial provision of air transport services, i.e. medical exams, theoretical and practical training, flight simulators, participation in task forces etc. in addition, part q of annex iii eu-ops provides limitations to the duty period24. an operator is obliged to ensure that the maximum duty periods for a flight crew or cabin crew member do not exceed: a) 190 duty hours in any 28 consecutive days, distributed as evenly as possible over this entire period, therefore, it should not happen that a crew member works 60 hours within 3 weeks and 10 hours in the fourth week. the hours must be spread evenly sto enable the crew member to recover sufficiently. b) 60 duty hours in any 7 consecutive days. the flight duty period is also limited25, but the limitations do not apply to flights with only one pilot and medical service flight, to which the national law is applicable. limitations relate to aeroplanes with a multi-member crew and limit the flight duty period to 13 hours. these 13 hours will be reduced by 30 minutes for each sector (flight stage – which means an uninterrupted flight from place a to place b without landing between them) as from the third one, with up to a maximum limitation of two hours. the maximum daily flight duty period is also affected by whether or not it starts in the window of circadian low (wocl). this is the time between 02:00am and 05:59am, in which the human body is “programmed” to sleep and psychophysical efficiency is at the lowest level26. part q of annex iii also provides for the possibility to extend the fdp by a maximum of 1 hour, with a maximum number of extensions of 2 in any 7 days. the rosters planned by operators should be designed in a such a way as to end flights within the maximum flight duty period allowed. in order to meet this requirement, operators were obliged to take measures that change the roster or balance of duties in the crew, no later than at the moment when the actual operation exceeded the maximum fdp in 33% of flights covered by the roster within the season planned27. the so-called split duty period is allowed to be applied, if agreed by a competent authority (point 6 ops 1.1105). the split duty is applied in an operation based on an extended fdp, including an interval. each operator can be obliged by the relevant authority to demonstrate that its extended fdp application ensures a balanced safety level. it is also possible to extend the fdp for an increased number of flight crew members, in accordance with the principles set out by the authority28 the fdp includes the so-called block time, as it is defined in the english in part q of annex iii (which can be understood as the time blocked). it the time from the moment an aeroplane first moves for the purpose of taking off until it finally stops at the scheduled end of the flight and all engines and propellers are shut down29. therefore, it starts when an aeroplane is still on the ground. block hours is the total time when an aeroplanes moves on the ground and in the air and its engines are running. operators have been obliged to ensure that the total block times, to which a particular member has been assigned as an operating crew member, do not exceed30: a) 900 block hours in a calendar year; 24 ops 1.1100, point 1.1 25 ops 1.1105. 26 ibid., p.1. 27 ops 1.1105, point 4.1 28 ops 1.1115 point 1.1. 29 ops 1.1095, point 1.2 30 ops 1.1100, point 1.2 58 piotr kasprzyk, anna konert, magdalena barbara b) 100 block hours within any 28 consecutive days. according to ops 1.1120 point 1, the limitations of flight duty, duty and rest periods can be modified in unforeseen circumstances31, but they must be adopted by the pilot-in-command, after consulting other crew members. however, in any circumstances, the maximum fdp cannot be extended by more than 2 hours, unless the number of flight crew members has been increased – in which case, the maximum fdp can be extended by a maximum of 3 hours32: the rest period, laid down in ops 1.1110, correlates with the duty period and the flight duty period. it is a continuous and defined period of time, during which flight or cabin crew members are free of all duties and airport standby (1.13 ops 1.1095). operators must ensure rest periods long enough to enable crew members to recover from the fatigue resulting from the preceding duty and adequate rest until the start of the next flight duty period (3.5 ops 1.1090). the rest period is defined in terms of a minimum period, which means it can be longer than indicated. the minimum rest period, prior to the fdp commencing in the home port, must be equal to at least the length of the preceding duty period or 12 hours, depending on which is longer. when the fdp is supposed to commence outside the home port, the minimum rest period equals at least to the length of the preceding duty period or 10 hours, depending on which on is longer. if the minimum rest period is supposed to be outside the home port, the operator must ensure the possibility of 8 hours sleep. a minimum rest period must be periodically extended up to a one-week rest period of 36 hours, including two local nights, in a way that ensures that the time between the end of the one-week rest period and the beginning of the next one never exceeds 168 hours. the rest period can be shortened by the authority, with the application of the operator, who is obliged to demonstrate that he will ensure an adequate level of safety33. the operator has been obliged to ensure, that the impact of time zone crossing is compensated by additional rest, according to the provisions laid down by the authority (ops 1.1110, point 1.3). the operator should keep records for each single crew member34. the records must include: (1) block times; (2) time, length and end of each duty or flight duty (3) rest periods and days off the duty. it should be noted that the legal standards included in eu-ops are not working time standards but a legal administrative framework within navigation safety. as raczkowski rightly points out, the employer as a carrier is obliged to follow them, but for the acts of infringement he will be held liable by virtue of the aviation law35. this 31 ops 1.1120, point 1 part q annex iii states: taking into account the need of a thorough analysis of the assumed cases below, during a flight operation, which starts at the moment of reporting to work, flight duty period limitation, duty and rest periods described in this part can be modified in unforeseen circumstances. such modifications must be acceptable by the pilot-incommand after consulting other crew members, they must be also in all circumstances complying with the conditions below. 32 ops 1.1120, point 1.1. 33 ops 1.1110, p. 1.4.1 i 1.4.2 34 ops 1.1135 35 in the case that the operator allows flight duty hours exceeding „extended maximum fdp limits”, administrative sanctions from the supervising authority come into play, applied on the base of article 162 of the aviation law (a formal notice to remedy deficiencies on pain of suspension of the certificate). it is also possible that such situation leads to liability under article 210 section 1 point 10 of the aviation law. with regard to the pilot-in-command, who allows knowingly that the extended fdp maximum limits are exceeded, the possibility of launching a legal procedure under article 100 of the aviation law can be considered, on suspension or revocation of the license under article 100 section 1 point 3 (comprises air safety when performing flight duties, to which he or she is entitled by the license). work time of a crew in european and polish law 59 excludes the possibility for lawyers to invoke these regulations and make request on this basis, i.e. overtime payments36. on 8 april 2008, regulation 216/2008 on common rules in the field of civil aviation and easa came into force37. this regulation has been complemented by regulations implemented by the european commission, which regulates particular aspects of aviation activities. the main purpose of these provisions is to maintain a high and uniform standard across the eu safety level of civil aviation. according to article 8 regulation 216/2008, operating aircraft should comply with the basic requirements defined in annex iv. according to point 7.f of the annex, no crew member should allow their task achievement or decision making to deteriorate to the extent that flight safety is endangered because of the effects of fatigue, fatigue accumulation, sleep deprivation, number of sectors flown, night hours, etc. rest periods must provide sufficient time to enable crew members to overcome the effects of the previous duties and to be well rested by the start of the following flight duty period. in point 8 f of annex iv, it has also been noted that, for the purpose of flight safety, a rostering system must be applied for a flight or a series of flights. it needs to address flight time, flight duty periods, duty and adapter rest periods. limitations established for the rostering system must take into account all relevant factors contributing to fatigue, in particular such as the number of sectors flown, time zone crossing, sleep deprivation, disruption of circadian cycles, night hours, positioning, cumulative duty time for given periods of time, sharing of allocated tasks between crew members, and also the provision of augmented crews. the guidelines contained in annex iv to regulation 216/2008 are the basic criterion applicable by the european commission when implementing regulations, according to article 8 point 5 of regulation 216/2008. in regulations, detailed provisions on aircraft operations will be laid down, including limitations of flight time, duty and rest periods. it should be noted that according to article 8 point 6 ref. 5, with regard to commercial transportation by aeroplane, the pending regulation to be implemented should be based on common technical requirements and administrative procedures laid down in annex iii to regulation (ec) no 3922/91. certainly, the provisions of annex ii to regulation (ec) no. 3922/91 expire when the regulations are implemented under article 8 section 5 of regulation 216/200838. in the preamble of regulation 1899/2006, in the clause (13), it was indicated that it is considered appropriate to carry out a scientific and medical assessment of the provisions concerning limitations of flight and duty time and rest requirements, as well as, where necessary, provisions related to crew members, within 2 years of the implementation of this regulation. on that basis, on 30 august 2008, moeubus aviation prepared the report “scientific and medical evaluation of flight time limitations”39. taking into account the results of this report, and based on existing solutions (part q annex iii), new eu provisions are being drafted. based on the opinion40 prepared by the european aviation safety agency (easa), regulation ec 83/2014 was approved in 29 january 2014.41 this regulation contains newly implemented guidelines on the limitations on flight and duty periods as well as on rest period requirements in the commercial aviation transportation (cat) by aeroplane. regulation 83/2014 constitutes newly implemented measure, referred to in point 8 section 5 and article 22 section 2 of regulation (ec) 216/2008, and therefore, part q of annex iii to regulation 36 m. raczkowski, working time institutions of civil aviation crew members [in:] working time, red. l. florek, warsaw 2011, p. 242-243. 37 regulation of european parliament and council (ec) no 216/2008 of 20 february 2008 on common rules in the field of civil aviation and establishing european aviation safety agency and repealing council regulation 91/670/ec, regulation (ec) no 1592/2002 and regulation 2004/36/ec – journal of laws.eu.l.08.79.1. 38 art. 69 section 3 regulation 216/2008 39http://www.easa.europa.eu/system/files/dfu/ftl%20study%20final%20report.pdf 40 https://www.easa.europa.eu/document-library/opinions/opinion-042012. 41 regulation of the commission (eu) 83/2014 of 29 january 2014 amending regulation (eu) 965/2012 laying down the technical requirements and administrative procedures related to aircraft operations in accordance to the regulation of the european parliament and council (ec) 216/2008. 60 piotr kasprzyk, anna konert, magdalena barbara (ec) 3922/91 must be deleted, according to article 69 section 3 of regulation (ec) 216/2008. however, part q of annex iii to regulation (ec) 3922/91 continues to apply until the expiry of transitional periods provided for in regulation 83/2014 and with regard to operations, for which no measures have been established. it shall apply from 18 february 2016. by way of derogation, member states may decide not to apply provisions oro.ftl.205 subparagraph e) of annex iii to regulation (eu) 965/2012, but continue to apply existing national provisions on resting during a flight until 17 february 2017.42 regulation 83/2014 lays down common provisions in the fields which have been hitherto regulated by national law, according to article 8 section 4 of regulation of council 3922/91 “eu-ops”. they include provisions governing the following aspects: split duty period, rest compensating the impact of time zone crossing, shortened rest periods, extended flight duty periods due to rest on board during the flight, standby and other modes of remaining in the airport. the regulation presents several changes with respect to the previous provisions. among others, is establishes a better protection against cumulative fatigue. this is due to the limit of 1000 flight hours in 12 consecutive months and an additional limit of 110 hours in 14 days, and a longer period of extended regenerative rest period twice per month. there is also better protection against transient fatigue due to the extension of the rest period during, shortening of the flight duty period43 to 11 hours from 5:00pm to 5:00am, and shortening of the maximum fdp in a less advantageous time of day from 11 hours and 45 minutes to 11 hours and 15 minutes. standby or other modes of remaining in the airport have been reduced to 16 hours, and there are provisions on shorter rest periods that ensure the possibility of 8 hours sleep. provisions of regulation 83/2014 do not exclude the possibility to ensure better protection on the basis of a national social and collective labor agreement with regard to work conditions, safety and hygiene, and also, apply without prejudice to relevant provisions. to take a greater account of specific national conditions or operating practices, member states may grant and apply derogations from the regulation in question or, respectively, from related certification specifications, by applying rules which ensure a safety level which at least equals the safety level resulting from the provisions of this regulation44. 5. eu regulations of the working times of mobile workers (directives) the rules of working times for mobile workers in civil aviation were laid down at the union level in the provision of the directive of council 2000/79/ec on 27 november 2000. this concerned the european agreement on the organization of working time of mobile workers in civil aviation, concluded by the association of european airlines (aea), the european transport workers’ federation (etf), the european cockpit association (eca), the european regions airline association (era) and the international air carrier association (iaca). on 22 march 2000, the association of european airlines (aea), the european transport workers’ federation (etf), the european cockpit association (eca), the european regions airline association (era) and the international air carrier association (iaca) signed the european agreement on the organization of working times for mobile workers in civil aviation. the right instrument for implementation of the agreement is the directive. 42 in poland, by means of a decision of the president of the civil aviation authority a deferred application of new provisions has been notified – see communication of the president of the civil aviation authority (ulc) of 1 september 2014, journal of laws ulc of 2014, position 61. 43 calculation of the maximum basic fdp is based on the table instead on, as before, on calculations. 44 point 5 of the preamble to regulation 83/2014. work time of a crew in european and polish law 61 in point 11 of the preamble to directive 2000/79/ec, it is stated that “in view of the highly integrated nature of the civil aviation sector and the conditions of competition prevailing in it, the objectives of this regulation to protect workers' health and safety cannot be sufficiently achieved by the member states and community action is therefore required in accordance with the subsidiarity principle laid down in article 5 of the treaty”. the personal scope of directive 2000/79/ec has been defined by reference to the definition of mobile staff in art. 2 section 7 of directive 93/104/ec. a mobile worker is defined as any worker employed as a member of the travelling or flying personnel in an undertaking that operates transport services for passengers or goods by road, air or inland waterway45. according to clause 2, section 2 of the agreement, constituting the annex to directive 2000/79/ec, mobile staff in civil aviation means crew members on board a civil aircraft, employed by an undertaking established in a member state. the directive leaves member states the freedom of defining, according to national legislation and practice, the concepts used in the agreement, which have not been specifically prescribed, provided the definitions comply with the agreement. member states and/or social partners can maintain the minimum standards set out in the provisions of the directive and agreement or they can introduce more favorable provisions46. by virtue of art. 3 of directive 2000/79/ec, member states have to bring into force laws, regulations and administrative provisions necessary for the application of the regulation, no later than by 1 december 2003. in the agreement, annexed to directive 2000/79/ec, the following concepts have been defined: working time, flying staff in civil aviation and flight block-time. according to clause 2, section 1 of directive 2000/79/ec, working time means any period during which the worker is working, at the employer's disposal and carrying out his activity or duties, in accordance with national laws and/or practice. this definition agrees with the working time definition in art. 2 section 1 of directive 2003/88/ec of the european parliament and council, set in 4.11.2003, referring to some aspects of the organisation of working times47. this directive was entered into force on 2.8.2004 and rendered the directive 93/104/ec invalid. it incorporates many regulations set out in the previous directive; however, it introduces considerable amendments and supplements. directive 2003/88/ec extends the personal scope of its implementation by encompassing all workers but seafarers (art. 1 section 3 of the directive). the directive does not lay down any new obligations for member states, but has solely consolidated existing solutions. the case law of the court of justice and their views maintained their validity, especially those views concerning the working time concept, expressed in the doctrine of the work law in directive 93/104/ec. directive 2003/88/ec defines minimum daily and weekly rest periods, maximum weekly working times, intervals, night work, shift work and minimum holiday periods. in both directives referred to above, the concept of work has been defined through the concept of remaining at the employer’s disposal. this means, that in some situations (i.e. following the command to refrain from work during a stoppage) physical performance is not necessary for the recognition of this time as working time. the classification 45 point 9 of the preamble to regulation 2000/79/ec. 46 points 12 and 15 of the preamble and art. 2 section 1 of regulation 2000/79/ec. 47 eu journal of laws l 299 of 18.11.2003, p. 9. earlier, for several years, the directive 93/104/ec has been in force, referring to some aspects of working time organization (ec journal of laws l 307 of 13.12.1993, p. 18), which has been amended by directive 2000/34/ec of the european parliament and council of 22.6.2000, changing the abovementioned regulation to cover sectors and activities excluded by this regulation (ec law of journals l 195 of 1.8.2000, p. 41). directive 2000/34/ec has stretched the personal scope of regulation 93/104 by covering all employers. regulation 93/104/we did not apply to workers of the air, rail and road transport, sea, freshwaters and lake fisheries or activities of the education of doctors. 62 piotr kasprzyk, anna konert, magdalena barbara of a worker’s presence at the workplace as working time may not depend on the worker’s workload, but it is solely a derivative of a worker’s obligation to remain available to the employer48. the availability period starts at the moment when the workers reports for duty at the workplace or other place designated for providing work, and ends with the full working day or, occasionally, later – at the moment of cessation of activities tasked by the employer (i.e. in the case of the requirement to work overtime). the distinctive feature of remaining at the employer’s disposal is the restriction of personal freedom for the employee, the extent of which depends on the employee’s scope of employment. the employee remains at the employer’s disposal when he or she is performing his or her normal duties or following his or her superior’s instructions, as well as when partaking in activities in the interest of the workplace, even without an order. an employee remains at the employer’s disposal when he or she behaves in a way that is aligned with purpose of the employment, i.e. provides the work agreed between parties, or remains on standby, ready to work, and maintains contact with the employer, in anticipation of instructions and directives from the employer49. the place of work is of no relevance for the recognition of certain periods as “remaining at the employer’s disposal”, provided it has been formally designated by the employer or the worker’s supervisors as a place for the execution of work. this can, for example, be a worksite, onboard aircraft, an apartment or temporary residence of the employer. to consider that an employee is present at the workplace, it is sufficient that the employer or the employee’s supervisor are aware of that place and approve it, at least implicitly. the concept of working times for flying staff includes the so called flight block-time. this is the time between an aircraft first moving from its parking place for the purpose of taking off, until it comes to rest in the designated parking position and all engines are stopped50. the concept of the flight block time is a narrower concept than the concept of working time. in clause 8, section 2 of the annex to directive 2000/79/ec, a limitation on maximum working time down to 2000 in a year has been introduced, of which the flight block-time has been limited to 900 hours. additionally, the flying personnel in the civil aviation industry should be provided at least seven local days off work in each calendar month in the place of living (which may include any rest periods required by law) and at least 96 local days in each calendar year51. taking into account that the calendar year includes 52 weeks, and an average working week includes 40 hours, totaling 2080 hours per year, it would be difficult in practice to exceed the established annual limit of 2000 working hours. also, the annual leave entitlement contributes to a decrease of the number of working hours per year52. according to clause 3, section 1 of the annex to directive 2000/79/ec, flying personnel in the civil aviation industry are entitled to paid annual leave for at least four weeks. the concept of working time is firmly linked to the concept of rest period. according to art. 2 point 2 of directive 2003/88/ec, the rest period is any period that is not working time. member states must ensure each employer sets a minimum daily rest period of 11 uninterrupted hours53, and introduces a weekly rest period of 24 uninterrupted hours. to this rest period, 11 hours of daily rest should be added. where justified by objective and technical conditions, or conditions concerning work organization, a minimum rest period of 24 hours is allowed to be applied54. 48 see the verdict of court of justice of 1 december 2005 case dellas and others, c-14/2004. 49 w. masewicz, working time as a legal concept, państwo i prawo 1997, book 3, pp. 87, 88. 50 clause 2 section 3 of the agreement annexed to directive 2000/79/ec. 51 clause 9 of the agreement annexed to directive 2000/79/ec. 52 see m. raczkowski, institution of working time of flying personnel of civil aviation in passenger transport, op. cit., p. 243. 53 art. 3 of directive 2003/88/ec. 54art. 5 of directive 2003/88/ec. work time of a crew in european and polish law 63 directive 2003/88/ec does not introduce the obligation to provide a rest period in each week. according to article 16a, it is possible to introduce the reference period of 14 days for calculating weekly rest, as specified in national legislation. in article 17, the regulation makes provisions for exceptions regarding minimum rest periods for employees executing particular types of work. derogations from minimum rest periods may be adopted by means of laws, regulations and administrative provisions, or by way of agreements between social partners, provided that equivalent rest periods are provided to interested workers. in exceptional cases, where for objective reasons it is impossible to provide equivalent rest periods, workers concerned must be afforded appropriate protection. derogations may be adopted in the case of: activities where the worker's place of work and his place of residence are distant from one another, including offshore work, or where the worker's different places of work are distant from one another; activities involving the need for continuity of service or production, particularly dock or airport workers. directive 2003/88/ec does not define the overtime work concept, leaving the matter fully to the discretion of internal legal systems. overtime work is described in article 6b of the directive, which specifies that an average weekly working time, including overtime work, may not exceed 48 hours. it is assumed that the concept of duty period used in the provisions of part q of annex iii (eu-ops) refers to working time in regulation 2000/79. the concepts are supposed to remain not in conflict with one another. therefore, it is not necessary to set out a yearly fdp limit. the minimum is defined by administrative provisions (part q of annex iii), as linked to safety and relating to the fatigue of aircraft crew members. provisions for working time are seen in the context of yearly working time limits. regulation 2000/79, clause (8), point 1 sets out that the working time should be looked at by taking into consideration any future community legislation regarding flight and duty time limitations and rest requirements, and in conjunction with national legislation on this subject. in regulation 1899/2006, clause (10) specifies that the provisions on flight and duty time limitations and rest requirements, as set out in part q of annex iii, takes into account the limits and minimum standards already established in directive 2000/79/ec. the limits set out in that directive should always be respected for mobile workers in the civil aviation industry. the provisions of part q of annex iii and other provisions approved pursuant to this regulation should in no circumstances be broader and thereby provide workers with less protection. 6. polish regulations on the working times of flying staff55 in poland, at the national level, the main legal act regulating the working times of flying staff is the law of aviation law, date to 3 july 200256, which is referred here as the aviation law. civil aviation includes all kinds of aviation except state aviation, i.e. state aircrafts, their crews and state airports used exclusively for departures and landings of state aircrafts57. 55 see also : m. b. rycak, systemy i rozkłady czasu pracy, przegląd ubezpieczeń społecznych i gospodarczych nr 9 (54), wrzesień 2001 r.; m. b. rycak, czas pracy kierowców, praca i zabezpieczenie społeczne z 2002 r., nr 12; m. b. rycak, wymiar i rozkład czasu pracy, wolters kluwer, warszawa 2008; m. b. rycak, czas pracy w nowych krajach członkowskich unii europejskiej. aspekty ekonomiczne, prawne i społeczne, pod. red. h. strzemińskiej, ipiss, warszawa 2008; m. b. rycak, planowanie i rozliczanie czasu pracy, warszawa 2009; m. b. rycak, concepción de los contratos laborales flexibles en la unión europea, derecho laboral y seguridad social nr 1/2013; m. b. rycak, the impact of working time regulation on the quality of life of employees [w:] h. strzemińska (red.) working time trends and prospects in the new economy, warszawa 2014; j. kaleta , m.b. rycak, elastyczny czas pracy. najnowsze zmiany w przepisach, warsaw 2013; a.konert, new progress and challenges in the air law – air crash victims families protection, warsaw 2014; a.konert, odpowiedzialność za szkodę na ziemi wyrządzoną ruchem statku powietrznego, wolters kluwer, warsaw 2014 56 i.e. journal of laws of 2013 no 1393. 57 art. 1 section 1-3 of aviation law. 64 piotr kasprzyk, anna konert, magdalena barbara provisions of the aviation law regulate the working times of aircraft crew members in air transportation by aircrat, and aircraft crew members in air transportation by helicopter and in the helicopter emergency medical service, in an employment relationship. air transport is a flight or a series of flights, in which passengers, goods, baggage or mail are transported, for remuneration or hire58. according to art. 94 section 2 of the aviation law, a flight crew member is a person who holds a valid license or certification and is recorded in the state flight crew members registry or other adequate registry. although, the provisions do not introduce the requirement of the employment relationship, de lege lata should be assumed so that the working time provision is applied exclusively to employees. this is demonstrated by the term “employer”, which is reserved for the employment relationship, used in the legislation in art. 103 b section 2 and 3. according to art. 3 law of 26 june 1974 of the labor code,59 an employer is an organizational unit, or it may not have any legal personality and can refer to a person if they employ workers. in addition, the aviation law refers to art. 103d for the application of the provisions in the labor code in matters concerning working times of aircraft crew members, which are not regulated in the provisions of articles 103-103c of the law. such unregulated cases in reference to aircraft crew members in air transportation by aircraft include overtime work and its settlement, night work compensation and work during holidays. according to art. 103 of the law, the working time of aircraft crew members in air transportation by aircraft cannot exceed 8 hours per day and 40 hours per week on average in a determined settling period, not exceeding 3 months60. in reference to aircraft crew members in long-haul flights61 rosters can be used, in which it is allowed to prolong the working time by up to 18 hours per day. in such rosters, the working time may not exceed 40 hours per week on average in a determined settling period, not exceeding 3 months. work within the extended daily working time and average 40 hours per week in a determined settling period does not constitute overtime work. section 4 art. 103 provides that the minister of transport is authorized to determine, in agreement with the minister responsible for work issues, the detailed settlement of working time of aircraft crew members in air transportation by aircraft, in accordance with the regulation. the regulation will take account the intervals in the work and rest periods of the personnel, as well as conditions relating to the performance of activities. on that basis, the minister of infrastructure has issued, on 28 april 2014, a regulation providing detailed settlement conditions for the working time of aircraft crew members in air transportation by aircraft62, which will be referred to from this point as the regulation. the regulation has replaced the existing regulation of 13 december 2002 on the working times and rest periods of aircraft crew members and air traffic controllers63. the regulation of 13 december 2012 set out detailed rules for the working times of flight crew members in air transportation, general aviation, services providing aviation, the duty of the emergency medical service and medical transport, in the operation of flights on helicopters, as well as the working times of cabin crew members and part of the working time of air traffic controllers. the regulation of 28 april 2014, due to the restricted delegation in the revised art. 103 section 4 of the aviation law, has exclusively covered the working time regulations for flight crew members in air transportation. the provisions of this regulation define the maximum period of flight duty in the case of flights with a single pilot and 58 art. 2 point 13 of aviation law. 59 i.e. journal of laws of 1998 no 21, pos. 94 with amendments 60 before the provision regulated also the working time of flight controllers. it has been amended with provisions on the amendment of law of 30 june 2011, the aviation law and several other laws journal of laws of 2011 no 170, pos.1015). 61according to art. 2 point 12 of the aviation law a long-haul is a single flight of a distance requiring a minimum of 8 hours flying time. 62 journal of laws of 2014, section 663. work time of a crew in european and polish law 65 emergency medical flights. they complement the ops 1 requirements laid down in part q of annex iii to regulation 3922/91, according to art. 8 section 4 of regulation 3922/91. also in the regulation of 28 april 2014, the times and rules for the provision of intervals in aviation operations have been defined64, as well as rules for daily and weekly rest provisions and ordering and settling duties. some provisions of the regulation are not coherent with those in the aviation law, as regarding working times. there is no doubt that the concept of flight duty time is not identical to the concept of working time, which is a wider concept and includes more periods than just the one of flight duty. in annex no. 1 to the abovementioned regulation, flight duty periods of a crew member were defined in a tabular form, depending on the moment of reporting for a flight and the number of sectors, which varies between 8 and 10 hours65. in the basic working time defined in art. 103 of the aviation law, the daily maximum standard working time equals to 8 hours. the working time referred to in art. 103 section 2 of the aviation law allows the working time to be extended up to 18 hours, which is permitted only in long-haul flights. the provisions of the regulation, in a different way than the provisions of the labor code, govern the duty of crew members. according to § 2 point 5 of the regulation, a duty means the readiness referred to in point 1.14 ops 1.1095 in part q of annex iii to the regulation 3922/91. this is a defined time period, during which the operator requires the crew member to be ready to accept a flight assignment, to position for the purpose of transfer to another duty position, or to take upon other duties without interruption of the rest period. a duty can be undertaken in the airport, or in another place designated by the employer, or can be performed oncall66. the limits of the duty period are subject to the time of notice67 and equal to 12 or 18 hours68. standby in the airport is included in full in the total number of duty hours (ops 1.1125 point 1.2). when a crew member takes upon flight duty immediately from the standby in the airport, 50% of the standby time counts as flight duty period but not as a sector69. the period of a duty performed at another place designated by the employer outside the airport or the on-call time count as working time on a 25% duty period basis. if flight duties are taken upon at another place designated by the employer, 25% of the on-call time counts as the flight duty period70. 64 according to § 2 point 10 of the regulation the flight duty period means the flight duty period referred to in point 1.6 ops 1.1095 in part q of annex iii to regulation 3922/91, which means it is the period when a person works onboard aircraft as aircraft crew member. the fdp starts at the moment when the operator requires the crew member to report for a flight or a series of flights; this period ends at the end of the last flight where he/she is an operating crew member. 65 moment of reporting for a flight (local time of the airport of departure) maximum numer of sectors and the flight duty hours 1-4 sectors 5 sectors 6 sectors 7 sectors and more 0600-0659 9 hours 8 1/4 hours 8 hours 8 hours 0700-1359 10 hours 9 1/4 hours 8 1/4 hours 8 hours 1400-1759 9 hours 8 1/4 hours 8 hours 8 hours 1800-2159 8 1/2 hours 8 hours 8 hours 8 hours 2200-0559 8 hours 8 hours 8 hours 8 hours 66 § 14 section1 of the regulation. 67 a period, defined by the employer, from the moment of notifying the crew member who is on standby about the need to report for duty until the moment of reporting for duty (§ 2 point 2 of the regulation). 68 annex 2 to the regulation. 69 § 15 section 1 of the regulation. 70 § 16 sections 1 and 2 of the regulation. 66 piotr kasprzyk, anna konert, magdalena barbara the regulation of rules for counting on-call periods is an example of the fulfillment of duties set out in annex iii, part q of the regulation 3922/91. 7. summary the analysis of the legal regulations for the working times of flying staff demonstrates the casuistry of provisions and their strict correlation with the specific character and practice of the activities of air carriers. however, significant difficulties in application and interpretation of these regulations are caused not by the size of the regulations, but by the fact that the provisions belong to different fields of law. it may seem that the rules of a “social” character (eu directives, labor code, art. 103 of the aviation law) can be separated from those of an “administrative” character (eu regulations, implementing regulation). the position to separate working time provisions as social rules of labor law from provisions concerning duty period as rules related to flight safety, has been also expressed in the literature71. on the other hand, however, they concern the same issue, which is the question of the flying staff remaining at the employer’s disposal. for example, if one refers to the basic concepts of “working time” and “duty time”, they differ in the way of maximum quantity calculation. in the working time regulations, daily standards are as fixed as the settling period. the average weekly standards are defined as the average and are in balance within the defined settling period. meanwhile, in the duty period regulations, there is no fixed determination of a week or month. a week (7 days) or a month (28 days) remains flexible (it shifts and includes any 7 or 28 subsequent days) and within these periods, limits of 60 and 190 hours apply. the way “operating” provisions set out limits for the allowed duty period is specific to provisions aimed at ensuring safety. thus, they achieve a similar aim to the working time regulations in the labor code, by restricting the allowed number of working hours. however, since these provisions are applicable for the purpose of air safety, they limit the allowed number of working hours in a particular way (by using the concept of duty period), while imposing a balanced distribution of working times. 71 m. raczkowski, op. cit. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 15-27 15 store atmosphere strategies and their effects on purchase intention fazli uğur çolak i̇stanbul ticaret university özgür çengel galata university received: dec 02, 2022 accepted: march 09, 2022 published: june 01, 2023 abstract: retailers must continually adjust to the realities due to the fast speed of today's society, which brings with it constant changes in fashion trends, technology advancements, and also the modification of lifestyle. even though such improvements and adjustments are unnecessary, they must be made in order to keep the store attractive or to modernize the technical infrastructure and lower operating energy usage in the face of competition from new, similarly minded businesses. the functioning of the retail operation is heavily influenced by the architectural and design solution, where the customer must first arrive at the store, which then needs to draw them in and persuade them to make a purchase. recent years have seen a rise in the importance of the shopping environment. many stores rely on the fact that they have the most comfortable atmosphere, which forces the customer to stay in the store as long as possible. sellers also try to make shopping an experience, making it necessary for the customer to feel satisfied in the store. shopping atmosphere and control can help higher customer satisfaction. it is therefore very important to monitor the key factors that affect the atmosphere in the store. this article examines selected elements of the shopping atmosphere and its impact on consumers in electronic markets operating in turkey, germany, and england. it integrates research, survey, and observation into real terms of selected retail operations. based on the findings, the conclusion on adapting selected factors influencing the atmosphere is proposed to improve the overall well-being of customers and thus their satisfaction during shopping. keywords: store atmosphere, purchase intention, music, lighting, customer 1. introduction the element that forms the basis of economic development is the high per capita gross product. one of the most important ways to have a high national income is trade, usually exports. the level of economic development and foreign trade balances are directly related. for this reason, companies and even countries resort to many methods in order to improve the foreign trade balance in their favor. one of them is to get ahead of others by differentiating in an environment where the number of competitors is high. the main goals of international profit-seeking companies are generally to increase production and export new products to foreign markets. for this, companies need to develop export and marketing strategies, establish longterm cooperation by focusing on these strategies, and increase their market shares, not their profit margins. the problems caused by distance, which is the biggest of the main difficulties experienced in exports, are gradually decreasing with the developments in technology and communication; globalization and language differences are no longer as big problems as they used to be, thanks to easy access to information; internet and wireless connections or making online payments faster can be seen as an advantage for companies or for countries when considered in a broader framework (ahearne, 2010). in addition, although the internet's offering of equal opportunities for everyone who is an entrepreneur seems to be a disadvantage, it creates an excellent opportunity for individuals and organizations with similar activities and financial situations to come together. this is because the internet is open to everyone. while this situation allows to compete on equal terms, it also causes a great disadvantage for those who cannot keep up with the digital age (manning, 2010). fazli uğur çolak & özgür çengel 16 the products used in international markets differ according to the country of origin, culture and even brands. one of the factors affecting the attractiveness of the products is that the products are presented in different ways to the customers in the stores. the design of the stores, the placement of the products sold, the music played, etc. it is thought that these factors can affect the purchase intention in positive or negative ways (jalil, 2016). the impact of the environment on behavior has long been recognized by retailers, architects, and interior designers (baker, 1992). store atmosphere is made up of different components, often referred to as "atmosphere factors", such as music, scents and colors. dealers have to act accordingly in order to change the consumer's behavior (kotler, 1973). according to bitner (1992): “experimental research and theoretically-based frameworks addressing the role of the physical environment in consumption environments are surprisingly lacking”. more recently, spangenberg (2005) points out that “although environmental stimuli have been found to influence shopping behavior, empirical knowledge of how these variables interact to influence shoppers' perceptions and actions is lacking.” in 1973, kotler states that the atmosphere of a store causes various reactions on the consumer, while atmospheric factors can affect positive responses on consumers. kotler argues that “atmospherics” are a potentially important source of competitive advantage in the retail environment. bitner (1992) uses the term “service areas” to refer to the physical environment shaped by retailers to facilitate service delivery to consumers. it is also known that the service environment consists of both tangible and intangible elements that make up the service experience (hoffman and turley, 2002). in this study, it is examined whether there is a significant relationship between customer purchase intention of display and layout, music, lighting, cleanliness, and participant factors. 2. purpose of the study this research will show why store atmosphere can be an important part of a marketing strategy to drive sales and create a positive store image, as well as how it can influence a customer's impulse buying behavior. the study will also inform retailers about the various elements of the store atmosphere that can encourage customers to buy on impulse, as well as how stores can be built and how products can be displayed in stores and used to influence impulse buying by influencing buyer perception. 3. literature review the store atmosphere has been defined by kotler (1973) as "an effort to design purchasing environments to create unique emotional effects in the buyer that increase the probability of purchase". kotler proposes a five-dimensional sensory system for store atmospheres, and subsequent studies argue that the store atmosphere also includes environmental factors (sound, arousal, smell, sight), product-based factors (crowd, arousal, smell), and vision factors (wall colours). it consists of environmental factors, construction factors and social factors. in the retail environment, it has been found that customers give various reactions through cognitive, emotional and biological ways (bitner, 1992). according to shirin (2021), the positive effect of the store environment on consumer behavior is explained by the fact that a customer who is interested in purchasing a product and is enthusiastic about the shopping experience stays in the store longer, spends more money, and enjoys it more when he returns. the amount and quality of lighting, the impression it gives to the product and its effect on the appearance of the retail space are all factors in a successful sale. a customer who is interested in purchasing a product and is excited about the shopping trip will stay longer, spend more money, and return again in the future. the quantity and quality of lighting, the feel it creates about the product and its effect on the appearance of retail spaces are all reasons for good sales. durai and stella (2020) say that the store atmosphere is a pleasant shopping environment created by retailers based on consumer emotional value. retailers use store atmospheres to create a positive experience for customers, which leads to hedonic motivation. stores operating in real places give more importance to the in-store environment and enrich the customer's shopping experience with innovative products. ideas, charm, and excitement are terms that come to mind when thinking of the word "pleasure." the store atmosphere is a combination of elements that can be felt, heard or seen that cause people to buy products they do not need. the retail business states that a store's atmosphere includes the physical aspects, sanitation, equipment and mural, the display of goods, attractive decorations, aroma, melody and other intangible aspects all exist simultaneously. consumers' emotions are affected by the atmosphere, which can lead to impulse purchases. store atmosphere strategies and their effects on purchase intention 17 arti (2020) argues that music, cleanliness, and participant have a direct impact on customer behavior intention. besides store display and layout, light has a significant impact on emotional enjoyment. customer behavior intent is significantly influenced by store taste, but not by arousal or customer retail experience. the literature suggests that in order to lead the market, all retail stores must constantly improve themselves, because business sustainability requires satisfying existing customers and gaining new customers. to do this, retailers adopt new systems to sustain themselves in the competitive market. visual merchandising is one of the dominant concepts that enables retailers to attract new customers in-store (michelle et al., 2019). batista (2020) examined the use of visual merchandising and concluded that it is limited to retail stores. visual merchandising is a technique of creating a store environment by using various elements such as design, architecture, decoration, and visual communication to attract the customer to the shopping environment. existing customers have higher purchasing power due to their changing and demanding needs. research by nell (2017) found that visual merchandising displays unconsciously affect consumer purchasing behavior, and a pleasant shopping environment leads to a purchase by making the customer stay in the store longer. the study finds that the atmosphere of opinion influences consumers to buy directly or indirectly. sondakh (2020) found that marketers try to take advantage of consumers' impulsive purchases to increase their sales. the study finds that store layout significantly influences customer's impulsive buying behavior. timonia (2020) attempts to evaluate retailers' use of combined assortment to increase sales and revenue. the study compares proposed heuristics with three types of planning strategies for business insights. the three types of planning strategies examined in the study are the absence of variable products received by retailers, cross-selling ignored by retailers, and fixed maximum space allocation for products. in the case of cross-selling by retailers, it has been found that variable product variety significantly increases profitability. iyer et al. (2019) conducted an analysis to understand the relationship between consumers' impulse buying behavior and its internal and external determinants, and reported that characteristics, motives, consumer resources and marketing stimuli are the main determinants of impulse buying. in addition, consumers' mood and self-control were also reported to mediate the emotional and psychological processes of impulse buying. soomru (2017) tried to investigate the effect of visual merchandising on consumer attention and found that color and lighting, showcase and store interiors were positive and significant on consumer attention. in the study, it was found that the store layout was negative, which significantly affected the attention of the consumer. thus, he concluded that retailers should focus on visual merchandising to increase consumer foot traffic. gowrishankkar (2017) tries to examine the effect of the store environment on the purchasing behavior of consumers. he argues that store ambience stimulates a consumer's perception and emotions, which in turn influences consumers' purchasing decisions. 4. research the aim of this research is to examine the factors affecting the purchase of electronic household goods in different countries. in this context, the effects of factors such as cleaning, lighting, music, display/layout, shopping options and participants’ factors in stores selling electronic household goods in turkey, germany and england on the intention to shop again from these stores were investigated. in accordance with this purpose of the research, a quantitative research design and relational survey model were used in the research. according to the research purpose, 6 hypotheses were tested: h1: music playing in stores that sell electronic household goods affects the intention to shop from this store again. h2: lighting in stores selling electronic household goods affects the intention to shop from this store again. h3: cleanliness of stores selling electronic household goods affects the intention to shop at this store again. h4: display/layout in stores selling electronic household goods affects the intention to shop from this store again. h5: shopping options of stores selling electronic household goods affect the intention to shop from this store again. h6: participant factors affect the intention to shop from the store where electronic household goods are sold. the population of the study consisted of adults over the age of 20 living in turkey, germany and england. the sample of the study consisted of 300 people who were selected from this participant universe by using the convenience sampling technique and people who accepted to participate in the research. in the sample, attention was paid to the presence of participants of different genders, ages and different education levels, 100 people from each country were chosen. fazli uğur çolak & özgür çengel 18 the data of this study were collected by the survey method. in order to measure the variables of the research, a questionnaire form was developed by the researcher with the support of an expert. since the questionnaire was applied in three different countries, it was prepared in three different languages: turkish, german and english. the questionnaire consists of three parts. in the first part, 8 questions were asked to measure the demographic information of the participants. in the second part, 12 questions were asked about the behavior of the participants in purchasing electronic household goods. in the third and last part of the questionnaire, there were 37 questions of 5point likert type aiming to measure the factors of cleanliness, lighting, music, display/layout, shopping options, participants factors and purchase intention. the data of the research were collected between q4 2021 and q3 2022. the questionnaire was prepared with survey monkey and shared with the researcher's contacts on the linkedin platform. these contacts were also asked to share the questionnaire with their own contacts. the completed questionnaires were collected online again. the data of the research were analyzed on the spss 26.0 program. factor analysis, reliability test, descriptive statistics, pearson product-moment correlation test and multiple regression tests were used for the analyses. 4.1. findings 4.1.1. demographic characteristics of participants according to the findings in table 1, 300 people participated in the study in equal numbers from three different countries, turkey, germany and england. about half of the participants are male (51.0%) and approximately the other half are female (49.0%). 19.7% of the participants were between 20-30 years old, 53.3% were between 31-40 years old and 27.0% were 41 years old and over. slightly more than half of the participants are married (56.7%). the rate of single participants is 37.3% and the rate of those living separately is 3.0%. while 9.3% of the participants are high school graduates, 40.7% are university graduates. the rate of participants with a master's degree is 40.7%, and the rate of those with a doctorate is 9.3%. looking at the professions of the participants, it is seen that 40.7% of the participants are managers and 18.7% are senior managers. the rate of those holding a sub-manager position is 15.7%. while the rate of retired participants is 6.0%, the rate of participants who are students is 6.3% and the rate of participants who do not work in a job is 12.7%. the monthly income of 44.7% of the participants is over 5000€/5000£/20000tl. the monthly income of 43.0% of the participants is between 2000€/2000£/10000tl 5000€/5000£/20000tl. 9.3% of the participants have a monthly income below 2000€/2000£/10000tl and 3.0% of the participants do not have a monthly income. table 1. demographic findings of the participants variables groups f % country turkey 100 33.3 germany 100 33.3 england 100 33.3 gender male 153 51.0 female 147 49.0 age 20-30 years 59 19.7 31-41 years 160 53.3 over 41 years old 81 27.0 marital status married 170 56.7 single 112 37.3 separate 9 3.0 store atmosphere strategies and their effects on purchase intention 19 other 9 3.0 educational status high school 28 9.3 university 122 40.7 master 122 40.7 doctorate 28 9.3 monthly income none 9 3.0 less than 2000€/2000£/10000tl 28 9.3 between 2000€/2000£/10000tl 5000€/5000£/20000tl 129 43.0 over 5000€/5000£/20000tl 134 44.7 job executive 122 40.7 sub-manager 47 15.7 senior manager 56 18.7 retired 18 6.0 non working 38 12.7 student 19 6.3 4.1.2 findings regarding purchasing behavior according to the findings in table 2, the majority of the participants (86.3%) purchased electronic household goods at least once and at most 5 times in the last year. 11.4% of the participants purchased electronic household goods six or more times last year. the rate of participants who have never purchased electronic household goods is 2.3%. it was found that 68% of the participants examined the products and brands of electronic household goods purchased 1-5 times before making the purchase. 18% of the participants examined different products and brands 6 or more times. in the last year, the rate of purchase of a major (major) electronic household item by the participants or a member of the family is 30.0%. when the sources used by the participants to purchase electronic household goods are examined, it is seen that the participants mostly prefer online media (35.3%), electronic product sellers (28.7%) and large retail stores (26.0%). purchasing points were found to be predominantly official sellers (51.7%), online sales (19.0%) and retail stores (18.7%). table 2. findings regarding the purchasing behavior of the participants variables groups f % number of purchases last year none 7 2.3 1-5 times 259 86.3 6-10 times 20 6.7 11 and more 14 4.7 number of different products/brands reviewed none 42 14.0 1-5 times 204 68.0 fazli uğur çolak & özgür çengel 20 last 6-10 times 34 11.3 11 and more 20 6.7 a family member's purchase of an item in the past year yes 90 30.0 no 210 70.0 resources used to buy items large retail stores 78 26.0 electronic product vendors 86 28.7 online media 106 35.3 written newsletters 20 6.7 other 10 3.3 points of purchase official seller 155 51.7 retail store 56 18.7 online sales 57 19.0 sales representatives 17 5.7 fair outlet sales 15 5.0 4.1.3. factors affecting buying behavior related findings according to the findings in table 3, the primary purpose of the participants in purchasing electronic household goods is their own use (42.3%) or the use of other members of the family (38.3%). the primary criterion used by half of the participants (50.7%) when purchasing electronic household goods is quality. the primary criterion used by 37.3% of the participants is the performance of electronic household goods. while 5.7% of the participants use the energy consumption, 3.3% of the participants use the appearance criterion. it was determined that 47.0% of the participants were most affected by internet advertisements, 26.0% of the participants were most affected by tv, and 9.0% of the participants were most affected by billboards. it is seen that the participants are similarly affected by different types of campaigns in purchasing electronic household goods. 22.0% of the participants are from attractive advertisements, 19.0% from word of mouth, 17.0% from sales representatives' promotions, 17.0% from product reviews, 15.0% from discounts and 10.0% of them are influenced by celebrities. the most striking pricing options for the participants were found to be affordable prices (57.3%), offers and discounts (27.0%) and being eligible for credit (15.7%), respectively. it was determined the factors that the participants were most affected by in store shopping were design (51.3%), social factors (34.7%) and ambiance (14.0%), respectively. table 3. findings related to factors affecting participants' purchasing behavior variables groups f % purchasing purpose for my own use 127 42.3 gift for someone in the family 33 11.0 gift for someone outside the family 25 8.3 for other members of the family to use 115 38.3 store atmosphere strategies and their effects on purchase intention 21 criteria used in purchasing performance 112 37.3 brand 3 1.0 quality 152 50.7 energy consumption 17 5.7 appearance 10 3.3 guarantee 3 1.0 customer service 3 1.0 the type of ad that influences the purchase tv commercials 78 26.0 internet ads 141 47.0 billboard ads 36 12.0 newspaper ads 27 9.0 radio ads 18 6.0 most notable campaigns word of mouth 57 19.0 attractive ads 66 22.0 celebrities 30 10.0 product presentation by sales representatives 51 17.0 discounts 45 15.0 product reviews 51 17.0 most notable pricing options reasonable price 172 57.3 offers and discounts 81 27.0 suitable for credit use 47 15.7 factors affecting buying in store social (store employees and other customers) 104 34.7 ambience (temperature, music, light) 42 14.0 design (color, display, architecture) 154 51.3 4.1.4. exploratory factor analysis and reliability analysis three different exploratory factor analyzes were carried out in accordance with the structures of the scales in the survey form of the research. firstly, factor analysis was performed for the 5-item purchase intention scale. secondly, factor analysis was conducted for the music, lighting and obliging scales, which consisted of a total of 15 items fazli uğur çolak & özgür çengel 22 related to the store atmosphere. finally, the analysis was carried out for the scales of display/layout, shopping options and participant factors, consisting of a total of 17 items related to shop orientation. principal components method was used for factor analysis and varimax technique was preferred from factor rotation techniques. 4.1.4.1. intention to purchase scale factor analysis according to the first factor analysis for the 5-item purchase intention scale, the kmo value was found to be 0.78, and the p -value for the bartlett sphericity test was found to be less than 0.05. afterwards, extraction values for each item were examined, which shows how much the items are related to each other as an indicator of measuring the same structure. the value of the intentiontobuyb item was found to be 0.20, and since this value was less than 0.30, this item was excluded from the scale. it was observed that none of the recalculated extraction values were below 0.30. it was found that the 4-item purchasing scale had a single factor structure and this single factor structure explained a 72.0% variance (table 4). the internal consistency coefficient of the scale was also calculated as 0.83. table 4. intention to purchase factor loads factor loads cronbach alpha intentiontobuya 0.58 0.83 intentiontobuyc 0.94 intentiontobuyd 0.91 intentiontobuye 0.91 4.1.4.2. store atmosphere substances factor analysis factor analysis was conducted for the music, lighting and obliging scales, which consist of a total of 15 items related to the store atmosphere. according to the first factor analysis for these 15-item scales, the kmo value was found to be 0.68, and the p -value for the bartlett sphericity test was found to be less than 0.05. it was observed that all of the calculated extraction values were above 0.30. factor analysis showed that this scale formed a 5-factor structure. however, since the difference in the weights of the lightingc item under more than one factor was less than 0.10 (conjoined), it was excluded from the scale. as a result of the factor analyzes performed on 14 items, it was determined that the scale was explained with a 5factor structure. the total variance explained by these 5 factors is 64.4%. the contribution of each factor to the total variance and the factor loadings of the items in each factor are given in table 5 and the factors are named. in addition, reliability analyzes were performed for the items in each factor and the obtained values are also given in table 5. it was observed that the internal consistency coefficients used for reliability analysis varied between 0.62 and 0.70. according to these findings, the scales were evaluated as medium reliability scales (nakip & yaraş, 2017). table 5. store atmosphere scale final factor analysis results code expression factor load factor 1 (store cleanline ss and order) cleanness b shelves are clean. 0.71 cleanness c store is clean. 0.71 cleanness d products are tidy and not damaged. 0.69 store atmosphere strategies and their effects on purchase intention 23 cleannesse the fact that the store is clean and tidy increases my wellbeing and comfort. 0.63 cronbach's alpha=0.62; explained variance=13.77%; number of items=4 factor 2 (appropri ateness of the music genre) musicc the type of music which is played at the store is the kind of music that i usually listen to. 0.69 musicd background music is pleasant. 0.85 musice existence of background music increases my well-being and comfort. 0.73 cronbach's alpha=0.69; explained variance=13.75%; number of items=3 factor 3 (light in terms of store ambiance ) lightingd different lighting used in each area inside the store is important. 0.81 lightinge better clarity increases my well-being and comfort. 0.70 cleanness a store's floor is clean. 0.83 cronbach's alpha=0.66; explained variance=13.65%; number of items=3 factor 4 (conform ity of music tone and rhythm) musica rhythm of the background music is adequate. 0.84 musicb volume of the background music is adequate. 0.80 cronbach's alpha=0.70; explained variance=11.60%; number of items=2 factor 5 (light for product visibility ) lightinga light in the areas of products allows me to evaluate the quality of the products (eg, white lights, yellow lights, brightness). 0.86 lightingb light at the corners of the store (more hidden areas) is sufficient. 0.88 cronbach's alpha=0.70; explained variance=11.58%; number of items=2 4.1.4.3. shop oriention items factor analysis factor analysis was conducted for the scales of display/layout, shopping options and participant factors, consisting of a total of 17 items related to shop orientation. according to the first factor analysis for these 17-item scales, the kmo value was found to be 0.65, and the p -value for the bartlett sphericity test was found to be less than 0.05. it was observed that all of the calculated extraction values were above 0.30. factor analysis showed that this scale formed a 7-factor structure. however, since the difference in the weights of participantfactorc item under more than one factor was less than 0.10 (conjunctive), it was excluded from the scale. in addition, participantfactord item was also excluded from the scale because it was loaded on a single factor. as a result of factor analysis performed on 15 items, it was determined that the scale was explained with a 6-factor structure and the total variance explained by these 6 factors was 67.5%. the contribution of each factor to the total variance and the factor loads of the items in each factor are given in table 6 and the factors are named. in addition, reliability analyzes were made for the items in each factor and the obtained values are also given in table 6. it was observed that the internal consistency coefficients used for the reliability analysis varied between 0.44 and 0.77. according to these findings, the internal consistency coefficients of factor 5 and factor 6 were considered as lowreliability scales since they were between 0.40 and 0.59, and since the internal consistency coefficients of the other scales were between 0.60 and 0.80, they were considered as medium-reliability scales (nakip et al. yaras, 2017). fazli uğur çolak & özgür çengel 24 table 6. shop oriention scale final factor analysis results code expression factor load factor 1 (testabilit y of products) shoppingoptiona i could try the products hands-on (iron, vacuum, kitchen appliances). 0.65 shoppingoptionb sample items were working. 0.78 shoppingoptionc product information was clear and available. 0.79 cronbach's alpha=0.77; explained variance=15.84%; number of items=3 factor 2 (product visibility ) displaylayoutc locations of each department in the store are important. 0.68 displaylayoutd store display window allows me to see displayed products clearly. 0.71 displaylayoute clear shelf information increases my well-being and comfort. 0.65 cronbach's alpha=0.67; explained variance=13.11%; number of items=3 factor 3 (custome r mobility in the store) participantsfactor e crowding shows attractiveness of the store. 0.57 participantsfactor f existence of high-end products increases the luxury perception of the store. 0.67 participantsfactor g the fact of having a reasonable number of customers in the store increases my well-being and comfort. 0.67 cronbach's alpha=0.65; explained variance=11.91%; number of items=3 factor 4 (service related) shoppingoptiond i have been offered product options that i can bundle up together. 0.79 shoppingoptione better shopping experience increases my wellbeing and comfort. 0.71 cronbach's alpha=0.52; explained variance=9.68%; number of items=2 factor 5 (staff quality) participantsfactor a appearance of the employees is important. 0.70 participantsfactor b politeness of employees is important. 0.53 cronbach's alpha=0.44; explained variance=8.87%; number of items=2 factor 6 (store design) displaylayouta corridors in the store allow a good circulation. 0.67 displaylayoutb product organization allows me to identify the location of products in the store easily. 0.57 cronbach's alpha=0.38; explained variance=8.12%; number of items=2 store atmosphere strategies and their effects on purchase intention 25 4.1.5 impact analysis in this section, whether the variables of store cleaning, store design, store mobility, lighting in terms of store ambiance, lighting in terms of product appearance, music type, music sound/rhythm, testability of products, visibility of products, personnel quality and service quality affect the variable; if it does. the extent to which they affect them was investigated (table 7). table 7. multiple regression analysis dependent variable: purchase intent independent variable b q. error β t p vif dw still 2.17 0.62 3.49 0.00 1.99 store cleaning 0.42 0.08 0.29 5.12 0.00 1.07 design of the store 0.05 0.06 0.05 0.89 0.37 1.13 customer mobility 0.23 0.05 0.28 4.96 0.00 1.06 lighting in terms of store ambiance -0.14 0.08 -0.10 -1.76 0.08 1.09 lighting in terms of product appearance 0.01 0.05 0.01 0.09 0.92 1.10 music genre -0.07 0.05 -0.08 -1.31 0.19 1.19 music voice/rhythm -0.01 0.05 -0.01 -0.12 0.91 1.20 testability of products -0.10 0.05 -0.14 -2.17 0.03 1.36 visibility of products 0.01 0.06 0.01 0.11 0.91 1.20 staff quality -0.05 0.06 -0.05 -0.89 0.37 1.06 service quality 0.01 0.05 0.01 0.22 0.83 1.28 r: 0.40 f : 5.10 adjusted r 2 : 0.13 p : 0.00 the findings in table 7 show that the durbin watson value is greater than 1.0 and the vif values are less than 10. in the regression analyzes based on these findings, it was accepted that there was no auto-correlation, the independent condition of the errors was met, and there was no multicollinearity problem (nimon, 2010). 5. conclusion in conclusion, the aim of this study is to investigate the relationship between electronic retail store atmospheric characteristics, customer experience and behavioral intentions of customers in turkey, germany and england. there fazli uğur çolak & özgür çengel 26 are two goals that can be achieved in this study: to see the effect of store atmosphere factors on customer purchase intention and to see the approaches of these factors according to different countries. the findings in table 7 have 13% on the purchase intention of the variables of store cleanliness, store design, store mobility, lighting in terms of store ambiance, lighting in terms of product appearance, music genre, music sound/rhythm, testability of products, product visibility, personnel quality and service quality. showed that it explained a variance of . in other words, 13% of the intention to shop at the same store again can be explained by these 11 factors. however, the findings again showed that only 3 of these 11 factors had a statistically significant effect on purchase intention. while the factors of store cleanliness and customer mobility have a positive and significant effect on the purchase intention, the effect of the testability factor on the purchase intention is negative (respectively; β = 0.29, p <0.05, β = 0.28, p <0, 05 and β = -0.14, p <0.05). according to these findings, as the perception levels of the participants about store cleaning and activity in the store increase, the intention of the participants to shop again from the same store also increases. on the other hand, as the testability levels of the products in the stores increase, the intention of the participants to shop from the same store again decreases. other than these three 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(2000), “the effects of music in a retail setting on real and perceived shopping times”, journal of business research, vol. 49, no. 2, s.139-147. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 168-182 168 bank credit to agricultural sector and its productivity in ethiopia bedasa taye engida rift valley university, ethiopia received: october 21, 2022 accepted: november 25, 2022 published: december 01, 2022 abstract: this study, efforts were empirically to inspect the long-run association of total outstanding bank credit to the agriculture sector and its productivity in ethiopia by employing a co-integrated var model technique, with annual data running from 1981–2015 agricultural productivity and total bank credit to the agricultural sector as variables of interest, and real government capital expenditure on agriculture, rural population, and seasonal break (dummy) as supplementary variables. a 1% permanent increase in agricultural bank credit was linked to a 0.13 percent increase in agricultural productivity. the speed of the adjustment coefficient was found to be negative and significant with 0.515 values, indicating that 51.5 percent of the deviation from long-run equilibrium caused by a disturbance and/or a shock in the system was eliminated within a year. unlike to previous studies the financial development-economic growing nexus, there exist the absence of empirical research on causal association between agriculture productivity and bank credit to sector, at least as per the literature review for this study in ethiopia. in summary, small-holder farmers in particular, and agro-industrial-based entrepreneurs in general, were excluded from bank credit in ethiopia for a long time. keywords: agricultural productivity, bank credit, causality, co-integration, ethiopia 1. background of the study agricultural credit is considered one of the strategic resources for pushing production to the high horizons consequently, raising the living standards of the rural poor farming community. it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture: land preparation, planting, cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned, while expenditures on materials, purchased inputs and consumption need to be made in cash. cash income is received a short time after the harvest. in the absence of credit markets, farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle. the availability of credit allows both greater consumption and greater purchased input use, and thus increases the welfare of the farmers(nzomo and muturi, 2010). despite efforts to enhance industrial production and employment in the manufacturing sector over the years, agriculture has been the primary driver of ethiopia's economy and food security in the longrun. it constitutes 41.4 % of the country's total output, 83.9% of foreign exchange earnings, and 80% of the total labor force (matouš, todo and mojo, 2013). smallholder agriculture productivity in ethiopia is described by a low level of productivity, fluctuations in agricultural production caused by subsistence agriculture, outdated farming practices, inadequate irrigation supplies, a lack of or misuse of modern farm technology such as fertilizer, herbicides, high yield variety seeds, and machinery(chamberlin and schmidt, 2013) one reason ethiopia's agriculture sector produces at a minimum level is that incomes are insufficient to cover farmers' consumption and expenditures while also allowing them to reinvest in their crops. farmers frequently suffer a deficiency of capital to adopt modern agricultural technologies where subsistence agriculture prevails and smallholder farming dominates the overall economy of the country. as a result, short-term credits with favorable conditions for seasonal inputs such as fertilizer, improved seeds, insecticides, and herbicides are often preferred because the higher return may be obtained rapidly during the crop season. while advocated and seen as critical to bank credit to agricultural sector and its productivity in ethiopia 169 agricultural growth, the use of credit has been envisioned as one method of facilitating technology transfer(matsumoto, yamano and bank, 2011). access to financial services for agricultural producers and agribusinesses is critical in ethiopia to unlock the country’s agricultural potential and fund the sector’s expansion farm inputs, credit, savings, payment, and insurance services are all critical; the latter three are essential in and of themselves and may also present chances to expand agricultural credit availability(zewdie, 2015). until recently, few development theorists and practitioners gave small farmers much consideration; rather, they saw the as the principal essence of the backwardness that developing nations were supposed to reject in order to imitate the sophisticated major economies (islam, 2014). the agriculture sector, like many other sectors, is enhanced by timely access to sound investment services. one of the main barriers to changing the livelihood of smallholder agriculture sector is a lack of access to appropriate credit services. an increasingly common strategy for combating poverty is to provide access to credit services for small farmers(gurmessa and catherine, 2017) in general, ethiopia’s small farmers have been excluded from banks credit market. this is evident from the total amount of bank credit that went to rural peasant sector. for instance, out of the overall supply of rural credit through both agricultural industrial development bank and commercial bank of ethiopia only 9% went to peasant sector on average during 1982-1992. this means the lion share of banks credit to the agricultural sector has been absorbed by the insignificant large-scale mechanized agriculture in the country designates that the causality also running from the former to the later. therefore, these facts must be supported by the causal relationship between agricultural sector productivity and banks credit to the sector. unlike to previous studies the financial development-economic growing nexus, there exist the absence of empirical research on causal association between agriculture productivity and bank credit to sector, at least as per the literature review for this study in ethiopia(see, (roman 2012, murty, sailaja, and demissie 2012, and meressa 2017). the literature only revealed the magnitude and it doesn’t address the issue of a causal association of bank credit and agricultural productivity, as the finance-growth nexus. the primary objective of this study was to inspect banks’ credit to agriculture and its productivity in ethiopia with the specific objectives: (1) to inspect long-run equilibrium and short run dynamic properties of banks’ credit and agricultural productivity in ethiopia. (2) to identify the direction of causality between agricultural productivity and banks’ credit. (3) to analyze the impulse response (the propagation mechanism of shocks) and variance decompositions long-run forecast). specifically, the study was aims to response the basic questions of: (1) is there a relationship between bank credit and agricultural productivity in ethiopia both long-run equilibrium and short-term dynamic? (2) can banks' credit and agricultural productivity have bidirectional causality in ethiopia? (3) is banks' credit the main source of variation for agricultural productivity in ethiopia.? since there is scarce empirical research on the causal relationship between banks' credit, and agricultural productivity at sub-sector in ethiopia, the current study was an attempt to investigation of long-run and short-run causality which may help both the government and policy designers as a focal point for agricultural and bank credit policy intervention. second, it can be used as a background paper for agricultural stakeholders who need recent information on this area in the ethiopian context. third, at the academic level, the current paper adds something valuable to the existing literature as since the association between banks' credit, and agricultural productivity is concerned. fourth, it can also be used as a springboard for further research on this particular area. 2. methodological approach the paper chiefly relied on secondary sources of data in order to attain study objective. accordingly, yearly time series data covering from 1981 2015 was employed for each variable entering the model: agricultural productivity and banks credit to the sector as the interest variables and government capital expenditure, rural population(proxy of agricultural labor force) and seasonal break(dummy) as auxiliary variables. while data on banks credit to agriculture was collected from the central bank of ethiopia, world bank and ministry of finance and economic development of ethiopia. except rural population and seasonal break all the rest are measured in million real terms by local currency. bedasa taye engida 170 2.1. model specification based on evidence from both theoretical frameworks as well as empirical literature, the following model was specified to show the link between agricultural sector productivity and bank credit to the sector in ethiopia 𝑙𝐴𝑃𝑡 = 𝛽0 + 𝛽1𝑙𝐵𝐶𝑡 + 𝛽2𝑙𝐺𝐶𝐸𝑡 + 𝛽3𝑙𝑅𝑃𝑡 + 𝑆𝐵𝑅𝑡 + 𝑡 … … … … … … … … … … … . … … … … … … . (1) where: 𝑙𝐴𝑃𝑡 – agricultural productivity in logarithms with time t, lbct bank credit to the agricultural sector in logarithms with time t, 𝐺𝐶𝐸𝑡 -government capital expenditure to agricultural sector in logarithms with time t,t 𝑅𝑃𝑡 -rural population numbers in logarithms with time t, 𝑆𝐵𝑅𝑡 seasonal break dummy at time t and 𝑡 , stochastic shock. 2.2. econometric approach evidence shows that a number of empirical research used a co-integrated var approach to inspect the association of the finance sector-economic growth in ethiopia; see, for example (fantaye and aberra, 2011, k. sreerama et al., 2012). similarly, this approach was caried out to examine the association of agriculture productivity (proxied by agricultural value-added per hectare) and bank credit to the sector. 2.2.1. the unit root test time series data's stationarity or non-stationarity can have a significant impact on its behavior and properties over time (chris brooks, 2008). even though there are dickey-fuller and phillips-perron (pp) tests, it is common practice to apply augmented dickey-fuller (adf) tests because it has high power against the trend of stationary alternatives, and it is widely practiced in most empirical studies. for this reason, the researcher was relied more on adf, and to this end, except for seasonal break, all variables are subjected to these tests. no trend or intercept in the augmented dickey-fuller (adf) test δ𝑦𝑡 = 𝛿1𝑦𝑡−1 + ∑ 𝜃𝑖 𝑛 𝑖=1 ∆𝑦𝑡−1 + 𝑡 … … … … … … … … … … … … … … … … … … … . … … … …(2) adf test with no trend but intercept: δ𝑦𝑡 = 𝛿0 + 𝛿1𝑦𝑡−1 + ∑ 𝜃𝑖 𝑛 𝑖=1 ∆𝑦𝑡−1 + 𝑡 … … … … … … … … … … … … … . . … … … … … … (3) likewise, test with both trend and intercept: δ𝑦𝑡 = 𝛿0 + 𝛿1𝑡 + 𝛿1𝑦𝑡−1 + ∑ 𝜃𝑖 𝑛 𝑖=1 ∆𝑦𝑡−1 + 𝑡 … … … … … … … … . . … … … … … … … . . … … . … … … (4) hypothesis: h0: δ =0, (i.e., the data must be differentiated in order for it to be stationary) against h: δ <0 (i.e., since the data is stationary, there is no need to differentiate it (endres 1995). 2.2.2. optimal lag specification the model with the lowest aic or sic value is typically recommended. similarly, among the ics that provide the majority of the lag, the best optimal lag length is chosen. in fact, for this we used a mixture of both methods. as a result, a general-to-specific approach is used to determine the best ideal lag duration, begin with the maximum lag of 2 (since the data is annual). the values of various lag length selection criteria in the unrestricted var model are then examined in each of these models. finally, the wald lag-exclusion test was performed to ensure that the var system covered the lags with significant information content. bank credit to agricultural sector and its productivity in ethiopia 171 2.2.3. identification of co integrating vectors the likelihood ratio johansen (1988) test is based on maximum likelihood estimation of the ecm with assumptions made about the trend or intercepting parameters and the number k of co-integrating vectors, followed by likelihood ratio tests. 𝜆𝑡𝑟𝑎𝑐𝑒 = −2 log(𝑄) = −𝑇 ∑ log(1 − 𝜆�̂�), 𝑟 = 0,1 … , 𝑛 − 2, 𝑛 − 1 𝑛 𝑖=𝑟+1 … … … … . . (5) 𝜆𝑚𝑎𝑥= − 𝑇 log( 1 − 𝜆𝑟+1), 𝑟 = 0,1 … , 𝑛 − 2, 𝑛 − 1 … … … … … … … … … … … … … … (6) when t is the sample size, i denote the eigen value from the matrix, n denotes the number of variables in the system (in this example, n=k), and r denotes the number of linearly independent co-integrating vectors under the null. the trace test contrasts the alternative hypothesis, that there are more co-integrating vectors than r, with the null hypothesis, that the number of co-integrating vectors is less than or equal to r. the largest eigen value is 0 and no tests are run when the matrix rank is zero. if the greatest eigen value is nonzero and the matrix rank is at least one, there might be more cointegrating vectors. according to the null hypothesis, there is no distinction between the two groups. 2.2.4. the vector error correction model it is possible to construct a vecm that shows both the dynamic and long-run interaction among the variables if there is a long-run relationship among the variables. if there is only one co-integrating vector and endogenous and exogenous factors are identified in the long-run analysis, it is straightforward to develop the vecm by conditioning on the exogenous variables. since disequilibrium makes it possible to modify the long-run model, the vecm provides insights into both the shortand long-run components of the system. this is attained using the following nx1 random variable vector expression of pth order error correction var. δ𝑍𝑡 = 𝛼0 + π𝑡−1 + γ1δz𝑡−1 + γ2δ𝑍𝑡−2 + ⋯ γ𝑝δz𝑡−𝑝 + 𝑡= = 𝛼0 + π𝑡−1 + ∑ γ𝑖 𝑝 𝑖=1 + 𝑡=………. (7) where п is a matrix carrying information regarding long-run association; supposing that п is a reduced form 0 < r < k such that it may be written as п=αβ′ with α is the rate of adjustment to equilibrium coefficient and β′ the long-run matrix of coefficients. to correct the disequilibrium, in the cointegrated vector(s), the residuals from the equilibrium regression ought to be used to estimate the vecm. for the above equation (7) var model, the vecms with exogenous variables will be estimated as follows. ∆𝑙𝐴𝑃𝑡 = δ1 + π𝑡−1 + ∑ α1i∆𝑙𝐵𝐶t−1 𝑝 𝑖=1 + ∑ β1i∆lgcpet−1 p i=1 1i + ∑ θ1i∆lrpt−1 p i=1 + sbrt−1 + λecmt−1 + ε1t … … … … … … … … … … … … … … … … … . … … … … … … … … … . … . . . . . … . . (8) were, ecm_(t-1). is the error correction term indicating lagged residual from co-integrating relationships, and ∆ is the first difference of the variables (from the residuals of the long-run equation). 2.2.5. structural vector autoregressive (svar) analysis there should be causality in at least one direction in the system, if a co-integration is found. granger and lee (1989) stated that a causality test must be exist in both an error correction model (ecm) and a vector error correction model for the var model (vecm). the following is the granger causality hypothesis between agricultural productivity (ap) and bank credit (cb) to the sector: ∆𝑙𝐴𝑃𝑡 = δ1 + ∑ α1i∆lcbt−i 𝑝 𝑖=1 + λecmt−1 + ε1t … … … … … … … … … … … … … … … … … … … … … (9) bedasa taye engida 172 ∆𝑙𝐶𝐵𝑡 = δ2 + ∑ β1j∆lapt−j 𝑝 𝑗=1 + λecmt−1 + ε2t … … … … … … … … … … … … … . … … … … … . . (10) hypothesis; h0: there is no causal association between the two variables in the shortand long-long-run; ha: there is a causal association between the two variables. rejecting the null hypothesis means variables have granger causality. loss to the null hypothesis rejection, on the other hand, means that the past values of independent variables do not predict the dependent variables. the variance decompositions show the percentage of the variance in the forecasting for each variable in the system that is likely to have contributed to its own discoveries and the innovation to other variables in the system, whereas the impulse response function attempts to trace an endogenous variable's response to a change in one of the innovations in the var system (kim, shin and lee, 2006). in addition to the tests mentioned above, the study would also run diagnostic tests for heteroskedasticity (breush pagan-godfrey test (arch test), serial correlation lm test), residual normality (jarque bera test), and model stability. 3. econometrics results and discussion according to figure 4.1, the highest and lowest growth rates of total outstanding bank credit to the agricultural sector were nearly 23% and 2% in 1982 and 1983, respectively, during the derg regime. similarly, the highest and the lowest growth rates of agricultural sector productivity were registered in 1985 (about 30 percent) and 1984 (about 14.0 percent), respectively. figure 1: trend of agricultural productivity and bank credit source: personal estimation based on nbe time-series data the worst decline in bank credit to agriculture was experienced throughout the transitional period. agricultural productivity, on the other hand, remained relatively stable over the same time span. bank lending to the sector has increased, and its growth rate has been positive, albeit with constant fluctuation, particularly after 1999. it was evident that banks' credit to the sector has increased following the recurrent drought in the country. this was revealed by a growth rate of bank credit to agriculture during the periods of 1982, 1984, 2000, 2006, and 2015. overall bank credit to agriculture in ethiopia has declined in the 1990s and 2000s as compared to the 1980s. for example, bank credit to the agriculture sector from 1982 to 1990 was (8.4%), from 1991 to 2000 (8.3%), from 20012010 (5.7%), and from 2011 to 2015 (3.01%), implying that the ethiopian agricultural sector has become neglected by bank credit. bank credit to agricultural sector and its productivity in ethiopia 173 3.1. variables plot against time at their level it can be seen from figure. 2 that the series fluctuate around their long-run average somehow with a positive trend and, estimated by i(1) processes (figure. 2). figure 2: variables plot against time at their level source: own computation based on time series data from nbe 3.2. variables plot against time at their first difference even though all of the variables at their level showed trends or apparent level shifts over time, the first difference appeared to be mean-reverting. this insight was useful when performing the formal stationarity tests in the following section. for example, both series' graphical inspection clearly demonstrates the presence of a positive trend, hence trend should be included during the unit root test. therefore, the researcher assumed that all variables would be stationary at i (1). -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 1985 1990 1995 2000 2005 2010 2015 d lap d lbc d lgce d lrp figure 3: variables plot against time at their first difference 0 2 4 6 8 10 12 14 16 lbc lgce lrp lap bedasa taye engida 174 3.3. unit root tests result table 1: adf and pp unit root tests of the series at level and first difference. v a ri a b le s augmented dickey-fuller test phillips-perron test level first difference level first difference in te rc e p t in te r & tr e n d in te rc e p t in te rc e p t & tr e n d in te rc e p t in te rc e p t & t re n d in te rc e p t in te rc e p t & t re n d lap -0.758 -2.996 -6.987* -6.927* -0.415 -3.128 -11.23* -10.89* lbc -1.356 -1.381 -5.457* -5.468* -1.559 -1.560 -5.488* -5.468* lgce -1.878 -2.675 -7.619* -8.531* -1.835 -2.821 -8.267* -8.35* lrp -2.610 0.146 -7.391* -8.479* -2.564 -0.698 -7.251* -8.612* critical value 1% 5% 10% -3.639 -2.951 -2.614 -4.253 -3.548 -3.207 -3.646 -2.954 -2.616 -4.263 -3.553 -3.209 -3.639 -2.951 -2.614 -4.253 -3.548 -3.207 -3.646 -2.954 -2.616 -4.263 -3.553 -3.209 shows significance at all significance sic determines each autoregressive process' optimal lag length for the adf test. the test results were consistent with a graphical examination of the variables' integration. the adf and pp tests failed to reject the null hypothesis that variables had unit roots at their levels, as can be observed from the test results. as opposed to that, , critical values for all series significantly rejected the null hypothesis of unit roots at first differences, showing that all variables must undergo once difference in order to become stationary and return to their long-run mean. the test results also go with graphical inspection (i.e., figures 1 & 2) of the integration of the variables earlier. table 2: selection criteria for the optimal lag for var lag logl lr fpe aic sc hq 0 82.08255 na 1.32e-07 -4.489 -4.127 -4.368 bank credit to agricultural sector and its productivity in ethiopia 175 1 2 233.5952 250.5596 247.929* 23.64733 3.63e-11* 3.65e-11 -12.703 12.761* -11.614* -10.947 -12.337* -12.151 denotes the lag order chosen by the criterion. fpe: final prediction error, lr: sequentially modified lr test statistic (each test at 5% level), aic, sc, and hq are the akaike, schwarz, and hannan-quinn information criteria, respectively. as seen in table.2, all information criteria were chosen with one lag, as expected, with the exception of the aic (since the data is annual). the var lag exclusion wald test (table 3) was used to make sure that lags with significant information values weren't eliminated from the var model. the lag exclusion wald test similarly shows that just the first lag was appropriate at a 5% significance level. table 3: the wald test for var lag exclusion statistics from the chi-squared test for lag exclusion: p-values are the numbers in []. lap lbc lgce lrpop joint lag 1 408.8781 120.3997 107.2678 20169.08 25332.49 [ 0.00000] [ 0.00000] [ 0.00000] [ 0.00000] [ 0.00000] df 4 4 4 4 4 4 table 4: summary results of the johansen cointegration test data trend: none none linear linear quadratic test type no intercept intercept intercept intercept intercept no trend no trend no trend trend trend trace 1 2 1 1 1 max-eig 1 1 0 1 1 denotes rejection of the hypothesis at the 0.05 level, ** mackinnon-haug-michelis (1999) p-values for all maxeigenvalue cases. as previously stated, the model with the lowest sic value is thought to be the best. sic chose model 2 (none, intercept, and no trend) to be utilized in the vecm on the basis of the summary test results for cointegration by johansen. we determined that the variables have a valid long-run association based on this finding. in other words, the i (1) variables that entered the model have a unique long-run solution and thus a stable long-run relationship. as a result, granger causality testing, vecm formulation, impulse response function execution, and variance decomposition are all viable options. bedasa taye engida 176 3.4. longand short-run causation in the ecm the outcomes of table 5 reveal that, when lap is the dependent variable, the long-run co-integrated coefficient for the error component was negative and significant at the 5% level of significance. the rejection of null means that there is a long-run causal relationship between the independent and dependent variables, i.e., banks' credit can granger cause to increased agricultural productivity. however, the sign of ect was identified to be positive and insignificant at every significance level when (lbc) is dependent implying that no long-run causality runs from agricultural productivity to banks credit. similarly, there was no short-run causality neither from d(lbc_(-1)) nor from d(lap_(-1)) since all values were not significant (as p values above 0.05). therefore, we cannot rule out the null hypothesis, which states that there was no direct causal connection between the independent and dependent variables. this study's findings were consistent with a unidirectional causality connecting bank loans to agricultural productivity over the long run (see table 5). 3.5. long-run dynamics: vecm the following equation was extracted from the johansson long run co-integration and it can be rewritten as follows: lapt = −13.969 + 0.130lbct − 0.337lgcet + 1.582lrpt + ut … … … … … … … … (11) (3.2) (4.2) (10.8) where, the value in parenthesis is t-statistic. the co-integrating coefficient for all variables entered the model was significant at 5% significance level. for bank credit to the agricultural sector, the cointegrating coefficient's magnitude and sign were both reasonable and expected, respectively. since the variables are in logarithmic form and only one cointegrating vector is estimated, this co-integrating coefficient can also be interpreted as long-run elasticity. in light of this, an increase of 1% in bank credit to the agriculture sector is predicted to increase agricultural productivity by 0.13 % when other factors stay the same. the result that accesses to bank credit by farmers will stimulate agricultural productivity in ethiopia, in the longrun, is similar to many earlier findings for instance, by, (chisasa and makina, 2015, nnamocha and eke, 2015, and adeola and ikpesu, 2016) as far as the association between bank credit and agricultural output is concerned similarly, a 1% permanent increase in the agricultural labor force will stimulate agricultural productivity by about 1.58% citrus paribus. the results of a study by (mcintire, bourzat and pingali, 1992) support the concept that population growth may lead to a return to specialization due to increased competition between crops and livestock for land and water, as well as the development of infrastructure and markets that create specialization more profitable through the introduction of intense in labor crops. however, the sign of government capital expenditure on agriculture is not as expected. a 1% permanent increase in government capital spending on the agricultural sector will diminish agricultural productivity by almost 0.34 % in the long-run. the negative long-run effect was also identical to findings by mudaki and masaviru (2012) in kenya, supporting a crowding-out effect of government capital expenditure on agriculture. an additional finding from the equation (11) was that the coefficient of error correction term of agricultural productivity has the reasonable sign and statistically significant at 1% and the agricultural productivity is adjusted in the short-run by 51.5 % of the earlier divergence from equilibrium, with the speed of adjustment to the equilibrium being 51.5 %. in contrast, the coefficients of error correction components for bank credit and rural population had a positive sign and were not statistically significant, suggesting that any shock to the system will result in a deviation from equilibrium and make the system unstable. 3.6. short-run dynamics: vecm the short-run restricted co-integrated coefficient of the lagged value of agricultural productivity caried positive sign and significant at a 10% significance level, indicating short-run agricultural productivity in the current period is influenced by the last year of agricultural productivity. on the other hand, the co-integrated coefficient of the lag value of banks' credit was negative and insignificant to affect the present value of agricultural productivity in the short run, i.e., a 1% rise in bank credit causes 0.03% decline of agricultural productivity. bank credit to agricultural sector and its productivity in ethiopia 177 at all levels of significance, the real government capital spending coefficient was positive in the short-run and it becomes negative in the long term. from the point of view of ethiopian government policy and strategy, the significant and negative long-run effect of government outlay on productivity of sector is desirablein fact, it is expected that agriculture will only play a significant role in the long-run of the ethiopian economy. this will require shifting government capital expenditure to the industrial sector and promoting favorable conditions for industry to play a vital role in the long-term of the economy. moreover, the short-run dynamic equation above also reveals that the co-integrated coefficient of the lagged value of the rural population was positive but insignificant enough to elucidate the variation of the current agricultural productivity in the short run. finally, the error correction term's coefficient (ect (-1)) was negative and significant, indicating that if any short-term oscillations of independent and dependent variable will result in a stable long-run relationship between the variables. the coefficient ect (-1) implies that the departure from the long-run equilibrium in one period is adjusted by size of that coefficient in the next period. the past shock in our model was adjusted or eliminated, and the system returned to the mean reversion at a rate of 51.5 % a year. the general form of the short-run dynamics model, with 1 lag on all variables except the seasonal break, is: 𝑙apt = −0.004 + 0.37lap−1−0.03bc−1 + 0.08lgce−1 + 0.83lrp−1 + 0.0007sbr−0.52ect−1………....(12) (0.081) (0.395) (0.04) (0.573) (0.964) (0.0017). where,the values in parenthesis are p-value,and ecm_(t-1,) is a unique co-integrating vector. in this equation, all variables were stationary; they were first differences of log levels except seasonal break which was stationary in nature at i (0). 3.7. model efficiency tests results in general, the model has no problems with serial correlation, homoskedasticity, normality test, and model stability, hence the model was feasible (see table.8, figure .3, figure.4 on the appendix). 3.8. the mechanisms of impulse response (irfs). in reaction to exogenous random shocks applied to this and other variables, impulse response functions (irfs) indicate the dynamic properties of a variable which are given by its time path. as a result, it is easy to compare the model's predictions to those of economic theory. figure. 4. shows the lpa's impulse response functions (irfs) in response to a shock from a different variable. -.03 -.02 -.01 .00 .01 .02 .03 .04 1 2 3 4 5 6 7 8 9 10 lap lbc lgce lrpop bedasa taye engida 178 in general, the shapes of the impulse response curves of agricultural productivity and bank credit were more or less similar in the long run. this verification, along with the granger causality test and vecm in the long run, as well as the short run dynamic equation of our earlier verification. 3.9. the decompositions of variance (dv). the proportion of a variable's movement caused by its own shocks as opposed to shocks in other variables in the system was revealed by the forecast error variance decomposition for each variable. in reality, whereas the dv offer the amplitude of the response to shocks, the impulse response function illustrates the direction of the dynamic response of the variables to various innovations. table 9: the decomposition of variance the decomposition variance of lap: variance decomposition of lbc: period s.e. lap lbc s.e lap lbc 1 0.034 100.000 0.000 0.212 2.937 97.063 2 0.048 87.193 0.394 0.321 4.920 91.351 10 0.098 46.407 8.619 0.716 4.369 88.748 15 0.119 43.782 9.346 0.878 4.336 88.553 20 0.136 42.430 9.727 1.012 4.318 88.456 25 0.152 41.602 9.961 1.131 4.308 88.398 30 0.166 41.04 10.119 1.239 4.301 88.359 35 0.179 40.640 10.233 1.338 4.296 88.331 source: calculated by the author using e-view 7 the major cause of variation in agricultural productivity was its own shocks with a 100% and 87.3% of the prediction error variance in one and two periods of the forecast horizon, correspondingly, which goes down to 40.6% in the thirty-five years. similarly, the shock in lbc denotes the second cause for variation in the fluctuation of agricultural productivity, with 0.39 % for the projected second-year period . this share goes up 8.6%, 9.7%, and 10.1% variations of fluctuation in lap within one, two, and three-decade horizons, respectively. the own innovation of agricultural productivity truly elucidated its variation in fluctuation both in the short-run and long-run as compared to shock in bank credit. in general, identification and analysis of variance decomposition has become in line with the granger long-run ecm equation and impulse response function. 4. conclusion motivated by the two scenarios, the researcher tried to empirically inspect the long-run causal association of agricultural productivity and bank credit in the country. to this effect, the researcher was employed the tools of multivariate time series analysis to control the dynamics of variables on yearly data for the ethiopian fiscal years of 1981 to 2015 . according to the study's findings, agriculture productivity was positively and significantly influenced by bank credit which is reasonable and as expected in ethiopia, and there is a unidirectional causation running from bank credit to agricultural productivity in the long-run which calls for practical intervention in the bank credit market. with only unidirectional causality, an inelastic bank credit coefficient (0.13), and a low power forecast of variance decomposition (10.1 for more than three decades), it is clear that small-holder farmers in particular, and agro-industrial based entrepreneurs in general, were excluded from bank credit in ethiopia for a long time. 5. policy recommendation the results from the study show that bank credit to the agriculture sector has a positive and significant impact on agricultural productivity in ethiopia and that there is a unidirectional causation running from bank credit to agricultural productivity in the long run which calls for prudent intervention in the bank credit market. with only bank credit to agricultural sector and its productivity in ethiopia 179 unidirectional causality, an inelastic bank credit coefficient (0.13), and a low power forecast of variance decomposition (10.1 for more than three decades), it is clear that small-holder farmers in particular, and agroindustrial based entrepreneurs in general, were excluded from bank credit in ethiopia for a long time. a 1% permanent grow in agricultural bank credit would be expected to boost agricultural productivity by approximately 0.13% in the long run, which is relatively inelastic. in effect of this: the government should encourage public and private commercial banks in their attempt to propose special financing options adapted for agriculture sector since there is a long-run, positive, and significant association between the two sectors. agriculture stakeholders and policymakers must stand with particularly smallholder farmers and agrientrepreneurs in general in their struggle to obtain agricultural loans from a bank. since there exist unidirectional causation from bank credit to agriculture productivity, the government and policy makers should have to propose the way in which a bidirectional causation created in order to strengthen the inter-linkages among the two sectors. lastly not least further studies should have to undertake by incorporating other related variables. declaration: i want to submit a research manuscript entitled bank credit to agriculture sector and its productivity in ethiopia for publishing in your esteemed journal. the author asserts that this manuscript is not given to another journal for recognition of any degree or diploma and i decided to send this document to the journal of international trade, logistic and law. the document has been organized as per the journal’s rules and checked for grammar. brief citations from this manuscript are endurable without special agreement if precise acknowledgment of the citation is made. acknowledgment: at first, i would like to thank our almightily god for his unreserved gift and strength to do this thesis work and bring my longtime dream and efforts into reality. second, the author wishes to express his heartfelt gratitude to his advisor, abebe habte (ph.d, assistant professor, college of business and economics at arba minch university), for his invaluable professional guidance, advice, and constructive remarks throughout the execution of this thesis. references chamberlin, j. and schmidt, e. 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(2012) ‘the link between financial development and economic growth in ethiopia.thesis submitted to the school of graduate studies of addis ababa’, unpublished masters thesis [preprint]. zewdie, t.d. (2015) ‘access to credit and the impact of credit constraints on agricultural productivity in ethiopia : evidence from selected zones of rural amhara a thesis submitted to the department of economics presented in partial fulfillment of the requirements for the de’ table 2: ecm long run and short run causality long run causality in 𝐸𝐶𝑀 dependent variable: 𝐿𝐴𝑃−1 null ho: lagged values of coefficient=0 alt h1: not zero coefficient: 𝐸𝐶𝑀 std. error t-statistic probability -0.5151 0.1473 -3.4981 00.0017 dependent variable: 𝐿𝐵𝐶−1 std. error t-statistic probability 𝐸𝐶𝑀: 0.793386 0.894854 0.8866 0.3834 shortrun causality: wald test independent variable dependent variable hypothesis chi-square prob d(𝐿𝐵𝐶−1) d(𝐿𝐴𝑃−1) c(3)=0 0.746818 0.3875 d(𝐿𝐴𝑃−1) d(𝐿𝐵𝐶−1) c(9)=0 0.226556 0.6341 bank credit to agricultural sector and its productivity in ethiopia 181 table 3: unrestricted co-integrating coefficients and speed of adjustment estimates source: author’s computation using eviews 8 note: standard error in parentheses ( ) and t-statistics in [ ]. cointegrating eq: lap(-1) lbc(-1) lgce(-1) lrpop(-1) c eqn1 1.000000 0.1300 (0.041) [ 3.197] -0.337 (0.08) [ 4.21] 1.582 (0.146) [ 10.80] -13.97 speed of adjustment d (lap) d(lbc) d(lrp) lgce) -0.515106 (0.14725) [-3.49808] 0.7934 (0.895) [ 0.89] 0.0125 (0.019) [ 0.649] -1.769 (0.62) [-2.85] table 4. short run dynamics coefficient std. error t-statistic prob. 𝐸𝐶𝑀−1 -0.5151 0.1472 -3.498 0.0017** 𝐷(𝐿𝐴𝑃−1) 0.37374 0.2058 −1.816 0.081*** 𝐷(𝐿𝐵𝐶−1) −0.0271 0.0314 −0.864 0.395 𝐷(𝐿𝐺𝐶𝐸−1) 0.08477 0.0411 2.060 0.049* 𝐷(𝐿𝑅𝑃−1) 0.8255 1.446 0.571 0.573 𝑆𝐵𝑅 0.00072 0.01598 0.0451 0.9644 𝐶 −0.004 0.016 −0.221 0.827 source: own computation eview 8 *= at all significance, **= significant at 5% and ***= significant at 10 bedasa taye engida 182 table 8. model efficiency test results types of test null hypothesis(h0) chi-sq probability vem residual serial correlation lm test no serial correlation 0.14 0.275 vem residual hetroskedasticity test residuals are multivariate normal 0.1351 0.1221 0 1 2 3 4 5 6 7 -0.08 -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08 series: residuals sample 1983 2015 observations 33 mean -1.67e-16 median 0.000697 maximum 0.075148 minimum -0.081950 std. dev. 0.031480 skewness -0.329083 kurtosis 3.570761 jarque-bera 1.043556 probability 0.593464 figure. 5. normality test of residual. -15 -10 -5 0 5 10 15 90 92 94 96 98 00 02 04 06 08 10 12 14 cusum 5% significance figure. 6. model stability cusum test journal of international trade, logistics and law, vol. 4, num. 1, 2018, 111-125 111 value stream mapping in lean production and an application in the textile sector utku i̇nce istanbul commerce university, turkey berk ayvaz, (asst. prof. dr.) istanbul commerce university, turkey fatih öztürk, (asst. prof. dr.) istanbul medeniyet university, turkey ali osman kuşakcı, (asst. prof. dr.) ibn haldun university, turkey received: may. 05, 2018 accepted: june 01, 2018 published: june 1, 2018 abstract: with increasing competition from globalization, in many sectors, global brands have shifted their production lines to countries with low labor costs in order to reduce their costs in the last two decades. the way to produce in other countries in order to maintain their production at their own centers is to reach competitive production cost levels. under these circumstances, firms focus on the idea of reducing costs by focusing on production systems and removing all activities that do not produce value and consume resources. one of the ideas that has emerged in recent years and will help the company in this regard is the philosophy of lean manufacturing. value stream mapping is one of these tools. it is an important and effective tool because each process in the value chain of a product reveals a visual "map" and information flow. the textile industry, one of the labor-intensive sectors, has succeeded in developing its competitive power over time by acquiring new production and marketing strategies. with this study, it is aimed to show the success achieved by applying one of lean manufacturing technique which name is "value stream mapping" at a textile manufacturing company and to contribute to the literature. keywords: value stream mapping, single minute exhange of dies, yarn dyeing, fabric, lean manufacturing 1. introduction with lean production’s starting step is the value. the producers should refine the production steps and procedures with value concept and eliminate the process from all activities that do not create value but create additional cost to the product. lean manufacturing, compared with the old mass production, is considered precisely compatible with customers' requests and which can produce with less waste, with less workforce, with less place to organize and manage product development, production operations, suppliers and customer relations (shook, marchwinski, & schroeder, 2011). waste, one of the most important concepts of lean production, refers to activities that consume resources without creating any value. since wastes are usually hidden behind general habits, they are normally encountered in the working environment and are difficult to detect. for this reason, it only can be noticed and correctly defined by a very careful observer (rampersad & el homsi, 2007). improving operations without stopping to find and remove wastes should have a strategic priority (byrne, 2015). even if the production system environment is different, the typical waste seen in factories is very similar. known types of waste are; wastage due to excess production, waiting wastage, transportation wastage, unnecessary process wastage, wastage from inventory, waste caused by mistakes; utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı movement wastage and unused ability wastage. in the philosophy of lean manufacturing, kaizen, 5s, poka-yoke, tact-time, one-piece flow, value stream mapping etc. techniques are used (dos santosa, vieira, & balbinotti, 2015). womack and jones (2003) summarized the lean principles in five groups. identify the value, map the value stream, build the flow, build the traction system and look for perfection (womack & jones, 2003). as you can see, there is the definition of value and the mapping of value stream on the basis of lean production. this work focuses on improvements to be made with value stream mapping (vsm) and bottleneck "single minute exchange of dies (smed)" approaches. by application of the methods discussed in a leading company in the textile sector in turkey, statistical evaluation and the improvements achieved have been transferred. as far as we know, it is the first study that applied value stream mapping method in the field of textile (dyeing and fabric production) in our country. in this respect, this article will provide a roadmap for the implementation of the related techniques in the sector firms and will contribute to the applied literature in this area. value stream mapping has been applied in construction (matt, krausea, & raucha, 2013) , health (kaale, ve diğerleri, 2005), transportation (villarreal, reyes, & kumar, 2017), software development process (musat & rodriguez, 2010), minig (kumar, 2014), maintenance services (kasava, yusof, khademi, & zame, 2015), automotive subsidiary industry (kılıç & ayvaz, 2016), etc. (kennedy & huntzinger, 2005) and in many different sectors in the literature. (özkan, birgün, & kılıçoğulları, 2005) analyzed value streams for an automotive firm with variable demand (abdulmalek & rajgopal, 2007). in alaca’s (2010) study, value chain analysis was done with value stream mapping tools for the white goods sector (alaca & bayraktar, 2010). when conducting value-chain analysis in the study, proposals have been made to eliminate value-added activities by exploiting three different mapping tools (sullivan, mcdonald, & van aken, 2002). it has been assessed how the analytic hierarchy process can be used in the selection of improvement points in the devotional and strong (2015) value stream charts (özveri & güçlü, 2015). for this purpose, the current state value map is drawn for a business operating in the footwear sector, and the points to be improved by the experts are selected by applying the ahp method (womack & jones, 2003). bulut and altunay (2016) used the value stream mapping method to identify and eliminate waste sources in the lean transition process for an enterprise operating in the furniture sector (bulut & altunay, 2016). doğan and ersoy (2016) used a value stream mapping method to identify activities that add value and which do not add value in a university research and application center that provides laboratory analysis services, and made a proposal to eliminate activities that do not add value (doğan & ersoy, 2016). kılıç and ayvaz (2016) used lean production techniques such as mapping the value stream for a company's production process which produces seals for the automotive sector in turkey, pull system, 5s, smed, one-piece flow, cellular manufacturing, kaizen, poka-yoke, total productive maintenance, quality circles , heijunka, and shojinka in their work (kılıç & ayvaz, 2016). jia et al. (2017) proposed a new therblig embedded value stream mapping method to reduce energy expenditure in non-cutting activities (jia , ve diğerleri). stadnickaa and litwin (2017) applied value stream mapping methodology to a firm that manufactures automobile doors. the above-mentioned summary publication survey shows that there are no large-scale applications, especially in the textile sector (stadnicka & litwin, 2017). the study is divided into the following main headings. in the first chapter, an introduction was made to the subject; in the second part, detailed information about dah was given. in the third part, the dah method was applied to a company operating in the textile sector and the improvements were transferred to statistical analyzes. in the last part, the conclusion and the proposal are given. 2. value stream mapping vsm is one of the widely used lean manufacturing techniques for destroying waste. these maps consist of the current situation drawing, the future state drawing and the transition plan to the application (abdulmalek & rajgopal, 2007). figure 1 shows the steps of value stream mapping (krajewski, ritzman, & malhotra, 2013). value stream mapping in lean production and an application in the textile sector 113 figure 1. value stream mapping process the most important and powerful part of the technique is a snapshot of how the value stream works over time at a given point (nash & poling, 2008). vsm can be assessed as a paper-paper and computer technique that creates added value and demonstrates value-added activities (jimmerson, 2010). in addition, the technique includes simple graphs that show motion throughout the entire value stream (kennedy & huntzinger, 2005). the value stream map ensures that raw materials, information and cash flow can be seen and bottlenecks can be detected (maskell, baggaley, & grasso, 2004). it is aimed to reach the future within one to twelve months, including the development of the current situation, the future situation and a detailed implementation plan (locher, 2008). a value stream is the process flow between "demanded point" and "meeting all requirements" after product or service. it also allows the creation of detailed plans to implement lean production concepts (sullivan, mcdonald, & van aken, 2002). 2.1. selection of product family unless it is a small, single-product factory, it is necessary to focus on a single product family for mapping, because it would be complex to show all product flows in a single map, and because customers are interested in only their products, not all products produced in a factory (birgün, gülen, & özkan, 2006). these products are family members because they contain similar steps along the value streams. if the value streams are not clear, it may be useful to plot the production flow matrix. with a simple table, the matrix of the products and the steps in the production process are created. all products (or product families) produced in operation are sorted on the y axis and all machines and / or production departments in the factory are sorted on the x axis and matrix is marked to show which product family is using which process (maskell, baggaley, & grasso, 2004). figure 2 shows the production flow matrix example and product families. we are ready to decide where to start when the process matrix is complete (nash & poling, 2008). 2.2. drawing of current and future state map the current state value stream map, as the name implies, shows the current state of how materials and information are processed (rother & shook, 1999). utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı figure 2. process matrix and product family selection for product family selection in the value stream map the cycle time, turn-off time, preparation times, production batch sizes, product types, number of operators, package size, run time (except for movers), scrap rate, machine usage rates etc. and values are needed. while drawing the current situation map, it is necessary to go from the last step to the beginning and continue with the necessary inspections and observations (birgün, gülen, & özkan, 2006). the basic symbols used in value stream mapping are those used to visually represent various tasks and functions (figure 3). to complete the map, the supply time and timeline which records the time that creates the added value is added to the bottom of the map (sullivan, mcdonald, & van aken, 2002). when the existing situation map is drawn in vsm applications, improvement opportunities are seen and the future situation is drawn according to the foreseen improvements in these improvement opportunities. knowing some of the important lean manufacturing principles in the future situation drawing will be useful for seeing improvement opportunities in the analysis of the current situation (birgün, gülen, & özkan, 2006). the future state map should be based on workshop facts (rother & harris, 2001). there is no point in the value stream map unless the drawn current situation reaches the drawn future state. figure 3. symbols used in value stream mapping improvements in a cycle;  improvement of the continuous flow of work by tack time;  establishing a towing system to improve production;  leveling; value stream mapping in lean production and an application in the textile sector 115  constantly taking steps such as shrinking the party size by removing wastes and making kaizenes to expand the continuous flow field by shrinking the supermarkets. this non-exhaustive process is the most basic philosophy of lean manufacturing, the perfect concept of continuous improvement. when the target situation is reached, a new target point is identified and continuous improvement is achieved by working to reach the new target point (kahrıman, 2013). 3. implementation the vsm technique is a method that is used in our country and in the world, and it is still attracting interest for many researchers. the technique, since it started to be applied in the production processes of motor vehicles, has found application areas in many different sectors. however, when literature review is made, no research has been done in the field of textile (dyeing and fabric production) so far in our country. the research is important in order to achieve a certain degree of deficiency and to form a resource for future research. the value stream mapping application included in the study was carried out in an integrated facility serving as the textile industry. the plant produces yarns and fabrics from natural fibers and natural fiber blends. many semi-finished products used in the production of the products are produced in the integrated facilities in the same location and each facility becomes the customer of one another. with this point of view, a vsm team was formed by senior management as the first step in the implementation of vsm in operation. in creating the team, it has been noted that the business has members with detailed knowledge of the value stream. following the creation of the team, the team members were given 1 day vsm training as their first job. in order to decide where to start the application, the team first started to choose the facility that has problems in service to the customer. the customer terminating delays in figure 4 are also registered by pareto analysis. figure 4. pareto analysis of customer delays for this purpose, it is aimed to improve the customer delays originating from the dyeing department included in the pareto analysis with the mg01 code, which is the half of the total delays and decided to create a value stream map in this section. it was started by analyzing the production carried out in the operation, by interviewing the engineers who planned and controlling the production. information about procurement, stock, production processes and employees was obtained. 3.1. product family selection after collecting the relevant data required by the operator's automation infrastructure, the selection of the product family has started to work on the current situation to prepare vsm. the operator's raw material supply can be classified under three main groups; yarns that need winding, yarns that do not need winding, twisted yarns that are produced in the integrated facility. the raw material yarns used by the operator for production purposes include wool, polyester, cotton, linen, viscose etc. yarn supply is covered by procurement or other production departments in its integrated facilities, and the requirements are periodically made by the production planning and control utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı department. since the supply of yarn, which is one of the vital raw materials of the operator, is made in other parts, it is preferred that the operator keep the twin yarn of the value of 12 tons corresponding to the consumption of about one week in the in-house warehouse. the data on the number of employees, the tempo time (tact time), the model change time (c / o), the machine usage rate and the total work time per shift were obtained from the automation system used in the production process and the related values are shown on the map. figure 5. production flow matrix after these measurements, the duration of the operations carried out in the dyeing operation from the transportation as raw material of a dye to the delivery of the dyeing as the dyed yarn was calculated and added to the bottom part of the map. we can gather the information flow in business mainly in two groups: stock declarations made to the production planning unit and process information transfer from the automation system. the process started with the selection of the product family for the flow chart work in the dyehouse production. as understood from the production flow matrix, the raw material has to pass through all available operations, no matter what mix or how mixed it is. it has been found that differences between operations are caused by changes in time, pressure, temperature, etc. in the dyeing process and it is seen that the improvement to be made in any of the operations will provide an opportunity for improvement for all raw material types. figure 6. product family selection for this reason, taking into consideration the raw material mixtures and the durations during the dyeing process, the most produced product mixture was determined as shown in figure 6. regardless of the materials in the dyeing, since all of the processes are the same, the constraint to be taken into consideration when draining the value will be the amount of production. for this purpose, when analyzing the raw material quantities from the production quantities as a result of pareto analysis, 42.2% of the production made in the operation is finished with wool / pes, so the value of this material will be flowed and mapped (figure 7). improvements made as a result of this value stream can also be applied to all materials produced. value stream mapping in lean production and an application in the textile sector 117 figure 7. pareto diagram of raw material quantities 3.2. current situation analysis to describe the flow of production briefly; yarn dyeing is the process of drawing dyeing work orders created by the production planning department according to the production requirements which come from the design of the fabric to form the desired fabric of the customer until the introduction to the semi-finished yarn holders for use in warp and weave operations as dyed yarn according to the dyeing termination date. figure 8. dyeing section process supply histogram graph figure 8 shows the results of the analysis of how much work orders in the dyeing process lasted from the raw material storage to the yarn storage. as a result of the analysis made, the adequacy of the process was tested by performing a qualification analysis on the actual yarn dyeing process times determined as 6 days. n o v em b er o ct o b e r se p em b er a ug u st ju l y ju n e m a y a p ri l m a r ch fe b ru ar y ja nu ar y 18 16 14 12 10 8 6 4 2 0 months a v e ra g e l e a d t im e ( d a y ) 12,7 14,8 16,0 14,3 17,2 13,1 9,69,7 7,5 8,3 11,3 dyeing section process supply histogram graph (average/day) utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı figure 9. current state process flow diagram start customer request production planning process raw material request from warehouse is dyeing need any preperation ? need for soft winding ? centrifuge processdrying process is pre control ok? is final control ok? refer a customer prep. operation process dyeing process no yes soft winding process yes no yes yes nono before the process capability analysis, it was analyzed whether the data set had normal distribution and the normal distribution of the data set was found appropriate (figure 10). in order for businesses to achieve the desired level of quality, products must form within specifications that describe consumer expectations. for this, the ability of the production process to produce products that meet the specifications must be continuously examined. figure 10. normality test chart of total process transition time value stream mapping in lean production and an application in the textile sector 119 figure 11. total process transition time proficiency analysis the degree of providing process specifications with process capability indices can be determined and the process can be continuously controlled and improved with the periodic calculation of the indices. the end result of the qualification analysis of the delivery times of the products expected by the customer at the end of the 6th day is shown in figure 11. according to this, only 11,13% of the products requested by the customer are realized in 6-day objective. how long each job order lasts in the steps it processes during the dyeing process is illustrated in figure 12, where operation-based process durations are analyzed. figure 12. operation-based process lead times 3.3. creating an existing status value stream map considering the batch size of the product that the customer wants when creating the vsm; takt time; 2,500 pieces of products are requested by the customer per day. according to this request; the machine park used in the operation can be produced 24 hours from the technical point of view. the calculation will be based on this acceptance. according to this, the factory produces for a total of 86,400 seconds in three shifts a day and when calculated with the customer's desired 2500 units; (takt time = (total work time used in the shift / customer demand per shift)) it was calculated as takt time = 86.400 / 2500 = 34, 56 sec. according to this result, the customer demands 1 product every 34.56 seconds. after the tact calculation, the operation steps and intermediate stocks were recorded by going through the process from the end to the beginning and the current situation value map was prepared by using the productivity figures h an d li ng f i na l c o nt ro l p re c o nt ro l f i na l p re p er a ti on d ry in g c en ri fu ge d y e in g s o ft w in d in g r a w m a te ri al s e rv ic e 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 operation l e a d t im e ( d a y ) 1,38 2,85 0,79 1,18 0,11 0,52 2,64 2,86 0,56 operation-based process lead time (day) utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı obtained from the automation system of the machines and equipment. when the current situation map is examined (appendix-1), the current state value stream of the operator; value added time = 114 seconds process supply duration = 1.086.139 seconds (12.57 days) therefore, 99,989% of the value stream flows from activities that do not add value to the product, that is, from wastes. based on these determinations, the customer demands 1 material in 34.6 seconds. figure 14. process supply time bottleneck analysis chart accordingly, considering the durations of the operation steps, the following bottleneck analysis was carried out for the operations and the bottlenecks were determined as shown in fig. 14 in order to create continuous flow. the value stream map team prepared the future situation map given in figure 16 in accordance with the above findings. 3.4. creating the future situation map the vsm team designed the future state of the value stream out of the current state map of the business. this phase was started by analyzing 16 major losses of each process in the production line. the records of the coil dyeing production were analyzed and necessary measurements were made. the process times are listed and the interoperation pauses and stock quantities are determined. features such as machine laboratories and other work stations have been studied and observed, and interviews with operators were carried out. after all the data obtained on the basis of these studies have been combined and analyzed, the present situation value stream map has been rearranged to remain only production-related components. figure 15. future situation process supply time bottleneck analysis chart value stream mapping in lean production and an application in the textile sector 121 it is necessary to add some new information not available in the vsm (appendix-1) to improve production efficiency and process lead time within the enterprise. these include information on color preparation and reprocessing (for repair purposes) operations. at the bottom of the value map, lines indicating the potential for increased productivity were added (appendix-2). since production was being made in the business while the work was being done, healthy measurements and analyzes are based on the data in the past. the nine processes studied in the study have been identified as having the potential to increase production efficiency by identifying potential for high improvement in 3 of them. these fixations are indicated in the corresponding boxes in the lower corner of the table (see appendix-2). 3.5. improvement studies the smed application for shortening the workout between the dyeing from the dyeing booth and the dyeing work to be done is done by ecrs analysis consisting of eliminate, combine, rearrange, simplify steps and was accomplished with a 10-step kaizen study. after the decision made, with the e-kanban application, the dyeing boiler spare reservoirs are hold ready, while the process continues, the yarn to be dyeed from the previous operation was pulled and kept ready to be placed next to the boiler in the boiler room and it was aimed to place the yarn to be dyeed when the dyed yarn was out and to reduce the duration of the type change from 36 minutes to 9 minutes. in figure 18 you can see the ecrs analysis. figure 18. ecrs analysis after the analysis and improvement studies; the set-up duration which was scheduled to be downloaded to 9 minutes continues to take place with the average of 12 minutes and studies to reduce this time to a single figured minutes are also continuing (figure 19). figure 19. set-up losses before and after the project 36 12 0 20 40 before set up project after set up project set up times (minutes) utku i̇nce & berk ayvaz & fatih öztürk & ali osman kuşakcı figure 20 and figure 21 show the control graphs of the critical performance parameters determined during the project period and after the project period according to the results of the improvement studies. as a result of the kaizen studies, the duration of the procurement process for the dyeing section was reduced from 12.57 days to 7.12 days with the 5.4 day-improvement. accordingly, a 43% improvement was achieved after the application of vsm. another important parameter in terms of process improvement is the amount of customer delay caused by the dye house. figure 20 process supply time control chart figure 21 customer delay amount control chart the results of this parameter were given in figure 21. accordingly, it appears that the changes made have caused an improvement by 5 times in the amount of delay. 4. conclusion the waste prevention precautionary approach brought about by the concept of lean thinking when considered together with the holistic view capability of value stream maps, emerges as an appropriate and important lean tool for production management. from this point of view, the scope of this study examines the use of value-flow maps in manufacturing companies for productivity efficiency studies. in the manufacturing process of a leading company in the textile industry in our country, the existing situation map and the future situation map were created and the activities which added value and wasted were determined and necessary improvements were made and the results were transferred with statistical analyzes. in this framework, a holistic vsm approach is presented, which includes the identification of production wastage, the selection of relevant improvement points, and the main steps of utilizing the enterprise's historical data, as well as the knowledge of its employees and the opinions of industry value stream mapping in lean production and an application in the textile sector 123 experts. it has been determined that the developed approach has been tested with an implementation study and is a practical and effective method. an improvement of 43% was achieved in the supply period after the application of vsm. again, it was observed that the very high customer delay improved by approximately 500%. in future studies, it will be useful for the firm to develop the value-flow maps used in this study to include processes of suppliers and stakeholders to simplify the supply chain. references abdulmalek, f., & rajgopal, j. 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(2003). yalın düşünce. i̇stanbul: optimist. appendix 1 current state map custom er dem and: 60000 pcs/m onth (takt tim e:34,6 seconds/pcs) soft w inding total c/t = 55 seconds value add: 18 seconds defect = 10% c/o = 120 m ins. uptim e = 80% availability: 70% distance traveled: 100 m 2 handling total c/t = 25 seconds value add: 9 seconds defect = 0,5% c/o = 15 m ins. uptim e = 80% availability: 67% distance traveled: 600 m 2 planning & controlling w arehouse distance traveled: 600 m 714.286  seconds 18 seconds 55 seconds 172.708  seconds 3 seconds 68 seconds 96.491 seconds 15 seconds 110 seconds37.088 seconds 6 seconds 36 seconds 14.690  seconds 12  seconds 34  seconds 38.189  seconds 13 seconds 35 seconds 9.703  seconds 13 seconds 35 seconds 28.042  seconds 26 seconds 62 seconds 976  seconds 9 seconds 25 seconds lead tim e = 1.112.631 seconds va / t = 114 seconds rm = 714.286 seconds w ip = 398.345 seconds fg = 0 seconds c/o = 28.860 secs. 7.200 secs. 1.800 secs. 10.800 secs. 960 secs. 1.800 secs. 1.800 secs. 1.800 secs. 1.800 secs. 900 secs. pre control total c/t = 35 seconds value add: 13 seconds defect = 10% c/o = 30 m ins. uptim e = 90% availability: 67% distance traveled: 300 m 2 dyeing total c/t = 110 seconds value add: 14,5 seconds defect = 30% c/o = 180 m ins. uptim e = 85% availability: 80% distance traveled: 25 m 6 cetrifuge total c/t = 36 seconds value add: 6,4 seconds defect = 2% c/o = 16 m ins. uptim e = 90% availability: 80% distance traveled: 25 m 2 preperation for dyeing total c/t = 67,5 seconds value add: 3 seconds defect = 30% c/o = 30 m ins. uptim e = 90% availability: 80% distance traveled: 20 m 2 drying total c/t = 34 seconds value add: 11,5 seconds defect = 5% c/o = 30 m ins. uptim e = 90% availability: 80% distance traveled: 5 m 2 custom er distance traveled: 80 m daily 2500 pcs n/a final preperation total c/t = 35 seconds value add: 13 seconds defect = 2% c/o = 30 m ins. uptim e = 90% availability: 67% distance traveled: 300 m 2 forklift n/a n/a 2500 pcs transfer final control total c/t = 62 seconds value add: 26 seconds defect = 12% c/o = 30 m ins. uptim e = 90% availability: 75% distance traveled: 500 m 2 9000 pcs 2400 pcs 1400 pcs 1400 pcs 550 pcs 1200 pcs 280 pcs 500 pcs 40 pcs w eekly plan w eekly plan daily production program m e value stream mapping in lean production and an application in the textile sector 125 appendix -2 future state map c u sto m e r d e m a n d : 6 0 0 0 0 p cs/m o n th (t a k t t im e :3 4 ,6 se co n d s/p cs) s o ft w in d in g to tal c /t = 4 5 se co n d s v alu e a d d : 1 8 se co n d s d e fe ct = 1 0 % c /o = 1 2 0 m in s. u p tim e = 9 0 % a vailab ility: 9 0 % d istan ce trave le d : 1 0 0 m 2 h a n d lin g to tal c /t = 2 5 se co n d s v alu e a d d : 9 se co n d s d e fe ct = 0 ,5 % c /o = 1 5 m in s. u p tim e = 8 0 % a vailab ility: 6 7 % d istan ce trave le d : 6 0 0 m 2 p la n n in g & c o n tro llin g w a re h o u se d istan ce trave le d : 6 0 0 m w e e k ly p la n p re c o n tro l to tal c /t = 3 5 se co n d s v alu e a d d : 1 3 se co n d s d e fe ct = 1 0 % c /o = 3 0 m in s. u p tim e = 9 0 % a vailab ility: 6 7 % d istan ce trave le d : 3 0 0 m 2 d y e in g to tal c /t = 9 0 se co n d s v alu e a d d : 1 4 ,5 se co n d s d e fe ct = 3 0 % c /o = 1 8 0 m in s. u p tim e = 8 5 % a vailab ility: 8 0 % d istan ce trave le d : 2 5 m 6 c e n trifu g e to tal c /t = 3 6 se co n d s v alu e a d d : 6 ,4 se co n d s d e fe ct = 2 % c /o = 1 6 m in s. u p tim e = 9 0 % a vailab ility: 8 0 % d istan ce trave le d : 2 5 m 2 p re p e ra tio n fo r d y e in g to tal c /t = 3 0 se co n d s v alu e a d d : 3 se co n d s d e fe ct = 3 0 % c /o = 3 0 m in s. u p tim e = 9 0 % a vailab ility: 8 0 % d istan ce trave le d : 2 0 m 2 d ry in g to tal c /t = 3 4 se co n d s v alu e a d d : 1 1 ,5 se co n d s d e fe ct = 5 % c /o = 3 0 m in s. u p tim e = 9 0 % a vailab ility: 8 0 % d istan ce trave le d : 5 m 2 c u sto m e r d istan ce trave le d : 8 0 m d a ily 2 5 0 0 p cs f in a l p re p e ra tio n to tal c /t = 3 5 se co n d s v alu e a d d : 1 3 se co n d s d e fe ct = 2 % c /o = 3 0 m in s. u p tim e = 9 0 % a vailab ility: 6 7 % d istan ce trave le d : 3 0 0 m 2 1 4 0 0 p cs 4 0 0 p cs 5 5 0 p cs 8 0 0 p cs 2 8 0 p cs 3 2 8 p cs f o rk lift d istan ce trave le d : 6 0 0 m 2 5 0 0 p cs se v k 4 0 p cs f in a l c o n tro l to tal c /t = 4 5 se co n d s v alu e a d d : 2 6 se co n d s d e fe ct = 1 2 % c /o = 3 0 m in s. u p tim e = 9 0 % a vailab ility: 8 5 % d istan ce trave le d : 5 0 0 m 2 p ro ce ss im p ro v e m e n t s to ck s to ck p ro ce ss im p ro v e m e n t w e e k ly p la n s to ck % 3 3 1 0 0 0 p cs c y cle tim e p ro je ct p ro d u cti v ity p ro d u cti v ity s e t-u p p ro je ct 6 0 0 0 p cs 1 9 1 .8 9 8  se co n d s 3 0  se co n d s  (3  se co n d s) 4 2 .7 3 5  se co n d s 4 5  se co n d s  (1 8  se co n d s) 7 8 .9 4 7  se co n d s 9 0  se co n d s  (1 5  se co n d s) 1 0 .5 9 7  se co n d s 3 6  se co n d s  (6  se co n d s) 1 4 .6 9 0  se co n d s 3 4  se co n d s  (1 2  se co n d s) 2 5 .4 5 9  se co n d s 3 5  se co n d s  (1 3  se co n d s) 9 .7 0 3  se co n d s 3 5  se co n d s  (1 3  se co n d s) 1 1 .7 8 1  se co n d s 4 5  se co n d s  (2 6  se co n d s) 9 7 6  se co n d s 2 5  se co n d s  (9  se co n d s) le a d t im e = 3 8 7 .1 5 9 se co n d s v a / t = 1 1 4 se co n d s r m = 1 9 1 .8 9 8 se co n d s w ip = 1 9 5 .2 6 2 se co n d s c /o = 2 8 .8 6 0 se cs. 1 .8 0 0  se cs. 7 .2 0 0  se cs. 1 0 .8 0 0  se cs. 9 6 0  se cs. 1 .8 0 0  se cs. 1 .8 0 0  se cs. 1 .8 0 0  se cs. 1 .8 0 0  se cs. 9 0 0  se cs. d a ily p ro d u ctio n p la n journal of international trade, logistics and law, vol. 8, num. 2, 2022, 108-124 108 opportunities and threats analysis of industry 4.0 under the concept: neo-ludism mücahit ci̇vri̇z istanbul commerce university, turkey sabri öz istanbul commerce university, turkey received: august 28, 2022 accepted: october 29, 2022 published: december 01, 2022 abstract: industrial revolutions have played very important roles on the business world, the public and non-governmental organizations, which are defined as the third sector today, and have caused differences. the first industrial revolution and the fourth revolution at the beginning of the twenty-first century, in terms of leaving a structural and lasting impact, leave more radical traces than the others. in terms of both revolutions, "technological unemployment" and "technological unemployment anxiety", which are the most important macro variables, are common aspects. every industrial revolution has social, economic, political, technological, legal and environmental effects. in this study, by making a literature review on technological unemployment, which is one of the most important parameters of the social and economic factors created by industry 4.0, which is known as the fourth industrial revolution and still continues its process in the period of this study, strengths and weaknesses are discussed, opportunities and threats are evaluated and a swot analysis was made. by working on new business models, the concept of neo-ludimz was introduced with a different perspective. keywords: industrial revolution, industry 4.0, ludism, neo-ludism, new business models, technological unemployment 1. introduction in the first quarter of the twenty-first century, there is a technological and digital transformation that can radically change the way of living, working and establishing human relations. in its scale, scope, and complexity, this transformation differs in many ways from what humanity has experienced before. although there are some estimations and predictions for its development, it is understood that it will be the main agenda topic of public, private sector, academia and non-governmental organizations in the future when it is considered in terms of future developments. therefore, it is of great importance for both global and local actors to think and discuss the policies and developments regarding this process. the world witnessed the first industrial revolution, in which water and steam power was used to mechanize production, the second industrial revolution, in which electric power was used for mass production, and the third industrial revolution, in which electronics and information technology were used to automate production, before this process, which is described as the fourth of the industrial revolutions. it is confronted with a process that builds on the digital revolution and transforms into an integrated and complex structure between physical, digital and biological domains. it is necessary to see the transformation experienced today not only as an extension of the third industrial revolution, but rather as the arrival of a brand new and different revolution. because, this process differs from others in terms of speed, scope and systemic impact; with its production, management and even governance philosophy, it enables more different analyzes thanks to its breadth and depth. every technological development brings with it a hopeful, hopeless and neutral audience. the change that comes with technology should not be seen as an external force over which human beings have no control. therefore, we can guide its development both individually and institutionally. for this, we must realize the opportunity and power we have and direct our energy towards our common goals and values. in the past, supporters of luddism, a labor movement that opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 109 emerged as a reaction to technical developments, argued that they would be unemployed, but the transformations in the economies proved these concerns unjustified. this change process, which is now called the fourth industrial revolution and has more comprehensive and large-scale characteristics than the transformations in the past, has also brought some concerns in the past to the agenda. what awaits the human workforce in a world where everything is mechanized and robots dominate many processes? will the coming years see human-robot conflict or powerful robothuman cooperation? the answers to these questions will be answered by people's future imagination. 2. brief history of industry 1.0 – 3.0 revolutions in literature according to qin et al. (2016), since the first industrial revolution, radical changes have been witnessed in production, from water and steam powered machines to electrical and digital automation. as production processes became increasingly automated and sustainable, people sought ways to operate machines simply and efficiently. according to drath and horch (2014), the emergence of mechanized industry thanks to steam power with the industrial revolution enabled mass production. the first industrial revolution took place between the late 1700s and early 1800s, during which manufacturing evolved from a focus on manual labor performed by humans and animals to a more optimal form of labor performed using water and steam powered engines and other types of machine tools. according to chandler (1980), although some power sources and steam were used in the production process before the first industrial revolution, it is seen that these sources are used intensively in the production process. now, with the new era, the traditional power sources wind, water and human power have been replaced by the use of fossil fuels. according to soysal and pamuk (2018), factories that produce more by using steam power in england needed new markets and raw materials, and thus they started to export to overseas countries.. at the beginning of the 20th century, the world entered a second industrial revolution with the use of steel and then electricity in factories, and as a result of these developments, the productivity of the producers was increased, and at this stage, mass production concepts such as the assembly line came to the fore as a way to increase productivity. beginning in the late 1950s, a third industrial revolution began to emerge as manufacturers began to incorporate more electronics and eventually computer technology into their factories. as an inevitable result of this period, manufacturers preferred a structure that placed less emphasis on analog and mechanical technology and more on digital technology and automation software (epicor, 2018). table 1 shows the transformation traces experienced in the process until the fourth industrial revolution. table 1:industrial revolutions 1.0-3.0 period 1. industrial revolution: 2. industrial revolution: 3. industrial revolution dominant technology and raw materials steam engine, power bench, iron working electricity, chemistry, internalcombustion engine, assembly line, synthetic materials ict, microelectronics, new raw materials, renewable raw materials, clean technology, biotechnology, recycling dominant power supply coal coal, oil, nuclear energy renewable energies, energy efficiency mücahit ci̇vri̇z & sabri öz 110 transport/ contact railway, telegram car, airplane, radio, tv high speed train systems, internet, mobile telecommunications community/ state "bourgeoisie", free trade, constitutional state mass production, mass society, parliamentary democracy, welfare state civil society, globalization, global administration source:(jänicke & jacob, 2012) in the last few decades, a fourth industrial revolution has emerged and a completely new order based on digital technology has begun to emerge thanks to the interconnection through the internet of things, access to real-time data and the existence of cyber-physical systems. industry 4.0 offers a more comprehensive, interconnected and holistic approach to manufacturing, connecting physical and digital business and processes, enabling better collaboration and access between departments, partners, vendors, product and people. industry 4.0 empowers business owners to better control and understand every aspect of their operations, allowing them to leverage instant data to increase productivity, improve processes and support growth (epicor, 2018). according to fuchs (2018), the points where industry 4.0 differs from other industrial revolutions are that all stakeholders involved in the production phase have an effective communication and all data is instantly accessible. in this process, cloud technology, artificial intelligence, smart factory and products, robots, big data, internet of things components come into play, and it is aimed to realize the production processes at the least cost and in the fastest way. making production with or without errors becomes the basic elements of the process. the future of production as predicted by industry 4.0; it is shaped around networks characterized by small, decentralized and digitized production, acting autonomously and therefore able to effectively control their operations (erol, jäger, hold, & ott, 2016). 3. conceptual frame of industry 4.0 the term industry 4.0 is defined as a new level of organization for increasingly individualized customer needs with control over the entire value chain of the product lifecycle (vaidya, ambad, & bhosle, 2018). the concept of industry 4.0 was first shared with the public by a group of representatives of the business world, politicians and academics in order to increase the competitiveness of germany in the manufacturing industry in 2011, and the german government adopted the high technology strategy, followed by the close follow-up of industry 4.0. established a working group. according to the 2013 global manufacturing competitiveness index report published by delloite, it is seen that the industrial powers of the last 60 years such as germany, the usa and japan lost their superiority in the field of production to the emerging economies led by china, india and brazil. the working group, which brought together economists, academics and industrial companies in 2011, determined the steps to be taken in germany with the industry 4.0 strategy document prepared by the industry 4.0 working group in order to regain its competitive advantage in germany and the german federal ministry of education and research. a budget of 200 million euros has been allocated under the coordination of in this way, the hopes of the countries that started to lose their traditional manufacturing sectors to emerging economies also increased (ekoiq, 2014). with industry 4.0; it is aimed to digitize production processes, increase resources and reduce costs. as a result of these developments, it will be possible to self-manage the production stages, products will be able to carry information between each other and consumers, the internet of things will enable communication with all factories, companies and the business world, and production performance will be higher (bayraktar & ataç, 2018). opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 111 industry 4.0 means efficient, intelligent and on-demand industrial production as well as individualized and customized production at reasonable costs. as a result of these developments, it is seen as a unique competitive advantage for developed and high-income countries (neugebauer, hippmann, leis, & landherr, 2016). according to vaidya, ambad, & bhosle (2018), digitizing and intelligentizing the production process is the need of today's industry. manufacturing industries are currently moving from mass production to customized production. rapid developments in production technologies and applications in industries are helping to increase productivity. the term industry 4.0 means defining the life cycle of products as a new level of organization and control over the entire value chain, and more and more individualized customer requirements are oriented towards it. industry 4.0, in order to focus on continuous improvement and value-added activities and avoidance of waste, it is foreseen that human beings are involved in the production process in a limited way. the industry 4.0 concept is based on the development of smart chain preparation based on communication with production tools, products, components, people and has the potential to affect our lives in many ways, economically, socially, technologically and legally. in this respect, it is necessary to analyze its different dimensions (magruk, 2016). according to wahlster (2012), industry 4.0 has the potential to affect the transformation of many disciplines such as medicine, energy, media, law, automotive, biotechnology, neuro-informatics and finally manufacturing. banger (2018) states that unlike other industrial revolutions, technology comes to the fore rather than industry in industry 4.0, so new business models, brand new business lines and new organizational structures will come into question. the fourth industrial revolution takes the automation of production processes to a new level by introducing customized and flexible mass production technologies. this means that the machines will operate independently or collaborate with humans to create a customer-focused production space to constantly protect itself. the machine becomes an independent entity that can collect, analyze and advise more data. this is made possible by incorporating self-optimization, self-knowledge and self-customization into the industry. manufacturers will be able to communicate with computers instead of running them (luenendonk, 2019). 4. opportunities and threads of industry 4.0 thanks to industry 4.0, data collection and analysis between machines will be possible and will enable faster, flexible and efficient processes to produce higher quality products at lower costs. thanks to these developments, production efficiency will increase, industrial growth will be encouraged as economies change, and ultimately the competitiveness of companies and regions will increase (rüßmann, et al., 2022). adopting the industry 4.0 model; it can make it more competitive against very large enterprises, it can make it more attractive especially for the new generation workforce, it can make the teams in the business stronger and collaborative, it can provide early detection and solution of the problems in the business before they turn into big problems, it can enable to reduce costs, increase profits and increase growth (epicor, 2018). manufacturers in many industries have long used robots to tackle complex tasks, but robots are evolving to bring even more benefits; they are becoming more autonomous, flexible and collaborative. eventually they will interact with each other and safely work side by side with people and learn from them. these robots will cost less than those used in manufacturing today and will have a wider range of capabilities (rüßmann, et al., 2022). table 2 lists the effects of industry 4.0 on individuals and organizations. table 2:individuals and organizational effects of industry 4.0 organizational impacts individual effects business and productivity pressure increasing pressure on staff jobs that run faster and better reducing the workload on staff more work done with less labor providing social assistance to staff mücahit ci̇vri̇z & sabri öz 112 acceleration, more accurate and safer business processes in the internal processes and automations of the organization increasing need for qualified workforce increasing organizational efficiency and reducing costs giving the place of human relations to electronic environment facilitating symmetrical information flow between stakeholders zero error and minimal loss increasing efficiency, facilitating control accelerating organizational processes the disappearance of businesses that cannot manage data source:(yuksel & sener, 2017) based on the work of yüksel and şener, industry 4.0 has positive and negative aspects in social and economic terms. while positive aspects are considered as opportunities, negative aspects are considered as threats. table 3 lists the opportunities and threats. table 3:evaluation of industry 4.0 with its positive and negative aspects positive (opportunities) impacts adverse (threats) effects real-time monitoring of production performance data storage challenges increased workmanship quality decreased employment of the workforce with operational characteristics ability to remotely manage factories and businesses the disappearance of businesses that cannot catch industry 4.0 increased customer experience data storage challenges emergence of new tech giants weakening of crafting ability digitization of all devices and networking between them the disappearance of businesses that cannot manage data delivering faster, more efficient and personalized products source: (yuksel & sener, 2017) as stated by kagermann, wahlster, and helbig (2013), industry 4.0 solves the problems of today's production and demographic change, continuous resource productivity and efficiency. industry 4.0 offers a structure that will change the design, manufacture, operation and service of products. the connection and interaction between parts, machines and people will make the production system 30% faster and 25% more efficient, thus transforming manufacturing into opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 113 flexible, fast and high-quality production, resulting in a huge benefit, an increase in employment and investment in production. ganzarain & errasti, 2016). with industry 4.0, instead of a single brain, the work to be done with muscle power is done by mechanical systems. management concepts. while these strategies make it easier to achieve success by using the knowledge and experience of all employees, they accelerate the goals and provide more efficient working areas (ersoy, 2022). with the intense use of industry 4.0, there will be some difficulties in security, capital, privacy and employment. while it is too early to speculate on employment conditions with the global adoption of industry 4.0, it is worth noting that workers will need to acquire different or entirely new skills. this could help increase employment rates, but it could also kick a large industry worker out of the system. repetitive workers, perhaps, will have difficulty adjusting to the new structure. therefore, different forms of education should be developed, but the solution does not seem easy for the older part of the workers. this is a problem that may take longer to consider and resolve (luenendonk, 2019). 5. new business models with industry 4.0 thanks to the changing business models with industry 4.0, when robots and humans are considered to be in the production area in cooperation, it will be possible to increase productivity in production, to realize efficient use of resources and to save especially in energy use (bartodziej, 2017). industry 4.0 deserves to think more about the demographics of labor in the future. today's workers and employers need to prepare for this not-too-distant future. these robots do not replace human work but increase the productivity of human workers while also reducing the risks of injuries in the workplace, for example, repetitive injuries, heavy lifting (ifr, 2017). with this new process, new occupational groups are likely to emerge, and in the event of the necessary transformation in the economies, there will be a need for experts in the field, and significant increases in the demand and quality of the labor force will be achieved (pereira & romero, 2017). robots that can be defined as collaborative robots participating in the business world are especially useful for small and medium-sized businesses because these robots are easy to install and can be quickly adapted to new processes and production requirements. thanks to these robots adapted to the system, although people are still needed, for example, robot assistants that bring and carry heavy parts significantly increase the productivity of workers. in this application, with the inclusion of collaborative robots in the system, it is observed that there is a 50% increase in productivity in the works, but the employees who performed these tasks before, for example, were promoted from machine operators to robot programming and there was no job loss (ifr, 2017). in this process, two outcomes should be expected to occur inevitably; the first of these is the shortening of the working hours and the other is the need for higher qualifications and a good education in order to have a better job and career (açan, 2018). as a result of these developments, employing robots instead of humans in business lines such as chemistry, paint, yarn, mining and construction, which are dangerous for human health, will also ensure the protection of human health. according to luenendonk (2019); given the nature of the industry, big data analytics will bring new jobs to a large proportion of robotics specialists and mechanical engineers. some of the key changes that will affect the demographics of employment include: quality control based on big data: quality control relies heavily on statistical methods to show whether a particular characteristic of a product (such as size or weight) has changed in a way that can be considered a pattern. of course, such a process largely depends on the collection of real-time or historical data about the product. since industry 4.0 will rely on big data for this, the need for quality control workers will decrease. on the other hand, the demand for big data scientists will increase. robot-assisted manufacturing: the entire foundation of the new industry is based on the ability of smart devices to interact with the surrounding environment. this means that workers who help with production (such as packaging) will be laid off and replaced with cameras, sensors, and smart devices that can identify the product and then make the necessary changes. as a result, the demand for such workers will fall and will be replaced by "robot coordinators". self-driving logistics vehicles: one of the most important focuses of optimization is transportation. engineers use linear programming methods to use means of transportation. but with the help of autonomous vehicles and big data, many drivers will be laid off. in addition, owning self-driving vehicles will result in unrestricted working hours and higher benefits. mücahit ci̇vri̇z & sabri öz 114 production line simulation: while the need for optimization for transportation will decrease, the need for industrial engineers to simulate production lines will increase. having the technology to simulate production lines before installation will open up jobs for mechanical engineers specializing in the industrial field. predictive maintenance: having smart devices will enable manufacturers to predict failures. intelligent machines will also be able to protect themselves independently. as a result, the number of traditional maintenance technicians will decrease and they will be replaced by more technically savvy ones. machines as a service: the new industry will also allow manufacturers to sell a machine as a service. this means that instead of selling the entire machine to the customer, the machine will be installed and maintained by the manufacturer while the customer enjoys the services it provides. this will open jobs in maintenance and require an expansion in sales. to work effectively with industry 4.0, employees will need to practice a variety of "hard" skills. they will need to combine knowledge of a particular job or process, such as techniques for working with robots or manipulating tools in machines, with it competencies that range from basic (using spreadsheets and accessing interfaces) to advanced (advanced programming and applying applications). the need for multiple hard skills and the unprecedented scope of change in the workshop means that "soft" skills will become more important than ever. employees will need to be even more open to change, have more flexibility to adapt to new roles and work environments, and adapt to continuous interdisciplinary learning (rüßmann, et al., 2022). the world economic forum's future of jobs report (wef, 2016) emphasizes that at least 65% of children currently attending primary school will work in jobs that do not yet exist when they complete their schooling. in recent years, european countries are faced with many problems such as an aging population and competition with cheap labor from developing countries. in addition, a decrease in the working age population and significant increases in the number of elderly people are expected. in addition, the share of developing countries in industrial production is increasing. these and similar problems trigger the development of cyber-physical systems and internet of things technologies in order to reduce workforce, shorten product development time and use resources efficiently (qin, liu, & grosvenor, 2016). at the same time, this revolution could lead to greater inequalities, especially given its potential to disrupt labor markets. as automation risks displacing labor in the economy, the replacement of workers by machinery can worsen the gap between return on capital and return on labor. (schwab, 2022). however, with this process, routine activities, including monitoring tasks, will be more likely to be performed entirely or partially by machines, as employees focus more and more on creative, innovative and communication-centric work. (lanza, haefner, & kraemer, 2015). 6. smart/digital/dark factories with industry 4.0, the concepts of smart/digital/dark factories came to the fore. such factories; they are structures in which robotic processes are at the forefront, structured with automatic/robotic systems, and where human presence is either not needed at all or very little. smart/digital/dark factory applications with industry 4.0 directly result in improvements in economy and production indicators. any small savings in the design and planning phase can result in major cost reductions in the manufacturing operation phase. in this way, the return on investment in the digital factory is very short (gregor & medvecky, 2010). emphasis on automation in the new period may restrict employment areas, while jobs based on muscle power are expected to disappear. however, it is thought that humans will be ahead of artificial intelligence or robots because humans have features such as emotions, thoughts, and human approaches that machines cannot solve, and those who do things with content such as helping and caring for others, persuasion, negotiation, social perception, fine arts, originality, manual dexterity should protect their place. seems likely (calis duman & akdemir, 2019, quoted by fırat and aktaş) with smart factories (rymarczyk, 2020), the interaction of the physical and digital world, optimization, ie minimization of material, energy and human work consumption, proactivity, that is, the ability to anticipate and undertake activities that anticipate problems created by employees and systems, flexibility, i.e. little autonomous or human intervention to changes in the production process, opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 115 transparency, that is, real-time visualization of data related to production processes, thus enabling their monitoring and control. the smart factory is a production concept that provides flexibility, adaptive production processes that are expected to solve the problems that arise in a production facility with dynamic and rapidly changing boundary conditions in a world of increasing complexity. the smart factory concept includes, for example, a combination of automation and, more specifically, software-like mechanics that must achieve optimization of production, resulting in a reduction of unnecessary labor and resource wastage. it also includes the necessity of cooperation between the different participants in the process, creating a dynamic organization that creates a production solution that responds in real time to meet the changing demands and defects in the supply area and customer needs in the factory (vestin, säfsten, & löfving, 2018). in this context, table 4 compares the workplaces and factories of today with the production facilities of the future. table 4:todays and future of the factories today's factories factories in the future machines are preconfigured and need to be readjusted and replaced in case of any change. therefore, it is observed that the machines move independently of each other. machines are enabled to communicate with other machines and security features are also activated. it is very difficult to monitor the processes because the workers or people in the factory generally work according to their own observations or productivity and generally focused on a single problem. while monitoring the production processes, causeeffect relationships are comprehensively evaluated, so that the machines have the ability to make, continue and stop production, and to solve problems or early warning features. when it is desired to go to any customization in existing products, very difficult processes await due to time, cost and resources. while ordinary or ordinary products are easy to produce, different or customized products are difficult to produce. customization studies of products can be achieved through the most ideal and intelligent compilation, taking into account logistics safety, reliability, costs and sustainability features. in order to take into account the changes in the process, inventories have to be collected and these mean costs. machines are able to plan their own production resources, thus, lean production method emerges and just in time production is in question without any delay in production. machines have limited range of motion due to the physical characteristics of people and their dependence on the workforce. machines can work sensitively and in harmony with the workers and people around them. source: (ebso, 2015) mücahit ci̇vri̇z & sabri öz 116 these developments mean far-reaching horizontal and vertical integration of smart supply chain, warehousing, production, distribution and customer order processes. these mean production that is digital, automated, highly autonomous, decentralized and personal, i.e. determined by the individual tastes and needs of customers (rymarczyk, 2020). industry 4.0 is not only about local cyber-physical systems or local industry processes, but also includes suppliers, manufacturers, logistics service providers and employees. one of the most important issues raised by the early adopters of industry 4.0 is the lack of skilled workers (gilchrist, 2016). with this new process, smart robots will be used more effectively at every stage of business processes. in this new situation, in terms of human resources management, less manpower will be required in production and the qualifications in the workforce will change, and human resources departments need to manage this process effectively and by renewing themselves. after these changes, not only businesses but also government policies should be reviewed and updated in the face of the developments of industry 4.0, because there will be a loss in case of companies that cannot make this renewal and state policies that do not take into account their competitiveness in the face of these changes, and it is inevitable to lag behind global economies under intense competition conditions. (bayraktar & ataç, 2018). although the emphasis on unmanned production is at the forefront in the functioning of industry 4.0, the workforce needs an important planning ability, high-level programming knowledge, and qualified labor in maintenance and repair. at the end of this process, new technological production tools take place in the production process as a substitute for the labor force, and while reducing the demand for labor, it emphasizes the increase in the qualitative characteristics and skills of the demanded labor force. perhaps in this way, an ideal work process or worker qualification will be achieved by employers. robots stand out as elements that do not get hungry, do not ask for permission, do not sleep, do not have a health to protect, do not need a social environment and do not want a raise. therefore, while this process means an increase in productivity for employers, it may mean losing their job for employees (aksoy, 2017). in dark production or factories, processes take place without the help of any human power, there are no active people and production is carried out entirely with robotic systems. as a result, production can be carried out even when the lights are turned off, and production turns into an automation form that ensures continuity in production. during production in dark factories, high temperature, weight, toxic gases, etc. in case of dangerous working conditions, the use of robots instead of humans offers opportunities in the field of occupational safety (alkan, 2022). today, manpower is still used in most production processes, but it is observed that more efficiency is achieved with dark production. dark factories are not a method in which people are completely excluded. with this system, the human factor becomes more critical as planning requires experienced workers and advanced programming and sustainable maintenance and repair activities. as a result, although the operation of the system is unmanned, its operation and continuation depends entirely on human work (alkan, 2022). according to alkan (2022), the benefits of production in dark factories; increased productivity, reduction in labor cost, reducing the need for labor to increase equipment operation enabling highly skilled employees in companies to focus on their work and use their technical knowledge and skills, increase in energy efficiency, gaining competitive advantage with increased productivity. a mobile phone factory in china can be given as an example of such new factories. thanks to the robot technology used in the factory, the work that 6-8 workers can do is done by a robot alone. it has been announced that it has increased from a thousand pieces to 21 thousand pieces. it has also been observed that the rate of defective parts has decreased from 25% to 5%. (milliyet, 2022). 7. technological ineffectiveness + unemployment opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 117 industry 4.0 has a lot to offer when it comes to earnings, investments and technological advancements, but employment remains one of the most mysterious aspects of the new industrial revolution. what new jobs will industry 4.0 bring? what does a worker in a smart factory need to compete in an ever-changing environment? will such changes lay off many workers? these are all questions for the average worker. the industry is currently undergoing a transformation towards full digitalization and intelligentization of production processes within the framework of the concepts of internet of things, industrial internet, cloud-based manufacturing and smart manufacturing. however, although there is a common agreement on the necessity of the fourth industrial revolution, it also includes some complex and abstract elements that prevent the transition to implementation within the framework of production technologies and business models (erol, jäger, hold, & ott, 2016). in addition to the positive effects of technology on economic development and growth, potential adverse effects on employment and job opportunities, at least in the short term, need to be addressed (schwab, 2017). according to santoso (2022), disruptive technologies such as artificial intelligence are transforming global production systems and affecting factory processes and the management of global supply chains. while this creates a new wave of competition between countries, industry 4.0, if adopted correctly, can also unlock a 30-40% increase in productivity. however, a crucial factor in unlocking this potential is the workforce that must have the skills to handle these technologies. we also cannot escape the fact that some jobs will be lost. people doing these jobs need to have new skills to continue contributing. but will many of us lose our jobs in this “smart” era? the question is often asked. according to industry 4.0 advocates, fears that robots will increase the number of unemployed are unfounded. according to the optimists who support this view; similar fears have been experienced in every transitional period in the past. in industry 1.0, there was a concern that unemployment would increase with the use of steam technology in production. however, steam technology has improved the division of labor and specialization and created new employment areas. similar fears arose during the transition from industry 3.0 to 4.0, but it was argued that each industrial revolution would open up similar new employment areas. (aksoy, 2017). while it is too early to speculate on employment with the development of industry 4.0, we must acknowledge that workers will need to acquire versatile or knowledge-based skills. while such technological developments can help increase employment rates and create new jobs, they will also alienate a large group of workers from their jobs and create the problem of unemployment. the workers, who repeat their work to a certain extent and do routine work, may face some difficulties in order to survive with existing jobs (sung, 2018). technology and its contribution to the post-innovation economy and its innovations have an important place in schumpeter's theory of creative destruction. according to schumpeter (2013); new products and methods actually eliminate non-innovative business processes and businesses thanks to a number of creative destructions, and while the economic structure is constantly improving, new opportunities are created through innovation, enabling the workforce to keep up with this transformation. with industry 4.0, the topics of "future jobs" and "future of professions" have become popular, and many professions are expected to succumb to automation and leave their place to computer software and robots. therefore, occupations can be divided into two classes as those that are prone to automation and those that are not. occupations that are prone to automation are occupations such as courier and agricultural work, where routine work is done, while occupations that are not prone to automation are occupations that include human skills, such as psychological counseling and cyber security expertise. robotic workers can be more productive than humans; they do not get sick and are more resistant to emotional volatility (kesayak, 2022). since industry 4.0 is accepted as workerless production, the role of the human worker in the realization of production is one of the main concerns. because with this new structure, it encourages the interconnection of sensors, devices and robots via the internet (vaidya, ambad, & bhosle, 2018). in the change experienced with industry 4.0, the situation of the workforce is discussed at the center of the discussions. in the future, it is likely that the business world will transition to a blue-collar worker or to a system where the skills of white-collar workers should be further developed. there may be a transformation in which robots work instead of blue-collar workers and blue-collar workers need to deal with robot maintenance and programming (öztuna, 2017). it is emphasized that new business areas and new business models will emerge with the effect of technological and digital transformation, which is expected to differentiate in the future. these areas are presented in table 5 by classifying them according to their risks. mücahit ci̇vri̇z & sabri öz 118 table 5: new business models in new era jobs at highest risk low risk jobs new jobs office work and clerical work sales and trade transport, logistics manufacturing industry build some aspects of financial services some types of services (translation, tax advice, etc.) education, arts and media legal services management, human resource management business some aspects of financial services healthcare providers computer workers, engineers and scientists some types of services (social work, hairdressing, beauty treatments, etc.) top of the scale data analysts, data miners, data architects software and application developers network specialists, artificial intelligence etc. new smart designers and manufacturers of machines, robots and 3d printers digital marketing and e-commerce specialists lower part of the scale digital platform workers uber drivers do some basic everyday work (repairs, home improvement, pet care, etc.) source:(degryse, 2016) perhaps for the first time, countries and companies had to worry about how their human resources would keep up with the pace of change. previous revolutions were seen as job and growth creators; there is a concern that industry 4.0 could eliminate jobs and lead to unemployment (santoso, 2022). according to çalış duman and akdemir (2019), the new era requires a human model that can research, question, analyze and produce solutions. in this context, it is important to update the education system and train the workforce to keep up with the technologies that industry 4.0 will bring. in this context, some of the professions that will be popular in the new period are: industrial data scientist, data security expertise, network development engineering, it solution architecture, 3-d printer engineering, industrial computer engineering, industrial user interface design, cloud computing expertise, wearable technology design. the work organization is becoming more flexible in time and space, business processes are becoming more and more digitalized, becoming more decentralized and less hierarchical. business processes are becoming more transparent and more and more routine activities are digitized and automated (buhr, 2017). opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 119 8. an anti-technology rebellion: luddism the effect of technological developments on the workforce has begun to be studied intensively, especially after the industrial revolutions. technological developments that cause anxiety have been evaluated in a positive way in general, although they may cause pessimism from time to time. when the industrial/industrial revolutions in the past are examined, it will be seen that similar concerns are discussed today. while more production was made with the developments after the first industrial revolution, there were improvements in people's living standards, but a working class that tried to work under difficult conditions emerged. today, when the industry 4.0 revolution is being discussed, it is being discussed that the need for manpower will decrease and what kind of results will be revealed. it is obvious that the demand for workers will decrease numerically, but the demand for qualified workforce will increase. therefore, a structural transformation centered on competence increase comes to the fore. according to marx, the machines that emerged after innovation and technology shape the workforce in an excessive way, seizing all the lives of workers and causing their intense exploitation. with the development in machines, production is freed from the personal limits of human labor and the workforce, which was in demand more in the past, becomes the apprentices of the machines with this new process. in this new situation, by leaving the production to the machines, the workforce is limited to tasks such as controlling the machines and repairing them, and in this sense, the workforce is excluded (çağlı, 2022). in this new process, operations start from the machine, not the worker, and it turns into the expertise of serving the same part and machine for a lifetime instead of using the same tool or machine for a lifetime. as a result of all these developments, while the worker benefits from tools and machines in the production process, the worker becomes serviceable to the machine with the automation process. at the end of this process, as some theorists claim, it will not be possible to compensate for the decrease in the workforce by shifting to different sectors, and according to marx, the decrease in the demand for workers and the emergence of new machines in every field will inevitably increase unemployment.(çağlı, 2022). today, theodor kaczynski has carried out a movement similar to ludism in the face of technology and technological developments. this name, which has committed some killing and wounding actions against scientists related to modern technology in the united states, will worsen the situation if the technological progress continues, it will expose human beings to greater humiliation and cause more damage to natural life. he has made a progress in his opposition to technology, saying that it will probably lead to more social deterioration and psychological pain. in fact, keynes started to discuss the concept of technological unemployment in the 1930s and stated that with the inclusion of automation in our lives nowadays, unemployment may arise and many professions will disappear (çakmak, 2022). since the first of the industrial revolutions, the impact of technological changes on economic growth and employment has drawn the attention of economists and politicians. because technological developments and advances come with some discussions in the past, as they do today. because the luddism machine breaking movement, which was the first protest attempt against the spread of machines in the past, was a movement that replaced skilled labor in the early stages of industrialization (taymaz, 1998). according to calis (2013), ludist movements are a picture of the uneasiness against the new way of working brought about by early industrialization. in the face of the transforming way of doing business, qualified manual workers see themselves as machines that detach themselves from their jobs, their reputations and the life they are used to, and these events encountered in the first years of the industrial revolution have also heralded the social consequences that will be created by technology and the changes it will bring. according to marx, this situation faced by english handloom workers marks a terrible drama for them. in this process, many workers died of hunger and others faced very difficult living conditions with their families. a similar situation has emerged with the effective use of british cotton machines in india (çağlı, 2022). as a result of the changes in working life as a result of technological developments and the mechanization of production, human workers have been replaced by machines. according to the stories cited, ludd broke into a loom and broke all the newly discovered weaving machines there, as these tools had laid off many textile workers. after this incident, the phrase “ludd did it ned did it” has developed among the british whenever harm has been done to the newly discovered technological tools. although ludist rebellions seem to have been forgotten over time, the concept of ludist has remained a concept that defines those who attack technology (arif, 2022). mücahit ci̇vri̇z & sabri öz 120 these "machine-breaking" movements against machines reached wider masses after a while, gained an organized quality and were referred to the literature as the ludism movement. according to murray 2010, the name luddism derives from ned ludham, who led the resistance against the machines near nottingham in 1811. the attacks by ned ludham against the looms that they thought would replace the workforce and make them unemployed, and the movements that started with the breaking of these looms and machines spread to england in a very short time and resulted in the breaking and burning of the machines there (kaygın, zengin, & topçuoğlu, 2019). when these kinds of actions started to spread to different regions from england, although some legal regulations including death penalties were made in order to prevent this expansion, such actions could not be prevented. as a matter of fact, while tens of the activists caught as a result of the actions were executed, hundreds of people were exiled (lorenzole, 2022). while they were craftsmen and experienced workers working in the textile industry before the industrial revolution, they started to think that there was no need for qualified workers after the developments (koca, 2020). according to gültekin (2021), the supporters of this trend have shown their reactions to technology in a traditional manner by using aggression and violence. when the previous industrial revolution is looked at to test that the concerns that unemployment will increase are not realistic, it is seen that while automation has increased especially in the automotive sector, unemployment has not increased as expected; on the contrary, thanks to economic growth, new and innovative business areas have emerged, and different business lines and professions have taken their place in business life. similarly, new job opportunities are likely to emerge with industry 4.0 (özsoylu, 2017). in fact, this process is very simple and people are moving to a new model where they will do more information, decision making, orientation and continuous application-development instead of the work they have to do with their muscle structure. therefore, in this process, people do not lose their jobs, their job descriptions and professions change (ersoy, 2022). until recently, the use of robots was limited outside of controlled tasks in certain industries such as automotive, but today, robots are increasingly used and preferred in all industries and for a wide variety of tasks, from precision agriculture to nurses. the rapid progress in robotics will soon make collaboration between humans and machines a daily reality. moreover, due to other technological developments, robots will become more adaptable and flexible with their structural and functional designs inspired by complex biological structures (schwab, 2017). industrial production was transformed by steam power in the 19th century, by electricity in the early 20th century, and by automation in the 1970s. but these waves of technological advancement did not reduce overall employment. although the number of manufacturing jobs decreased, new jobs emerged and the demand for new skills increased. today, as manufacturing experiences a fourth wave of technological advancement, another workforce transformation is on the horizon (rüßmann, et al., 2022). as well as being a fundamental economic concern, inequality represents the greatest societal concern associated with the fourth industrial revolution. the biggest beneficiaries of innovation tend to be providers of intellectual and physical capital (innovators, shareholders and investors), which explains the growing wealth gap between those dependent on capital and those dependent on labor. technology is therefore one of the main reasons incomes stagnate or even decline for the majority of the population in high-income countries: the demand for less educated and lowerskilled workers is falling, while the demand for highly skilled workers is increasing. the result is a job market with strong demand at the high and low ends, but with a gap in the middle (schwab, 2022). 9. conclusion in the coming days, we will spend a lot of time discussing the transition between low-skilled and low-wage workers and high-skilled and high-wage workers, and robotic manufacturing in the process. as a result of the robots that we will encounter more intensely not only in the production stage but in many areas of our lives, the question of whether robots will take over the world will take more place in our minds. while the question of protecting the human workforce from robots remains relevant, another question will be on our agenda: who will protect the robots from humans? could the world face a new luddism rebelion? with the fourth industrial revolution, the robot class has emerged and robots will be the friends of the workers in the future. it is possible that the machine-breaking actions that took place in the industrial revolution may be carried out by the workers against robots in the future and that we will encounter movements that we will call neo-ludism. with industry 4.0, more unskilled workers are expected to be negatively affected; robots will take over the jobs based on opportunities and threats analysis of industry 4.0 under the a concept: neo-ludism 121 muscle strength and manual dexterity, and this may lead to hostility towards robots. perhaps the process will expand to include both blue and white collar workers. in this new era, if the business world proves that they can embrace disruptive change within the framework of transparency and efficiency principles that will enable them to remain competitive, they will pass this process successfully, otherwise they will face increasing problems. in this new period when the demand and dependence on labor will decrease, it is necessary to adapt the labor to this process, and for this adaptation, international organizations, governments, businesses and academics should take an active and coordinated role and try to prevent the workforce from entering the new period in a disadvantageous way. in this process of change, companies need to train their work by taking into account the new paradigm and make it permanent, adopt new business and organizational models, and make strategic workforce planning. although many companies already have training programs to adapt their employees to the new era, these efforts will need to be expanded and improved. effective training programs for specific work-related skills should include both on-the-job training and classroom training. as most employees will be working on a wide variety of tasks, training in a broader skill set will be necessary. promoting a positive outlook for change among employees will be necessary to ensure that they adapt to new processes and challenges. industry 4.0 will have significant impacts between humans and machines, the nature of work and organizational structures, and companies need to consider new flexible working models. in addition, since data-based decision-making mechanisms will be on the agenda intensively in this new period, hierarchical structures in companies should also be reviewed, and the structure between company departments should be reconsidered. regarding the new period, on the one hand, the transformation of existing employees in line with this process should be ensured, on the other hand, new employment policies should be reviewed, and the harmony of employees in these two main groups should be ensured. while human resources departments take an active role with other departments in this change process, they should be able to evaluate the workforce from a strategic perspective by reading and analyzing the new period well. in order to reduce industry 4.0 and some of the risks it will bring, training processes should also be followed carefully. in this context, analysis is needed to provide broader skill sets and job-specific abilities in education at all levels. efforts should be made to close the possible gaps in the field of information technologies and to offer new formats. as there will be new functions related to both information technologies and production processes for the employees with industry 4.0, many existing trainings at all levels are at a level that cannot respond to the demands and positives. therefore, the number of interdisciplinary studies should be increased. universities should focus on creating special talents for new roles and adapting their curricula to meet companies' expectations for industry 4.0 skills, and the effectiveness of university-industry collaborations should be further increased. during this period, universities should explore opportunities to start developing interdisciplinary skills for high school students as well. thanks to these and similar hybrid models, a proactive education process should be planned. in addition, labor force analysis should be done after a detailed planning process and in case of a skill gap, policies should be implemented to close this gap from different countries. to maximize the number of jobs created by industry 4.0 and help companies retain as many employees as possible, governments should help improve coordination between stakeholders in business and academia. it will need to focus on promoting the successful implementation of industry 4.0, which is a prerequisite for growth in production and creating new employment opportunities. in addition, governments should be able to secure funding for major improvement projects and develop job descriptions based on capabilities. in this way, especially small and mediumsized companies and start-up companies will be able to increase their long-term performance and thus increase their capacity to make necessary researches or make investments and high-level decisions that will encourage employment creation. in order not to be adversely affected by industry 4.0, the business world, educational institutions and governments should have the foresight to consider developments beyond the coming years. advances in the use of artificial intelligence and robots and monitoring "deep learning" by machines will be critical. the greater use of artificial intelligence and advanced robotics will create a serious unemployment problem if the necessary transformation is not achieved for workers. as a result, the course of developments depends on people, their preferences and values. it is possible to shape the future with an approach that prioritizes humanity. although a group of people expect that in the future, human beings will be robotized and a new species devoid of heart and soul will emerge, it is the priority of responsible people to mücahit ci̇vri̇z & sabri öz 122 expect that the human generation based on productivity, empathy and managerial skills will continue, and to act according to common and moral consciousness for this. with industry 4.0, changes will occur in many fields, especially in industry, technology, welfare, education and production. tomorrow will belong to those who can understand this change and manage the process of change. this study reveals that studies and analyzes that will further deepen the concept of neo-ludism should be done. with this study, it is pointed out that both scientists should work on it and that it should be considered in the public and real sectors, and that the public side should produce policy. references açan, b. 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(2017). the reflections of digitalization at organizational level: industry 4.0 in turkey. journal of business economics and finance , 291-300. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 110-120 110 the effects of public procurement practices on procurement prices: a case of selected procuring entities deus paul kabelele college of business education, united republic of tanzania daudi kitomo national institute of transport, united republic of tanzania received: april 01, 2022 accepted: may 14, 2022 published: june 01, 2022 abstract: the main objective of the study was to assess the effects of public procurement practices on the procurement prices among the selected procuring entities in dar es salaam. specifically, the study aimed at determining the effects of competition, centralization, timely payment, negotiation and integrity on procurement prices reasonableness among the selected procuring entities. the study was carried out at dar es salaam with the inclusion of three procuring entities; college of business education (cbe), institute of adult education (iae) and tanzania public service college (tpsc). the study employed convergent mixed research design, where both quantitative and qualitative data were collected from 210 and 20 respondents respectively for triangulation of findings. the study findings indicated that competition, timely payment, negotiation and integrity have significant positive effects on procurement prices reasonableness among the selected procuring entities. however, it was revealed that centralization has insignificant negative effect on procurement prices reasonableness contrary to the study hypothesis. the study recommends more amendments on the public procurement rules, regulations and guidelines so as to warrant the effectiveness of competition, timely payment, negotiation and integrity in the public procurement proceedings for attainment of reasonable procurement prices. moreover, the study recommends for the government to provide fully support to the policy makers and individual procuring entities in respect to the aforesaid matters. keywords: public procurement, practices, procurement prices, reasonableness 1. introduction efficient use of public resources is one of the major challenges related to public procurement, as public tenders are often faced with problems such as participation of unqualified bidders, inappropriate criteria of evaluating bids, and manipulative setting of qualifications (hanák and muchová, 2015). moreover, since the acquisition of goods, services and works involves the use of public funds that represents a huge volume of government spending; henceforth more attention is needed to ensure there is minimization of procurement costs through attainment of reasonable procurement prices. however, despite the efforts of the government to make several reforms on the public procurement legislation ranging from ppa 2001 to ppa amendments 2016 to foster procurement efficiency, high procurement costs resulting from high purchasing prices is still a big challenge in the public procurement system (matto, 2017). consequently, this necessitates the need for critical analysis of the public procurement practices with regard to the current legislation in attempt to establish improved procurement system that will ensure the attainment of right procurement prices for minimization of procurement costs. several studies have examined the effects of centralization, competition and negotiation on the final procurement prices (baldi and vannoni, 2014; luhikula, 2018; pedersen and bofin, 2015; soudek and skuhrovec, 2016; zhang et al, 2020). other studies have looked on the impact of corruption on bidding decision and procurement performance the effects of public procurement practices on procurement prices: a case of selected procuring entities 111 (detkova, podkolzina, and tkachenko, 2018; enshassi & mohamed, 2010; grega and nemec, 2015). however, most of these studies have focused on the final procurement prices that were compared to the estimated procurement prices rather than the actual reasonableness of the procurement prices, while others focused on the suppliers’ bidding decision and few assessed the impact of integrity and timely payment on the procurement prices. moreover, there is limited linkage of theories on explaining the effects of those factors on the procurement prices. this study therefore intends to extend the research framework by taking into account the effects of integrity and timely payment factors on procurement prices reasonableness and integrate institutional theory and principal – agent theory on explaining the effects of these factors on procurement prices. 2. theoretical framework 2.1. institutional theory institutional theory has been used as one of the traditional approaches of examining the public procurement practices. the theory explains about the behaviour and organisational structures based on sociological perspectives (dunn and jones, 2010; tukamuhabwa, 2012). according to scott (2004), the institutions are configured under three major pillars namely normative, regulatory and cultural cognitive. the normative pillar is associated with social values and norms as the basis for compliance in determining the preferred and right way of doing and leveraging institution activities, while the regulatory pillar centers on the use of procedures, rules, and regulations as the basis for compliance. moreover, the cultural cognitive pillar deals with common understanding of views, the shared values of the institution and beliefs in the implementation of organisation’s operations (dunn and jones, 2010; mrope, 2014). a fundamental premise of institutional theory is that it explains why institutions often adopt similar responses and practices in implementing their operations, whereby under public procurement all the procuring entities are guided by regulations and rules with the respective laws and the attendant regulations and guidelines governing the public procurement processes and activities. therefore, under this study the theory is linked to adoption of centralized procurement system, terms of payment aspects particularly in payment time and integrity of procurement personnel and processes in the procuring entities so as to determine and explain their effects on the procurement prices. consequently, to obtain right or reasonable prices would be the integration of all the three institution’s pillars, since the procuring entities have to set preferred way of implementing procurement activities while abiding to the public procurement rules and regulations, with a common understanding on the institutional core values (eyaa and oluka, 2011). moreover, the three institutional pillars as explained by scott (2004) determine the organisational culture, organisational incentives, organisational influence and enforcement as the prerequisites of compliance with procurement laws and regulations which is directly related to matters concerned with centralization of procurement activities, timely payment of bidders claims and negotiations practices as stipulated in the given laws and regulation of the public procurement (mrope, 2014). 2.2. principal-agent theory the principal-agent theory explains the relationship between a person or entity (the principal) that has contracted another person or entity (the agent) to undertake a responsibility on behalf that capacitates decision making and actions taking impacting the principal. the theory assumes the existence of conflicting interests between the agent and the principal, thus the implementation of assigned activities, may pursue personal interests resulting to agency problem (bawole and adjei-bamfo, 2020; jensen and meckling, 1976). public procurement, the large part of public expenditure is considered as an essential tool by the government regarding its association with the effective governance pillars: improving the delivery of public services, value for money and enabling private sector growth. consequently, effective systems for public financial management is one among the significant concerns to optimize the use of resources buy reducing costs in procurement activities for economic stability (bawole and adjei-bamfo, 2020). in respect to existence of agency problem in which the agents (bidders) might be motivated to act in their own best interests contrary to those of their principals (procuring entities) and the need to achieve the goal of reducing procurement costs by obtaining reasonable prices that correspond to the quality of goods or services offered (value for money), the procuring entities must select competent bidders and ensure that they enter into contracts with better terms and conditions. to ensure proper selection of bidders (agents), the procuring entities encourage high deus p. kabelele & daudi kitomo 112 competition with the use of competitive procurement methods, and before contract signing they conduct negotiations with lowest/highest evaluated bidders on matters ranging from procurement prices to delivery and payment terms. 3. hypothesis development and empirical studies 3.1. competition and procurement prices reasonableness the procurement methods used in public procurement are mainly categorized into competitive and non-competitive methods, whereby there is a great emphasize on the use of competitive methods particularly competitive tendering. in tendering the suppliers, service providers, consultants, and contractors are submitting priced bids for goods, services or works so as to compete for contract award in respect to the invitation made by the procuring entity, centered on ensuring reasonable procurement prices, transparency and equal opportunities to bidders in the procurement proceedings (ppa, 2011). according to hanák and muchová (2015) the procuring entities have to encourage the participation of many bidders as possible in the tender with establishment of appropriate qualification requirements, since a considerable number of bids in the procurement proceeding has a significant role in the overall project efficiency by achieving lower procurement prices in contract awards. consequently, such strategy makes bidders to adjust their offer prices in view of increasing their chances of winning the procurement contracts. however, despite the findings of other studies (see: detkova et al., 2018; grega and nemec, 2015; hanák and muchová, 2015; tas, 2020) that competition has a major influence on obtaining reasonable procurement prices among procuring entities, there is a still a challenge on ensuring effective implementation of competitive tendering. the challenge comes due to the fact that the procuring entities cannot determine the number of bidders to participate in the procurement, nevertheless can encourage or discourage the participation of potential bidders through qualification criteria, transparency, fairness and integrity in the procurement proceedings (soudek and skuhrovec, 2016). hence, competition is one among the important factors for determination of procurement prices. hypothesis 1: competition is positively related to procurement prices reasonableness. 3.2. centralization and procurement prices reasonableness procurement centralization refers to the procurement system in which all the procurement activities of the procuring entity are implemented by the institution headquarters or a dedicated central unit within, which includes the act of making decisions (what, when and how) to procure the requirements so as to satisfy the needs of the user departments (baldi and vannoni, 2014). the centralization system has been widely used in both public and private sector due to various benefits such as; the reduction of maverick purchasing and duplication, the decrease of the number of procurement transactions, the great potential of hiring skilled and experienced personnel, obtaining of higher service and product quality experience, better access to markets and resources, and the reduction of procurement prices due to the improvement of bargaining power in the enforcement of negotiations attributed to economies of scale (albano and sparro, 2010; thai, 2009). fundamentally, centralized procurement conception forms on the aggregation of public bodies’ demand, which enable the procuring entities to gain scale benefits from three procurement synergies; economies of scale, economies of information and economies of process. the economies of scale is centered on the aggregation and standardization of procuring entities’ demand to get quantity discounts, while economies of information results from having the complete knowledge of where and when to acquire the requirements from specific providers in the market which is the basis for learning better means of negotiations with the suppliers and economies of process is centered on the use of procurement professionals who can acquire the requirements more efficiently through the deployment of knowledge, skills and experience (baldi, 2014; kauppi and van raaij, 2015; petersen, jensen and bhatti, 2020; walker et al., 2013). therefore the study seeks to determine the extent to which procuring entities use centralized procurement systems to obtain reasonable procurement prices. hypothesis 2: centralization is positively related to procurement prices reasonableness. 3.3. timely payment and procurement prices reasonableness the effects of public procurement practices on procurement prices: a case of selected procuring entities 113 according to mrope (2018) late payment to tenderers has been stated as one of the major reasons for a limited participation of the private sector firms in the procurement opportunities offered by procuring entities, since the tenderers’ decision to participate in the procurement proceedings involves the consideration of the financial capabilities of their clients in terms of payment and compensation policies (enshassi and mohamed, 2010). due to the recognition of the contribution made by private sector particularly the local firms in the public procurement, there is an emphasis in making commitments on funds to be used in the acquisition of goods, services and works as well as to ensure timely payments to respective tenderers so as to support their growth and fulfillment of contractual responsibilities. the regulations stipulate that all the procuring entities have to ensure that payments are made promptly and properly in respect to the terms and conditions of contracts, so as to maintain the soundness and credibility of the procuring entities (ppr, 2013). however, despite the emphasis made by the public procurement act and its regulations and other guidelines as issued by ppra, still timely payment to suppliers, consultants, service providers and contractors has been a challenge in the public procurement, which has resulted to the provision of inflated prices by the bidders as a business defensive mechanism to preserve the actual value of the contract entered at the particular time. thus, the study ought to assess the current status of procuring entities on timely payment to bidders and how it affects the procurement prices offered. hypothesis 3: timely payment is positively related to procurement prices reasonableness. 3.4. negotiation and procurement prices reasonableness to increase the efficiency of public procurement, the procuring entities are allowed to undertake negotiations as the means of resolving differences with the lowest evaluated bidder once approved by the tender boards in matters relating to alteration of technical details, quantities reduction due to budgetary reasons, minor amendments of contract special conditions, payment and mobilization arrangements, delivery terms, methodology for contract implementation, and most importantly the reduction of procurement prices (ppr, 2013). negotiations as the mitigation strategy for high prices in the public procurement has proven success in the reduction of procurement prices. nevertheless, the procurement prices for the same goods, services, and works vary considerably among and within the procuring entities, proving the presence of differences in capabilities, lack of procedures compliance in the negotiation processes, and lack of framework contracts to be applicable to all the procuring entities for the provision of homogeneous procurement conditions and pricing structure by bidders (moye-holz et al., 2019; zhang et al., 2020). to achieve and maintain lower procurement prices in the public sector, a great emphasis should be put on negotiation capabilities and compliance to procedures, strategies and guidelines as provided and approved by relevant authorities. hypothesis 4: negotiation is positively related to procurement prices reasonableness. 3.5. integrity and procurement prices reasonableness integrity principle is two-fold in public procurement, since there is the integrity of the procurement process, and also the integrity of procurement practitioners as the major guardians of the process in the procuring entities. the integrity translates to the reliability of the procurement process and practitioners, who are always supposed to be perceived as honest, responsible and trustworthy in the implementation of their procurement activities in respect to the governing laws, principles, rules and guidelines as issued by relevant authorities (lynch, 2014). lack of integrity to the procurement practitioners creates a high possibility of malpractices in the procurement activities, whereby highly corrupt environments limit the participation of potential bidders in public procurement tenders, which instantly increases the procurement prices due to reduction in overall competition among bidders. moreover, the corrupt public officials could demand bribes and other benefits from the potential bidders, who in turn might end up bidding inflated prices so as to cover the extra cost incurred in the facilitation of obtaining the contract awards (detkova et al., 2018; heggstad and frøystad, 2011). hypothesis 5: integrity is positively related to procurement prices reasonableness. 4. methodology deus p. kabelele & daudi kitomo 114 the study adopted the quantitative design, whereby the data were collected from 210 respondents that included the members of tender board, procurement officers and user departments through structured questionnaire. the sample size was obtained basing on the number of variables in the study and the statistical data analysis techniques employed in the study (tabachnick and fidell, 2013). simple random sampling technique was used to select respondents from three procuring entities namely college of business education (cbe), tanzania public services college (tpsc) and institute of adult education (iae) located at dar es salaam. the reliability of data was confirmed by assessing the internal consistency of the scale of the measurement instrument so as to ensure that the study produces the same results whenever tested repetitively. the cronbach’s coefficient alpha was used to measure the internal consistency scale, which indicated that all the variables had recommended cronbach’s coefficient alpha of above 0.7 (pallant, 2016). the validity of the study was assessed by ensuring that the collected data represent the content under the study, whereby delphi technique and pilot study were used. the analysis of quantitative data employed both descriptive and inferential statistics using the statistical package for the social sciences (spss) version 26. particularly, the software was used to run descriptive statistics, factor analysis and multiple regression analysis for hypotheses testing. 5. findings and discussions 5.1 factor analysis due to the fact that both the independent and dependent variables were measured by several items, which were either modified from previous studies or developed basing on public procurement practices experience necessitated the usage of principal component analysis (pca) as a method of factor analysis before hypotheses testing. pca was used in conjunction with varimax rotation method for data extraction so as to reduce the number of items per each variable for which have no strong similar patterns of responses with the rest of the items in creating the constructs. the results of pca were used to formulate the final independent and dependent variables used for multiple regression analysis. table 1. kaiser-mayer-oklin and bartlett’s test kmo and bartlett's test kaiser-meyer-olkin measure of sampling adequacy. .806 bartlett's test of sphericity approx. chi-square 4167.043 df 496 sig. .000 source: field data (2021) the independent variables subjected to pca were competition, centralization, timely payment, negotiation and integrity while the dependent variable was procurement prices reasonableness. the results of kaiser-meyer-olkin (kmo) and bartlett’s test of sphericity were 0.806 and significance (p=0.000) respectively with (chi-square 4167.042, df 496), indicating that the data collected were suitable for running the factor analysis (see table 1). table 2. rotated component matrix component items 1 2 3 4 5 6 variable computation comp1 0.509 (comp1+ comp2+comp3+ comp4)/4 competition comp2 0.877 comp3 0.896 comp4 0.820 integ1 0.727 (integ1+integ2+integ 3+integ4+integ5)/5 integrity integ2 0.798 integ3 0.833 integ4 0.817 the effects of public procurement practices on procurement prices: a case of selected procuring entities 115 integ5 0.699 neg2 0.802 (neg2+neg3+neg4+ne g5)/4 negotiation neg3 0.760 neg4 0.786 neg5 0.744 cent1 0.727 (cent1+cent2+cent3+ cent4)/4 centralization cent2 0.759 cent3 0.748 cent4 0.687 pmt1 0.813 (pmt1+pmt2+pmt3+p mt4)/4 timely payment pmt2 0.835 pmt3 0.783 pmt4 0.558 pric1 0.641 (pric1+pric2+pric3+p ric4+pric5+pric7)/6 procurement prices reasonableness pric2 0.572 pric3 0.599 pric4 0.652 pric5 0.693 pric7 0.812 source: field data (2021) the factor loading value of ±0.50 was used as the cut off point in the study as recommended by hair et al., (2006). all the items with loading below the cut off point (comp5, neg1, cent5, pmt5 and price6) were removed from forming the final variables for further analysis. the remained items in component 1-6 with factor loading ≥0.5 were retained and used to compute the final independent and dependent variables (see table 2). the retained items explained a total of 64% of the variance of the tested model hence it was considered enough for further analysis. it was found that competition contributed 25% of the model variance while centralization contributed 12%, payment time 10%, negotiation 6% and procurement prices reasonableness contributed 5% of the model explained variance. 5.2 hypothesis testing before the actual testing of the research hypotheses, the data collected were tested to check the multiple regression assumptions. the assumptions tested were data normal distribution, linearity, outliers and multicollinearity, the results indicated that there were no violation of aforesaid assumptions. hence, the multiple regression analysis was run to determine the effects of independent variables (competition, centralization, timely payment, negotiation and integrity) on the dependent variable (procurement prices reasonableness), and the following outputs were obtained; table 3. model summary model r r square adjusted r square std. error of the estimate 1 .721a .520 .508 .560 a. predictors: (constant), integrity, centralization, competition, negotiation, timely payment b. dependent variable: procurement prices reasonableness source: field data (2021) the model summary as shown in the table 3 helps to indicate how much of the variance in the dependent variable (procurement prices reasonableness) is explained by the independent variables (competition, centralization, payment time, negotiation and integrity) that is indicated by the value of r-square. in this case the value of r-square is 0.520 deus p. kabelele & daudi kitomo 116 equivalent to 52%, which means that, the model that includes competition, centralization, payment time, negotiation and integrity as independent variables explains 52% of the variance in the procurement prices reasonableness among the selected procuring entities. this indicates that, the model results are quite good since the independent variables included in the model explained the variance of more than 50%. table 4. anova model sum of squares df mean square f sig. 1 regression 69.236 5 13.847 44.176 .000 b residual 63.944 204 .313 total 133.180 209 a. dependent variable: procurement prices reasonableness b. predictors: (constant), integrity, centralization, competition, negotiation, timely payment source: field data (2021) the results of anova analysis (see table 4) are used to test if the model can be generalized in the population by assessing the statistical adequacy of the model through the p-value and f-value. in this case the p-value is less than 0.001, hence met the ≤ 0.05 cut off point, indicating that, the model can be generalized as the regression equation is the best predictor for the population values. moreover, the f value is 44.176 whereby the higher the f-value the more significant the model is. hence the sample selected was enough for generalization of the model results. table 5. regression coefficients the regression coefficients as shown in the table 5 indicate the results of the hypotheses formulated on whether they are accepted or rejected with respect to the significance and insignificance of the results as described in table 6; table 4.14 the summary of hypotheses testing hypothesis independent variable dependent variable status h1 competition procurement prices reasonableness accepted h2 centralization procurement prices reasonableness rejected h3 timely payment procurement prices reasonableness accepted h4 negotiation procurement prices reasonableness accepted coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .439 .228 1.919 .056 competition .342 .043 .403 7.966 .000 centralization -.064 .047 -.067 -1.347 .180 timely payment .116 .052 .130 2.222 .027 negotiation .117 .047 .139 2.489 .014 integrity .333 .047 .379 7.114 .000 a. dependent variable: procurement prices reasonableness the effects of public procurement practices on procurement prices: a case of selected procuring entities 117 h5 integrity procurement prices reasonableness accepted source: field data (2021) 5.2.1 the effect of competition on procurement prices reasonableness to determine the contribution of each independent variable and be able to make comparisons among all independent variables, one should read the values of standardized coefficients beta (β) which has to be ≤ 1. furthermore, in order to know if the independent variable has statistically significant contribution, the significance value (p-value) has to be ≤ 0.05. for this case the independent variable competition had a significant positive relationship with the procurement prices reasonableness at (β = 0.403, p < 0.001). hence the hypothesis one (h01) was accepted. moreover, among all the independent variables this is the factor that has the highest contribution in determining the procurement prices reasonableness compared to other factors since it has the highest standardized coefficient value (β = 0.403). the significance of competition on influencing procurement prices reasonableness among procuring entities, is attributed to the fact that there’s a preference of using competitive procurement methods in public procurement. given that they tend to promote transparency, efficiency, and limit favoritism, resulting to obtaining reliable suppliers who offer reasonable prices and delivery the required qualities at the agreed time. the study findings are comparable with the findings of grega and nemec (2015) who found that competitiveness has great impact on the final price, that increasing number of competitors in public procurement is, in average, decreasing prices. moreover, luhikula (2018) found that competitive bidding had a significant contribution in the attainment of value for money, thus suggesting the adherence to principles of competitive bidding to minimize project costs. in respect to the principal-agent theory, the procuring entities will always encourage the participation of many bidders as possible in the tender with establishment of appropriate qualification requirements, since a considerable number of bids in the procurement proceeding has a significant role in the overall procurement prices reasonableness hanák and muchová (2015). moreover, the competition helps the procuring entity to obtain the competent bidders whom they can easily control and monitor during the implementation of contracts obligations as per agreed terms and conditions. 5.2.2 the effect of centralization on procurement prices reasonableness the conclusion is unexpectedly as contrasts the study hypothesis and other previous findings (see: baldi and vannoni, 2014; israel, kazungu, and mchopa, 2019) who found that centralized procurement systems experience lower procurement prices. however, the study findings are comparable with the findings of petersen, jensen and bhatti (2020) who found that centralized procurement is not associated with lower purchasing prices rather than offering other benefits, such as economies of process and compliance. the insignificant relationship between centralization and procurement prices reasonableness is due to the fact that most of the procuring entities use hybrid procurement system as centralized procurement is not perceived by most entities to significantly influence procurement performance due to bureaucratic procedures. the bureaucratic procedures are said to prolong procurement processes, whereby the bidders tend to inflate their prices as a contingency plan. considering the institutional theory, most of the procuring entities focus on the regulatory pillar that centers on the use of procedures, rules, and regulations as the basis for compliance. consequently, ending up on forming the aggregation of user departments’ demand, which enable the procuring entities to gain scale benefits in economies of scale and economies of process rather than in economies of information which could help much in obtaining reasonable prices. 5.2.3 the effect of timely payment on procurement prices reasonableness the standardized coefficients of the regression analysis indicate that, there is a significant positive relationship at (β = 0.130, p = 0.027) between the independent variable (timely payment) and the dependent variable (procurement prices reasonableness). this implies that an increase in timely payment factor accounts for the positive increase in the procurement prices reasonableness among the selected procuring entities. hence the third hypothesis (h3) was accepted. the study findings are similar to the findings of enshassi and mohamed (2010) and mrope (2014) who found that timely payment of bidder’s claims is one of the most critical factors affecting the bid/no bid decision and the rate of prices quoted during the procurement proceedings. the significance of timely payment factor on influencing procurement prices reasonableness is supported by the fact that the suppliers tend to set their prices with respect to deus p. kabelele & daudi kitomo 118 buyer’s willingness and ability to pay in cash or credit terms. as for the case of private procurement, the organizations procure in cash basis where they usually obtain low or market price while in public procurement, the organizations procure at credit terms of which most of the times they end up obtaining requirements at the price level higher than the market price. in view of the institutional theory, the procuring entities that are well built on the normative pillar will always create a great sense and basis for compliance in determining the preferred and right way of doing and leveraging institution activities that include timely payment of bidders’ claim with respect to the contract agreements. 5.2.4 the effect of negotiation on procurement prices reasonableness the result shows that, there is a positive significant relationship between negotiation and procurement prices reasonableness among the selected procuring entities where (β = 0.139, p = 0.014). this indicates that, an increase of 1 standard deviation in negotiation leads to an increase in the procurement prices reasonableness by 0.139 standard deviations. hence, the forth hypothesis (h04) was accepted. the study findings are alike to the findings of zhang et al., (2020) and moye-holz et al., (2019) who found that negotiation is a significant determiner of procurement prices offered by bidders. the significance of the study findings are attributed to the fact that the rules and regulations of the public procurement allow the procurement entities not only to conduct negotiation with the lowest evaluated bidder but also stipulate the appropriate procedures to be followed in the negotiations proceedings. principal-agent theory explains the necessity of negotiations due to the existence of agency problem where the bidders (agents) might be driven to marginalize their profit margins through quoting higher prices. hence, the procuring entities need to recommend and conduct negotiations so as to obtain reasonable prices that will be fair to both parties, to avoid the bidder’s gain under the expense of the entity. the goal is to reduce procurement costs by maintaining right quality of goods or services offered. 5.2.5 the effect of integrity on procurement prices reasonableness it was also found that integrity is positively related to procurement prices reasonableness at (β = 0.379, p < 0.001). this implies that an increase in integrity of the procurement process and personnel accounts for the positive increase in the procurement prices reasonableness among the selected procuring entities. hence the fifth and last hypothesis of the study (h5) was accepted. moreover, integrity had the second highest contribution in determining the procurement prices reasonableness after competition with (β = 0.379). these findings are similar to those of baldi and vannoni (2014), detkova et al., and heggstad and frøystad (2011) who also found that integrity is one of the major key factors for bidders to provide reasonable procurement prices. integrity translates to reliability of both the procurement processes and involved procurement organs. the integrity of the procurement process assures confidence in the public procurement process, whereby the public procurement practitioners should be perceived, at all times, as honest, trustworthy, responsible and reliable. 6. conclusion and recommendations based on the study findings, it is evident that, the reasonableness of procurement prices among the procuring entities is crucial to the public procurement, because it allows proper management of financial resources with regard to the existing requirements that determine the range of procurement activities to be done. the findings conclude that the major determinants of procurement prices reasonableness with respect to public procurement practices are the level of competition among bidders, conduction of negotiations with the most competent bidders to be awarded the contracts, timely payment of suppliers’ claims particularly when the credit terms of payment are involved as well as ensuring the integrity of the procurement process and personnel. hence, more amendments should be made on the public procurement rules, regulations and guidelines so as to warrant the effectiveness of competition, timely payment, negotiation and integrity in the public procurement proceedings for attainment of reasonable procurement prices. moreover, for the procuring entities that still use centralized procurement system as a major procurement structure of their procurement activities, now it is high time to shift to the new paradigm of hybrid procurement system in which the centralized and decentralized systems are harmonized to complement each other. as for case of future studies, the researcher suggests that more research should be done to ascertain the range of determinants of procurement prices reasonableness specifically by expanding the research model by taking into account other factors that were not included in this study. moreover, the focus could be broadened by including the private sector as well, and investigate the the effects of public procurement practices on procurement prices: a case of selected procuring entities 119 mediation effect of integrity on competition and timely payment on influencing the reasonableness of procurement prices. references albano, g. l., & sparro, m. 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(2020). impacts of government reimbursement negotiation on targeted anticancer medication price, volume and spending in china. volume and spending in china (4/26/2020). journal of international trade, logistics and law, vol. 9, num. 1, 2023, 47-60 47 diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania adrian f. ndunguru college of business education, dodoma tanzania romuald haule college of business education, dodoma tanzania elia mwanga college of business education, dodoma tanzania received: june 14, 2023 accepted: march 09, 2023 published: june 01, 2023 abstract: the study was centered on the main objective of examining three approaches of protection of geographical indications which trademark system, sue generis system and the unfair competition system. this paper is intended to study various approaches of legal framework for protection of geographical indications as applied in different countries with the view of ascertaining the strength and weakness of each approach in order to recommended the right approach for tanzania. the main problem which prompted the study is results from flexibility of the system for protection of geographical indications allowed by the wto agreement on trade related aspects of intellectual property rights of 1994. on part of methodology, the study is qualitative in nature and uses mainly secondary date derived by using documentary review of various international legal instruments, reports, legal text books, articles and conference papers based on protection of geographical indications. data were analyzed by using content analysis in which the researcher sorted data basing on the relevancy of the content on the study objectives of the study. generally, the findings has revealed that, apparently states protects geographical indications by using trademark laws, sue generis or specific laws and unfair competition system. however, the more comprehensive and effective approach that tanzania can adopt is the sue generis system because it provided for specific standards for protection of geographical indications which cannot be mixed with trade mark or competition laws. keywords: africa, trade, law 1. introduction protection of geographical indications as a separate category of intellectual property rights has been a matter of heated debate across the world. some national laws protect it as a separate intellectual property right under sue generis system, few protect it as a trademark through collective and certification mark and other protect it as an aspect of unfair competition under the fair competition laws. this multiplicity or diversification of laws has created uncertainty on recognition of the right and the real scope of the right. this study is interested much to examine the three approaches with the view of ascertaining the appropriate approach that can be applied in tanzanian context. 2. definitions of key concepts in course of examining the legal framework for protection of geographical indications, it is important to define some key concepts appearing in the title of the study for more understanding within the context of this study. one of the most important terminology or concepts to be defined is geographical indications as opposed to other similar or related terminologies like appellation of origin. adrian f. ndunguru & romuald haule & elia mwanga 48 2.1. geographical indications literature reveals that, in any debate relating to protection of geographical indication, one of the challenges is often the daunting task of defining the subject matter covered by the word geographical indications. a clear definition of geographical indications is important to define the scope of protectable geographical indications by distinguishing geographical indications from other categories of intellectual property rights like trademarks. the definition of geographical indications is provided in different legal documents with almost similar wording. the trips agreement is the benchmark of defining geographical indication. the agreement defines geographical indication to mean; indications which identify goods as originating in the territory of a member or region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographic origin the definition of geographical indications by the trips agreement highlights the scope and conditions for protection of geographical indications. according to the definition of geographical indication provided by trips agreement, for a geographical name to quality for protection as geographical indications; it should be the name of a geographical area found in a region or country or locality where the product originates. the goods using the name must originate in the particular geographical area or locality within the territory of the country they indicate. this is also called geographical nexus. also, the particular goods must have quality or reputation which is essentially attributed from their place of origin. these unique attributes may be measured in terms of taste, aroma, touch or appearance which distinguishes the geographical indication products from similar products produced in other areas. the use of the word ‘indication’ in the definition includes use of a geographical name, figurative representation of the name of a place or any combination of them conveying or suggesting that the goods which they indicate originate in that particular place to which the indication points. this place may be a city/region or country/territory which is famous for producing or manufacturing that particular product. 2.2. diversity of legal systems in this context, diversity of legal systems is used to mean the existence of several approaches of protection of geographical indications across states ranging from trademark laws, sue generis law and unfair competition systems used by the respective states to protect geographical indications in their national systems. 3. background to the problem recently geographical indications have been commonly used by business enterprises and producer groups in both developed and developing countries to market certain distinctive products. studies shows that, consumers are willing to pay premium price to products identified by using indications of origin. the history of protection of geographical indications is connected to industrial revolution in europe in the 19th century. the first country to design a law on protection of geographical indications was france in 1825. the french law was by then intended to prevent false indication of source of industrial goods. the law was mainly implemented by imposing criminal sanction to people who were found guilty of false indication of origin of goods. later in 1919, the french parliament realized that the quality of certain products especially agro products were very much connected to their place of origin basing on natural, human, climatic factors and method of production. therefore, french decided to make a law on protection of geographical origin of some goods such as cheese and wine. this being domestic law with no international recognition triggered for international movements on the protection of geographical indications. at the international level, the law on protection of geographical indications started with the paris convention on indications of source in 1883. this convention prevents the use of false indication of source of goods which are likely to mislead consumers as to the true origin of the goods. it also prohibits acts of unfair competition which are likely to affect consumers. however, the paris convention talks about protection of indication of source of goods without any express recognition of protection of geographical indications. the paris convention provides for minimum level of protection of indication of source without any connection between the source of the goods and reflection of quality of the goods. the weakness of the paris convention raised member’s interests to extend the scope of protection covered by the convention. another round of deliberating measures for addressing deceptive indications of source started in madrid and it ended by members adopting the madrid agreement for repression of false or deceptive indication of source of diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 49 origin of 1891. the weaknesses of the madrid agreement also led into another diplomats conference in lisbon in 1958 to discuss the law on the protection of appellation of origin with the view of extending the scope of the paris convention by connecting indication of source of goods and environmental attributes of the geographical area where the goods originates. this conference adopted the lisbon agreement for protection of appellation of origin and their international registration. the lisbon agreement provides for the protection of the use of names of geographical areas of a country, region of a country or its locality in a manner that indicates that the goods originates in that place where a certain special quality or characteristics are attributes basing on natural or human factors. the protection is intended to avoid the usurpation or imitation of the use of the mark. according to this agreement, names of geographical areas which reflects on exclusive quality of the goods must be protected as appellation of origin under the world intellectual property organization system. in 1990, the wipo committee of experts on the protection of geographical indications started working on a new international treaty for the protection of geographical indications. this was intended to address the limitation of scope of protection of appellation of origin under the lisbon agreement and the paris convention. in their discussion, the committee resolved that contracting parties should be free to choose the manner of protecting geographical indications and the meeting did not come into consensus of the international treaty. a breakthrough on the protection of geographical indications was witnessed in 1994 with the establishment of the world trade organization and the adoption of the world trade agreement on trade related aspects of intellectual property (trips agreement). this agreement came into force in 1995 and it provides the minimum standards for the protection of geographical indication at international level. it also provides for obligation to the member states to enact domestic laws on the protection of geographical indications. geographical indication is defined under article 22 of the trips agreement. the provision does not provide for the manner or method of protecting geographical indications or to put it clear, the agreement has allowed flexibility of modality and conditions of protecting geographical indication under domestic laws. 4. statement of the problem tanzania is a member of trips agreement which provides for protection of geographical indications as an intellectual property right. the trips agreement imposes mandatory obligations on member states to enact domestic laws to protect geographical indications from abuse. according to the trips agreement; members shall provide for legal means for interested parties to prevent (a) the use of any means in the designation or presentation of goods that indicate that the goods in question originate in a geographical area other than the true place of origin in manner which misleads the public as to geographical origin of the goods. (b) any use which constitutes an act of unfair competition within the meaning of article (10) of the paris convention. however, the trips agreement allows members to adopt their own approach of protection of geographical indication. according to the agreement, …members shall be free to determine the appropriate method of implementing the provision of this agreement within their own legal system and practice. this flexibility has led to diversity of domestic laws on protection of geographical indications has been the source of uncertainty on domestic recognition of geographical indication as an intellectual right. this uncertainty calling for more debate on the appropriate approach of protection which offers effective protection of geographical indication. absence of effective and harmonized legal system for domestic protection of geographical indications is denying interested parties their right to protect potential geographical indications available in their areas and is also attracting infringement from unauthorized companies. therefore, this study aims to research on the effective method of protection of geographical indication that tanzania can adopt to protect her potential geographical indications products like the kyela rice, kilimanjaro coffee and zanzibar cloves. 5. objectives of the study the main objective of the study is to examine the appropriate approach of legal framework for protection of geographical indications as between the trade mark laws, sue generis laws and unfair competition laws. the specific objectives include; first, to examine different approaches of protection of geographical indications: first, to explore the strength and weakness of every approach of protection of geographical indications and third, to recommend the appropriate legal framework that can suite tanzania context. adrian f. ndunguru & romuald haule & elia mwanga 50 6. literature review this part reviews various pieces of literature which talk about protection of geographical indications in order to get more understanding of the concept of geographical indications, its nature of protection and the need for their protection by domestic laws. at the end, the researcher identifies legal gaps noted from the reviewed literature in order to justify the need of conducting this study. john, egelyng and lokina discuss various crops with potential of geographical indications protection in tanzania. in their discussion they state that, ‘tanzania does not have a legal framework on geographical indications and this is denying interested parties the right to protect potential geographical indications of their products.’ the three authors further point out that, tanzania has big opportunity to advance in export of geographical indications products to international market as well as in domestic market if the products will be protected as geographical indications for tanzania. they note that, geographical indications can be used as a government policy to build alliance of farmers to market their commercial crops, traditional crops and handcrafts made in safari destinations. the article discussed above is focused on studying the potential geographical indications products that need to be protected in tanzania. it discusses the unique attributes of the said potential products for purposes of protection. the article does not address the issues of legal and institutional framework for protection of geographical indications. the objective of the study was to identify the existence and characteristics of food origin products in tanzania that have the potential for geographical indications certification. there is no objective relating to examination of the legal framework for protection of geographical indications. paul and bullu in their analysis of various international and domestic laws on protection of intellectual property rights in tanzania provide that, tanzania is lacking national intellectual property policy. most intellectual property laws are weak and outdated in many respects. the authors further observe that; …currently in tanzania there is no law to protect trade secrets, geographical indications and the industrial designs despite the fact that tanzania is committed to protect certain tourist attractions under the geographical indications. the study has discussed the major challenges inherent in the legal system dealing with protection of intellectual property in tanzania. according to the authors, tanzania is currently facing three major challenges, inadequate manpower, financial constraints and weak and outdated laws to govern protection of geographical indications and other intellectual property rights in tanzania. in the end, the study recommended tanzania to engage into serious process of enacting a policy and law on protection of geographical indication. this calls for tanzania to do a study on which approach is appropriate and effective in tanzanian context. the work by paul and bull is too general; covering all intellectual properties without focusing on specific intellectual property rights. the article has not covered most of the issues discussed in the present study especially examination of different approaches of protection of geographical indication. from the above observation, one may note that more work is needed to extend the study to address the key issues relating multiplicity of domestic laws on protection of geographical indications in tanzania. calboli discusses protection of geographical indications focusing on the heated debate between those who supports protection of geographical indications and those who opposes their protection. according to the author, protection of geographical indications have historically been the matter of heated debate. countries have long quarreled about the extent of protection of geographical indications. european countries have traditionally advocated that geographical indications should be protected because they identify unique qualities, characteristics and reputation of the product to their place of origin thus should others use the geographical indications improperly consumers would be confused as to the origin of the product. on the other hand, united states does not recognize geographical indications as a new intellectual property right contending that, geographical indications are generic terms in their country of origin as such consumers could not be confused as to origin of products identified by those terms. according to calboli, this kind of debate has delayed negotiations to enhance protection of geographical indications and it has made protection of geographical indications not to produce the intended results. caboli further observes that, trips agreement requires all signatories to establish minimum standards for the protection for geographical indications through their national laws. however, the adoption of trips and its imposition have not been welcomed in all member countries. the author of the article further states that, the purpose of the paper was not to provide for deep analysis of geographical indications or to elaborate on the nature of geographical indications and validity of the theories for their protection. the study by caboli discusses protection diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 51 of geographical indications at international level. the present study focuses on protection of geographical indications within tanzanian context. giovannucci et. al discusses the current trend of protection of geographical indications globally and the factors that can enable effective protection of geographical indication for the benefit of producers. according to the authors, there are currently more than 10,000 protected geographical indications internationally with estimated value of usd 50 billion. geographical indications are now perceived as an opportunity in many countries that have unique physical and cultural attractions that can be translated into product differentiation. the authors further states that, good choice of legal system for protection of geographical indications will promote effective monitoring and enforcement of geographical indication and reduce the likelihood of fraud that can compromise the reputation of the geographical indication and its legal validity. the author also argues that, the practical experience from case studies of countries which have taken steps to protect geographical indications suggests that, for geographical indications to be successfully protected there must be effective legal protection which include strong domestic legal framework for protection of geographical indication. the authors have tried to discuss existence of sound legal framework as one of the important aspects for promoting geographical indications but their study does not go further into detail to discuss the effectiveness of the legal frameworks in protecting geographical indications. mangistie, discusses challenges of managing geographical indications in africa focusing on opportunities, experiences and challenges. according to the author, one of the major challenges of harnessing the potential geographical indications found in africa is lack of harmonized or inadequate legal framework for protecting geographical indications. majority of the african countries including tanzania do not have a law that specifically governs the protection of geographical indications. the author further points out that, in countries where there is no specific law dealing with geographical indications, the potential geographical indications in those countries may be protected using trademark and unfair competition laws. the author recommends that, if african countries would like to benefit from their potential geographical indications, a lot has to be done which includes, ‘strengthening or putting in place adequate legal framework for protection of geographical indication’. the study also provides for limitation of using trademark system stating that, ‘trademark law often excludes geographical indications from being protected as trademark unless they have secondary meaning.’ however, the study does not discuss the legal and institutional framework for the protection of geographical indications in tanzania. giovanni, allessandro and andrea illustrate the effect of protection of geographical indications in developing countries. in their view, protection of geographical indications in developing countries offers a lot of benefits; it supports local agro food system, promotes sustainable development in rural areas, reduces unfair competition from abuse or misuse of gis by free riders, offers market opportunity for gi products and assists in rural poverty reduction. the above authors are also of the opinion that despite the benefits derived from protection of gis, there is still lack of systematic research on the effect of gis on firm profitability, on agro-food system and on environmental and social impact. according to the authors, the existing studies seem to address more on the challenges of gis rather than their opportunities. unctad study titled ‘why geographical indications for least developing countries’ is of the view that, in order to promote local farmers or producers in international market where competition is stiff, many developing countries need to develop quality names or brands for their products through protection of geographical indications. the study further observes that gis protection can promote development of local community. the study refers a number of countries as case studies on protection of geographical indications. the cited countries are those which have made initiatives to recognize and protect gis using different approaches; some under trade mark laws like ethiopia and cambodia while others under sue generis system (special gis legislation) like mozambique. at the end, the study presents the general challenges observed from different countries that have attempted to protect geographical indications. according to this study, developing countries face considerable challenges when implementing geographical indications registration because of weak institutional framework and regulatory framework. according to the author many countries are lacking national legal framework for protection of geographical indication and when it does exist, it is incomplete. also, the study talks about general issues surrounding protection of geographical indications in africa. the present study examines the problem of adrian f. ndunguru & romuald haule & elia mwanga 52 multiplicity of legal framework for protection of geographical indications in relation to choice of appropriate legal framework for tanzania context. parwar writes on the importance of geographical indications in growing economy. according to the author, geographical indications have been given the status of intellectual property since the product gets more value commercially by mere association with a particular place. geographical indications helps to indicate the source of the goods which in turn relates with the quality of the goods. the author further argues that, “if any name of goods is related to a name of a particular place and that place has indicative powers, protection can be claimed.” in his observation, parwar further adds that, there is no single owner of a geographical indications or to put it clear, single person who have authority to exclude other persons or enterprises from the use of a geographical indications. hirko writes on the importance of geographical indications in the ethiopian context. according to the author, significances of protecting gis are divided into economic and non-economic significances. in economic significances, gis helps to bridge information asymmetry between the producers and consumers by providing customers with accurate information of the origin and quality of the goods. it also protects the gis from misappropriation by dishonest commercial operators and further protects the gis against ‘free riding’ by others who want to use the gis without responsibility. moreover, protection of gis encourages local producers to build partnership with others to work on the quality standards together and it increases financial benefits. according to hirko, non-economic benefits include protecting traditional and indigenous knowledge which is used for promoting development of bioscience, biotechnology, food security and human health. in the author’s opinion, another non-economic advantage is providing incentive to indigenous people surrounding the protected gis. in his overall findings, the author observes that protection of gis is not the same across nations due to flexibility of the international agreements which provide for different levels of protecting gis. hirko analyses protection of geographical indications under the ethiopia trademark proclamation of 2006. according to the author, trademark system allows protection of geographical indications as a collective trademark. however, the author argues that the collective trademark offers narrow scope of protecting geographical indications due to the requirement of distinctiveness of indication to be registered as collective trademarks. according to the author, the ethiopian trademark system does not offer a guaranteed protection of geographical indication. the author recommends that ‘legislative reforms should be carefully introduced to design the system to ensure effective and adequate protection of geographical indications with a view of giving incentive to the producers or farmers.’ this work is important in this study because it shows the weakness of trademark system in protecting geographical indications. after reviewing various pieces of literature, the researcher has observed that; the law on protection of geographical indications is still in infant stage. there is inadequate literature which focuses on issues of protection of geographical indications in tanzania. the available literatures generally reveal that, the major challenge in protecting of geographical indications in tanzania is lack of specific law which provides for protection of geographical indications in the country. 7. methodology on part of methodology, the study is qualitative in nature. the researcher is studying the legal text of various instruments starting from international laws to national laws. the study mainly uses secondary date derived from documentary review of various international legal instruments, reports, legal text books, articles and conference papers based on protection of geographical indications. data collected were analyzed by using content analysis in which the researcher used literary and purposive interpretation to analyses the data in line with the study objectives. 8. findings on approaches of protection of geographical indication the trips agreement provides for obligation of member states to make domestic laws on protection of geographical indication. the agreement further provides for the states freedom to choose which approach is best basing on their national history and economic background. this part of the article presents the status of the legal approaches on protection of geographical indications and later examines the strength and weakness of each approach. existing literatures reveal that, there are three common national legal approaches of protection of geographical indications namely; trademark system, sue generis system and unfair competition system. the diversity of the diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 53 approaches on protection of geographical indication across states is mainly attributed by flexibility of the trips agreement itself. under the trips agreement, members are free to determine the appropriate method of implementing the provision of the agreement within their legal system and practice. one of the wipo publication titled ‘geographical indication; an introduction’ published in 2021 observed that, ‘there are three main modalities of protecting geographical indication which are sui generis system, collective and certification marks system and one relating to unfair business practices.’ the publication further points out the effect of the multiplicity on scope and recognition of geographical indications for purposes of protection noting that, ‘the multiplicity has raised important question on two major issues; conditions for protection of geographical indication and the scope of protection.’ it can be also noted that, the world intellectual property indication report published by wipo in 2018 observes the issues of diversity of national approaches on protection of geographical indications and its implication in recognition of geographical indications. according to the report ... “it is important to note that, gis can be protected through a variety of legal means; sue generis system, trademark law, international agreements and other national means.” the quotation above implies more verities, it points out international agreements and other national means. this means there are even other more approaches. the effect of this multiplicity or diversity is observed by wipo that, it makes it challenging to document which ones are trademarks and which ones are geographical indications. according to wipo, this diversity is causing challenge to obtain complete picture of all geographical indication protected in any particular country. in other words, the diversity is causing difficulty on recognition of geographical indication not only for purposes of management of the indications but also enforcement. the question to be addressed at the end of the study is why do states opt one approach and abandon the other? what is the strength and weakness of each system in order to decide which approach is more appropriate for tanzanian? this section briefly explains the nature, strength and weaknesses of each approach. 8.1. trademark system trademark law is one of the common approaches of protecting geographical indication. in this system , there are two levels of protection provided, the first level deals with protection of the indication against registration of misleading marks that are likely to confuse the consumers as to the true geographical origin of the goods and the second level is concerned with protection of the indication against unauthorized users. the pioneers of trade mark system are countries like australia, canada, china and the united states of america. most of the countries which uses trademark laws registers geographical indications as collective mark or certification marks. united states is one of the champions of the use of trademark system. under the trademark system, a geographical indication is not treated as a separate intellectual property rights but rather it is registers as a trademark on some special conditions. one of the major conditions is that the mark must be distinctive and that, the mark can be used by more than one person as long as the user comply with established standards. under the trademark approach, the mark is subjected to some specifications approved by association of producer of a certain product which apply for registration to become part of the collective mark. the specifications can limit the use of the mark only in connection to goods that are specifically produced by producers of a particular geographical origin. a good example of trademark that is used as collective mark is permigiano reggiano which is used is branding chees in italy. the question is how far is this approach capable of providing effective protection of geographical indication in terms of scope/coverage. in africa this approach is used by ethiopia in protecting its geographical indication over various brands of coffee. in east africa, trademark system is also used for protecting various products in kenya which includes the kenyan coffee. however, literature explaining the effectiveness of trademark system shows that, there is inadequate level of protection of geographical indications under existing trademark laws which is primarily designed for ordinary trademarks. in a survey conducted by world intellectual property organization (wipo) in 2018 wipo did collect global statistics of registered geographical indication from 82 countries. this was done by taking the name of a country, number of geographical indications registered in the specific country and the approach used by each country to protect geographical indications. the findings from the survey of geographical indications done by wipo reveal that, 17 countries out of the 86 countries surveyed used trademark system as the approach of protection of adrian f. ndunguru & romuald haule & elia mwanga 54 geographical indication. the wipo statistic implies that, only 19.7% of the surveyed counties used trademark while the rest 80.3 % used other approaches like sue generis approach. trademark system is used in some countries to protect geographical indications alongside ordinary trade and service marks. those countries who have maintained trademarks defends their position that, geographical indications are not distinctive category of intellectual property rights but rather type of special trademarks. united states of america is one of the defenders of the trademarks system basing on their stand that geographical indications lack distinctiveness to qualify for protection as a separate right. trademarks convey information about the origin of the goods or service they apply and enable consumers to associate a particular quality with the goods or service. trademarks inform consumers about the source of the goods or services because they identify the goods as originating from a particular company. the strength of trademark system in protection of geographical indication the countries which used trademark system to protect geographical indications have opted to use this system basing on its strength over other forms of protection of geographical indications and some other historical and economic factors observed from the use of trademarks systems as opposed to other forms of protection. some of the strength that favors the use of trademark system in protection of geographical indications are noted hereunder. trademark system is used to certify the origin of the goods for consumers protection. when consumers are looking for origin-based goods, they want to get assurance that the goods they purchase are authentic origin-based goods. this task is well accomplished by use of certification mark in which the certifying authority approves the goods as containing particular the quality.according to origin… certification mark indicate that the product or service for which they are used have particular characteristics (given geographical origin for instance). in this regard, the certification mark can be descriptive and can be used to protect geographical indication without the need to prove a secondary meaning. trademarks system protect consumers from confusing marks. an application for registration geographical indications may be refused registration under trademark system if it is identical to a trademark previously applied for registration if it is proved that there is likelihood of the mark to cause confusion with an existing trademark. this is one of the major strengths of using trademark system to register geographical indications. once a product is registered as a trademark of a particular group or producer; no any other person is allowed to register as similar mark to avoid confusion with existing marks. according to hirko, the prohibition against registration of trademark is likely to deceive or mislead the public as to geographical origin of the goods reinforces the protection of collective trademarks with similar scope to the protection of geographical indications under article 22(2)(a) of the trips agreement. furthermore, trademark system prohibits the registration of certain trademarks consisting of false indication of geographical origin of the goods and it allows the registrar to invalidate any trademark register which contains false geographical indication as to origin of the goods in a manner which misleads the public as to true origin of the goods or its special quality or characteristics . also, trademark system applies the principle of ‘first in time, first in right.’ this principle is applied in trade mark law to avoid registration of a trade mark similar to exiting trade mark. in protection of geographical indication, this principle can be used to prevent registration of an indication that is similar to a previous registered indication. in this regard origin observes that, it is crucial in the field of geographical indication to recall the implication derived from the basic principle of trademark law the first in time firsts in right which prevents producers from seeking registration of trademark for a geographical name if another party has already registered such name in good faith. the limitations of trademark laws in protection of geographical indication limitations of using trademark laws in to protecting geographical indications are derived mainly by comparing the trips standards or requirements for eligibility of registration of geographical indications in contrast with the provision of trademark laws governing registration of geographical indications as collective or certification marks. most of the registrability conditions covered by trademark system are not compatible with geographical indications standards. one of the limitations of using trademark law to protect geographical indication is in terms of its effectiveness and adequacy to protect geographical indications. authors have tried to analyze the adequacy of trademark law on protection of geographical indication from different points of view. sileshi hirko from ethiopia has analyzed the use of trademark system for protection of geographical indication in ethiopia and noted that ... diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 55 …there is inadequate level of protection of gis under existing trademark laws which is primarily designed for ordinary trademarks. sileshi hirko further argues that, to use trademark law for protecting geographical indication render most of geographical indication unprotectable because trademark law requires a trademark to be distinctive while most of the geographical indications are descriptive names of geographical areas. in his view, non-dispensation of the requirement of distinctiveness for protection of geographical indication in existing trademark law for protecting geographical indication is a basic pitfall in existing trademark system. insisting on this point the author observes that … …as the requirement for distinctiveness provided for ordinary trademark is similarly required for collective trademarks, most gis are in effect excluded as they primarily designate geographical origin. the requirement excludes most of geographical names which are descriptive despite of their capability to serve as gis in the context of the definition under the trips agreement. this is against the interest of most producers as they cannot get legal protection for descriptive gis for their products for want of distinctiveness. this is the fundamental drawback of the existing collective trademark system to acquire protection for gis. the above quotation is very fundamental for examining the suitability of trademark system for protection of geographical indication in tanzania. the observation from ethiopia shows that, trademark system is not relevant approach for protection of geographical indications because the system excludes the protection of descriptive geographical names used in indicating potential geographical indications products like kyela rice, kilimanjaro organic coffee, dodoma wine or zanzibar cloves. the study by sileshi further observes that, although the ethiopian trademark proclamation mention the registration of collective trademark which can be used to protect geographical indication, the act cannot cover most of geographical indications because it was not primarily designed to protect geographical indication. this impliedly means that, to protect geographical indication in the same way as trademarks are protected limits the scope of coverage of protection of geographical indications. in his conclusion, hirko observes that, the weakness of the trademark system in ethiopia calls for appropriate legislative reforms in the trademark law or the adoption of a new mode of protection to ensure conformity with the provision of the trips agreement. however, the author does not point out which option is better between the trademark system and adoption of specific law for protection of geographical indication. another major challenge of using trademark system in protecting geographical indication is based on monopoly of trademarks. once a person is allowed to register a geographical indication under trademark law it implies monopoly of the mark by the proprietor. in the view of various authors, a geographical indication cannot be registered as a trademark because trademarks are monopolized by the individual proprietor something with is not proper for geographical indication. a geographical indication cannot be monopolized because it reflects common interests. another fundamental drawback of trademarks is that they must be renewed after every certain period of time like seven or ten years. one of the conditions governing registered trademark is renewal after a certain period of time. this is not the case under sue generis system where geographical indications are protected for indefinite duration (no need for renewal) because the attributes which are used to distinguish the goods exist continuously. also, literature show that trademarks are normally designed to indicate the source of the goods but not quality of the goods they indicate. geographical indications are used to identify goods as originating in a certain geographical area where a given quality , reputation or other characteristic of the goods is essentially attributed to its geographical origin.’ geographical indications must indicate the quality of the goods in connection with the place of origin of the goods. geographical indications are totally different from trade and service marks which means a visible sign used or proposed to be used in connection with or in relation to goods or services for the purpose of distinguishing in course of trade or business the goods or services of a person from those of others. the purpose of trademark is only to distinguish goods of one producer or suppliers from those of others but not to show the quality of the goods they indicate and are subject to the conditions for registration which generally are not compatible with the conditions and standards for protection of geographical indications. another challenge of protecting geographical indications under trademark system is the need to prove secondary meaning of the indication in labeling. short of proof of secondary meaning, the geographical indication becomes generic name hence not qualified for protection as an intellectual property right. however, with the sue generis adrian f. ndunguru & romuald haule & elia mwanga 56 system, there is no need of proving secondary meaning. a geographical name used in a product is protected when it is proved that it reflects on the unique quality of the goods originating in the particular geographical area. also it is difficulty to enforce geographical indications registered as certification or collective mark because the right holders must always prove that customers were confused by the infringing geographical indication which is very costly especially when the infringement took place in a foreign country. 8.2. the sue generis system the sue generis system is regarded as a law of its own kind. it is a specific law designed only for protection of geographical indication separate from the trademark laws or fair competition laws. this system involves enacting a special geographical indication act which covers all matters pertaining to the protection of geographical indications. it commonly covers the definition, appointment of the registrar, registration conditions, procedures of handling applications for registration of the geographical indications, offences and penalties upon infringements. this system is commonly used in the eu countries for protection of wine and spirit, agricultural products and food stuffs. according to the wto, sue generis comes from a latin maxim which means ‘of its own kind’ which is used to describe a legal classification that exist independent of other categorization because of its uniqueness or as a result of the specific creation of an entitlement or obligation. there are a lot of terminologies that are used for describing sue generis rights in protecting geographical indications such as appellation of origin, protected designation of origin , protected geographical indications and geographical indication. in countries like uganda and india there is a specific law for protection of geographical indications. the sue generis system offers a special commitment to protection of gis because the sue generis system has effective coverage of special issues affecting geographical indications a peculiar category of intellectual property rights that cannot be mixed with other categories like trademarks. the strength of sue generis system in protection of geographical indications the sue generis system is considered to be the most appropriate way of protecting geographical indications because of its wide coverage of substantive issues relating to protection of this category of geographical indications. origin observes that, protection of geographical indications under sue generis system benefits from a solid legal framework. a similar observation is made by rangnekar who is of the view that, dedicated special geographical indication law tend to provide for stronger protection. sue generis system creates geographical indications as a separate intellectual property right. this is very important for effective protection of geographical indications because the sue generis law requires the registration procedures to provide for special controls for the product specifications which are quite different from those used for protection of trade marks or other rights which are incompatible with geographical indications. sue generis being a law which specifically governs geographical indication has wider coverage than other approaches. this approach covers important matters like definition of geographical indications, specifications for protectable geographical indications, conditions for registration of potential geographical indications, ownership of geographical indications and institutions dealing with registration of geographical indication as special ip right. these matters cannot be fused into trade mark system because the system was traditionally not meant for geographical indications. the sue generis system offers effective systems for enforcement of the right in case of infringement because it establishes special institutional system dealing specifically with monitoring the implementation of the law. for example, the law will normally establish a bureau dealing with registration and deregistration of the indications and designate a court that will enforce the crimes relating to infringement of the right. according to origin, in the countries that uses sue generis system there are public authorities that have the obligation to intervene to ensure the right is respected. organization for international geographical indications network (orgin) insists that, under sue generis law, protected names benefit from solid legal framework. they are protected against direct commercial use of a gi even when the indication or origin is used to mention the true geographical origin or with delocalizing expression. they are protected against imitation or evocation. orgin further observes that, practice demonstrates that, sue generis system to protect gi responds much more to needs of producers than legal framework based on trademarks /including certification and collective marks.’ unlike trademark system, sue generis laws provides for unlimited time of protection of geographical indications. this means that there is no need for renewal of the indication when protected under sue generis system. under sue diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 57 generis system, the protection of a geographical name does not need to acquire secondary meaning in order to be actionable or protected as an intellectual property right. the only important criteria is registration. limitations on the use of sue generis system to protect geographical indication countries which use trademark system has one main reason to defend their position, that geographical indication is not a new intellectual property right but rather it is a trade mark like any other trademark except that this trade mark certify the original of the content it indicates. therefor the use of sue generis system is condemned as being unnecessary repetition of trademark laws. other literature points out that, the use of sue generis system on top of trademark system is additional cost. the use of sue generis will imply putting in place new organization and administrative machinery that will be responsible for registration and enforcement of geographical indications something which have cost implication to the government . also sue generis system is challenged for being unfamiliar to most of the population in developing countries. during interview majority of respondents seems to know trade mark system but they were not aware of geographical indication. therefore, creating a new law for protection of geographical indications alone will be putting another complication in the already existing problem. 8.3. unfair competition system fair competition law is a branch of law which provides for measures and remedy against unlawful and dishonest business practices. the purpose of fair competition law is to protect consumers against the effect of unfair competition trade practices by dishonest suppliers or producers. this approach of protection is normally used parallel with other laws therefore it is non-exclusive means of protection. in tanzania the fair competition is governed by the fair competition act. the preamble of the act is very clear that it is designed to promote and protect offensive competition in trade and commerce and to protect consumers from unfair and misleading market conducts. although the act does not expressly mention protection of geographical indication but its objectives impliedly applies on matters relating to geographical indications especially when there is the use of misleading indication of true origin of goods.unfair competition is defined as any act of competition which is contrary to honest practice in industrial or commercial matters. the use of competition law to protect geographical indication draws its legitimacy from the trips agreement and the paris convention. the trips agreement provides for the duty of the states to enact domestic laws which will regulate acts of unfair competition in relation to geographical indication. the agreement provides that… ...in respect of geographical indication, members shall provide the legal means for interested parties to prevent …...(b) any use which constitutes an act of unfair competition within the meaning of article 10 bis of the paris convention (1967). on the other side, the paris convention provides that, ’the countries of the union are bound to assure the nationals of such counties effective protection against unfair competition. the paris convention further defines unfair competition as any act of competition contrary to honest practice in industrial or commercial matters. the agreement also provides for the list of acts which constitutes unfair competition and it further states that… …the following acts in particular shall be prohibited (3) …indications or allegations the use of which in course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics and the suitability for their purpose or the quality of the goods’ the paris convention further creates the cardinal test of proving violation of the geographical indication under fair competition system. according to this provision, in order to succeed in a case of violation of geographical indications under the fair competition system, one must prove that the act in question was capable of misleading the public. compensation will be paid if the act was capable of misleading the public as to true origin of the goods in dispute. this is very difficult to prove because it deals with individual persons state of mind. the strength of unfair competition laws in protecting geographical indications this system is basically interested with defensive protection of geographical indications by restricting unauthorized people from imitating or using the indications in a manner that will constitute unfair competition. the law for protection against acts of unfair competition or massing off is meant to provide a remedy against illicit commercial acts such as false or misleading indication of origin of goods in the course of trade. the study done by hirko in ethiopia observes that, unfair competition laws complements trademark or sue generis system especially when the geographical indication is not registered. in the absence of such protection under adrian f. ndunguru & romuald haule & elia mwanga 58 trademark law, this system fills that gap and primarily ensures protection of unregistered geographical indications against acts of unfair competition. this system is recommended for being adequate in imposing sanction to create fear for people from misusing the registered indication through seizure of infringing goods. it is therefore effective for enforcement purposes. the standing committee on the law of trademarks, industrial design and geographical indications describes the strength of fair competition law basing on course of action provided by this approach against unfair competition. according to the committee, the national law for the protection against unfair competition, passing off and unregistered geographical indication provides for course of action of traders against competitor who perform commercial acts which are considered to be contrary to honest business practices. the findings also have revealed that, unfair competition law provides for effective remedy in the event of occurrence of acts of unfair competition through seizure and destruction of the goods complained to have committed an act of unfair competition. also, the laws allow the court to award compensation to the victim of unfair competition acts. the unfair competition law is also commented for protecting consumers rights against dishonest trace practices. one of the major challenges of international trade transaction is dishonest practices by traders who use a geographical indication to indicate that the goods are quality goods originating in a particular region for goods which are not truly originating in the indicated region. under the paris convention, unfair competition acts which are intended to mislead consumers as to true origin of the goods. it is therefore the purpose of fair competition laws to protect consumers from these unfair practices. the limitations of unfair competition system in protecting geographical indications despite the strength of unfair competition law in protecting customers and putting in place effective means of enforcing violation of geographical indication laws, the system has also been challenged for having common pitfall. one of the major limitation or weakness of this system is that it does not create intellectual property right in real sense. reviewed literature observes that unfair competition law does not create an intellectual property right but they intend to enforce the existing or registered rights. the system only prohibits such unfair competition acts which may harm consumers especially the use of false indication of origin of goods in the manner which misleads the consumers. according to origin, the protection against unfair competition serves to protect traders and producers from unauthorized use of the geographical indication names instead of creating an intellectual property rights over those names. the purpose of this law is to prevent the abuse of existing intellectual property rights by imposing sanction for their abuse in unfair trade conducts but not to create a real intellectual property right. it is based on defensive approach of protection of intellectual property rights. another weakness of competition law is that it is very hard to prove the action for unfair competition. the law has complex requirements to be fulfilled by the plaintiff. in order to succeed in an action for unfair competition, the plaintiff must prove three important issues; there was an established market for the goods ; the market of the goods established substantial reputation and last the use of the indications caused confusion or was misleading to the customers. the burden of proving all these is on the plaintiff something which is very hard to prove especially when the infringement took place in a foreign country. also, competition laws are challenged for lacking self-existence. this law cannot exist alone to protect intellectual property rights. it must co-exist with another main law which creates the rights. the system enforces rights which are already existing in other laws by creating offences and putting punishment for the violation of the act. competition laws are important to supplement the gap left by other systems like trademark system. when the indication is not fully registered under the trademark mark system it can be enforced under the competition law as an act of unfair competition which infringes consumers rights. 9. conclusion diversity of the law on protection of geographical is caused by the trips agreement. the common approached of protection of geographical indications are trademarks system, sue generis system and the unfair competition system. a close examination of the three approaches has revealed that, sue generis system is the best approach because it recognizes geographical indication as a separate category of intellectual property rights and as such it provides for clear scope and standards of protection which are specifically designed for protection of geographical indications. if tanzania will embark on protection of its geographical indications the best option is to use sue generis system. this diversity of national legal approaches for protection of geographical indication in africa: rethinking the best option for tanzania 59 system is used in european union and other common law countries like india whose legal system resemble to that of tanzania. the study has revealed that, trademark system is only applied because of lack of specific law. one author has noted that, it is only due to proximity between trade mark and geographical indication and in the absence of specific law that practice suggest that both matters can be protected by similar system such as trademark laws. this imply that, those countries which are using trademarks has not opted to use the same but it is just because of lacking a specific law they find themselves using trademark law by default . the study has further revealed that, the standards of protection of geographical indications provided by article 22 of the trips agreement are not compatible with the conditions for protection of geographical indications since trademark system was not designed for protection of geographical indication. on use of unfair competition law, the study has revealed that, this system does not create any intellectual property rights that can be protected as an intellectual property right. the system only protects the integrity of trade and consumer expectation about the geographical origin of the product. it cannot exist alone without other laws which creates the right. 10. recommendation in order to have a comprehensive legal framework for protection of geographical indications in tanzania, sue generis system is proposed and recommended. this law is comprehensive and effective for protection of geographical indications. in east africa, sue generis is used in uganda, and rwanda. kenya is in transition from trademark laws to sue generis law. however, the law must reflect a comprehensive definition of geographical indications which covers tanzania context. also, the proposed law must define clear standards for registration of geographical indications and the procedures for dealing with applications for registration of geographical indications. the law must further provide for competent organization that will supervise or administer the laws and its powers. finally, the law must contain an effective means or mechanism for dealing with infringement of the protected geographical indications. references blakeney, m.l. ‘geographical indications and the scramble for africa’. african journal of international and comparative laws. university of western australia.2017. intellectual property rights and innovation in africa ( afripi) , manual for geographical indication in africa, (europen union intellectual property office, 2020), p. 10. hirko, s., ‘the legal framework for the protection of geographical indication in ethiopia: a critical review’. journal of african law. new york: university of ottawa, 2014 john, i, egelying, h & lokina , a., “ tanzania food origins and protected geographical indications,” journal of food , agriculture and society, 4(2), 2016. kihwelo, p.f., & bullu, s., “ a review of tanzania’s current situation with regards to intellectual property rights policy issues: opportunity and challenges,” the open university law journal, 2(2), 2008 orgin, practical manual on geographical indication for acp countries, geneva: origin, 2011 paul k. & bullu s., “a review of tanzania’s current situation with regard to intellectual property rights policy issues: opportunities and challenges,” the open university law journal,2, 2008, pp. 17-39. rangnekar, d., “geographical indications; review of proposals at the trips council extending article 23 to products other than 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https://doi.org/10.1051/e3sconf/20185200017 last accessed 8/feb/2020 mengistie, g. managing geographical indications in africa-opportunities, experience and challenges. a paper presented at the wipo worldwide symposium on geographical indication held at bangkok, thailand from 2729, march 2013. musungu, s. the protection of geographical indication and the doha round: strategic and policy considerations for africa, geneva: quaker united nations office, 2008. reports world intellectual property organization, world intellectual property indicators 2018, geneva: wipo, 2018. list of laws domestic laws the constitution of the united republic of tanzania of 1977 cap 2 r.e 2002 the fair competition act, cap 285 [r.e 2002]. the merchandise marks act no. 20 of 1963 the trade and service marks regulations, 2000, gn. no. 40/2000. trade and service marks act, no. 12 of 1986 cap 326 [r.e 2002]. international laws the lisbon agreement for the protection of appellation of origin and their international registration of 1958 the madrid agreement concerning the international registration of marks of 1891 the paris convention for the protection of industrial property of 1883 the wto agreement on trade related aspects of intellectual property rights of 1994 journal of international trade, logistics and law, vol. 7, num. 1, 2021, 23-31 23 influence of logistics practices on performance of food manufacturing firms stanley nyaga njeru jomo kenyatta university, kenya jane queen omwenga jomo kenyatta university, kenya received: feb 04, 2021 accepted: april 19, 2021 published: june 15, 2021 abstract: the study's general objective was to evaluate the influence of logistic practices on the performance of food manufacturing firms in kenya. the study used a descriptive design. the study was limited to the food manufacturing firms in kenya. the food manufacturing companies included in this study consist of 234 firms registered as of 2018. the target population was 234 managers in registered food manufacturing firms in kenya. census sampling was used, thus a sample size of 234 respondents. the researcher used questionnaires to collect data. the study established that food manufacturing firms in kenya utilized logistics practices, including material handling, inventory management, transportation management, and information flow. material handling and inventory management have a significant influence on the performance of food manufacturing firms in kenya. transport management also had a significant influence on performance, followed by inventory management. information flow had no significant influence on the performance of food manufacturing firms in kenya. the study recommends that food manufacturing firms should relook their transport management to ensure that it contributes to their overall logistics performance. food manufacturing firms in kenya need to adopt an integrated ict controlled system. keywords: logistics, inventory, material handling, information flow 1. introduction modern firms have concentrated on conveying customer value through logistics as a proportion of staying unchallenged. it has been grasped from the globalization of business sectors and tasks (varsei et al., 2014). it brings forth new points of view of different administrative capacities inside the firm conditions portrayed by production networks and indeed appropriated global procedures (green et al., 2012). it has been exacerbated by elements in the present customers' international demands, such as better costs, increasingly advantageous customer administrations, and an army of available choices (green et al., 2012). firms should focus their resources on production network tasks, for example, logistics, to reinforce their global competitiveness. distress in the performance of a company's production network affability of wasteful logistics exercises brings about serious misfortunes and can eventually prompt breakdown (varsei et al., 2014). logistics assumes a critical job in seeking after the supply chain, which will prompt a redesigned company performance (dheeraj and vishal, 2012). logistics is the commitment to plan and manage the infrastructure to control the development and situating of unpolished supplies, work-in-process, and finalized stocks at a low cost. logistics management is characterized as the sc section that plans, actualizes, and controls the industry (luthra et al., 2011). it adequately forward and turns around the movement and capacity of products. it also benefits and related data from the role of manufacture and its purpose to fulfill customers' needs. logistics is a link intra-authoritatively between creating and promoting the capacity and inter-hierarchically between traders (carter et al., 2007). logistics is rising as a vital basis of competitive edge and the main purpose behind critical partnership connections among organizations and their logistics suppliers. a logistical framework is comprised of an enormous number of partners. they include the traders, makers, wholesalers, merchants, and retailers. stanley nyaga njeru &jane queen omwenga 24 in a global economy, severe and dynamic conditions, logistics administration is a significant vital factor for expanding intensity. the importance of logistics management (lm) had grown from an inactive and cost minimization situation to a critical achievement factor. in this manner, there was a rising agreement about organizations' requirements to deal with logistics in conjunction with monetary and business issues. logistics practices success is regularly identified with conveyance administration, logistics cost, and tied-up capital (luthra et al., 2011). customers progressively expected shorter conveyance times and increasingly specific services. logistics administration was maybe most effortlessly conceptualized in assembling since there was a physical progression of merchandise. the evolving significance of logistics emerged from organizations turning out to be globalized to access new markets, acknowledge more noteworthy creation efficiencies, and tap innovative skills past their land margins (kilasi et al., 2013). kenya's logistics achievement has weakened. low logistics effectiveness is a crucial concern and business risk for organizations bringing in to or trading from kenya. kenya's infrastructure markers looked moderately significant contrasted with other low-salary nations in africa. however, they stayed beneath the levels found in the bourgeoisie states in africa. taking kenya's system up to the middle-income countries' status raised yearly development by an excess of 3%. kenya's advancement plans included notable developments to railroads, seaports, air terminals, roads, and water and health, as the nation endeavors to build its intensity in the international market. rail and road networks with neighboring nations were as yet constrained. however, kenya could be a significant territorial center for air transport, port, and railroads. kenya had a considerable manufacturing segment serving both the domestic market and east african exports. this segment had been developing since the last part of the 1990s and in the 2000s. production by kenya food manufacturing was generally innumerable, and they comprised: raw materials processing, canning of meat and organic product, wheat flour and cornmeal, processing, and sugar refining. globalization critically affected manufacturing, both domestically and globally. through widening the commercial center and expanding rivalry, globalization drove customers to put more unique demands on producers to build quality, usefulness, and adaptability while keeping up competitive expenses. one of the methods of improving the effectiveness of food manufacturing firms was to improve logistics achievement. therefore, if manufacturing firms expected to get proficient and adaptable in their manufacturing techniques, they required various procedures to deal with the development of products from the point of processing to the final consumer. 2. literature review material handling ensures that each machine and workstation get the correct item in the right amount and quality at the ideal time. material handlings can work in existing just as new plants (drum, 2009). firms' inventory management is legitimately connected to the organization's framework and the ideal customer service level (kleber, 2006). a firm could stock each product sold in each department devoted to serving every buyer. however, not many businesses could manage such a costly stock placement procedure due to high total costs. inventory management aims to accomplish the required customer assistance with the least stock responsibility (narayan and subramanian, 2008). transport logistics has advanced commonly into a head supplier of 3pl administrations, representing considerable authority in giving its customers practical, innovative answers for the most requesting sc difficulties (scho ̈nsleben, 2016). in certain conditions, ease and slow transportation are acceptable, while quicker help might be fundamental to accomplishing work objectives. transport management is the scheduling, controlling, and dynamic of the operational zone of logistics that geologically moved and situated stock (achahchah, 2019). the information flow is characterized as information progression in various ways with variable substance between different organizational divisions (inderfurth et al., 2013). before the information moves in, logistics became indispensable as it empowered chains to react to continuous and precise information. the movement of precise and timely logistics information is essential to the material movement (carr & kaynak, 2007). this information movement allows logistics to turn into a significant weapon in the company's armory to intensify the fundamentals' value. in the usa, zhang and lim (2005) evaluated the effect of logistics adaptability on consumer loyalty in manufacturing companies. they reviewed 273 manufacturing firms. the results demonstrated that logistics adaptability had a huge, positive, and direct effect on buyer loyalty. firms could accomplish consumer loyalty by creating logistics adaptability. it enables a quick refill of input materials and quick conveyance of completed influence of logistics practices on performance of food manufacturing firms 25 merchandise to customers. another study in the us by green et al. (2008) explored logistics performance on firm performance in an inventory network setting. it uncovered that logistics performance accomplished assembling performance, future development, and new item performance. along these lines, the assembly industry's opposition was inside the span of production network capability, comprised of a logistics system. rosenzweig (2009) also studied the us and reviewed the operational and logistical presentation in estimating manufacturing firms' performance. the study examined various aspects, such as production costs, quality of goods, inventory management, and finished product delivery. he related provider determination and association strategies effect and manufacturing achievement. the study's findings affirmed that logistics success had a remarkable impact on business objectives and overall manufacturing. still, in the same country, tontini and zanchett (2010) examined the connection between logistics success and organizational performance. the study also targeted the manufacturing industry. the outcome showed that the logistics work all strived to limit the proportion of materials used against determined results, achieve pre-characterized goals, gain prevalence when thought about over opponents, and capacity to meet consumer loyalty. the study asserted the impact logistics had on a firm's success. vijayaraghavan and raju (2008) analyzed the relationship between logistics abilities, logistics achievement, and financial performance. the outcomes indicated that both logistics capacity and achievement impacted the fund achievement of a firm. this investigation doesn't consider different firm achievement estimations, including development, overall industry, and consumer loyalty. those factors couldn't give the right outcomes on firm achievement estimations. some of the studies reviewed were some years back, and numerous logistics things probably have changed at that point, thus getting extremely hard to consent to these discoveries. 3. theoretical framework the study was guided by four theories: resource-based view theory, game theory, and constraints theory. resourcebased view (rbv) theory aspires to explain a firm's internal sources sustained competitive edge. as per the theory, firms' resources act as a competitive advantage (barney and clark, 2007). the theory assumes that assets and capacities are heterogeneously disseminated among firms. rbv was used to explain logistic management significance to a firm by ganotakis and love (2010). they indicate that organization adaptability and productivity were viewed as a wellspring of innovative firms' upper hand. responsibility for explicit resources empowered an organization to build up an upper hand. they also discovered that an organization's upper hand was gotten from its capacity to collect and adventure an appropriate mix of assets (ganotakis and love, 2010). game theory is the conventional investigation of decision-making where a few participants must decide on behalf of others (peters, 2015). it is a legitimate investigation of contention and participation. ideas of the theory apply at whatever point the activities of a few operators are related (romp, 1997). these pros may be entities, social occasions, firms, or any blend of these. game theory ideas give a language to design structure, separate, and appreciate indispensable circumstances. game theory is separated into two major lines: the cooperative and noncooperative (brown and shoham, 2008). today participation is ending up increasingly more urgent to improve the global exhibition of coordination. as the enhancement of standard vertical collaboration, another cooperation model, the level support is compelling to diminish overall cost and enhance organization rate in associations. game theory is linked to transport management and the performance of food manufacturing firms. thu improved efficiency in transport through reduced transport costs as champion by the game theory can enhance manufacturing firms' performance (brown and shoham, 2008). the theory of constraints (toc) expresses that each firm ought to have, at any rate, one requirement (ronen, 2005). grouping firms imparted obligations and advantages to their upstream and downstream accomplices to make the upper hand. since competition is among the scs, the primary objective of the scm was to arrive at an answer with streamlined benefit for every one of sc's accomplices; this must be acknowledged with the assistance of the coordinating board since there was the frequency of extraordinary divergence between potential advantages and the training. different partners may have created essential conditions that should have been met to enable the framework to keep working. the toc motivates managers to distinguish what kept them from accomplishing their objectives (ronen, 2005). stanley nyaga njeru &jane queen omwenga 26 4. research methodology the study utilized a descriptive research design. descriptive design is a design used to obtain information concerning the current status of the phenomena and to describe "what exists" concerning variables or conditions in a situation (creswell, 2013). through descriptive research, one can garner new information on the theme by describing people, items, and event occurrences (cooper and schindler, 2006). the study design helps the researcher describe data and characteristics about the population and phenomenon under study. the study obtained data in a quantitative form from the use of questionnaires. the food manufacturing companies included in this study consisted of those listed in the kam directory 2018 and are strictly food processors or manufacturers. there are only 234 companies that are food manufacturers or processors, making the target population. the participants of this study were the management and staff in food manufacturing firms. using census sampling, the total sample size for the study was 234 managers in food manufacturing companies. questionnaires were the main form of the primary method. the questionnaire can be designed in such a way that it accommodates both open-ended and close-ended kinds of questions. the researcher made arrangements with respective food manufacturing firms in kenya to set dates of their convenience. the researcher then hired two assistants and took them through the data collection process. on the days of data collection, the assistants, together with the researcher, visited firms and dropped the questionnaires to relevant logistics departments' appropriate personnel. the respondents were taken through the document and allowed time to fill the survey. however, to save time, the tools were left with the participants and collected later. statistical package for social sciences (spss) version 24 software was used in this study. therefore, the use of mean, percentages, and standard deviations was considered in order. the data collected was analyzed using the below model. the multiple regression formulae to be used are: y=β0+β1x1+β2x2+β3x3+β4x4 +ε where, y is the dependent variable (performance of food manufacturing firms) x1 is the first independent variable represented by material handling x2 is the second independent variable represented by inventory management x3 is the third independent variable represented by transport management x4 is the fourth independent variable represented by information flow β0 is the regression constant or intercept, β1, β2, β3, and β4 are the unknown parameters (regression coefficients) ε is the error term 5. results the study aimed at finding out information on material handling, inventory management, transport management, and information flow in food manufacturing firms in kenya. table 1: material handling in food manufacturing firms material handling mean std. dev materials handling practices affect the quality of products produced by food manufacturing firms in kenya 4.11 .874 production levels are affected by material handling practices 3.40 1.127 material handling practices affect sales volumes 4.23 .705 customer expectations are met through effective material handling practices. 3.76 .920 influence of logistics practices on performance of food manufacturing firms 27 material handling in manufacturing firms enables the quality of products to be improved 3.30 1.328 overall mean 3.76 findings show that the respondents agreed that material handling practices affected sales volumes (mean=4.23, sd=0.705) and materials handling practices affected the quality of products produced by food manufacturing firms in kenya (mean=4.11, sd=0.874). they further agreed that customer expectations were met through effective material handling practices (mean=3.76, sd=0.920). they were unsure whether production levels were affected by material handling practices (mean=3.40, sd=1.127) and whether material handling in manufacturing firms enabled the quality of products to be improved (mean=3.30, sd=1.328). table 2: inventory management in food manufacturing firms inventory management mean std. dev regular inventory check affects product and process quality in food manufacturing firms 4.06 .924 inventory control has a positive effect on organization profits in food manufacturing firms in kenya 4.03 .848 regular cycle counting can impact production and distribution costs in food manufacturing firms 4.20 .788 warehousing activities are automated in this organization 4.25 .663 warehousing activities have an impact on organizational efficiency in food manufacturing firms 4.05 .813 overall mean 4.12 the study established that most of the respondents had agreed that warehousing activities were automated in that organization (mean=4.25, sd=0.663). regular cycle counting could impact production and distribution costs in food manufacturing firms (mean=4.20, sd=0.788). regular inventory checks affected product and process quality in food manufacturing firms (mean=4.06, sd= sd=0.924). they further agreed that inventory control had a positive effect on organization profits in food manufacturing firms in kenya (mean=4.03, sd=0.848) and that warehousing activities impacted organizational efficiency in food manufacturing firms (mean=4.05, sd=0.813). table 3: transport management in food manufacturing firms transport management mean std. dev the fleet management system has a positive effect on delivery time for most manufacturing firms 3.75 .947 adherence to vehicle inspection schedules impacts on fleet costs in food manufacturing firms 4.34 .657 transport management affects product damages while on transit in 3.90 1.037 stanley nyaga njeru &jane queen omwenga 28 food manufacturing firms vehicle inspection schedule is key for any manufacturing firms that want to enhance its performance 4.38 .486 preventive maintenance can impact transport management in the food manufacturing firms 3.90 1.283 overall mean 4.05 from the results shown in table 3, many respondents agreed that vehicle inspection schedule was key for any manufacturing firms that want to enhance its performance (mean=4.38, sd=0.486), adherence to vehicle inspection schedules impacted fleet costs in food manufacturing firms (mean=4.34, sd=0.657) and preventive maintenance could impact transport management in the food manufacturing firms (mean=3.90, sd=1.283). they also agreed that transport management affected product damages. in contrast, on transit in food manufacturing firms (mean=3.90, sd=1.037) and that fleet management system positively affected delivery time for manufacturing firms (mean=3.75, sd=0.947). table 4: information flow in food manufacturing firms information flow mean std. dev information flow across all logistics functions can have a positive effect on the performance of manufacturing firms. 3.57 .966 practicing internal information sharing can impact organization revenue, market share, and customer satisfaction 3.73 1.207 the organization has invested in information communication systems 2.28 1.282 information flow can impact demand forecasting in food manufacturing firms. 2.95 1.585 information flow affects achieving timely response to customer preferences in food manufacturing firms. 3.22 1.454 information flow impacts achievements of optimal inventory levels in food manufacturing firms. 3.98 .785 information flow allows manufacturing firms to achieve a smooth flow of materials and products 3.92 .922 overall mean 3.38 influence of logistics practices on performance of food manufacturing firms 29 the respondents agreed that information flow impacted optimal inventory levels in food manufacturing firms (mean=3.98, sd=0.667). information flow allowed manufacturing firms to achieve a smooth flow of materials and products (mean=3.92, sd=0.922). they also agreed that internal information sharing could impact organization revenue, market share, customer satisfaction (mean=3.73, sd=1.120), and information flow across all logistics functions could positively affect the performance of manufacturing firms (mean=3.57, sd=1.060). they were undecided whether information flow affects the timely response to customer preferences in food manufacturing firms (mean=3.22, sd=0.836) and whether information flow can impact demand forecasting in food manufacturing firms (mean=2.95, sd=0.780). they disagreed that the organization had invested in information communication systems (mean=2.28, sd=0.894). table 5: relationship between logistics practices and performance model unstandardized coefficients standardized coefficients t sig. b std. error beta (constant) 1.560 .892 1.750 .082 material handling .285 .188 .159 1.515 .032 inventory management .924 .229 .427 4.034 .000 transport management .717 .205 -.283 -3.502 .001 information flow .053 .127 .028 .414 .679 r 0.467 r2 0.218 adjusted r2 0.200 sig 0.000 inventory management has the greatest significant influence on kenya's food manufacturing firms (β=0.924, p=0.000). it is followed by transport management (β=0.717, p=0.000) and material handling (β=0.285, p=0.032). r2 is 0.218, indicating that the independent variables explain only 21.8% of the influencers' performance in kenya's food manufacturing firms. 6. discussion of findings findings established that material handling practices affect sales volumes and materials handling practices affect the quality of products produced by food manufacturing firms in kenya. customer expectations are met through effective material handling practices. it is unclear whether production levels are affected by material handling practices and whether material handling in manufacturing firms enables the quality of products to be improved. thus, the study found material handling in food manufacturing firms to be effective. findings by ballou (2003) indicated that products are packaged to serve the marketing needs of branding and promotional purposes. it also protects the product from loss and damage as it is reached to its required destination in the right condition. the study established that warehousing activities are automated in that organization. regular cycle counting can impact production and distribution costs in food manufacturing firms, and regular inventory check affects product and process quality in food manufacturing firms. inventory control positively affects organization profits in food manufacturing firms in kenya, and warehousing activities impact organizational efficiency in food manufacturing firms. according to lysons and farrington (2012), the firm inventory management's main aim is to keep costs at a minimum. the findings are also in line with sandberg and abrahamson (2011) that for most firms, a rise of activity stanley nyaga njeru &jane queen omwenga 30 has surged around logistics practices, encompassing a broad sweep of corporate supply-demand strategies that stretch from the raw materials to the ultimate customer and productivity-boosting tools. a vehicle inspection schedule is key for any manufacturing firm that wants to enhance its performance. adherence to vehicle inspection schedules impacts fleet costs in food manufacturing firms. preventive maintenance can impact transport management in food manufacturing firms. it was also established that transport management affects product damages while on transit in food manufacturing firms. the fleet management system has a positive effect on delivery time for most manufacturing firms. transport management in manufacturing firms has been adopted. the practice of transportation by food manufacturing companies, to a large extent, concur with the arguments of wisner et al. (2011) that transportation is a vital link between firms in a supply chain and that it must be managed effectively to meet customer due dates. it was also established that information flow impacted achievements of optimal inventory levels in food manufacturing firms. information flow allowed manufacturing firms to achieve a smooth flow of materials and products. practicing internal information sharing could impact organization revenue, market share, customer satisfaction, and information flow across all logistics functions that could positively affect manufacturing firms' performance. it is unclear whether information flow affects the timely response to customer preferences in food manufacturing firms and whether information flow can impact demand forecasting in food manufacturing firms. food manufacturing firms had not invested in information communication systems. it is unclear whether information flow has been achieved in food manufacturing firms in kenya. the study's finding concurs with azevedo et al. (2007) that information flow must enhance the firm’s logistics processes by planning, controlling, coordinating, and monitoring the logistics process to be effective and efficient. 7. conclusions the study established that food manufacturing firms in kenya utilized logistics practices, including material handling, inventory management, transportation management, and information flow. inventory management is the most significant attribute of logistics practices in food manufacturing firms. first is the automation of warehouses. companies that have automated warehouses save on time and labor usage in the long-run. second, firms that have installed regular counting perform better than their counterparts who haven't. third, for food manufacturing firms to ensure better inventory management, they must regularly check on the raw and finished goods. all activities that happen in a warehouse should be taken seriously while at the same time ensuring that inventory is controlled. material handling is another logistic practice that highly influences food manufacturing firms. material handling influences the sales volume of a company. material handling practices also determine the quality of the finished products. of importance also in any company is meeting customer expectations, facilitated by material handling practices. companies may also identify the improvements that need to be made in the quality of goods and production levels through material handling practices. the study established positive beta coefficients with only two variables, material handling and inventory management, based on the regression analysis. thus, the study concludes that the most significant factors to consider in logistics management is inventory management and material handling. the study concludes that transport management has no significant influence on performance. information flow also does not contribute to the performance of food manufacturing firms. the food manufacturing firms should relook their transport management to ensure that it contributes to their overall logistics performance. in kenya, food manufacturing firms need to adopt an integrated ict controlled system, enabling clear monitoring and administration of logistical operations and boosting its overall efficiency. there is a need to improve transport management in food manufacturing firms in kenya. though the study indicated a negative influence of transport management on food manufacturing firms' performance, there is still room for improvement. the firms need to deliberate on possible ways of improving transport infrastructure to enhance their performance. influence of logistics practices on performance of food manufacturing firms 31 references achahchah, m. 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(2005). the theory of constraints: practice and research, amsterdam: ios press. scho ̈nsleben, p. (2016). integral logistics management: operations and supply chain management within and across companies. varsei, m., soosay, c., fahimnia, b., & sarkis, j. (2014). “framing sustainability performance of supply chains with multidimensional indicators”, supply chain management: an international journal, 19(3), 242–257. vijayaraghavan, t., & raju, s. (2008). “supply management orientation and its effect on buyer/ supplier performance: some insights from automobile industry in india”, great lakes herald, 2(1), 20-35. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 241-250 241 impact of gender and monthly income on consumer buying behavior hafsa daoudi istanbul ticaret university, turkey evrim i̇ldem develi istanbul ticaret university, turkey received: may 02, 2023 accepted: may 29, 2023 published: june 01, 2023 abstract: this paper discovers the variables that influence consumer purchasing decisions in morocco and turkey as well as their relationships. the study put forth the hypothesis that gender and monthly income had an effect on stress levels and shopping choices for both online and offline stores. a 21-question survey from the journal of the academy of marketing science that was broken down into three main components was used as the research methodology. to better define the target market for a particular brand, the questionnaire asked demographic questions like gender, age range, country of residence, and monthly pay. a straightforward random sampling method was used to gather information from 280 respondents in morocco and turkey. in spss, descriptive statistics, correlation analysis, and regression analysis were all carried out on the data. according to the study, shopping choices for both online and offline stores as well as stress levels are influenced by gender and monthly income. the study also discovered a link between a preference for online shopping and the stress level associated with shopping in brick and mortar stores. the bulk of answers were from morocco, with turkey coming in second. there were five different salary ranges for the respondents. the survey offers helpful information about consumer shopping habits and preferences, which businesses may find beneficial in identifying their target market and creating efficient marketing plans. keywords: consumer behavior, online shopping, retail shopping, gender, income 1. introduction consumer buying behavior is a critical aspect of marketing research and is of interest to businesses looking to develop effective marketing strategies. in today's digital age, consumers have more choices than ever, and how they shop has undergone significant changes. online shopping has become increasingly popular, and it has become important to understand the factors that influence online shopping preferences. 2. literature review consumer purchasing patterns affect online sales revenue. because it is more convenient and there is more money available, people with higher monthly salaries prefer to shop online (li and su, 2021). due to financial limitations, those with lower incomes tend to shop at physical stores. higher-income consumers are more likely to buy high-end things online because they have more faith in their quality and authenticity (liu and lin, 2021). quality, pricing, and brand reputation are influencing factors that have an impact on consumer purchasing decisions (hsiao and chen, 2021). online purchases priorities these variables. different demographic groups prefer internet shopping differently, with women favoring it more because of the time demands of childcare and employment (mittal and kamakura, 2021). hence, the impact of monthly income on consumer buying behavior in online shopping is significant. higherincome consumers tend to have a higher preference for online shopping and are more likely to purchase high-end products online. though, it is important to see that other factors which include product quality, price, as well as brand reputation also influence consumer behavior in online shopping. additionally, demographic factors such as hafsa daoudi & evrim i̇ldem develi 242 gender also play a role in determining online shopping preferences. studies have also examined the impact of gender on online shopping preferences. it has been found that females are more likely to shop online than males (kumar and dash, 2021). this is because females generally have less time for shopping due to their busy lifestyles and responsibilities, making online shopping a more convenient option. moreover, females are more likely to engage in online social activities, such as online shopping, than males. in addition, ahsen et al. (2020) have found that females tend to shop for different products online compared to males. while men are more likely to make purchases of electronics and gadgets online, women are more likely to invest in clothing, accessories, and beauty items there. additional research that jin et al. (2021) have revealed that gender influences internet shoppers' choice-making. males are far more inclined to make quick decisions, whereas females are more likely to make informed choices according to product information and reviews. this highlights the importance of targeting marketing strategies to specific genders, as it can significantly affect their online shopping behavior. due to financial limitations and perceived social standing, lower-income customers are more stressed when shopping in physical businesses (bostic et al., 2014). they might experience more tension and anxiety as a result of feeling stigmatised or judged by store personnel and other customers (kim et al., 2020). in contrast, higher-income consumers may experience lower levels of stress when shopping in physical stores. this is because they have more financial resources to purchase products and may have a higher sense of confidence in their ability to navigate the shopping experience (kim et al., 2020). additionally, higher-income consumers may have access to more high-end retail stores with better customer service, leading to a more positive shopping experience. in physical stores, females typically suffer higher levels of stress than males do owing to things like crowding and societal pressure to appear nice. males may feel less stress at physical stores since they may not feel as pressured to meet cultural standards for looks and fashion. shopping stress levels are significantly influenced by personal preferences and individual differences. (murray et al., 2010; yeh et al., 2020). 2.1. monthly income impact on online shopping one of the important factors that affect online shopping is the monthly income of consumers, as indicated by previous research showing varying levels of disposable income among consumers (huang and yen, 2010). hence, a person’s income can have an impact on their decision to shop online or in physical stores, with higher-income consumers more likely to choose online shopping due to the convenience and greater product variety it offers. online shopping is influenced by various factors, including consumers' income levels and gender. for instance, higher-income consumers may prefer the convenience and greater product variety of online shopping, while lowerincome consumers may be more inclined to shop in physical stores to take advantage of in-store deals. additionally, gender is another important factor that can impact online shopping preferences. studies have shown that women tend to shop more frequently than men and spend more time on online shopping sites, suggesting a greater preference for online shopping. by understanding these factors, businesses can tailor their online shopping experiences to cater to the needs and preferences of their target customers (park et al., 2016). 2.2. gender impact on online shopping gender is a significant factor that affects online shopping preferences. research has consistently shown that men and women have different attitudes toward online shopping, with women being more likely to shop online than men. women also tend to spend more time browsing online shopping sites and are more likely to make purchases on those sites. these differences in online shopping behavior may be attributed to various factors, including differences in decision-making styles, shopping motives, and perceptions of risk (sinha and banerjee, 2018). for instance, women are more likely to shop for personal and household items online, while men are more likely to shop for electronics and gadgets (zhao et al., 2018). 2.3. monthly income has an impact on retail store shopping stress level several studies have investigated the relationship between monthly income and retail store shopping stress level. one study found that consumers with higher incomes experience less stress while shopping in physical stores (lin and chen, 2015). another study suggested that income level may affect a consumer's perception of shopping stress, with those with lower incomes reporting higher levels of stress in retail stores (thamizhvanan and xavier, 2014). impact of gender and monthly income on consumer buying behavior 243 2.4. gender impact on retail stores shopping stress level gender is an important factor that can impact consumer behavior in both online shopping and retail store shopping. for instance, studies have shown that women may have different shopping behaviors and experiences compared to men. research indicates that women tend to spend more time on online shopping sites than men, suggesting a greater preference for online shopping (park et al., 2016). however, women are also more likely to experience shopping stress compared to men (dittmar et al., 1996; vedhahari and vijayalakshmi, 2015). 2.5. relation between retail store shopping stress level and online shopping preference online buying is often preferred by customers who find physical store shopping stressful due to variables including crowded stores, long lineups, and the need to make selections quickly (khan and bhatnagar, 2008). according to studies, customers who are under a lot of stress in physical stores are more inclined to favor online purchasing, which is primarily motivated by simplicity and ease (dholakia and rego, 2016). hence, the relationship between retail store shopping stress levels and online shopping preference is complex and influenced by various individual and situational factors, more study is required to examine this connection and comprehend the underlying factors that influence consumers to prefer online purchasing over conventional physical stores (moshrefjavadi et al., 2019). hypothesis h1: monthly income has an impact on online shopping preference. h2: gender has an impact on online shopping preference. h3: monthly income has an impact on retail store shopping stress level. h4: gender has an impact on retail store shopping stress level h5: there is a correlation between "retail store shopping stress level" and "online shopping preference". 3. research methodology this section explains the research procedure to find out factors of consumer buying behavior in population of morocco and turkey. this section includes the population of the study, sample and sample size, data collection instrument, and data analysis procedures. 3.1. questionnaire design the questionnaire used in the research was from journal of the academy of marketing science (albrecht et al., 2017). the questionnaire consists of 21 questions, with the first two questions being multiple-choice questions about shopping habits and preferences. question 3 asks participants to choose their preferred brand, and the remaining 18 questions are related to the chosen brand. the questions are mostly in the likert scale format with responses from strongly agree to strongly disagree as there would be just these five options. the questionnaire also includes four demographic questions related to gender, age range, country of residence, and monthly salary. the purpose of the questionnaire is to gather insights into shopping behavior and preferences, as well as to understand the target market of a specific brand. 3.2. research design this study examined factors affecting consumer buying behavior with a major focus on economic factors, cultural and social factors, psychological factors, and personal factors. economic factors may include personal assets and the income levels of respondents. age, nationality, and gender reflected the personal factors of consumers. motivation, involvement, learning, attitude, and lifestyle included psychological factors while social classes and roles reflected the cultural and social factors of respondents. data collected using questionnaires were processed and analyzed in spss. to understand how variables behave, descriptive statistics were examined. correlation analysis was then performed to determine whether the variables included in the study models were related. to verify the hypothesis, one-way anova and t-tests were used. 3.3. sampling method sample size of 280 respondents was selected for the study based on a simple random sampling technique and results were generalized to the whole population of the study. hafsa daoudi & evrim i̇ldem develi 244 3.4. data collection tool data was collected using questioner tool. questioner was divided into three major sections. section one was based on questions about buying behavior and preferred brands for shopping. the second section included the question regarding the factors including economic factors, psychological factors, cultural and social factors while the third section included demographic factors including age, gender, nationality, and salary that reflected personal factors of consumer buying behavior. the reliability of questioner was analyzed using 40 responses and after proving the scale valid and reliable, it was used to collect 280 responses from morocco and turkey. the data was collected in the month of january and february in 2023. 4. data analysis and interpretation of results data collected using question questionnaires were analyzed in spss. the following section explains descriptive statistics along with frequency distribution, correlation analysis, and regression analysis. 4.1. descriptive statistics in this chapter, descriptive statistics are presented to provide an overview of the data collected in the table 01. a distribution of gender is also presented in the figure. 4.1.1. gender the distribution of gender among respondents is presented in the following figure: table 1: descriptive of gender variable frequency mean median standard deviation variance female 133 1.5250 2.0000 0.50027 0.500 male 147 out of the total respondents of the study there were 133 female respondents and 147 male respondents. the mean value of gender was 1.5250, the median was 2.0000. standard deviation is termed as a measure of dispersion round mean value and standard deviation for gender were found as 0.50027 and variance was found as 0.500. distribution is indicated in the following figure: 4.1.2. age in this section, the age distribution of the respondents is presented. the age groups were divided into three categories. the distribution of age groups is presented in the following figure. table 2: descriptive of age age group frequency mean median standard deviation variance 18-24 years 115 1.878 2.0000 0.82928 0.688 25-30 years 84 above 30 81 age of respondents was divided into three groups as respondents from age of 18 years to 24 years, the second group contained respondents from age of 25 years to 30 years and 81 were such respondents that belonged to age group above 81 years. 115 individuals, according to frequency distribution, were between the ages of 18 and 24. 84 individuals were between the ages of 25 and 30 and 81 respondents were there who were having age above 30 years impact of gender and monthly income on consumer buying behavior 245 as indicated in the following figure. the mean value of age was found as 1.878, the median was found as 2.000, the standard deviation was found as 0.82928, and the variance was found as 0.688. 4.1.3. nationality to provide further context, this table shows the frequency of respondents by country and their corresponding mean, median, standard deviation, and variance values. as per the table, the majority of respondents were from morocco, followed by turkey. table 3: descriptive of nationality country frequency mean median standard deviation variance turkey 121 1.579 2.0000 0.4926 0.246 morocco 159 descriptive statistics of nationality indicated that 121 respondents belonged to turkey and 159 respondents were from morocco. moreover, the mean value of nationality was found as 1.579, the median was found as 2.0000, the standard deviation was found as 0.4926, and the variance was found as 0.246. 4.1.4. salary in this section, the salary of respondents is presented in 5 different salary ranges. salary range (₺) frequency mean median standard deviation variance 0-199 139 1.7571 2.0000 0.98280 0.966 200-399 99 400-699 22 700-999 11 +1000 9 salary ranges for respondents were broken down into five categories: 0–199 ($139 respondents), 200–399 ($99 respondents), 400–699 ($22 respondents), 700–999 ($11 respondents), and over $1000 ($9). the median wage was $2,000, the standard deviation was $98280, and the variance was $96. the mean pay was $1.7571. reliability statistics cronbach's alpha n of items .906 21 item-total statistics hafsa daoudi & evrim i̇ldem develi 246 scale mean if item deleted scale variance if item deleted corrected item-total correlation cronbach's alpha if item deleted bb1 45.8000 248.985 .031 .917 bb2 47.3500 255.926 -.178 .912 bb3 47.3750 254.394 -.091 .911 bb4 46.2500 215.321 .845 .894 bb5 46.1500 226.131 .560 .902 bb6 46.3500 214.131 .854 .893 bb7 47.2000 255.292 -.165 .911 bb8 47.3000 255.651 -.186 .911 bb9 47.3250 254.943 -.143 .911 bb10 46.1500 245.874 .198 .909 bb11 46.2750 214.512 .854 .893 bb12 46.1250 226.933 .550 .902 bb13 46.3750 213.317 .864 .893 bb14 46.2500 215.321 .845 .894 bb15 46.1000 226.656 .558 .902 bb16 46.2500 215.423 .799 .895 bb17 46.2250 215.051 .853 .893 bb18 46.0250 228.179 .511 .903 bb19 46.2750 215.538 .828 .894 bb20 46.0250 228.179 .511 .903 bb21 46.3250 213.866 .860 .893 these results appear to be related to reliability analysis of a scale consisting of 21 items. the cronbach's alpha coefficient was computed and found to be .906, which suggests high internal consistency among the items in the scale. the item-total statistics table provides information on how each item contributes to the reliability of the overall scale. the corrected item-total correlation values range from -.186 to .864, with most values being positive and indicating a positive relationship between the item and the overall scale. while the scale variation if item deleted column displays the variation without a particular item, the scale mean if item deleted column displays mean scores without that item. the cronbach's alpha if the item is deleted column displays how the alpha coefficient is affected by the deletion of an item. the scale has strong internal consistency overall, but a few items need more investigation to make sure they accurately measure the desired construct without lowering the scale's reliability because they exhibit negative correlations and lower alpha values. 4.2: analysis for hypothesis testing the research performed to evaluate the hypothesis h1, which asserts that monthly income has an effect on preference for online shopping, is shown in section 4.2 of the report. the data were examined using one-way anova, and the outcomes are shown in the anova table. impact of gender and monthly income on consumer buying behavior 247 h1: monthly income has an impact on online shopping preference. one-way anova was run to test h1 and results are shown in the following table: anova sum of squares df mean square f sig. between groups 9.633 4 2.408 3.063 .017 within groups 216.204 275 .786 total 225.837 279 the significance value was found as 0.17 was less than 0.05 this means that monthly income has a positive impact on online shopping preference such that online shopping preference is enhanced with increase in income level thus h1 of study is accepted. h2: gender has an impact on online shopping preference. t-test was used to analyze h2 of the study and results are shown in the following table: one-sample test test value = 2 t df sig. (2tailed) mean difference 95% confidence interval of the difference lower upper gende r -15.888 279 .000 -.47500 -.5339 -.4161 the significance value was found as 0.000 which is less than 0.05 this means that results were found in the acceptable range such that gender has a significant impact on online shopping preference thus h2 of the study is accepted. h3: monthly income has an impact on retail store shopping stress level. one-way anova was run to test h3 and results are shown in the following table: anova sum of squares df mean square f sig. between groups 4.291 4 1.073 .938 .443 within groups 314.625 275 1.144 total 318.916 279 the significance value for the impact of income on retail shopping stress level was found as 0.443 is higher than the acceptable value 0.05 this means that monthly income has no impact on retail store shopping stress level thus h3 of study is not accepted. hafsa daoudi & evrim i̇ldem develi 248 h4: gender has an impact on retail store shopping stress level t-test was used to analyze h4 of the study and results are shown in the following table: one-sample test test value = 1 t df sig. (2tailed) mean difference 95% confidence interval of the difference lower upper gende r 17.560 279 .000 .52500 .4661 .5839 the significance value was found as 0.000 which is less than 0.05 this means that results were found in the acceptable range such that gender has a significant impact on online shopping stress level thus h4 of the study is accepted. h5: there is a correlation between "retail store shopping stress level" and "online shopping preference". correlation analysis was done to find out the relationship between retail store shopping stress level and online shopping preference as shown below: correlation analysis 01 02 03 04 05 01: gender - 02: age .267** - 03: income -.381** -.023 - 04: nationality .109 .203** .063 - 05: online shopping preference -.143* .039 .166** .028 - 06: retail store shopping stress level -.035 -.007 .099 .030 .681** - the association between the factors was determined using correlation analysis. according to the analysis's findings, consumers' preferences for online shopping and their degree of shopping stress is positively correlated. with a significance level of <0.05, the correlation coefficient was determined to be 0.681. this indicates that the stress level will rise with every one-point increase in the value of preference for online purchasing, and h5 of the study is accepted as true. 5. conclusion the process of consumer purchasing is complicated as well as is affected by a various other variables. these elements can be both internal and external and may differ from one person to the next. to create successful marketing strategies, it is essential to have a thorough awareness of the various aspects that affect consumer behavior. businesses and marketers can create targeted and personalized marketing tactics that connect with their customers by analyzing the effects of income, gender, and the stress level in retail stores on consumer buying behavior. income and gender have an impact on consumer behavior. businesses may build effective marketing strategies, including pricing strategies and advertising campaigns, by understanding how income influences consumer purchase behavior. another significant variable that may have an impact on consumer purchase decisions and the stress levels impact of gender and monthly income on consumer buying behavior 249 related to in-person versus online shopping is gender. when constructing marketing tactics, such as campaigns catered to particular genders, businesses and marketers must take gender into consideration. the correlation between in-store shopping stress and preference for internet shopping has an impact on consumer shopping behavior. customers are more likely to favor internet shopping if they are under higher stress while making in-store purchases. businesses must take into account elements that affect the stress levels in retail stores in order to deliver a great in-store experience. in today's cutthroat industry, understanding client purchase behavior is essential for success. according to chen et al. (2012), firms can create efficient marketing strategies that appeal to their target audience by taking into account elements like income, gender, and the stress levels in retail stores. businesses can develop tailored marketing strategies that cater to customer preferences and raise their chances of success by analyzing these aspects. the study has a number of limitations, including a small sample size that may limit the generalizability of the results, underrepresentation of certain demographic groups, potential bias or inaccuracies in self-reported data, a limited scope in terms of the factors considered or the geographic region covered, and the study's partial relevance to current consumer behavior due to changes over time. sample size: there were limitations in terms of sample size. the results might not be generalizable because of the possibility that a smaller sample size is not representative of the larger population. demographic bias: certain demographic groups, like those with low income, minorities, or people with disabilities, were underrepresented. the findings may not be as applicable to these groups as a result. self-reported data: some of the research mentioned relies on participant self-reported data, which could be biased or inaccurate. limited scope: there are factors considered or the geographic region covered in the studies listed may be limited. the findings' applicability to other contexts or groups may be constrained as a result. time frame: due to changes in consumer behavior over time, the research listed may only be partially relevant now. therefore, the results might not be relevant to how consumers behave today. when establishing their marketing tactics, businesses must take into account a number of variables, including income, gender, and the amount of stress in retail stores. they should also take market trends into account and offer customers a pleasant, stress-free buying experience. businesses can develop efficient marketing strategies by conducting research to comprehend the target market and their needs. for academics there should be more research based on the impact of other factors such as age, education level, and cultural background on consumer buying behavior. also, an investigation should be carried out for the technology advancement that is for the virtual and artificial intelligence on the consumer buying behavior and further about the integration into marketing strategies. there should be conduction of longitudinal studies to track the changes in consumer behavior at the time and how it is affected by external factors such as economic conditions. references ahsan, m., alam, s. s. and asad, s. s. 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(2018) 'the effect of gender on online shopping behavior: a metaanalysis', international journal of psychology, 53(5), pp. 306-313. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 105-112 105 the effect of organizational commitment on firm performance: intergenerational differences muhammed erdem salamci̇ istanbul commerce university, turkey okşan ki̇bri̇tçi̇ artar istanbul commerce university, turkey received: feb 02, 2021 accepted: may 30, 2021 published: june 15, 2021 abstract: the main purpose of this research is to determine the effects of the sub-dimensions of organizational commitment (affective, continuance, and normative) on the concept of firm performance. another aim of the study is to determine whether the sub-dimensions of organizational commitment differ in intergenerational. within the scope of this aim, employees in banking sector were identified as “population”. this survey was applied to 209 employees in the banking sector in april 2021. survey results were analyzed by the spss-20 program. as a result of the analysis, it was determined that affective commitment does not have a significant effect on firm performance. it has been shows that continuance commitment has a negative and significant effect on firm performance. also, normative commitment has a posit ive and significant effect on firm performance. finally, it was concluded that there was no difference in the affective commitment, continuance commitment, and normative commitment levels of bank employees belonging to the x and y generations. keywords: organizational commitment, firm performance, intergenerational differences 1. introduction today's technological development and competitive environment have made the concept of organizational commitment very important in the sustainability of organizations and in the ability to take steps towards the future. employees need to keep up and adapt to the economic, political and cultural reforms that are taking place rapidly in the banking sector or other sectors. in such an environment, the concept of organizational commitment, which has an effect on the behavior and values of employees, becomes more important. the concept of organizational commitment is one of the concepts that researchers show the most interest and relevance among contemporary managerial concepts. this concept has been the subject of research in many countries, especially in the united states. nowadays, turkish researchers have done many studies on this concept. in these studies, the topic of organizational commitment has often been associated with another concept. in this study, firm performance and intergenerational differences concepts were examined along with the concept of organizational commitment. in this context, the effect of the sub-dimensions of organizational commitment (affective, continuance, and normative) on firm performance was examined in the banking sector. it was also determined whether the concept of organizational commitment differed in intergenerational. 2. basic concepts related to organizational commitment 2.1. organizational commitment concept organization is defined as “a union formed by institutions or persons who have come together to achieve a common goal or work” in the dictionary of the turkish language association (tdk sözlükleri, 2020). according to another definition, organization is expressed as social units established to achieve certain goals (etzioni, 1964). commitment means “to feel affection, respect, closeness, and loyalty towards someone” in the dictionary of the turkish language association (tdk sözlükleri, 2020). it is also defined as an obligation to show commitment to a muhammed erdem salamci̇ & okşan ki̇bri̇tçi̇ artar 106 person, a thought, an institution, something that we see as greater than ourselves (ardıç and çöl, 2008). according to salancik (1977), commitment is the identification of one's own behavior with another person. organizational commitment is expressed as an individual's approach to an organization based on their psychological state (allen and meyer, 1990). according to another statement, organizational commitment is expressed as the attitude of the employee towards his / her organization. also, it is said as the integration of the organization and the employee (sheldon, 1971; hall et al., 1970). 3. basic concepts related to firm performance 3.1. firm performance concept the concept of firm performance is often encountered in studies related to management. this concept is mostly preferred as the dependent variable in the models of theses. although it is a concept that has been emphasized too much in the literature, there is no consensus on its definition and measurement (taouab and issor, 2019). firm performance is defined as the achievement of the economic targets of the enterprises (venkatraman and ramanujam, 1986). according to another definition, firm performance is the ability to achieve goals determined as a result of the effective and efficient use of inputs (tül and çemberci, 2019). firm performance measurements help to show the degree to which predetermined goals are being approached. it also reveals what businesses need to be sustainable and competitive (griffin, 2003). 4. basic concepts related to intergenerational differences 4.1. generation concept the generation is defined as “the community of people who were born in approximately the same years and who shared the conditions of the same age, thus similar troubles and destinies” in the philosophical sciences dictionary of the turkish language association (tdk sözlükleri, 2020). this concept also is expressed as “individuals who form approximately 25–30 years age groups: cluster, belly, generation and abdomen” in the social science dictionary of the turkish language association (tdk sözlükleri, 2020). nowadays, it is accepted that there are five generations with different characteristics. these generations in the literature; it has been named the silent generation, baby boomers, generation x, generation y, and generation z. it is stated that these generations work together in organizational environments in literature. however, it is said that many of the representatives of the silent generation and baby boomers retire due to their aging. also, it is stated that members belonging to generation z are not present in organizations due to their young age. 5. methodology 5.1. population and sampling the population of the research is those working in the banking sector in turkey. according to the data announced by the banks association of turkey in september 2020, the number of people working in the banking sector in turkey is 186.654. in this context, the population of the research is 186.654 workers. the sample of the study was determined to be at least 196 people with a 95% confidence interval and 7% margin of error, based on 186 thousand 654 employees, which are considered as the population. 213 people participated in the survey. but the survey of 4 participants was deemed invalid. the participation of 209 people in the sample, which was determined as at least 196 people, makes the sample reliable. 5.2. model and hypothesis the model of the research consists of three independent and one dependent variable. affective commitment, continuance commitment, and normative commitment are the independent variables, while firm performance is the dependent variable. the model of the research is shown in figure 1 below. the effect of organizational commitment on firm performance: intergenerational differences 107 figure 1 model of research the research is based on three main hypotheses: h1: affective commitment has a negative effect on firm performance. h2: continuance commitment has a negative effect on firm performance. h3: normative commitment has a positive effect on firm performance. 5.3. data analysis techniques the demographic information of the employees was determined by frequency analysis. factor analysis was conducted to determine the factors of the scale. cronbach's alpha method was used to determine the reliability levels of the factors. the arithmetic mean and standard deviation of each factor were taken to determine the participants' approach to the questions. independent sample t-test tests were conducted to test whether affective commitment, continuance commitment, and normative commitment levels differ on the x and y generations. multiple regression method was used to determine the effect of organizational commitment on firm performance. (note: analyzes were made in the spss-20 program.) 6. results of statistical analysis in this section, the statistical analysis of the data obtained from the survey has been made. while doing the analysis, it was made in line with the references in the literature. frequencies analysis, factor analysis, reliability analysis, descriptive statistics, independent-sample t-test, and multiple regression were applied, respectively. they are explained below: 6.1. frequencies analysis frequency analysis is a statistical analysis technique that shows the observation frequency and percentage distribution of data. demographic characteristics and survey items can be evaluated by frequency analysis (bayrak, 2019). accordingly, frequency analysis was performed that the demographic characteristics of the participants such as gender, year of birth, education, experience in the industry, and length of service at his current organization. the results are in table 1 below: affective commitment continuance commitment normative commitment firm performance h2 organizational commitment muhammed erdem salamci̇ & okşan ki̇bri̇tçi̇ artar 108 table 1 demographic characteristics of the participants frequency (n) percent (%) gender female 40 19,1 male 169 80,9 total 209 100,0 year of birth 1965-1980 (gen x) 31 14,8 1981-1999 (gen y) 178 85,2 total 209 100,0 education high school 10 4,8 associate degree 1 0,5 bachelor's degree 149 71,3 master's/doctor’s degree 49 23,4 total 209 100,0 experience in the industry less than 1 year 7 3,3 1-5 years 44 21,1 6-10 years 62 29,7 11-15 years 79 37,8 more than 16 years 17 8,1 total 209 100,0 length of service at his current organization less than 1 year 12 5,7 1-5 years 50 23,9 6-10 years 66 31,6 11-15 years 66 31,6 more than 16 years 15 7,2 total 209 100,0 6.2. factor analysis kmo and bartlett's test was used to test whether the variables in the survey are suitable for factor analysis. as kmo coefficient approaches 1, it means that the data obtained are suitable for factor analysis. besides, when kmo coefficient is 1, it means that the survey is quite suitable for factor analysis. according to erkasap (2020) if the kmo coefficient is greater than 0,60 and the significance level of bartlett complies with the p <0,05 rule, it means that the data in the survey are suitable for factor analysis. as a result of the analysis, the kmo value was found to be 0,866 and the significance level of bartlett to be 0,000. the kmo coefficient was higher than the given reference value and bartlett's level of significance was lower than p <0,05. in this context, the scale of this research is accepted to be suitable for factor analysis. after determining the suitability of the data for factor analysis, varimax with kaiser normalization factor analysis was performed. while the effect of organizational commitment on firm performance: intergenerational differences 109 obtaining the result of factor analysis, principal component analysis was used as extraction method and varimax with kaiser normalization was used as rotation method. the fact that the value of each item obtained from factor analysis is above 0,50 indicates that the scale is a reliable scale (erkasap, 2020). however, as a result of the analysis, the value of 5 items in the scale was less than 0,50, so these five questions were removed from the survey and after that factor analysis has been done again. as a result of the factor analysis, it was observed that there were 4 factors. these factors are firm performance, normative commitment, continuance commitment, and affective commitment respectively. in addition, as a result of the factor analysis, firm performance, normative commitment, continuance commitment and affective commitment factors explain 66,896% of the total variance. 6.3. reliability analysis cronbach's alpha coefficient is accepted as a measure of the internal consistency of the items in the scale and is used to question or interpret the homogeneity of the items in the scale (yıldız and uzunsakal, 2018). the results of cronbach's alpha test are given in table 2 below: table 2 results of cronbach’s alpha test factor cronbach’s alpha n of items firm performance 0,951 13 normative commitment 0,791 4 continuance commitment 0,799 5 affective commitment 0,893 3 as seen in table 2, cronbach's alpha coefficient was found to be 0,951 for firm performance, 0,791 for normative commitment, 0,799 for continuance commitment, and 0,893 for affective commitment. in this context, firm performance and affective commitment factors were accepted as “highly reliable”. normative commitment and continuance commitment factors were accepted as “reliable”. 6.4. descriptive statistics in this section, the mean and standard deviation of each sub-dimension were calculated to determine the levels of the factors. the mean and standard deviation of firm performance, normative commitment, continuance commitment and affective commitment factors are given in table 3 below: table 3 mean and standard deviations of the factors factor mean standard deviation n of items firm performance 2,97 0,91 13 normative commitment 3,39 0,94 4 continuance commitment 3,24 0,98 5 affective commitment 3,65 1,27 3 6.5. independent sample ttest in this part of the study, the independent sample t-test was used to examine whether the factors of normative commitment, continuance commitment, and affective commitment differ on generations x and y. levene’s test is used to test the homogeneity of variances in the independent sample t-test. h0 hypothesis means there is no difference between variances, and ha hypothesis means that there are differences between variances. if p <0,05, the h0 hypothesis is rejected. but if p> 0,05, the h0 hypothesis is accepted, so we can conclude that the variances are homogeneous (tirendaz akademi, 2019). muhammed erdem salamci̇ & okşan ki̇bri̇tçi̇ artar 110 when you do the independent sample t-test, you should look at the significance (2-tailed) part to learn the result of the analysis. if the significance (2-tailed)> 0,05, the averages obtained in the sample groups are considered to be equal to each other. however, if the significance (2-tailed) <0,05, it is accepted that the averages obtained in the sample groups are not equal to each other (arslan, 2020). in this context, the results of the independent sample t-test are given in the table 4 below: table 4 results of independent sample t-test factor levene’s test for equality of variances t-test for equality of means sig. sig. (2tailed) normative commitment ,125 ,058 continuance commitment ,232 ,644 affective commitment ,237 ,649 according to results of levene in table 4, it was accepted that variances were homogeneously distributed in the levels of normative commitment, continuance commitment and affective commitment. according to results of t-test in table 4, it has been concluded that there is no difference in normative commitment, continuance commitment and affective commitment levels among bank employees belonging to the x and y generations. 6.6. multiple regression and hypothesis tests multiple regression analysis was conducted to test the hypotheses of the research. effects of the independent variables on the dependent variable were examined in the regression analysis. affective commitment, continuance commitment, and normative commitment are the independent variables, while firm performance is the dependent variable. the results of the regression analysis are given in table 5 below: table 5 results of regression analysis independent variables β sig. affective commitment -,047 ,333 continuance commitment -,127 ,050 normative commitment ,341 ,000 dependent variable: firm performance, f= 8,704 sig= ,000 r2 = 0,113 according to the regression results in table 5, it is accepted that the model is significant as a whole (f = 8,704, sig <0,05). the firm performance variable of affective commitment, continuance commitment, and normative commitment variables explain 11,3% (r2= 0,113). as a result of the analysis, it was determined that affective commitment does not have a significant effect on firm performance (β= -,047, sig.=,333). it has been determined that continuance commitment has a negative and significant effect on firm performance (β= -,127, sig.=,050). normative commitment has a positive and significant effect on firm performance (β= ,341 sig.=,000). in this context, while h2 and h3 are supporting, there is no evidence for the accuracy of h1. the effect of organizational commitment on firm performance: intergenerational differences 111 table 6 results of hypotheses hypotheses results h1: affective commitment has a negative effect on firm performance. not accepted h2: continuance commitment has a negative effect on firm performance. accepted h3: normative commitment has a positive effect on firm performance. accepted 7. conclusions the aim of the research is to examine the effect of organizational commitment on firm performance in the banking sector. another aim of the research is to determine whether organizational commitment differs generations. also, it is to examine demographic variables such as gender, education level, experience in the industry and length of service. the independent sample t-test was used to examine whether the factors of normative commitment, continuance commitment, and affective commitment differ on generations x and y. as a result of the independent sample t test, it was concluded that there is no difference in the levels of normative commitment, continuance commitment and affective commitment among bank employees belonging to the x and y generations. multiple regression method was used to determine the effect of organizational commitment on firm performance. as a result of the analysis, it was determined that affective commitment does not have a significant effect on firm performance, and it shows that continuance commitment has a negative and significant effect on firm performance. finally, normative commitment has a positive and significant effect on firm performance. there are many studies on the concepts of organizational commitment, firm performance and intergenerational differences in the literature, but there was no study that examined all these concepts in the banking sector. therefore, it is believed that the results obtained in this study will shed light on future studies on the concept of organizatio nal commitment, firm performance and intergenerational differences. in addition, the generation z will begin business life in the near future, and the researchers will conduct research on the organizational life of the z generation. it is thought that comparing the results obtained from future research with the findings obtained from this research will help us see to what extent generations have changed. references references allen, n. j. & meyer, j. p., 1990. the measurement and antecedents of affective, continuance and normative commitment to the organization. journal of occupational psychology, cilt 63, pp. 1-18. ardıç, k. & çöl, g., 2008. sosyal yapısal özelliklerin örgüte bağlılık üzerine etkileri. i̇ktisadi ve i̇dari bilimler dergisi, 22(2), pp. 157-174. arslan, k., 2020. spss'de bağımsız örneklem t-testi (independent sample t-test). 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[online] available at: https://sozluk.gov.tr/ [accessed 2020]. tirendaz akademi, 2019. homojenlik testi, varyansların homojenliği ve spss ile veri analizi. [online] available at: https://www.youtube.com/watch?v=lrye-muoxvw&ab_channel=tirendazakademi [accessed 1 aralık 2020]. tül, e. & çemberci, m., 2019. çalışanların i̇ş motivasyonu ve örgütsel bağlılık i̇le firma performansı arasındaki i̇lişkilerin i̇ncelenmesi: denetim sektörü çalışanları üzerinde bir araştırma. i̇stanbul ticaret üniversitesi sosyal bilimler dergisi, issue 35, pp. 295-308. venkatraman, n. & ramanujam, v., 1986. measurement of business performance in strategy research: a comparison of approaches. academy of management review, 11(4), pp. 801-814. yıldız, d. & uzunsakal, e., 2018. alan araştırmalarında güvenilirlik testlerinin karşilaştirilmasi ve tarimsal veriler üzerine bir uygulama. uygulamalı sosyal bilimler dergisi, 2(1), pp. 14-28. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 77-82 77 the urgence of expert witness certification in criminal cases nurkholik nurkholik universitas 17 agustus 1945 surabaya, indonesia made warka universitas 17 agustus 1945 surabaya, indonesia slamet suhartono universitas 17 agustus 1945 surabaya, indonesia yovita arie mangesti universitas 17 agustus 1945 surabaya, indonesia received: april 16, 2022 accepted: may 28, 2022 published: june 01, 2022 abstract: this research is a normative legal research. expert witnesses are needed in the trial process to provide clarity regarding the evidence presented in the trial process. for this reason, every person who will provide testimony as an expert witness in a trial must have a certificate of expertise as an expert witness, which is given by the supreme court or an official institution that obtains permission from the supreme court. the goal is that the information given at the trial can be justified legally and morally. mistakes in providing information in court can be detrimental to the parties in litigation. keywords: urgence, witness 1. introduction criminal justice is basically a series of processes that start from investigation, investigation, prosecution, examination of cases in court to the judge's decision stage.(flora, 2018) in the process of examining cases in court, the proof stage is a very important stage to determine whether someone is guilty or not accused of committing a crime. in the evidentiary process, there is one important step that cannot be left out, namely the examination of expert testimony and or expert witness statements. the testimony of expert witnesses is one of the strengths and can even be a weakness for parties who are in the trial process of criminal cases. this is because the information obtained from experts and or expert witnesses is used to strengthen the judge's belief the occurrence of a crime. even though the expert has not personally seen, experienced or heard of a criminal event, their statements are often indispensable in trial process of criminal cases in court. philosophically, expert testimony is needed to provide clarity about whether or not the defendant's actions were true (hanafi & pamuji, 2019) but the existence of expert witnesses in indonesia doesn't have clear criteria and qualifications. until now, every person who claims to have the ability in a particular field of expertise can testify as an expert witness in a criminal case trial, without having to first prove the quality of his competence. on the other hand, the judge can also accept or reject the presence of an expert who is presented at the trial by one of the parties, on the grounds that it is not in accordance with his competence. however, the refusal is felt heavy for the judge, because if the judge refuses the presence of an expert witness, it is feared that it will result in reporting to the judicial commission, which is authorized to supervise the performance of judges. the criminal procedure code (kuhap) has made progress in relation to expert witnesses, compared to the het herziene inlandch reglement (hir). this progress is in the placement of expert testimony as evidence in the trial. nurkholik nurkholik & made warka & slamet suhartono & yovita arie mangesti 78 meanwhile, article 295 of the hir does not mention expert witnesses as legal evidence at trial. article 295 hir only states that the evidence at trial only includes testimonies, letters, confessions, and signs that the events or legal facts presented at the trial actually occurred in order to obtain a true and fair judge's decision. (anshoruddin, 2004) the evidentiary process as an effort to encourage the birth of the judge's conviction as stipulated in article 183 paragraph (1) of the criminal procedure code, should not be seen solely as a process of proving the presence or absence of a criminal act, but should be seen as a process to seek material truth. if the evidentiary process is only seen from the process of proving the presence or absence of a criminal act, then the judge's conviction as one of the conditions for imposing criminal sanctions is considered to be less proportional. meanwhile, in criminal acts, the judge's conviction is an important element in imposing criminal sanctions for the defendant. the importance of evidence in criminal cases is also regulated in article 6 paragraph (2) of law number 48 of 2009 concerning judicial power, which is formulated: "no one can be sentenced to a crime, except if because the evidence is valid according to the law. before the judge makes a decision, he must be convinced that someone who is considered responsible has been guilty of the act he has been accused of.” meanwhile, the types of evidence that have the power of proof in a trial are regulated in the criminal procedure code, namely article 184 of the criminal procedure code, consisting of witness statements; expert statement; letter; instruction; and the defendant's statement. meanwhile, the method of using evidence and the strength of evidence is regulated in article 185 of the criminal procedure code to article 189 of the criminal procedure code. given the importance of expert witness evidence in the trial process of criminal cases, especially as a basis for convincing judges of the existence or absence of criminal acts committed by the defendant, it is of course important for expert witnesses who will give testimony at trial to have certain criteria or qualifications, so that the information provided is presented at the trial has the truth in accordance with the standard of expertise required in the process of proof at trial. if anyone who claims to have expertise in a certain field related to evidence in a criminal case trial, can provide information on behalf of an expert, it is feared that the expert witness's testimony will mislead the judge and/or burden the defendant. then the problem can be formulated as follows: "what is the urgency of certification of expert witnesses in the trial process of criminal cases in court". this research is a normative legal research. (michael, 2022) 2. research results and discussion 2.1. experts and expert witnesses in criminal cases it is everyone's duty to be a witness in a trial. this obligation is regulated in the elucidation of article 159 paragraph (2)of the criminal procedure code, which is formulated "a person who becomes a witness after being summoned to a court hearing to give testimony, but by refusing that obligation he can be subject to a criminal sentence based on the provisions of the applicable law. likewise with experts." argumentatively, the provisions of the article indicate that being a witness in a trial is an obligation for everyone. in principle, one witness in a trial is not enough to prove the guilt or innocence of the accused. in latin, the term "unus testis ulus testis" is used (one witness is not a witness). in indonesia, this principle is contained in article 185 paragraph (2) of the criminal procedure code, which is formulated: "the testimony of a witness alone is not sufficient to prove that the defendant is guilty of the act he is accused of". furthermore, article 1 number 26 of the criminal procedure code stipulates that:"a witness is a person who can provide information for the purposes of investigation, prosecution and trial regarding a criminal case which he has heard, seen and experienced." article 1 point 1 of law number 13 of 2006 concerning the protection of witnesses and victims, states that "witnesses are people who provide information for the purposes of investigation, investigation, prosecution, proof and examination in court of matters that they have heard themselves, he himself experienced or he knew himself that was pleased with the occurrence of a crime". the definition of witness as described above refers to certain conditions that must be met, including: 1) someone who sees firsthand the events or legal events that exist. 2) someone who directly hears the incident or events. 3) someone who has experienced it himself, or who is a victim of the event. the urgence of expert witness certification in criminal cases 79 referring to the explanation and requirements to become an expert witness, there is a significant difference between the expert testimony and the expert witness testimony. the term "expert testimony", article 1 number 28 of the criminal procedure code, explains that: "expert testimony" is information given by someone who has special expertise on matters needed to make light of a criminal case for the purpose of examination. the person who provides "expert testimony" means the person who is also called the "expert statement". thus, a person who provides information in accordance with his expertise is called an expert, and because of his expertise, that person has the competence to provide information in court according to his expertise. according to article 1 number 27 of the criminal procedure code, witnesses are evidence of a criminal event that the witness saw for himself, heard himself, experienced himself, and stated the reasons for his knowledge. so, in this case, the giver of expert testimony has a different position with the witness, because his position in a legal event is different. an expert witness who in giving his testimony did not witness himself, did not see himself, and did not hear himself, on the events that have occurred. furthermore, article 1 point 27 of the criminal procedure code, if it is connected with the explanation of article 185 paragraph (1) of the criminal procedure code, namely any witness testimony outside of what he himself heard in a criminal event that occurred or was outside what he saw or experienced in the criminal event that occurred, the information provided. what is given outside of hearing, sight, or own experience regarding a criminal event that occurred cannot be used as evidence. this kind of information has no evidentiary power. 2.2. the urgency of expert witness certification in order to distinguish between an expert and an expert witness, special conditions should be given to the person who will testify at the court as an expert witness, so as to distinguish it from the expert who will testify at the court. the special requirement is the certification of expertise for expert witnesses. the urgency of giving special conditions, through expert witness certification, is made aware of the following reasons: 2.3. philosophical reason the judicial process is a process that aims to obtain legal justice, as fair as possible by placing the wrong party and the right party in a position that is in accordance with legal facts. to obtain real justice, if in the judicial process there is uncertainty about the subject matter of the case, it is necessary to present witnesses and or experts who can help clarify the substance of the case that is in the judicial process. in certain cases, whether civil cases, criminal cases, state administrative cases, and other cases, in an effort to find the truth to achieve justice, one is often faced with an essential problem, namely the difficulty of finding which evidence is wrong and which is right. the difficulty generally lies in the lack of understanding of the substance of the problem that is being processed in the court. the contributing factors include the limited knowledge possessed by law enforcement officers, both prosecutors as prosecutors and judges as case breaker in court trials. philosophically, the presence of expert witnesses in the trial process is a necessity, because expert witnesses in the trial aim to provide information in accordance with their expertise. the expert's statement aims to make it clear and clear regarding the criminal acts committed by the defendant in the trial process. the clarity of the information that will be given related to this crime is the basis for the need for certified expert witnesses so that their statements can be justified morally and legally. 2.4. juridical reason it is known that the criminal procedure law (kuhap) does not clearly and firmly regulate who is meant by expert witnesses and experts. in the criminal procedure code there are only a few articles that provide an understanding of witnesses or people who have the criteria to present statements in court as experts. these articles are article 1 number 26 of the criminal procedure code, and article 1 number 27, article 1 number 28 as described in the previous explanation. furthermore, article 120 paragraph (1) of the criminal procedure code stipulates: "in the event that an investigator deems it necessary, he or she can ask for the opinion of an expert or a person with special expertise. article 120 paragraph (1), it is formulated: "the expert takes an oath or makes a promise before the investigator that he will give information according to his best knowledge, except if it is due to his dignity, work or position which requires him to keep a secret, he can refuse to disclose it. provide the requested information. furthermore, article nurkholik nurkholik & made warka & slamet suhartono & yovita arie mangesti 80 132 of the criminal procedure code paragraph (1) states that: "in the event that a complaint is received that a letter or writing is fake or falsified or suspected to be fake by the investigator, then for the purposes of the investigation, the investigator may ask for information regarding this matter from an expert". the provisions of this article provide an explanation that an expert is an expert who has expertise on fake letters and writings. taking into account several provisions of the articles in the criminal procedure code as described above, it appears that there are several phrases that still require explanation, such as the phrase "special skills, special abilities, special skills", and so on. the words in the sentences of these articles, such as those that “…have special skills, are not followed by the terms or criteria of what is meant by special expertise, of course, invite question marks that still need explanation. the absence of specific criteria or requirements for expertise, in the norms of the criminal procedure code, in the perspective of legal theory, such norms can be classified into the type of vague norm (vage norm), or also often referred to as vague norm. in the provisions of article 133 paragraph (1) of the criminal procedure code, it is formulated: "in the case that an investigator for the interest of the judiciary handles a victim, whether injured, poisoned or dead, which is suspected to be due to an incident which constitutes a criminal act, he is authorized to submit a request for expert information to a judicial medical expert or doctor and or other experts. for the record, in the article there are other expert sentences, namely "judicial medical experts or doctors and or other experts". in the provisions of the article it is not clear who is meant by other experts, who can be asked for assistance to be questioned regarding the injured victims as referred to in article 133 paragraph (1) of the criminal procedure code. the phrase "other experts" in the article may be made possible by doctors who are experts in judicial medicine, or doctors and other experts, or other experts. the phrase “other expert”, in this case who is meant by another expert, can be interpreted as a pharmacist, or poison expert, and so on. the ambiguity about who is meant by an expert in article 133 paragraph (1) of the criminal procedure code is emphasized in article 179 paragraph (1) of the criminal procedure code, which is formulated "everyone whose opinion is requested as a "judicial medical expert or doctor or other expert" is obliged to provide expert testimony for the sake of justice. to avoid different interpretations of expert witnesses, it is necessary to have legal certainty over who can provide testimony as expert witnesses in the trial process. thus, in order to prevent differences of opinion regarding expert witnesses, considering that the normative rules are not clear, it is necessary to stipulate requirements for expert certification for everyone who will provide information in the trial process as an expert. in view of the unclear regulation on who is meant by a witness who can provide information in the trial process, it is quite reasonable if an expert witness who will give testimony in a trial is determined on the meaning, requirements, authority, responsibility through expert witness certification, with the aim of obtaining legal certainty. in this regard, it is necessary to make rules or normalize in positive law. for example, in corruption in the procurement of government goods and or services, it is necessary to have expert certification in the field of building construction, particularly in relation to the corruption in the procurement of goods and services. 2.5. sociological reason a person who is accused of committing a criminal act of corruption is not sufficient in his statement in court to convince the judge that he is innocent. in formal criminal law, what is explained by the accused who is the perpetrator of a crime is only for himself, and is not used to convince the judge or the prosecutor. this principle is regulated in article 189 paragraph (3) of the criminal procedure code which reads: "the defendant's testimony can only be used against himself". therefore, in presenting witnesses in court, there must be people who have adequate competence and capacity for expertise. the problem is that there are no standard requirements and criteria for expert witnesses. the case of a judge refusing an expert witness in court as stated in the previous description is a concrete example of the judge's doubts about an expert witness in a court trial. the problem will be different if the expert has an expert certificate, then it is normalized in the laws and regulations, so there is no reason for the judge to refuse the presence of the expert who will give information in court. this is one of the legal reasons for the need for certification for experts whose statements can be used as evidence in court as regulated in article 184 of the criminal procedure code. the urgence of expert witness certification in criminal cases 81 2.6. reason for legal certainty one of the goals of law is to realize legal certainty, in addition to expediency and justice.(sukendar et al., 2019) philosophically, legal certainty is a concept that aims to provide legal protection for every citizen from the arbitrariness of the authorities, so that the law imposes the responsibility on the state to implement it. in this case, it can be seen from the location of the relationship between the issue of legal certainty and the state. (manullang, 2007) legal certainty can be realized through statutory regulations, in this case called legal certainty. such legal protection is also referred to as normative legal protection, meaning that when a statutory regulation is made and promulgated, the legal protection provides certainty, because it regulates clearly and firmly. certainty and not giving rise to multiple interpretations, which in turn lead to injustice and legal uncertainty. legal certainty because of the law, becomes a system of norms with other norms, so that they do not clash or cause conflicting norms. norm conflicts arising from uncertainty in laws and regulations can take the form of norm contestation, norm reduction, or norm distortion. (chroust, 1944) legal certainty is not only in the form of articles in the law, but also there is consistency in the judge's decision between one decision and another judge's decision for similar cases that have been decided.(tantiono & soeskandi, 2017) so to ensure legal certainty for witnesses experts in providing information in court, it should be regulated in the legislation. these arrangements include the position of experts, qualifications of experts, expert requirements, including certification as experts in their fields, rights and obligations of experts, and so on. so that the existence of experts really has legal clarity that can guarantee the interests of all parties, especially defendants and victims, especially related to cases of criminal acts of corruption, the state will also be protected from expert testimony that really has quality with evidence of having a certificate of expertise. 2.7. reason for justice justice is a word that is easy to say, but difficult to implement. viewed from the perspective of the theory of justice, the judge's rejection of the expert presented by the defendant doesn't reflect the existence of equality and impartiality. terminology comes from the word fair, which means impartial, appropriate, not arbitrary. so, justice is defined as a fair attitude or action. in english literature, the term justice is called "justice" the root word is "jus". the word "jus" means law or right, thus one of the meanings of "justice" is law". not requiring certification for expert witnesses can cause injustice to the expert to provide testimony in court or to the party using the expert. with the certification requirements for experts, it is hoped that there will be no discrimination against experts who are presented in court to give their statements in an effort to uphold justice through the trial process in court. 3. conclusion expert witnesses are needed in the trial process to provide clarity regarding the evidence presented in the trial process. for this reason, every person who will provide testimony as an expert witness in a trial must have a certificate of expertise as an expert witness, which is given by the supreme court or an official institution that obtains permission from the supreme court. the goal is that the information given at the trial can be justified legally and morally. mistakes in providing information in court can be detrimental to the parties in litigation. because expert testimony serves to convince the judge whether or not the defendant's actions are criminal acts that must be held accountable by the defendant and can be subject to criminal sanctions. nurkholik nurkholik & made warka & slamet suhartono & yovita arie mangesti 82 references anshoruddin, 1950-. 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(2017). jaminan kepastian hukum bagi tersangka dalam syarat-syarat penahanan. mimbar keadilan. https://doi.org/10.30996/mk.v0i0.2199 journal of international trade, logistics and law, vol. 7, num. 1, 2021, 90-96 90 the effects of export import coverage ratio on economy afife özkan istanbul commerce university, turkey mustafa emre ci̇velek istanbul commerce university, turkey received: april 20, 2021 accepted: may 28, 2021 published: june 15, 2021 abstract: in this research, a conceptual model was tested in order to clarify the relationship between the foreign trade balance and economic growth. therefore the main purpose of the research is to examine the effect of the ratio of exports to imports on economic growth. reliability -tested secondary data prepared by international institutions were used for per capita gdp values and the ratio of countries' exports to imports. regression analysis was performed using the mentioned data using the spss computer program. the per capita gdp values of 126 countries for the years 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 and the ratio of the countries' exports to their imports were used in the study. by performing regression analysis, it was concluded that there is a statistically significant relationship between gdp values and the exportimport coverage ratio values of the countries. keywords: export-import coverage ratio, economic growth, foreign trade 1. introduction the main purpose of this research is to examine the effect of the ratio of exports to imports on economic growth. all the products produced by the countries may not be enough to meet the needs of the country. in this case, the required products can be obtained from other countries. foreign trade is the entire trade of goods and services between countries. the main factor driving companies to sell or buy goods from the international market is commercial gain (gürsoy, 2009). the expansion of the total production volume (gross domestic product gdp) in a country is defined as economic growth. the increase in the welfare level of the country is due to the growth of the economy more than the population growth rate. economic growth affects production, consumption and foreign trade in countries (seyidoğlu, 2017). when examining the benefits, gains and risks of foreign trade for the country's economies due to the reasons of foreign trade between countries, it is generally focused on how the foreign trade policies implemented by countries affect the economy (köse, 2018). in the research data, the reliability-tested secondary data prepared by international institutions were used for the foreign direct investment amounts, per capita gdp values, and the ratio of countries' exports to imports between 2011 and 2018 in 126 countries. the world bank for fdi and gdp data for the provision of these data; for export / import rates of countries, trade map, a web-based service provider whose data is based on customs data and provides trade statistics in a global scope, was used. regression analysis have been performed using the aforementioned data using the spss computer program. as a result of the analysis, it has been found that the foreign trade balance has a statistically significant relationship on economic growth. 2. balance of payments and external balance balance of payments can be defined as a document in which all economic relations of a country are recorded with other countries in a certain period, usually covering a calendar year. the balance of payments reveals the foreign exchange gains and losses of the countries. therefore, it is also an indicator of currency balance or imbalance. with the balance of payments, the governments of the countries calculate whether foreign currency revenues can cover the effects of export import coverage ratio on economy 91 the expenses; if they cannot, they can understand the extent and conditions of borrowing. accounts of the balance of payments are current account, capital account, official reserves accounts. there has been also a statistical difference account as a correction account (oktay, 2005). the current account is important as it is the account in which the country's exported and imported goods and services are recorded. current account includes trade of goods and services and one-sided transfers. the balance between total goods imports and total exports of goods is called the foreign trade balance or foreign trade balance. while the balance of foreign payments expresses income and expenses, the foreign trade balance includes only goods and goods import and export. to the international service import and export group; transactions such as tourism revenues and expenses, transportation communication services, banking insurance, financial services, computer and information services, patent and license commissions, and official services abroad are recorded. this section is also called invisible items. one-sided transfer item in the balance of payments, on the other hand, includes transactions in which no resource transfer is made in return for money inflow to the country. in this group, grants made to the state or the state's donations to others and transfers made by people living abroad are monitored (kızılkaya & sofuoğlu, 2018). capital account includes physical investments made by investors in a country to other countries and financial relations such as bonds and stocks. capital transactions are divided into two according to their maturity. while longterm capital refers to international capital transactions with a maturity of more than one year; short-term capital includes private and formal international capital flows with a maturity of less than one year. the official reserves account is an account that shows the changes in the central bank's foreign reserves such as gold, foreign exchange and imf resources as a result of interventions in the foreign exchange market due to economic and financial imbalances. statistical differences item is used in balance of payments statistics to balance accounting records (eren, 2006). 3. economic growth economic growth is linked to the periodic increase in national income in a country. for this reason, this increase, which will provide economic growth, can occur if the basic variables in that country's economy expand to provide a higher real output per capita. it can be thought that a country's economic growth can be improved in the long run as a result of the expansion of a country's production scale or by making its current production more efficient. governments, to increase economic growth; they can create developments that increase the economic growth of the country by following policies that increase the productivity of production factors, as well as by implementing education and technology policies that increase capital and by taking basic improvement steps such as infrastructure investments. data such as the gross national product of a country, gross national product, personal income level, gross domestic product, per capita national income are among the concepts used to determine the economic growth level of the country (cinel, 2014). economic growth can be defined as the increase in tools and products that meet human needs. one of the ways to measure economic growth is to check whether there is an increase in gdp from one period to another in real value, that is, free of price increases. gdp refers to the equivalent of all measurable values produced by the economy at the market price (eğilmez, 2013). economic growth occurs when a society acquires new resources or learns to produce more with existing resources. thus, an increase occurs in the total output of their economies. a larger workforce or an increased capital stock can be created with new resources. the production and use of new machinery and equipment (capital) increases the productivity of workers. advances in scientific knowledge and technological change, the application of new production techniques, will bring innovation and efficiency (case, fair, & oster, 2012). economic growth can also be expressed as the continuous increase in real gross domestic product (gdp) over time. although growth is a way to increase the living standard in the country, the steady increase of the real gdp in that country over time does not mean that the living standards of the people living in the country will increase. in this case, another concept considered is the growth rate of the population. when the population growth rate increases more than the growth rate; output per capita decreases rather than increases, so the standard of living cannot improve. likewise, if the population growth rate increases at the same speed as the real gdp increases, the living standard remains constant since the per capita output does not change in this equality. from thi s point of view, the aim of economic growth is to enrich a poor country with economic growth while trying to increase the living standards of each individual of that country (ünsal e. , 2016). afife özkan & mustafa emre ci̇velek 92 3.1. measuring economic growth gross domestic product is the total market value of all final goods and services produced within an economy in a given year. gdp is also the most common measure of an economy's total output. it is the most used concept when calculating economic growth (o’sullivan, m. sheffrin, & j. perez, 2018). gdp includes gross national product (gnp) and net foreign factor income. by definition, gnp can be expressed as the value of all final goods and services produced in a given period of a country. while calculating the gnp; while the contribution of foreign nationals to the production in the country is subtracted from the gdp value, the contribution of the nationals of the country to the production in foreign countries are being added. for this reason, the gross domestic product (gdp) gives the value of the final goods and services produced domestically. real gdp, on the other hand, is the version of all final goods and services produced in a country in a given period, free of inflation (akiş, 2010). gdp can be calculated in three main ways. the first method of these finds the total amount spent on all final goods and services in a given period. this is the expenditure approach to gdp calculation. the other way is to collect the revenues wages, rents, interest and profits generated by all factors of production in the production of final goods and services. this refers to the income approach in gdp calculation. in the third method, the production values of final goods and services are summed up. this is also the production approach (case, fair, & oster, 2012). based on the gdp calculated at current prices in a particular year, dividing by the gdp calculated at the same year's fixed prices; a gdp price deflator is obtained. with this ratio, price changes in the country can be monitored. the reason this; while the production amounts are fixed in the share and denominator of the gdp price deflator, only the prices change. in order to create a price index series, after a certain year is determined as the base; this ratio is calculated for different years and multiplied by 100, thus creating gdp price deflators. the index value is 100 since the gdp calculated in current and fixed prices in the base year is equal. with this index series created, the price level changes of the country between periods can be calculated. since this index is based on gdp, it covers all goods and services produced in the economy. the inflation rate of countries can be calculated with the deflator (şenses, 2017). while gdp is a measure of quantity; the gdp deflator can be described as a measure of price. for the course of economic policies, how the general price level changes is measured by the gdp deflator (case, fair, & oster, 2012). 3.2. determinants of economic growth 3.2.1. labor and human capital the sum of those working and job seekers in an economy makes up the workforce. employment of individuals, who have the willingness and ability to work and who decide to earn income, to provide services from their labor is called employment. another method of calculating the labor force figure is to subtract the total of those who are physically and mentally incompetent from the working age population in an economy and those who do not want to work at the current wage rate in the market (alkin, 2009). human capital can be defined as knowledge, competence, skills and qualifications that provide social, individual and economic improvement in people. since the beginning of the 1960's, the concept of human capital has gained importance. it has been observed that factors such as the level, quality and health standards of human capital are linked to economic growth. considering the relationship between human capital and economic growth, the productivity of labor and other inputs in production; it is observed that progress in technical and scientific knowledge has increased. economies provide more production and a parallel high growth rate with a high human capital stock and can sustain this. the regulation of education and technology policies by governments that increase the productivity of the factors of production creates the infrastructure for innovative production (eriçok & yılancı, 2013). increasing the productivity of human capital depends on many material and immaterial factors. while factors such as the regulation of the working environment and wage level are expressed as material factors; elements such as social capital and ethical values are also classified as immaterial factors. social capital is the set of norms that support mutual cooperation between people. social networks and organizations that create solidarity and cooperation are defined as social capital. the importance of social capital in terms of economy stems from the fact that it is necessary for the effective use of human capital. social capital can be expressed as norms and social networks that affect a society's health and productivity in production (eser & ekiz gökmen, 2009). 3.2.2. accumulation of capital the effects of export import coverage ratio on economy 93 capital accumulation can also be named as capital stock and can be defined as the capacity to produce goods and services for a production unit within a certain period. although capital accumulation is considered as the value of physical assets used by the production process; it includes also research and development, health, education and similar non-physical expenditures. increasing capital accumulation also increases the possibility of innovative companies to invest in new products and production methods in an economy (saygılı, cihan, & yurtoğlu, 2005). capital accumulation is one of the dynamics of the industrialization process, which aims to reach production methods using new techniques, rapidly increasing raw material consumption and wider markets. population growth and technical progress; it requires a continuous increase in the capital stock if living standards are to be maintained or increased. the need to import machinery and equipment for developing countries increases the demand for capital goods of the industrialized countries that produce this technology. countries have different savings opportunities for investments, which creates the need to finance the purchase of capital equipment needed by borrowing countries (kenwood & lougheed, 1999). one of the most important reasons for income differences between countries is capital accumulation, which is one of the determinants of economic growth. high physical and human capital accumulation in the country will positively affect economic growth (ünsal e. , 2016). by producing and exporting high technology products; a development in terms of foreign trade in favor of the country is necessary to ensure rapid capital accumulation (şiriner & doğru, 2005). 3.2.3. natural resources and geography while natural resources have been unevenly distributed over the world geography; it is observed that some countries have been richer in natural resources and some have less resources. if the wealth of natural resources has been properly utilized in the country, it creates incentives for investments and increases economic growth. on the other hand, countries with abundant natural resources may not have a higher standard of living in practice. in some cases, it even causes poverty. when natural resource wealth does not exclude human capital accumulation and is supported by necessary political and economic programs, it can have a positive effect on economic growth (bal & akça, doğal kaynak zenginliği ve ekonomik büyüme arasındaki eksik halka: beşeri sermayenn aracılık etkisi, 2018). in the modern world, the vast majority of rich countries have been located in temperate climates, while most tropical countries appear to be poor. due to the generally high temperature in the tropics; it has been observed that job performance has low, there has a risk of disease and agricultural potential is severely limited. another issue that geographical factors affect economic growth; this is because regions without access to the oceans seem to be poorer than regions with access. it is thought that the reason for this is that they have less share in the world trade and therefore they cannot learn the economic developments fast. another geographical factor affecting economic growth is having a location close to rich countries. the proximity of transportation and communication is also positively associated with economic success (szostak, 2009). it has been predicted that two thirds of the total world trade is realized between mncs. multinational companies look for the best possible locations among alternatives with suitable logistics infrastructure. host countries have therefore begun to focus on logistics capabilities and performance as an important tool for attracting fdi. it is considered that countries with high logistics performance are more likely to attract foreign direct investment (çelebi, civelek, & çemberci, 2015). logistics quality and cost is not only related to the performance of infrastructure and public institutions, but also to private services. in addition to the delivery time and cost of goods, the predictability and reliability of the supply chain is becoming increasingly important (coşkun & civelek, 2020). with technical progress, it has reduced to a certain extent the relation of international trade to geographical conditions. in this context, the importance of socio-cultural factors, especially the mentality, education and working discipline of the country's people for technical development should be emphasized (han & kaya, 2004). 3.2.4. scientific and technological developments technological developments reveal the necessary research and development (r&d) studies for companies to increase productivity, innovations and inventions as a result of their activities. while technological development and scientific research cause growth in the economies of the country; it also leads to an increase in earnings and market shares for companies. thus, technological innovations and inventions cause growth in the long term for the economy in general (altın & kaya, 2009). since the beginning of the 1960s, with the understanding of the importance of human capital on economic growth, training activities have been accelerated to increase the afife özkan & mustafa emre ci̇velek 94 knowledge, skills and competencies of people. with more attention being paid to the development of human capital; progress has also been observed at the level of scientific and technical knowledge. this increases the efficiency of labor and other inputs in production. systematic application of scientific knowledge is required to increase productivity in the production of goods and services; it is seen that countries that have made progress in technological development and economic growth have invested in labor training (eriçok & yılancı, 2013). thanks to technology, developing new products, improving existing products and making them cheaper is an important force affecting economic growth. the criterion for economic growth in industrialized countries is not the increase in traditional labor and capital inputs; it is attributed to the level of progress in technology (özsağır, 2008). 4. research method and conceptual model regression analysis is a statistical analysis technique that tries to explain the relationship between two or more dependent and independent variables. with regression models, researchers can reach predictions and estimates of the shape, direction and unknown values of the relationship in the study. in regression analysis, the independent variable is represented by the symbol (x) and the dependent variable by the symbol (y). in order for the analysis to be carried out, the dependent variable must be gathered at least in a spatial scale. independent variables, on the other hand, may be measured at the intermittent, proportional, or class level. however, if the independent variable is measured at a class level, it cannot be used directly in the regression model. variables measured at class level should be transformed into new variables to be used in regression analysis (durmuş, yurtkoru, & çinko, 2018). the computer has been an indispensable tool for statistical evaluation of research results. for this purpose, many statistical package programs such as spss, sas, minitab, systat have been developed. in this study, regression analysis method was used with the help of spss program. many researchers use the regression analysis technique when evaluating research results. the researcher should make a model proposal by examining the statistics that give general information such as the significance control tests of the regression and the determination coefficient r2 in relation to the regression model he has generally formed. however, in order to make some predictions or predictions about the subject and to explain the relationship between variables, it is necessary to examine whether a model is an adequate and usable model. otherwise, a suggested model is always in question and does not always indicate the availability of a model (şahinler, 2000). 4.1. conceptual model and hypothesis the conceptual model of the research is as seen in figure 1. hypotheses put forward in line with the conceptual model are listed below. figure 1. conceptual model h: the ratio of exports to imports positively affects the gross national income 4.2. analysis results this section describes the results of data analysis and hypothesis testing. all analyzes were made using spss. h hypothesis assumed that the import coverage ratio of exports positively affects the gnp. the standard β coefficient obtained as a result of this hypothesis regression analysis was accepted as a value of 0,206 and at significance level of 0,05. h export import coverage ratio gnp the effects of export import coverage ratio on economy 95 table 2. hypothesis test results hypothesis relations standard β p acceptance / rejection h: export import coverage ratio→ gnp 0,206 0,00 supported 5. result within the scope of this research, a conceptual model has been created to determine the relationship criteria between the balance of foreign finance in the world countries and economic growth and to evaluate the relationship between them. as a result of the research, it was found that the balance of foreign trade made a significant contribution to economic growth. in the final model of the study, foreign direct investment amounts, per capita gdp values of 126 countries for the years 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018, and the ratio of countries' exports to imports were used. with the regression analysis performed in the study, it was concluded that there was a statistically significant and positive linear relationship. when the determinants of economic growth are examined, we come across labor force and human capital, natural resources and geography, capital accumulation and scientific and technological developments. technical and scientific developments increase the efficiency of labor and other inputs in production. economies provide more production and growth with the improvement of human capital. capital accumulation includes physical assets used by the production process, research and development, health, education and similar non-physical expenditures. increasing capital accumulation, by increasing investment in an economy; it causes the emergence of new products and production methods. if the wealth of natural resources can be used correctly in the country, it increases investments and economic growth. the wealth of natural resources can have a positive effect on economic growth when supported by the necessary political and economic programs. for technical development, the importance of socio-cultural factors, basically the mentality, education and working discipline of the country's people should be emphasized. developing new products with technology, improving existing products and making them cheaper is an important force affecting economic growth. the criterion for economic growth in industrialized countries is not the increase in traditional labor and capital inputs; it is attributed to the level of progress in technology. it is thought that the entry of countries into wider markets through trade contributes to the increase of the welfare of the citizens of the country. considering that growth causes increases in a country's per capita income and thus the structure of demand changes, foreign trade will also increase. the scientific contribution of this research is to establish a link between the relevant concepts in the literature. within the scope of this analysis, it is predicted that the ratio of exports to imports will contribute to significant developments in economic growth and welfare in the country. references akiş, e. 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(2016). i̇ktisadi büyüme. ankara: bb101 yayınları. journal of international trade, logistics and law, vol. 3, num. 1, 2016, 43-50 certain legal issues arising practice in container transportation in pratice didem algantürk light (prof. dr.) istanbul commerce university, turkey received: feb. 16, 2017 accepted: feb. 27, 2017 published: june 1, 2017 abstract: in practice, a large proportion of cargo is carried by container transport. containers are often referred to as more than one type of transport and it is important to determine that at which stage of transport the disputes have occurred. damage to container, damage to cargo in container, container detention fees are important legal issues in terms of container transport. in our study, some of these problems were identified in current practice and have been analysed. keywords: container transportation and legal issues 1. preamble containers are strong portable compartments that are designed in types and sizes designated by the international organization for standardization1 are convenient for carrying with sea, land and air vehicles, can be used on a recurring basis and transferred to transport vehicles, and provided with ease of loading and discharge and a special technical mechanism2. containers have different technical structures based on their intended use. for example, break bulk, dangerous cargo, bulk cargo and refrigerated cargo containers have different structures, and different types and sizes of containers are designed according to the properties of the cargo in the international arena. the international organization for standardization has laid down standard container sizes of 20’, 30’ and 40’3. we can list the benefits of using containers in practice as follows4;  ensures safe transport, loading, discharge, transfer, maintenance of commodity by protecting it from all external and environmental factors;  reduces cost as more than on cargo can be carried in the same container.  is time-saving as loading and discharge can be performed more rapidly and faster, and is therefore costreducing.  can be stored outdoors and therefore reduces warehouse costs.  reduces risk of damage to cargo due to fire, sea water and rain water.  saves up in packaging costs.  visiting scholar professor, york university, osgoode hall law school, canada 1 isointernational organization for standardization. please see www.iso.org for detailed information. 17.5.2016. 2 article 1 of the international convention for safe containers ; kaner, i̇. : container transport and legal issues, istanbul 1982 p.3. 3 saygılı, m. s./ erdal m.; “container types and loading”, container maritime and port management, editor: erdal, m., istanbul, 2008, p. 19.-23. ; www.containerhandbuch.de, 30.5.2016. 4 hepgülerler, e.; civil liability of those engaged in maritime container transportation, 1.b., 2011, p. 51.; www.people.hofstra.edu, 30.5.2016. 44 didem algantürk light  is suitable for carrying and maintaining dangerous articles. container transportation also has certain drawbacks, besides its above-stated benefits. among these drawbacks are thefts that are widely encountered due to carriage of valuable cargo in containers, danger of carrying illicit commercial goods, and requirement for high sums of technical materials in loading, discharge and stacking of containers, from a financial point of view, and need to make investments for warehouse locations, land and railway connections5. in the face of these properties and its benefits, container transportation has witnessed a boom since 1960s, leading to construction of special container ships. the usa, uk, sweden, germany, denmark, japan, china are among the countries in which container transportation has witnessed rapid development6. 2. in terms of container safety approval plate and its inspection international maritime organization (imo) adopted international convention for safe containers7 in 1972 in order to ensure safety of life and property during handling, stacking and transportation of containers, to render container transportation easier, and to determine the control and inspection principles for containers, structural and operational requirements and to regulate safety and security issues in the global arena. this convention entered into force on 6 september, 1977. although, in turkey, law no. 6403 on the approval of our accession to international convention for safe containers entered into force after being published in the official gazette dated 31.01.2013 and numbered 28545, effective date of the convention for our country was designated by imo as 8 august, 2014, pursuant to convention article viii(2) following completion of notification procedures8. as per this convention, all containers being transported in the international waters must possess a “safety approval plate” in order to be characterized as safe containers. the safety plate contains information as to: whether the container has passed the safety test set out in the agreement;  when the container has been manufactured;  the date of the next control;  its weight, capacity. see globalspec.com, 17.5.2016 it is important to control whether the container used before and after loading during transportation has an “approval plate”. thus, the port authorities, container manufacturers, container owners, masters of ships carrying containers, classification societies are required to ensure that the containers are in compliance with this convention within their own fields of activity and authorities. in this scope, the first inspections of newly manufactured containers has been 5 www.containerhandbuch.de, 30.5.2016. 6 for further information on historical background of container transportation, please see kaner, p. 15.; hepgülerler, p. 47 et seq. 7 international convention for safe containers (csc). 8 implementation directive of the ministry of transportation, maritime affairs and communication dated 22.8.2014 and numbered 2014/27, http://imo.udhb.gov.tr/dosyam/dokumanlar/2014_270.pdf, 17.5.2016. certain legal issues arising practice in container transportation in pratice 45 carried out within maximum 5 (five) years as from the date of manufacture, and the subsequent periodical inspections within maximum 30 (thirty) months. if a container incurs any damage as a result of an accident or in case of maintenance or modification, inspections must be carried out before the expiration of these periods and certificates must be renewed9. pursuant to article iv/1 of international convention for safe containers: “for the enforcement of the provisions in annex i, the administration shall establish an effective procedure for the testing, inspection and approval of containers in accordance with the criteria established in the present convention, provided however that an administration may entrust such testing, inspection and approval to organizations duly authorized by it.” turkish lloyd foundation economic enterprise has been authorized for this purpose. thus, the testing, inspection and approval of containers manufactured domestically is performed by turkish lloyd. open sea containers are not subject to the provisions of international convention for safe containers as they are designed differently. the inspection, test and approval of open sea containers are subject to the msc/circ. 860 guidelines issued by imo10. in view of this overall legal legislation; in case of a dispute arising with respect to a container damage, it must be principally established whether the said containers have and/or are eligible for approval plate, in other words, whether they are in conformity with the international convention for safe containers. this document constitutes a presumption that the container possesses certain standards and qualities. thus, port authorities, container manufacturers, container owners, masters of ships carrying containers, terminal operators rendering service to these ships and classification societies must satisfy all standards required to ensure compliance of each carried container with the legislation issued by imo11. 3. applicable provisions in case of containers carried by multimodal transport multimodal transport is the transportation of goods under a single contract with minimum two different modes of transport. the carrier is liable for the entire carriage of the goods even though its transportation to the point of destination by different modes of transport. multimodal transport is governed by articles 902 to 905 in chapter four of book four under “freight transport” of the turkish commercial code (tcc). if the transporter undertakes to carry the containers by minimum two modes of transport under a single transport contract, articles 850 to 893 of the tcc shall be put into practice pursuant to article 902 of the same. however, in this mode of transport, articles 903 and 904 of the tcc as well as the provisions of international conventions that must be implemented in present dispute shall rank in priority in implementation12. if it is evident in which part of transport the event causing loss, damage or delay in delivery has occurred, the transporter’s liability, pursuant to article 903 of the tcc, shall be established according to the provisions that would govern such contract, if a separate transport contract was entered into for this part of transport, rather than the provisions of the first and second chapter, namely articles 850 to 893. in this case, it shall be subject to the provisions of cmr if the transport is carried out by land, to cim if by railway, to hague convention if by sea, and to montreal convention if by air. 9 implementation directive of the ministry of transportation, maritime affairs and communication dated 22.8.2014 and numbered 2014/27, http://imo.udhb.gov.tr/dosyam/dokumanlar/2014_270.pdf, 17.5.2016. 10 implementation directive of the ministry of transportation, maritime affairs and communication dated 22.8.2014 and numbered 2014/27, http://imo.udhb.gov.tr/dosyam/dokumanlar/2014_270.pdf, 17.5.2016. 11 implementation directive of the ministry of transportation, maritime affairs and communication dated 22.8.2014 and numbered 2014/27, http://imo.udhb.gov.tr/dosyam/dokumanlar/2014_270.pdf, 17.5.2016. 12 tcc article 902 1/d “unless otherwise is stipulated in the following provisions and applicable international conventions”. 46 didem algantürk light 4. the carrier’s liability upon receipt of cargo in terms of the types of container transportation in terms of the types of container transportation, it is crucial to establish the receipt time of cargo by the maritime transporter in respect of the beginning of maritime transporter’s liability. it is widely seen that in the event of claims for container damage or claims for damage to cargo carried in the container, the action is filed with the maritime transporter with the allegation that the maritime transporter is directly liable for the claim. however, this claim of animosity may not always be true. because, principally, it must be established which transporter was responsible when the damage occurred according to the type of container transportation. in container transportation, the cargo is picked up from a predetermined location and carried to a port, or picked up from a port and carried to a predetermined warehouse or workplace on land. in this respect, container transportation is carried out by means of either door-to-door transport, point-to-point transport and port-to-port transport. in terms of maritime transporter, delivery is the pickup of container with full load for carriage by sea. thus;  in door-to-door transport; if the container full of load has been previously picked up from the seller’s warehouse and carried by land or railway or air, delivery to maritime transporter occurs at the port.  in point-to-point transport; the container full of load is picked up from a predetermined location and, after carriage by sea, is delivered to a specific location on land where the container is opened and the cargo is distributed.  in port-to-port transport; the container full of load is picked up at the port and shipped from this port to an overseas port. in all of the above-mentioned three types of transport, delivery to maritime transporter occurs by pickup of the cargo at the port for carriage by sea. unless the maritime transporter further undertakes that it is also liable for previous transports, no liability arises on the part of the maritime transporter in relation to the damage incurred by the cargo during these transports. 5. the effect on maritime transporter’s liability of the bill of lading clauses in container transportation in container transportation, in order to establish the transporter’s liability, the following information must be identified: • the owner of the container, • where and by whom the cargo is loaded into the containers, • whether the transporter knows the details of the cargo in the container, • who witnessed the closing and sealing of the container, • whether the container was opened during carriage, • at which stage the damage has occurred. in order to identify these issues, the bill of lading used in transport must be examined. for example, as per fio/fios clause on the bill of lading, although it is decided that the transporter has no liability arising from loading, stacking and discharging, from these processes, the shipper shall be liable for loading and the consignee shall be liable for discharging, the supreme court of appeals agrees that the shipmaster is required to pay due care to proper conduct of the above-mentioned procedures; that, essentially, loading and stacking are obligations carried out by the shipmaster representing the ship-owner; that the shipmaster must supervise stacking process even if the loading is entrusted to other parties under a contract, and must conduct an inspection in terms of balance and safety of the ship; that the shipmaster has the preeminent obligation of supervision to ensure the seaworthiness of the ship, and where fios clause is in place, to supervise whether the stowing process is carried out as required; that fio/fios certain legal issues arising practice in container transportation in pratice 47 clause may not remove the mandatory provisions of new tcc art.1178); and that if the shipmaster fails to fulfil his duty of supervision as a prudent master, carrier shall be liable in respect of the damage that occurs13. during the stowing of the container on the board, the shipmaster holds liability pursuant to article 1090 of the tcc and, as the shipmaster represents the carrier, the carrier holds liability arising from stowing. in container transportation, containers are generally sealed after stowing the cargo in them and delivered to maritime transporter. on the bill of lading, “sealed” clause is placed after specifying the container number and properties of commodities in the container. this clause constitutes the presumption that the container is sealed and accepted. however, this clause is not sufficient. thus, fcl/fcl (full container load), “shippers load stow and count” clauses are also noted on the bills of lading. in this case, stowing on container is performed by the shipper and the containers are delivered to the transporter in sealed state. it is the shipper’s responsibility to stow the cargo in a container that is fit for the container’s properties and conditions of the journey and pack it in proper conditions. in case of negligence of the shipper during all these activities, it is impossible for the shipmaster to find it out. in this case, the shipmaster’s obligation of supervision is not applicable and carrier shall not liable for placement, stowing and loading of the cargo in the container under the article 1090 of the tcc. for example, if it is found out that the damage to the cargo in the container arises from the fact that the commodities were not properly stowed in the container and/or were not fixed to prevent its sliding movement, the carrier may not be held responsible from this stage. in case the container is stowed by the carrier, the bill of lading shall not have fcl/fcl (full container load) and “shippers load stow and count” clauses. however, if the cargo is packed or packaged, the bill of lading shall note “unknown content” clause and the liability of the carrier shall consider for the number of packages. in container shipping, loading starts with the installation of the container to the crane for shipping it on board and loading is handled by the stevedores. if the container is damaged during this stage, the carrier’s liability should not be considered under articles 1178 and 1179 of the tcc. as the stevedores engaged in loading and discharging are not crew or carrier’s men, the liability should be considered under article 116 of the code of obligations14 which regulates the liability of associates15. 6. container detention charges and liability as owner of the container will use the container for other transports, it requests the consignee to empty and return the container within a certain period of time. a period of time allowed for the consignee to return the container empty is generally agreed as “free time” and if these periods are exceeded, the consignee is requested to effect the payments that have been agreed. free time is the period from the day of release of the full containers from the ship up to the day of discharge of the goods from the containers. after this period, carrier is paid detention charges. in practice, “container demurrage” derived from the term “demurrage” which is paid upon delay in ships. the container demurrage is essentially the “detention fee of the container”. thus, in many disputes, the question of “from which stage the detention fee claimed by the carrier arises” creates confusion. the container may be owned by the shipper or may have been leased by the shipper (lesseelessor/ contractual relationship) or may be owned by the carrier or may have been leased by the carrier. the entitled party of the 13 y. 11. h. d., 10.02.2004, 2003/6236e., 2004/1043k.; y.11. h.d. , 10.10.2006, 2005/6756 e., 2006/10079 k.; y. 11. h.d. 29.12.2014, 2014/9903 e. 2014/20435 k. 14 turkish code of obligation article 116 : “even if the obligor commits the performance or the use of rights related to obligation to the associates such as people living together with him or his workers in accordance with the law, he shall be liable to compensate the damages caused by them during the performance of the business. the liability for acts of associates may be lifted fully or partially by agreements in advance. if a service that requires specialization a profession or an art can only be performed by the permission of law or competent authority, the agreements on exclusion of obligor’s liability for acts of associates in advance are definitely v oid. ” özel, ç.: turkish code of obligations, ankara 2014, p. 161. 15 kaner, p. 68. 48 didem algantürk light container detention fee should be considered based on these options. if the container is supplied by the carrier; there must have been agreement between the carrier and the debtor in order to the carrier can be entitle to ask for detention fee due to return of the container to the carrier after the agreed “free time”. the related arrangement may be incorporated in the bill of lading or in the freight contract between the parties. however, in cases whereby the parties have not entered into an agreement in this regard, port-to-port transports shall be governed by articles 1174 and 1176 of the tcc. as a matter of fact, the container is considered as general cargo16 in the sense of article 1138/2 of the tcc. in this case, the cargo must be picked up without delay upon the shipmaster’s notice. therefore, the consignee must receive the container without delay as from the receipt of notice and discharge the container and return the container to the carrier. if the consignee violates of this obligation, for example if the consignee refrains from receiving the cargo or fails to notify whether he is ready to take delivery of the cargo upon written notice or he cannot be found, the carrier is required to deposit the cargo at the expense and risk of the consignee pursuant to article 107 of the turkish obligation code17 . where the characteristics of the cargo is not proper to deposit of or the cargo is perishable or maintenance, protection or deposit of the cargo is significantly expensive, the carrier may sell the cargo with the consent of the judge and deposit the sale proceeds on condition to notify the consignee in advance pursuant to article 108 of the turkish obligation code18. on the other side, pursuant to article 1207 of the tcc, if the consignee does not use his right to take possession of the cargo, the shipper shall be liable for payment of the freight and other claims (such as demurrage) which arise under contract of affreightment. the consignee shall be liable for the container detention fee only if the consignee receives the cargo. in this case the shipper shall be released from this obligation19. the consignee must acquire direct or indirect possession of the cargo. for example, if the consignee’s authorized representative has received the mate’s receipt or/and filed legal applications for the customs data and documents on behalf of consignee, then it means that the cargo is received by the consignee. the consignee shall be liable for the container detention fee arising from events occurring in the consignee’s field of activity. for example, the delay occurs due to legal procedures in the terms of the properties of the cargo at the port of arrival is excluded from the carrier’s field of liability. as the cargo considered under the carrier’s control until the time of delivery of the cargo to the mandatory authorities, his liability shall continue until such time. the conditions related to container detention fee must be mainly printed on the bill of lading. the consignee must have knowledge of the applicable tariff. however, in practice, it is generally seen that neither the bill of lading nor its attachment contains container demurrage/detention tariff. in case of disputes, the calculation is made as a result of examination of the correspondence between the parties and the precedents tariffs. the invoices issued in the name of the debtor are not sufficient alone to prove the claims for container detention fees. the legal basis underlying the claim must be principally analysed. thus, in order to calculate delay fee for each container, the date of delivery of the containers to the consignee and the date of discharge and return of the container must be proven separately for each container. for example, “arrival notice” indicates arrival to the port of discharge and “delivery-receipt documents” which indicate return of containers are the documents which can prove the claim. 7. obligation to inspect and notify of damages to containers and cargo in containers 16 a box which has various kinds of things inside. şeker, ö.; “the supreme court of appeal’s practice that consignee’s liability for the demurrage fee (container detention fee) despite non-receipt of the cargo”, istanbul university faculty of law periodical (i̇ühfm), v. lxvi, p. 337-342, 2008, www.journals.istanbul.edu.tr, 27.5.2016. 17 özel, p. 154 18 özel, p. 155 19 şeker, ö.; “the supreme court of appeal’s practice that consignee’s liability for the demurrage fee (container detention fee) despite non-receipt of the cargo”, istanbul university faculty of law periodical (i̇ühfm), v. lxvi, p. 337-342, 2008, www.journals.istanbul.edu.tr, 27.5.2016. certain legal issues arising practice in container transportation in pratice 49 pursuant to article 1184 of the tcc, before receipt of the cargo by the consignee, the carrier, shipmaster or the consignee may have the state and condition of cargo examined in order to determine the size, amount or weight by the court or other competent authorities or by the authorized specialists for this purpose and pursuant to article 1185 of the tcc, damage and loss must be notified within maximum three days to be consecutively calculated as from the date of delivery of the cargo to the consignee. in practice, in container transportation, cargo damages notification is served earliest after the opening of the containers at the warehouse of the consignee and examination of experts appointed by the insurance company. this procedure generally takes more than three days. in this case, it is assumed that the consignee has failed to fulfil its obligations of examination and notification pursuant to article 1184, 1185/1 of the tcc and the carrier has delivered the cargo to the consignee as stated on the waybill and if there is any damage, the damage has occurred from a reason for which the carrier is not responsible. in this case, for example, the damage is considered to have occurred,  at the port waiting queue,  during loading of containers to the truck,  during land transport,  during discharge from the truck  at the consignee’s warehouse. these presumptions must be rebutted by the plaintiff/consignee. when evaluating the reasons for the container damage and/or cargo damage in the container, it will also be useful to make a final evaluation on the two important cases that we have encountered in practice. firstly; if in-container loading and unloading is conducted at customs bonded areas at the port, despite the requirement to conduct incontainer stacking and unloading activities directly via specialists, it is generally seen in practice that customs brokers are present during these stacking and unloading activities. in this case, duty of care to the cargo is not generally performed duly and the period of notifications cannot be fulfilled on time due to inability to determine damage to cargo in a timely manner. secondly; container cargo may occasionally wait for a long time at open sea ports. at this time, containers may seriously get wet due to air and sea conditions. thus, before concluding that the carrier is liable for the damage as a result of the silver nitrate test conducted in the container, it must be determined how long the container has waited at the port and under what conditions. in fact, due to invisible holes in the containers, rain water and sea water might have penetrated into the containers. in such cases, the leakage may only be determined by an inspection of the containers such as soaking the containers into a special pool20. references hepgülerler, e.: civil liability of people taking part in container transportation by sea, ankara 2011. kaner, i̇.: container transportation, istanbul 1982. özel, ç.: turkish code of obligations, ankara 2014 . özgen, h. : “container repair and maintenance operations”, container sea and port management (editor erdal m.), istanbul 2008. saygılı, m. s./ erdal m.; “container types and loading”, container sea and port management, editor: erdal, m., istanbul, 2008. şeker, ö.; “on the supreme court of appeal’s practice that the address is liable for the demurrage fee despite non-receipt of the cargo”, istanbul university faculty of law periodical (i̇ühfm), v. lxvi, p. 337-342, 2008, www.journals.istanbul.edu.tr, 27.5.2016. www.containerhandbuch.de, 30.5.2016. 20 özgen, h. : “container repair and maintenance operations”, container sea and port management (editor erdal m.), istanbul 2008, p. 280 et seq. 50 didem algantürk light http://imo.udhb.gov.tr/dosyam/dokumanlar/2014_270.pdf., 17.5.2016. www.iso.org, 17.5.2016. www.globalspec.com, 17.5.2016. www.people.hofstra.edu, 30.5.2016 journal of international trade, logistics and law, vol. 3, num. 1, 2017, 63-76 the notification made to the agent safa koçoğlu istanbul university, faculty of law, department of private law, turkey received: mar. 24, 2017 accepted: apr. 12, 2017 published: june 1, 2017 abstract: individuals can not only follow their legal transactions themselves, but also can appoint agents for these transactions. by thinking this possibility, the law maker regulated the procedural actions done against the people who follow the legal action about an individual himself. in our work, following will be mentioned; the concept of representation and the scope of deputation, in works which are followed by an agent under which circumstances notifications should be made for an agent and principle, the result of the notification made for the assistant and/or intern of the agent or in a situation where being represented by more than one agent. lastly, the sanction of not obeying notification law 11th article will be stated. keywords: notification, representation, reputation, administrator, notification law 1. introduction notice means annunciation, recital, announcement, and informing. it is process that a citation or a written order is delivered to acceptor and in return, relevant person is informed about the subject-matter by receiving his/her signature. notification is an official act made on the purpose of informing persons, who are influenced by the legal results of a transaction or a movement, about this transaction or movement and documentation of this informing1. as a consequence of this movement or transaction, relevant person can be entitled to rights or liabilities and prohibitions can be arisen for this relevant person. the person who is affected by all of them is acceptor or answerer2. in accordance with the principles of fair hearing, right to defense, right to be heard, hearing in a reasonable time, and procedural economy, notification must be duly made in time. each of the rights mentioned constitutes basis of adjuratory procedures, and they are codificated as peremptory rules in our several codes. the right to be heard which is a part of fair hearing and is reflected in notification expresses that persons have to be informed about legal transactions started. being able to use this right depends on notification which is duly made3. each of parties follows proceedings on one’s own or via an agent. in lawsuits pursued by the agent, every transaction is made to agent instead of principal. in our work, generally, notification and results of notification made to agent in conjunction with several supreme court decisions will be explained after mentioning the relation between principal and agent. 1i̇lhan e. postacioğlu, medeni usul hukuku dersleri, i̇stanbul: sulhi garan matbaası, 6.bs, 1975, s.478; saim üstündağ, medeni yargılama hukuku, c i.ii, i̇stanbul 2000,s.427; hakan pekcanitez, oğuz atalay, muhammet özekes, medeni usul hukuku, 14. bs., ankara, yetkin yayınları, 2013, s. 168. 2baki kuru, ramazan arslan, ejder yilmaz, medeni usul hukuku, 20.bs, ankara, yetkin yayınları, 2009, s. 795; nesibe kurt konca, “türk hukukunda tebligata i̇lişkin güncel sorunlar ve çözüm önerileri”, tbb dergisi, 2014/114, s. 240. 3muhammet özekes, medeni usul hukukunda hukuki dinlenilme hakkı, ankara, 2003, s.98. 64 safa koçoğlu 2. literature review 2.1. the concept of representation and the scope of mandate: 2.1.1. in general each of parties follows proceedings on one’s own or via an agent. what really matters is that legal transactions are made by persons themselves. however, this may not be possible due to other reasons or relevant person can use this right by assigning someone or some people4. taking care of these possibilities, the legislator has settled regulations related to legal transactions made by representative in the art. 40 of the turkish code of obligations and later on. there are two types of representation in lawsuits and procedures: legal representation and voluntary representation. legal representation is that in lawsuits, those not having legal capacity are represented by legal representative. on the other hand, voluntary representation is that representative follow proceedings upon represented person’s will. representation is a unilateral legal transaction. to been able to founded representation, it is not necessary that there is a contract between representative and represented, nevertheless, in general, authority to represent is given by agent contract5. while agent contract is settled in the art. 502 of the tco and later on, power of agent is settled in the art. 71 the code of civil procedure and later on. the art. 72 of the ccp refers to the articles related to representations in the tco. 2.1.2. the relation between authority to represent and agent contract authority to represent is independent from agent contract. invalidity of agent contract does not mean invalidity of authority to represent6. thanks to authority to represent, representative acts in the name of represented and settles external relation with third person in the name of represented. agent contract regulates internal relation between agent and principal, and brings legal liabilities to agent7. provisions related to agent contract are found between art. 502 and art. 514 of the tco. the contract between agent and principal predicts that agent has responsibility to act in accordance with principal’s will and favor. agent’s obligation of acting cannot be restricted with time limit and not reaching willed consequences is not agent’s responsibility. agent contract is consensual and bears perdurable obligation. furthermore, it is not a perfectly bilateral contract, since performance related to fee is not one of essential facilities, in other words, fee is taken if it is settled on the contract or practice8. provided that parties determine paying fee in accordance with contract or practice, the contract becomes a perfectly bilateral contract. in addition, authority to represent is bounded with time limit, whereas agent contract cannot be bounded9 with a time limit. agent incurs obligation of acting notwithstanding a time limit10. furthermore, we think it is beneficiary to mention that the concept of attorney agreement differs from agent contract and authority to represent. attorney’s agreement is a new concept and it is not regulated clearly in laws. art. 164 of the no. 1136 attorney’s act, there is the concept of “wage agreement”. however, it does not seem to be possible to say that this article describes attorney’s agreement. 4kuru/arslan/yilmaz, s.257; abdurrahim karsli, medeni muhakeme hukuku ders kitabı, i̇stanbul: alternatif, 2.b, 2011,s.308. 5haluk tandoğan, borçlar hukuku özel borç i̇lişkileri, c.ii, ankara 1987,s.182. 6fikret eren, borçlar hukuku genel hükümler, i̇stanbul: beta, 10.bası,2008,s. 399; kemal oğuzman, turgut öz, borçlar hukuku genel hükümler, 5. b, i̇stanbul 2006, s. 171. 7tandoğan, s.183; fahrettin aral, borçlar hukuku özel borç i̇lişkileri, 7. b., ankara 2007,s.396; eren, s.398; oğuzman/öz, s.171; kuru/arslan/yilmaz, s.262; şakir berki, borçlar hukuku özel hükümler, ankara, 1973,s.156. 8cevdet yavuz, türk borçlar hukuku özel hükümler, 7. baskı i̇stanbul 2007, s. 608; tandoğan, s.356; fahrettin aral, hasan ayranci, 6098 sayılı türk borçlar kanunu’na göre hazırlanmış borçlar hukuku özel borç i̇lişkileri, 9. baskı ankara 2012, s. 387. 9oğuzman/öz, s. 178. 10tandoğan, s. 182; yavuz, s. 608. the notification made to the agent 65 attorney’s agreement is an onerous, sui generis and synallagmatic contract that primary obligation is legal aid and the matter of legal aid is described in the art. 2 and art. 35 of the attorney’s act. the scope of agreement is determined by parties. its subject is performing a specific work or serving. advocacy may be performed by persons having monopoly right according to the art. 35 and art. 63 of the attorney’s act11. even if attorney’s agreement and agent contract resemble each other in terms of a lot of facilities, they have different facilities in terms of fee, written form requirement, liabilities of parties, shutdown, and retirement. agent contract in comparison with attorney’s agreement is in a general character. the boundaries of attorney’s agreement are determined according to the attorney’s act. provisions of agent contract in the tco may be implemented about subjects that are not regulated in attorney’s act. 2.1.3. the scope of mandate the art. 504 of the tco that settles the scope of mandate holds that the scope of mandate is determined according to the quality of act, if it is not frankly predicted in the contract. if the scope of mandate is taken into consideration, there are two types referred to as general and special. if it is containing of authority to perform all kind of legal transactions that legal order allows without any restriction, except donation and sale, there is general mandate12. if it is containing of authority to perform one or more particular act, there is special mandate. agent entitled with general mandate can fulfill ordinary legal transactions. he/she has to be authorized specifically in accordance with the art. 504 of tco to be able to sue or defend in the name of her/his principal in a lawsuit13. as regards the procedural law, this difference refers to as general warrant of attorney and special warrant of attorney14. the scope of attorney ship is that principal gives authority against third parties to agent. moreover, it is to state that issuing warrant does not mean there is an agent contract between agent and principal. it only denotes agent has authority to represent principal, so agent does not have any obligation. provided that person sets warrant for agent to represent him/her in all lawsuits that principal sues or is tried, there is general warrant of attorney. if principal sets warrant for agent to follow one or more particular case, there is special warrant of attorney15. as setting general warrant does not give liberty to act without principal’s knowledge and prescription, agent does not have to represent principal in each lawsuit brought in the name of principal16. in lawsuit brought against client, it must be obtained permission in order to be able to notify general attorney of lawsuit petition 17. additionally, lawsuit petitions brought against client must be notified per say client so that person can choose agent whom he/she wants represent oneself18. 11meral sungurtekin, avukatlık mesleği avukatın hak ve yükümlülükleri, (tez),ankara üniversitesi sosyal bilimler enstitüsü, 1994, s.167; ahmet i̇yi̇maya, temsil yoluyla bağıtlanan avukatlık sözleşmesi i̇çin özel yetkinin varlığı zorunlu mudur? tür. bar. bir. der. 1993 s.3-4. 12eren, s.400; oğuzman/öz, s.176; tandoğan, s.218;kuru/arslan/yilmaz, s.263. 13baki kuru, hukuk muhakemeleri usulü, c., ii, 6. b., i̇stanbul 2001, s. 1252; üstündağ, s. 403; kuru/arslan/yilmaz, s.263. 14kuru/arslan/yilmaza, s. 263; pekcanitez/atalay/özekes, s. 198. 15kuru/arslan/yilmaz, s. 263. 16postacioğlu, medeni usul hukuku dersleri, s. 325;üstündağ, s. 404. 17üstündağ, s. 404; postacioğlu, medeni usul hukuku dersleri s. 325; kuru/arslan/yilmaz, s. 269. 18postacioğlu, medeni usul hukuku dersleri, s. 325 vd. 66 safa koçoğlu 2.2. notifying agent in acts followed by agent notification is made to the last known address of acceptor whom notification will be made19. art. 11 of notification law brings that notification is made to agent in acts followed by agent. this provision is compulsory20. according to the art. 35(1) of the attorney’s act, it is necessary that warrant settled by notary in the name of attorney registered in the bar, in case of that persons are represented by agent in lawsuits or executive proceedings. in the file which does not consist of warrant in the name of attorney, notification cannot be made in the name of agent. perchance it is made; it is easy to reach the result of invalidity of notification21. notification is made to the address written in the warrant22. agent who does not present his/her original warrant or certified copy of it cannot perform any procedural action or sue. exceptionally, in case of damage arising from delay, the court can consent proceedings by agent on the condition of that presentation of warrant in a time limit determined by the court. the possibility to miss response time in a lawsuit filed or to pass foreclosure or prescription in a lawsuit that will be brought until preparation of warrant can be given as examples to situations that damage arise from delay. nevertheless, if warrant is not given in determined time limit or principal does not present a petition showing acceptation of actions made by agent, proceedings are deemed not to have occurred23. warrant must be duly issued. in accordance with the art. 27 of attorney’s act, the bar stamp which must be founded on warrant is not attached to warrant, proceedings cannot be established. in prescribed time, if the deficiencies are not remedied, notification has to be made to principal24. notification must be made to agent’s true address25. otherwise, notification is unlawful. decision given before getting to know consequence of notification is illicit. notification address of attorney cannot be expressed as bar 19kuru/arslan/yilmaz, s.798; seyithan deliduman, tebligat hukuku bilgisi, ankara: yetkin yayınları,2002 s.23. 20yarghgk11.5.2005 e. 2005/3-304 k. 2005/326 vb bkz; yarg.cgk. 24.3.2009,5-56/70, yarg. 14.hd. 20.3.2009,703/3547,21.hd 16.3.2006,13340-2438, yarg. hgk.11.05.2005, 3-304/326, bkz., kazancı i̇çtihat bilgi bankası. 21“…lawsuit petition was notified to attorney although whether the attorney is agent defendant creditor cannot be understood. in the files, there is not warrant expressing attorney is agent of the defendant creditor in lawsuit. in this case, since judgment without duly notifying the principal of lawsuit petition and assigning the party restricted right of defense there is procedural mistake and decision given by judicial authority considering of the merits is contrary to the law and procedure.” yarg. 15.hd19.3.1990, 7/1207. “… participated in following process….belonging to the agent… dated a copy of warrant has been presented in the file. in this case, it is compulsory that laegal document is notified obligator in accordance with the art. 11 and art.41 of the notification law…”21 yarg. 12hd.20..1987, e.3397,k.367, vb bkz; yarg. cgk 27.11.2007,9-175/250; yarg. 2.hd 21.01.2003, 14475/648, yarg. 2.hd 17.02.2003,735/1914, bkz., kazancı i̇çtihat bilgi bankası. 22timuçin muşul, tebligat hukuku, i̇stanbul: güncelleştirilmiş genişletilmiş 4. baskı, adalet yayınevi, 2012,s.144; ahmet uğur turan, tebligat hukuku tebligat suçları ve i̇lgili mevzuat, ankara: seçkin yayıncılık,2006,s.110; karsli, s.398;” notifying principal is contrary to the law whereas notification is made to agent authorized for following the lawsuit at every stage.” i̇bk.1.7.1940, 7/75, bkz., kazancı i̇çtihat bilgi bankası.; yilmaz/çağlar, s.192204; yarg. 15. hd.19.3.1990, 7/1207. 23 karsli, s.398; kuru/arslan/yilmaz, s. 265. 24“…on the warrant given by plaintiff’s and defendant’s counsel bar stamp is not found. pursuant to the art. 27 of the aa chang ed with the law no. 4667 these warrants cannot be basic of transactions to remedy the deficiencies notifying the agent in present of ten days peremptory term; otherwise, notifications made become invalid and novating them making to the principal…” yarg.2.hd. 23.3.2009, e.2009/581 k.2009/5272, bkz., kazancı i̇çtihat bilgi bankası. 25ahmet cemal ruhi, tebligat hukuku, ankara: seçkin yayıncılık,2006,s.361;“…notifying an address different from address presented in the lawsuit petition, ordering nonsuit without any information and document about receiving notification and the notification made to the agent 67 where attorney belongs to since attorneys have to have office. their notification addresses are their offices addresses. if notifications are returned from address stated by attorney, address research is asked for the bar where attorney belongs to26. if notification is not made to agent due to change of entitled agent’s address, notification must be made to new address in the direction of bar’s answer asked for bar by research per curriam27. as required by the art. 38 of notification law in lawsuits followed by agent, agents can make a notification to the other against receipt. in accordance with the art. 56(4) of the attorney’s act, attorneys, in actions substituted, can notify the other party of legal paper and documents through relevant judicial authority without any decision of this judicial authority. a copy of notified papers and documents is attached to relevant judicial authority’s file on condition of paying compulsory levy, tax and charge28. to illustrate, one of parties’ agents can notify opposing party’s attorney of papers related to lawsuit. since general agent does not have liability to represent the principal for each lawsuit, general agent cannot be managed to accept every notification29. for this reason, in terms of present lawsuit, it is useful that notification is made to defendant principal until whether general agent follow the lawsuit or not is clear30. in case of that general agent does not accept notification, notification will become null31. for notifications made to the government and relevant public legal person, answerer is treasury solicitor 32. novation petition and invitation of hearing which denotes date of hearing are notified attorney. if attorney’s office is not in judicial locality, notification of invitation is made by rogatory court33. hearing…” yarg. 6.hd 18.4.1980, 12343/3525,vb bkz; yarg.12.hd. 12.10.2010,e.2010/23961 k.2010/22949; yarg. 11.hd. 6.5.2002,e.2002/656, k.2002/4347, bkz., kazancı i̇çtihat bilgi bankası. 26yilmaz/çağlar s.208. 27muşul, tebligat hukuku,s.155;.“…notification of preliminary proceedings report is refunded obligator’s counsel with paraphrase of moving out of the address, so it is understood that notification is made to the same address pursuant to the art. 35 of the notification law; however, owing to necessity for attorneys to registered in a bar, obligator’s attorney’s address must be asked for the bar by the court and notification of preliminary proceedings report must be made to last known address in accordance with the provisions of the notification law…”12.hd. 11.09.2012 7456/25972; vb bkz;; yarg.19.hd 9.3.2006, e. 2006/6990 k.2006/2329; yarg.19hd. 18.2.2008, 10648/1394; yarg.11hd 13.4.2006,1907/4740,bkz., kazancı i̇çtihat bilgi bankası. 28muşul, tebligat hukuku, s.80; turgut uyar, i̇cra tebliğleri (i̇i̇k. 21), abd, 2013/4, s.159. kuru/arslan/yilmaz, s.796. 29üstündağ, s. 404; postacioğlu, medeni usul hukuku dersleri,s.325; kuru, b./arslan, r./yilmaz, e, s.263. 30“…assignment of a person as general agent, there is no liability follow all lawsuits without the principal’s order… hence, notifying attorney a. as defendant’s counsel and continuing hearing despite the prevention is contrary to the law and procedure…” yarg. 2.hd 7.6.1971,3771/3698;“…authorizing agent with general mandate, without client’s order liability to follow all lawsuits cannot be given to the agent. for instance, obligator commenced execution proceedings even if he/she rejects proceeding via the agent, in terms of withdrawal of appeal brought by creditor since whether obligator’s agent is authorize to follow this lawsuit or not lawsuit petition must be notified the principal instead of proxy. otherwise, duly assignment of the party cannot be provided. thus, whether a proxy have authority to represent or not it must be researched by the court ex officio…” yarg.15.hd 02.11.2004 2004/2041e. 2004/5550k.,bkz., kazancı i̇çtihat bilgi bankası. 31timuçin muşul, medeni usul hukuku, ankara: adalet yayınevi,2012,s.218; turan, s.111; yilmaz/çağlar s.210;muşul, tebligat hukuku, s.144; kuru/arslan/yilmaz, s. 800. 32yilmaz/çağlar, s.212; turan, s.111;“…treasury has been represented by the attorney in the lawsuit. writ as not notified treasury solicitor. decisions given as a result of the lawsuit followed by the attorney must be notified attorney pursuant to the art. 11 of the notification law. it is contrary to the law that notifying bookkeeper of the writ without certification of predicted conditions in defiance of the art. 13 of the notification law…” yarg. td 27.6.1967, 1961/1765. vb bkz;yarg. 7.hd 14.2.1974, 8598/647; bkz., kazancı i̇çtihat bilgi bankası. http://66.221.165.113/kho2/ibb/files/15hd-2004-2041.htm 68 safa koçoğlu 2.3. notification in case of that more than one agent is founded in case of that person is represented by more than one agent, it is enough that notification is made to one of these agents. art. 11(1) of the notification law holds that if notification is made to more than one agent, date of first made notification is deemed to principal date of notification. perchance notification is made to more than one agent, first made notification is taken as a basis. legal consequences depending on notification result beginning from date of first made notification34. there is no notification requirement for all agents. if each notification date had been taken as a basis, arisen rights in favor of opposing party would have been lost owing to expiration35. that in lawsuits followed by more than one agent, date of first notification is taken as beginning of legal proceeding for opposing party is legal arrangement available to procedural economy and execution of speed and operational functions. otherwise, in terms of part represented by more than one agent that each of notifications is beginning of counter legal proceeding for other party is tiring and abusive and causes chaos for judicial activities. beginning of legal process with first notification is available to conduct of judgment and provides speediness. provided that more than one agent establishes mandate relation, notification is made to agent on duty at date of notification36. in accordance with the art. 75 of the ccp, if more than one agent is assigned in a lawsuit, each agent can exercise power given to him /her independently and separately from other agents. contrary restrictions are invalid in terms of other party. in case of that more than one agent is given power at the beginning of lawsuit, each of them may execute procedural actions as regards power on their warrant independently of each other. however, in case of that a different agent is later assigned in the same procedural action or lawsuit, principal has to receive written approval from first agent. principal can demand this permission by writing a script which will be notified or submitted and giving at least a week duration. agent is deemed to consent, if he/she does not give any answer in the meantime. when agent does not give approval, warrant of first agent is expired and agent is entitled to gain fee according to 33muşul, tebligat hukuku, s.153;“…11.12.2003 dated novation petition and invitation of hearing notified t… dayanıklı tüketim malları san. ve tic. ltd,şti. however, since in actions followed by the agent notification must be made to agent according to the art. 11 of the notification law and this provision is peremptory, notifying the principal is not deemed to be valid. ( 10.07.1940 and no. 7/75 decision of joint chambers). according to the clear provision of the art.73 of the ccp, the court cannot decide without hearing or giving invitation for parties to annunciate their pleadings and defense except particular situations predicted by the law. for this reason, it is compulsory that in compliance with the provisions of the notification law and the relevant regulation novation petition and invitation of hearing are notified mentioned defendant to be benefited from right of defense explained in the art. 36 of the constitution. delivering a judgment in written form by continuing the hearing in the absence of the defendant and ignoring this aspect concerning public order is contrary to the law and procedure and this is the reason of annulment…” yarg21.hd.16.3.2006, e.2005/13430,k.2006/2438;vb bkz.yarg. 6.hd 24.4.2006,e.2006/2213, k.2006/4389.,bkz., kazancı i̇çtihat bilgi bankası. 34muşul, medeni usul hukuku, s.217;muşul, tebligat hukuku, s.142; turan, s.111; halil kiliç, hukuku muhakemeleri kanunu, ankara: adalet yayınevi,2011,cilt1,s.1224; kuru/arslan/yilmaz, s.270;“in lawsuits followed by agent, notifications are made to agent (no. 7201 art. 11 of the notification law). if there is more than one agent of a person, it enough to notify one of them. there is not necessity to notify all of them. in case ıf that notification is made to more than one agent, date of first notification ise deemed to be the beginning of applying right to appeal. therefore, prescribed terms starts to lapse. otherwise, time lapse causes damage of rights arisen in favor of the other party…”yarg. 2.hd. 6.6.1978 e. 1978/4236 k.1978/4546; vb bkz; yarg.2.hd 16.6.1986, e.1986/3954, k.1986/5995; yarg.11.hd. 5.2.2007, e. 2005/13969 k.2007/1274; yarg. 2.hd 16.6.1986, e.1986/3954, k.1986/5995.; 351.hd 08.03.1994 t. e.1994/7364 k.1994/2972, bkz., kazancı i̇çtihat bilgi bankası. 36yilmaz/çağlar, s.222;“…in acts followed by agent, it is enough to notify one of them, if there is more than one agent (the art. 64 of the ccp, the art. 11 of the notification law). in concrete case, the attorney who wants to participate in the lawsuit as the plaintiff later wanted to be notified decision to the address written in the petition by stating to appeal before the notification of the decision. this attorney of the plaintiff cannot accept notification made to former attorney as valid after this attorney revealed his/her will and wanted to be notified the decision. besides, the court needed to notify mentioned attorney by taking this situation into consideration. therefore, it has passed to substantial examination by deciding that the plaintiff is in the period of appeal unanimously…” yarg.19.hd. 24.9.1998 e. 1998/4111 k.1998/5480,bkz., kazancı i̇çtihat bilgi bankası. the notification made to the agent 69 art. 172 of the attorney’s act. initially or later, in the case of that more than one agent follows lawsuit with written approval of first agent, each of them can singly follow the lawsuit and fulfill procedural actions37. in accordance with the art. 73(2) of code of civil procedure embodied that restrictor actions aimed at restriction of agent’s power is invalid with respect opposing part, demanding notification from the agent whom principal assigned, for example an attorney in rize, does not concern for notifying authority. this is interested in internal relation between principal and agent38. pursuant to the art. 47 of notification law that brings person representing persons more than one is given a copy of document which will be notified. in so far as, person constituted only for being informed must be given copies as number of persons designee represents, agent who represents persons more than one is given a copy of document which will be notified. however, agent whom power is given only for being informed has to be granted copies of document as number of persons represented39. 2.4. when is notification made to agent the provision that in actions followed by an attorney notifications made to the attorney’s office are made in official work days and hours is predicted is added to the art. 11 of the notification law with no. 6099 notification law and law about amendments to some laws. in addition, the art. 18 of the ordinance about applying of the notification law dated of 25 january 2012 brings that in acts followed by agent, notification is made to the agent and notifications made to the agent’s office are made in official work days and hours. in present notification law, in what days and hours notification is made is not regulated. it is aimed at preventing loss of right due to the fact that attorneys are not founded in their offices in official work days and hours with thi s amendment passed in 2011. thus, that agents avoid being informed except work days and hours reached legal basis. these official work days and hours express work days and hours of the officer who will notify. that attorneyship is self-employment can be reason of that work hours of attorney are not taken as basis. in this manner, it may not be possible to notify agent on saturday or sunday40. eventhough it is criticized by attorneys, it is possible to notify during judicial recess pursuant to the art. 103 of ccp. notification law only regulates notification in work days and hours and there is not any provision about not being notified during judicial recess41. 2.5. notifying worker, intern or clerk of agent in the case of that attorney who will be notified is not founded at the office, notification is made to labor at the attorney’s office in the name of the attorney42. nevertheless, to exemplify, notifications cannot be made to persons such as an attorney at next flat, another attorney at the office, labor work out of the attorney’s office. otherwise, notification becomes unlawful43. 37 kuru/arslan/yilmaz, s.270. 38muşul, tebligat hukuku,s.142;muşul, medeni usul hukuku, s.217;yarg.8.hd.,07.07.1981, e.1981/6626,k.1981/7612, bkz., kazancı i̇çtihat bilgi bankası. 39muşul, tebligat hukuku, s.143. 40ahmet cemal ruhi, tebligat kanunu’nda yapılan değişiklikler, hukuk muhakemeleri kanunu ve borçlar kanunu sempozyumu, ankara barosu yasa i̇zleme enstitüsü, ankara: başak matbaacılık, 24-25 mart 2011,s.9. 41muşul, tebligat hukuku, s.15. 42uyar, s.162; nazif kaçak, tebligat kanunu şerhi ve tüm yönleriyle tebligat, ankara: seçkin, 2004, s.108-109 ;yarg.19. hd. 11.02.2010 e.2009/10955 k.2010/1321,bkz., kazancı i̇çtihat bilgi bankası. 43kaçak, s.108-109; “…in the art. 17 of the law no. 7021notification law, it is stated that notification is made to the workers or officers there, if persons committing regularly job and trade are not founded in their workplace. another attorney worked together in the same office cannot be accepted as one of workers or officers…” yarg.3 hd 19.9.1994,10735/11486, bkz., kazancı i̇çtihat bilgi bankası. 70 safa koçoğlu thanks to the art. 37 of notification law that denotes annunciating day and hours of following hearing to attorney’s clerks and interns whose roles are confirmed by judicial authority during hearing is under the heel of notification has brought an exception to notifying the agent. however, this exception is brought for only annunciation of hearing’s date by the judicial authority. besides this exceptional situation in the art. 17 and the art. 37 of the notification law clerks and interns are not entitled to accept notification in the name of the attorney. since out of these exceptional situations, notification made to clerks and interns in the name of the attorney is contrary to the law, it is accepted as unlawful notification44. 2.6. authorization someone who is not attorney to accept notification persons can designate only agent to accept notifications. however, notification to someone, who is not attorney, given this power cannot go beyond being informed and in practice, such assignment will not be reasonable because this person cannot other act related to lawsuit45. the basic reason of notification is providing that acceptor of notification is informed and fulfill a particular act. since someone who is not attorney cannot perform procedural actions, entitling a person only for notification has no meaning in practice despite the fact that is possible institutionally. indeed, the supreme court held that it has understood that to follow actions allocation of widow’s pension from her husband died during the military service, the plaintiff assigned a scrivener who is not an attorney as general agent and the decision related to rejection of application to the ministry was notified this principal. because of the fact that in compliance with the art. 11 of the notification law and the art. 15 of the regulation of notification, notification made to general agent who is not attorney is assumed admissible, according to the art. 67 of the law no. 521, ninety days duration was lapsed and dismissal of the action due to time lapse…”. it is clear that this situation causes important loss of rights. 2.7. notifying in case termination of mandate mandate relation terminates in cases of dismissal, resignation, death of principal, bankruptcy, and loss of capacity46. agent can resign from general mandate with a unilateral declaration of intention (art. 81 of ccp/art. 41 of aa). duty of mandate ends with resignation. consequences of resignation of agent is regulated in the art. 41 of the aa in terms of internal relation, whereas it is regulated in the art. 81 of ccp with regard external relation47. when attorney withdraw from mandate on the condition of bearing expense, he/she must notify the principal of notification explaining this situation through the judicial authority. otherwise, all annunciations are continued to make to the attorney. competence of the attorney who withdraws from following a particular action or defense may continue during fifteen days beginning from the date of notification explaining the situation of withdrawal in accordance with the art. 41 of the aa and the art. 81 and the ar. 82 of the ccp48. resignation of agent does not have effect on duration started to lapse with notifications made before49. additionally, the art. 39 of aa brings liability that agent keeps documents notified oneself during three years since termination of mandate. if the agent informs the principal to deliver the documents, the duration of the liability of keeping is three months. 44muşul, tebligat hukuku, s.79;“…it is understood from the scope of the file that remittitur was notified the person named eyüp karagül instead of the plaintiff’s attorney. the plaintiff’s attorney has claimed that this person is not his/her co-worker and he is not authorized to be notified in the name of the attorney. in the art. 11 of the notification law it stated that in actions followed by agent notification is made to agent. in the art. 15 of the same law, there is provision that predicts if there is more than one agent of a person, notification is made to one of them. in this case, it has to research whether the person named eyüp karagül is authorized to be notified or not. if it is understood that he is not authorized to be notified, it must be continued to notify the plaintiff’s attorney again. it is not found acceptable delivering a judgment in written form with deficient examination and without research in mentioned aspects…” yarg 3.hd 9.3.2004 e. 2004/1858,k.2004/1915, bkz., kazancı i̇çtihat bilgi bankası 45turan, s.111; yilmaz/çağlar s.216.; bilal can, zübeyr bülbül, veysel dağaşan, emlak vergisi hukuku, i̇stanbul: şifre yayınları,2012,s.445. 46yilmaz/çağlar, s.224. turan, s.111, ruhi, s.124; muşul, tebligat hukuku, s.146. 47 kuru, usul ii, s. 1309; kuru/arslan/yilmaz, s.271. 48kuru/arslan/yilmaz, s.271; turan, s.111, ruhi, s.124, muşul, tebligat hukuku, s.146. 49kuru, usul ii, s. 1313. the notification made to the agent 71 procedural actions such as notification, duration etc. made to the agent by the judicial authority or the counter party may not be affected by resignation of the agent in internal relation until resignation of the agent reach the counter party or the judicial authority. hearing may not be delayed due to resignation of the agent50. in the case of that the agent annunciates his/her resignation in the course of hearing or in written form before the hearing, the court make notifications to the principal instead of the agent51. in accordance with the art. 81 of the code of civil procedure, when the agent is dismissed, it is not possible to notify in the name of the agent after the fact that letter of dismissal is reached to the court or dismissal of the agent is written to minutes. in case of notifying, notification is not duly and legally made52. until dismissal of the agent reaches to the court or the opposing party, procedural actions made to the agent by the court or the counter party may not be affected by resignation of the agent in internal relation53. in case of loss of capacity of the agent such as senility, mental illness or infirmity, and conviction, because of the fact that the attorney will not come to the court, notification has to be made to the principal instead of the agent54. the art. 32 of the regulation of notification predicts that someone who has no possibility to communicate the others due to mental illness, mental infirmity, or another disease, deafness, blindness, and dumbness is deemed to be noncompetent. in cases of death of the attorney, dismissal or temporary incapacity, pursuant to the art. 42 of the aa, the president of the bar assign an attorney to follow actions temporarily on the condition of receiving demand of relevant persons or written approval of parties ordering work. notifications are made to assigned attorney. if there is not any assignment, notification is made to the principal55. relation of mandate terminates with the death of the principal according to the art. 514 of the tco. the agent cannot file a lawsuit or follow the brought lawsuit in the name of the deceased principal. if the principal dies during trial after the lawsuit is filed, the court must notify inheritors56. analogical execution of the art. 513(2) of the tco 50“… since with resignation of the agent, mandate was terminated, resignation must be annunciated to the principal according to the art. 68 of the ccp. the provision of that after the resignation mandate continues during fifteen day in the art. 41 of the aa regulate internal relation between attorney and client, it does not affect external relation between agent and the court or the opposing party…” bkz, kaçak, s.104. 51kuru/arslan/yilmaz, s.271-272;”…right to defense is one of the constitutional rights. resigned agent granted expenditure of notification, necessary actions must be completed without consideration of the merits before concluding case with notification defendant principal of petition for resignation...” 9.hd. 13.2.2002, 17461/2729, bkz., kazancı i̇çtihat bilgi bankası 52yilmaz/çağlar, s.224; turan, s.111; 53kuru/arslan/yilmaz, s.272;“…the decision of deferring of pursuance was notified the plaintiff’s attorney on 17 november 1975 and this attorney acknowledged that her/his client dismissed oneself with a petition sent to the court of enforcement at the same time. however, mentioned petition was not notified defendant creditor. according to the art. 68 of the procedure, as long as agent acted in the name of the client does not inform the opposing party about resignation or dismissal by registering in seizure or notifying, resignation or dismissal has no effect on the other party. therefore, it has started at that time because of continuing of mandate during seven days from the notifying the plaintiff’s attorney of the decision of deferring pursuance on 17 november 1975...” yarg. 13.hd 27.1.1977, 226/643, bkz., kazancı i̇çtihat bilgi bankası 54yilmaz/çağlar, s.225; kuru, usul ii, s.1326; kuru/arslan/yilmaz, s.273; “…since that the convicted attorney cannot come into the hearing is usual the defendant’s attorney who must be bonafide should have notified the plaintiff principal...” yarg 5.hd 8.7.1969, 3398/4070;vb bkz; yarg i̇i̇d 6.4.1970, 3309/3667, bkz., kazancı i̇çtihat bilgi bankası 55turan, s.111; yilmaz/çağlar, s.225.; ruhi, s.126; kuru/arslan/yilmaz, s.273;“…it cannot be made mention of expiration in the rectification because it has been decided that notification is made to the principal due to not notifying the agent and it has not been determined in assignment of another attorney temporarily...”yarg.i̇i̇d 6.4.1970,3309/3667,bkz.,kazancıi̇çtihatbilgi bankası 56kuru/arslan/yilmaz, s.273; kuru, usul ii, s.1330. 72 safa koçoğlu constitutions exception of this situation. if termination of the mandate endangers advantages of the deceased, the agent has liability to continue performance of the mandate. in case of the fact that the agent accepts the notification without knowing fact of death, notification is valid57. furthermore, relation of mandate terminates in cases of absence of agent, loss of capacity, termination of legal personality of principal who is a legal entity58. 2.8. cases that notification must be made to the principal in lawsuits followed by agent notification made to the attorney is deemed to made to the principal. however, in some situations, there are notifications which have to be made to the principal. to illustrate, in case of the fact that the principal must be per say founded in the hearing such as oath59 and arraignment60 that means the party per say interrogated, notification has to be made to the principal instead of the agent. if actions subject to notification bring serious legal consequences, notification must be made to the principal. according to the art. 171 of the ccp, since person who will be interrogated must be appeared in court personally and otherwise, he/she is deemed to admit facts subject to the arraignment, it is ensured that notification is made to the principal in situations bring important results for the person even if he/she is represented by the agent61. in divorce suits, warning about desertion is sent to the defendant instead of attorney. notification must be made to the principal if challenge of judge is received based on demand of the principal. if in sale of confiscated goods bailiff determines that notice of sale is notified obligator, notification must be made to not only agent but also principal. for an execution order to arise criminal conclusion, it must be notified both the agent and the principal62. for instance, if it is started executive proceedings for a person who does not declare property, notification must be made to the principal to be able to punish acceptor63. in the case of the fact that notification is made to the principal, the obligator cannot be punished by holding responsible64. because acceptor of transactions predicted in second and fifth paragraphs of the art. 68/a of the bankruptcy and enforcement law is obligator, in invitations containing of transactions within the scope of these provisions, 57“…the verdict is notified the attorney ç of the defendant a on 9 april 1976 and after that, the defendant deceased on 25 april 1976. in this case, the duration of appeal has started to lapse from the date of notification made to the agent and later deceasing of the client does not require second notifying the inheritors...” yarg. 14 hd 3.2.1977 516/696, bkz., kazancı i̇çtihat bilgi bankası 58ruhi, s.125 turan, s.111; yilmaz/çağlar,s.214; muşul, tebligat hukuku, s .145. 59“…according to the art. 232 of the ccp, the oath is proposed to the party and it is fulfilled or returned by the pa rty. if one of the parties is a legal entity, the oath for demonstration of the contingency concerning an action in favor of them can be fulfil led or returned by the person authorized to represent the legal entity. the invitation of the oath must be notified the defendant entity. a duty about presentation the client is not imposed on the agent. notification made in this direction is not appropriate to the procedure. since the invitation of oath sent to the defendant entity was returned without notification, delivering the judgment by accepting for the defendant party to avoid the oath without duly notifying has required reversal…” yarg. 19.hd 27.6.2013 2013/7772e. 2013/12045k., bkz., kazancı i̇çtihat bilgi bankası 60ruhi, s.123; turan, s.111. 61“...arraignment requires hearing of the party personally, the agent cannot be listened, even if the party follows the lawsuit via the attorney, then invitation of the arraignment must be notified oneself…” yarg. hgk. 4.6.2003, 2003/12-385 2003/399k.,bkz., kazancı i̇çtihat bilgi bankası 62“…correspondingly, eventhough to be able to applied the provisions concerning punishment of the enforcement and bankruptcy law, execution order must be notified obligator perpetrator in compliance with the principle of individual criminal responsibility and in terms of the criminal law, without taking care of that in its file numbered as 2010/1365 adıyaman/gölbaşı execution office notified only the attorney of the obligator perpetrator of the execution order, deciding on rejection of the objection instead of approval of it due to the fact that deciding on conviction of the perpetrator because of the breach of provisions of alimony in accordance with the art. 344(1) of the ebl is contrary the law…” yarg.16hd 13.12.2011 2011/6583e. 2011/8833k; vb bkz,yarg. hgk 4.6.2003, e. 2003/12-385 k. 2003/399, bkz., kazancı i̇çtihat bilgi bankası 63yilmaz/çağlar, s.238; kuru/arslan/yilmaz, s.273. 64 “the order of payment was sent to the agent of the company instead of the perpetrators authorized to represent the company. there is not necessity for the perpetrators to declare property owing to this notification since notification made to the agent is invalid in offences against property and does not bind the principal. other possibility coincides with legal practice and the principle of individual criminal responsibility.” yarg. hgk 18.11.2009 2009/6-477e. 2009/546k; vb bkz,(cgk 26.11.1990,8/328-310), bkz., kazancı i̇çtihat bilgi bankası the notification made to the agent 73 acceptor must be shown as obligator. the other exception is pronouncement in the face of defender assigned by the bar upon the court’s demand due to compulsory advocacy. at this stage, if perpetrator is not informed about assignment of an attorney for oneself, period for appeal may not start since pronouncement is ineffective in terms of perpetrator. justified decision must be notified perpetrator personally. notification and pronouncement made to compulsory defender bring legal consequences as it is made to defender entitled with warrant65. nevertheless, prerequisite of that is perpetrator is informed about assignment of compulsory defender. there are resident judgments66. 2.9. sanction of failure to comply with the art. 11 of the notification law in actions followed by agent, in the case of the fact that notification is not made to agent, there are different views about whether notifications results in absence or irregularity. according to muşul and in my opinion, in actions followed by attorney, notification is made to client is invalid and declared null and void. in the circumstances, legal consequences depending on notification may not arise. that the agent learn notified document from the principal does not make notification valid because according to the law, acceptor determined is not true and notification is made to a person except acceptor67. thus, notification is not unlawful. it is declared null and void. according to kuru/arslan/yilmaz, this situation brings irregularity68. fallacy of acceptor of notification brings absence. in other words, this notification results in absence, although notification must be made to the principal instead of agent or legal representative or it must be made to agent or legal representative instead of the principal. for notification to be unlawful notification in the name of true acceptor is made failing to comply with the provisions of the law. unlawful notification can be in question in terms of person notified. in accordance with the art. 32 of the notification law, notification which is not duly made may become valid since the date agent states learning the transaction69. 65muşul, tebligat hukuku, s.164. 66“… when the first, second and third paragraphs of the art. 151 of the no. 5271 criminal procedural law are appreciated all together; there is not any difference between defender with warrant and defender assigned with demand or defender assigned needly in terms of criminal procedural law regarding the definition of the attorney who defends suspect or perpetrator in criminal procedure. in cases of that compulsory defender is assigned and perpetrator accepts or does not object to the assignment, pronouncement and notification to compulsory defender may arise all legal consequences as to made to defender entitled with warrant. in other words, in such a case, notifying the principal in unnecessary... examining of appeal will be appropriate to the justice in case of that perpetrator appeals by notifying perpetrator of the decision…” yarg. cgk 14.2.2012 2011/6-254e. 2012/32k, vb bkz;cgk 18.3.2008 7-56, cgk 24.11.2009 164-275 cgk 12.7.2011 155-172, bkz., kazancı i̇çtihat bilgi bankası 67muşul, tebligat hukuku, s.151;“…in compliance with the art. 11 of the notification law, in actions followed by the agent, notification is made to the agent. while the provision predicted in the article is clear and peremptory, finalization of the decision by notifying the principal instead of the agent is impossible. notification made in this form is not a notification contrary to the procedure mentioned in the art. 32 of the same law, this is completely invalid. because in the case subjected to the lawsuit, there is no notification made to the agent and notification has not made to the agent ever, the article 32 of the notification law related to unlawful notification cannot be applied…” yarg.14. hd 20.3.2009 2009/703 e. 2009/3547 k, vb bkz; yarg. 12.hd. 9.7. 2002 e. 2002/14330 k. 2002/14949; yarg.12.hd.21.1.2010 2009/19531e. 2010/1300k, bkz., kazancı i̇çtihat bilgi bankası 68kuru/arslan/yilmaz, s.801. 69muşul, tebligat hukuku, s.151;“…unlawful notification of order of payment sent to the attorney does nor require the invalidity of the notification but application of the art. 32 of the nl …” yarg. 12.hd. 18.10.2010, e. 2010/10850k. 2010/23611.“…in concrete case, notification was made to the defendant’s attorney’s address written in the writ being the basis of execution, even if notification was made according to the art. 21 of the notification law because the address was closed, in accordance with the art. 28 of the regulation of notification which must be applied in the case of that the address is closed it was not registered in the report by researching the reason of the acceptor’s not being found in the address. pursuant to the art. 28 of the notification law, the report does not consist of the name and the surname of the officer made the notification, the notification is unlawful. thus, with the acceptance of the complaint 74 safa koçoğlu in actions followed by agent, the principle is notifying agent. if notification is made to both the principal and agent, notification made to agent must be accepted ad beginning of arising of legal consequences70. if that person acting as agent of one of counter parties does not have power of attorney is realized during appellate review, the supreme court send the decision to the court to be notified the principal without any other examining. in the case of the fact that it is not realized during appellate review, it is resort to rectification71. in final judgments, notification must be made to the principal unless otherwise agreed on agreement because advocacy agreement terminates72. 3. conclusion for applicability of the art.11 of the notification law, notification must be made after receiving warrant. legal consequence of notification for agent is the same as acceptor. pursuant to notification, rights and liability to fulfill transactions arise for acceptor, the moment of arising is beginning of notification made to agent. in the case of the fact that person is represented by more than one agent, if notification is made to one of these agents, first made notification is taken as basis. legal consequences depending on notification may be effective since the date first notification is made. notification containing of invitation announced day of hearing can be made to worker, clerk or interns of attorney. persons can assign agent except attorneys only for acceptance of notifications. however, notification to someone, who is not attorney, given this power cannot go beyond being informed and in practice, such assignment will not be reasonable because this person cannot other act related to lawsuit. related to irregularity of the notification by the court, in accordance with the art. 32 of the notification law, the date of comp laint on 6 july 2009 that the obligator’s attorney has been informed about unlawful notification has to be deemed to be the date of notification, so refusal of demand with written justification inappropriate...” yarg. 12.hd. 24.10.1978, e.8418/8511, bkz., kazancı i̇çtihat bilgi bankası 70ruhi, s.127;“…default judgment was notified on 29 june 1982 after 29 april 1982, in the case of that there is not legal necessity or compulsion. upon this notification, the perpetrator who appealed with the petition dated of 2 june 1982 has missed time for appeal...” 9.cd 1.12.1982,3792/3935, bkz., kazancı i̇çtihat bilgi bankası 71pekcanitez/atalay/özekes, s.571;“…there is not importance of finalization of the decision with the notification made to the agent who has not have power of attorney anymore. in this way, the decision cannot be deemed to be finalized. then, although the plaintiff k. y. deceased during the judgment and certificate of inheritance was presented and the relation of mandate terminated with deceasing, upon not receiving the warrant from k’s inheritors or not notifying them without involvement of k’s inheritors, in other words, without not providing assignment of the party procedurally, by taking care of not having authorization attorney’s statement, deciding on that the lawsuit is deemed to be filed and adding annotation of finalization by notifying the same attorney out of order have not been right…” yarg.2.hd 20.1.1998 1997/13242 e. 1998/533 k.”…return of the file to domestic court to be demanded the warrant from the attorney assigned for the legal aid in case of not giving to be waited for legal duration and returned after…”yarg.8.hd.15.5.2012 2012/3860e. 2012 /4292 k.; vb bkz;yarg. hgk 2.7.2003 2003/2-408e. 2003/467k,bkz., kazancı i̇çtihat bilgi bankası 72“…after the finalization of the decision, the attorney’s agreement between attorney mehmet güner and the perpetrator murat anık terminated. in respect of the retrial, there is not a clear agreement between convicted murat anık and mehmet güner att and whether murat anık gives a new order in this direction or not is not clear. besides, that upon notifying oneself of the decision, murat anık presented a petition of appeal personally and did not mention a petition of appeal given by mehmet güner or his name or he has an attorney decreases the possibility of existence of such an order… as a result, in case of that there is not any information or document regarding existence of an attorney’s agreement with the convicted, notification made to mehmet güner due to the fact that he was defendant in previous judgment process and there is still relation of mandate between them based on the warrant is deemed to be invalid…” yarg cgk 6.3.2007 2007/6-13 e. 2007/54 k, bkz., kazancı i̇çtihat bilgi bankası the notification made to the agent 75 with amendment of 2011, it is brought that notification made to agent has to be made during official work days and hours. nevertheless, the other important problematic in terms of attorneys is notification made in judicial recess. the law does not any provision related not to notify during judicial recess. hence, any change abput notification made during judicial recess is not a matter. in cases of termination of mandate (dismissal, resignation, death of agent, bankruptcy, loss of capacity etc.), notification must be made to the principal. notification made to agent is deemed to be made to the principal. however, there are cases of that notifications must be made to the principal. for instance, in cases of that the principal has to be personally founded at hearing such as oath and arraignment, notification must be made to the principal instead of agent. in accordance with the regulation in the ccp, agent even if power is not frankly given in warrant, fulfill all necessary transactions until the decision is finalized without receiving any special power, transactions related to judgment costs and execution of judgment and these transactions can be performed against agent. if regulations restricting these transaction is not founded in warrant but advocacy agreement, these regulations are valid between agent and principal and ineffective in terms of opposing party. there are different provisions in terms of acceptance period for the agent to accept actions of notification. in compliance with the art. 73 of the ccp that predicts power of attorney involves authorization to make all necessary actions for following of lawsuit, to fulfill the decision, to collect legal expenses, to give a receipt, and to be exposed to all of these actions until the finalization of the decision on the condition of remaining cases required to be given special power hidden, the relation of mandate does not terminate with conclusion of the case and is contains of authorization to execute resolution. according to the art. 171 of the attorney’s act, attorney follows the act undertaken to the end pursuant to the provisions of the law even if there is not a written agreement. art. 24 of the enforcement and bankruptcy law and afterwards art. 76 and art. 337 settle the necessity to notify obligator of execution order. the other about this subject is the art. 2 of the minimum attorney ship fee tariff that predicts attorney ship fee written in this tariff for a fee of lawsuits, acts, and actions until the finalization of the decision. if there is not deal on fee in the attorney’s agreement, the tariff may be applied. to be able to have right to the fee states in the tariff, the present actions must be completed or the case must be concluded. for that person can be acceptor of notification it must be have legal capacity. notifications made to persons without legal capacity must be made to their legal representatives who will represent them. in notifications of transactions aimed at collection of taxes, provisions related to notification in the tax procedural law are implemented whereas in judgment containing of ta disputes, provisions of the notification law are applied. there two types of sanctions of failure to comply with the art. 11 of the notification law. these are absence and irregularity. fallacy related to acceptor of notification brings irregularity while that notification made to true acceptor is not duly and legally made causes irregularity according to practice of the supreme court, in actions followed by agent notifying agent is related to public order and it is one of the situations taken in to consideration ex officio. references turgut akintürk, aile hukuku, i̇stanbul, beta, 2006. ahmet uğur turan, tebligat hukuku tebligat suçları ve i̇lgili mevzuat, ankara: seçkin yayıncılık,2006 fahrettin aral, borçlar hukuku özel borç i̇lişkileri, 7. b, ankara 2007. fahrettin aral, hasan ayranci, 6098 sayılı türk 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ankara,2014. saim üstündağ, medeni yargılama hukuku, c i.ii, i̇stanbul, 2000. cevdet yavuz, türk borçlar hukuku özel hükümler, 7. baskı i̇stanbul 2007. ejder yilmaz, tacar çağlar, tebligat hukuku, ankara, yenilenmiş 6. bası yetkin yayınları,2013. kazancı i̇çtihat bilgi bankası http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama http://libris.bahcesehir.edu.tr/yordambt/yordam.php?betik=kemal+o%c4%9fuzman&-ac=arama journal of international trade, logistics and law, vol. 7, num. 1, 2021, 67-74 67 progress of regional economic integration in east africa abdulmalik abukar yusuf istanbul commerce university, turkey received: march 08, 2021 accepted: may 10, 2021 published: june 15, 2021 abstract: east african countries are deeply committed to adopting and implementing regional integration initiatives, which are viewed as a common approach for the region's growth. at the regional level, the main goal is to create the economic community as the sixth and final stage of integration, which includes increasing inter-sectoral coordination and establishing regional free trade zones, common market, economic union, and monetary union spanning the entire continent. in this article, we will look at their priorities, major accomplishments, and problems, as well as the progress achieved in the integration process and the threats it faces. the theoretical section of th is research was carried out in africa, specifically east africa. the research data came from articles and document analysis. there were also secondary sources used. the research is one of the first to evaluate integration areas in east africa that could lead to faster integra tion. it assists organizations such as igad, comesa, and eac in revising or reassessing their strategies, as well as their institutional weaknesses and strengths, in order to achieve their integration objective successfully. keywords: regional economic integration, trade, regional integration 1. introduction east africa is well-known for its civil wars, drought, and migration. regional governments also are noted for their internal rivalries, alliances, and anti-alliances. because there are many different cultures, ethnic tensions, administrative issues, and injustice all affect intra-country politics. its history is complicated, and it has been heavily inspired by global and local powers from all over the world (nicolas, 2008). east africa is divided into three economic blocs: comesa, igad, and eac, which includes southern african countries. conversely, these classifications pose several concerns: are these organizations complex integrationists? is it possible to use them? how would they benefit from other african as well as other continents' institutions? what are the outcomes of these organizations? can east african principles make integration easier? which kind of integration could east africans advance: indigenous or imported? integration encompasses not just the exchange of services and goods, but also the connection of cultures, their desires, and their movements through one state to another. the objective of this paper is not to solve all of these complex issues. even so, the problems presented are those that must be addressed in every integration process. the regional economic integration initiative in east africa is making very slow progress. african leaders must convert political will into practical action. we will not just talk about trade ties. many elements, such as resources, transportation, and defense, must be considered as integration drivers. african policymakers appear to be ignorant of regional and national realities, and each government's weaknesses and strengths. they may not apply the appropriate medicine to the appropriate issue. to complicate things tougher, leaders neglect the will to address all recurrent issues, and east africa remains a fractured region of africa with weaker economies at the epicenter of several threats. in addition to better lead by evaluating the overall efficiency of each rec and their member nations, each year, the african regional index report is released with the cooperation of the economic commission for africa (eca), the african development bank (afdb), and the african union commission (auc). the report's main goal is to determine the weaknesses, strengths, and differences of each regional grouping using five features: trade integration, regional infrastructure, productive integration, microeconomic and financial integration, free movement of people, and then to propose solutions to create a comprehensive africa. in the scenario of east africa, kenya was listed as a abdulmalik abukar yusuf 68 top performer in the eac in terms of productive integration, trade integration, and free movement of people in 2016. kenya performed well in comesa in terms of free movement of people, trade integration, and productive integration. kenya played well on five of them inside igad, except for the free movement of citizens. ethiopia is not viewed favorably in both igad and comesa (arir, 2016). (stefan reith, 2012) stefan draws a comprehensive view of each eac member county's position. he delves deeply into the eac's institutional strengths and limitations, as well as kenya's unique position in reforming this organization. the eac's high occurrence is "one destiny, one people." stefan values the eac more than most wellknown federations such as ecowas, comesa, and the 38 sadc since its establishing treaty embodied political union. on the other hand, he condemns the eac's aggressive strategy, such as establishing a roadmap for a single currency by 2012 and launching the common market early in 2010, as influenced by the nafta, eu, and asean. furthermore, stefan discusses how eac is good on paper but poor in practice. he demonstrates the wide gap between expectations and fact, as well as practice and theory. major claims with a shortage of societal awakening, a failure of work at the required level, and few concrete results can endanger the integration process. of course, regional integration necessitates a powerful institution, widespread public support, and a full connection from political elites. the eac is the strongest institution that could act as a blueprint for others. it was founded by tanzania, kenya, and uganda. therefore, it continued to function in 1977 due to the absence of a guiding role, irresolvable differences of view between leaders (idi amin and julius nyerere), and uneven distribution of benefits and burdens (kenyan supremacy). it was reinstated in 1999 (stefan reith, 2012). 2. literature review regional economic integration has gained traction in several regions of the world in past decades. there were over 14 arrangements relating to customs unions and free trade zones since 1990. regional trading agreements offer numerous advantages and may promote economic growth in member states by reducing trade barriers and promoting better flexibility of physical and human resources. these advantages including lower consumer prices, lower transaction costs, more productive resource usage, scale economies, increased competition among businesses, investment and greater certainty, technical advancements, and productivity increases. regional integration could also contribute to greater assimilation and can supplement multilateralism by establishing a framework that other countries can adopt (carbaugh, 2015). with these possible benefits, it is not shocking that several nations in the world have pursued increased economic integration. regional trade deals, on the other side, are unequal in the sense that certain countries are handled diversely than others. furthermore, since trade bloc members do not achieve further scale economies by multilateralism, they might reduce incentives for countries to seek multilateral agreements. finally, as recent actions of eu members including spain and greece have shown, integration is not a panacea. the lack of exchange rate policies and self-sufficient monetary can have significant consequences when dealing with financial crises. furthermore, as evidenced by the united kingdom's recent withdrawal from the eu, non-economic aspects, especially the position of vested interest politics, could be critical (basnet and pradhan, 2017). although african leaders are usually involved in hastening the process of establishing an economic african economic community (aec) by relevant predictors for the cohesion and harmonization of the tripartite free trade agreement (fta) eac, comesa, and sadc. while regional economic communities (recs) are working hard to accomplish the first three phases outlined in the treaty founding the aec by gradually eliminating customs fees in intra-regional trade, there are significant gaps between their steps of growth. many recs have still to establish an fta, whereas others have formed customs unions (cu). the simultaneous membership of several states in two or even more recs causes a variation in the rate of growth. that is why it is critical to make tactical determinations and take steps to establish a continental fta as the first move toward establishing a continental common market, a cu, and achieving the ultimate aim of establishing a fully functional aec (marinov, 2016). regional integration progress in east africa differs greatly around the three recs. the eac is now on the verge of reaching the pinnacle of regional integration, led by igad and comesa. in the last few decades, east africa has obtained significant strides in regional integration. the eac is at the forefront of this development, preceded by igad and comesa. the confirmation of the protocol for monetary union by the eac is one indication of this development, which is significant since macroeconomic convergence is needed for such developed economic integration (afdb, 2019). progress of regional economic integration in east africa 69 east african nations have made strides through customs unions and free trade zones, even though they have not yet reached monetary union. non-tariff and tariff restrictions, and a shortage of trade interdependence between rec members, commonly stymie intraregional trade. as a result, success in overcoming these restrictions in specific, and specifically in eliminating tariff and non-tariff barriers, could mean an increase in intraregional trade. even so, intraregional exports recorded an average of 17.3% of total exports in east african states in 2017, which is similar to the continental average of 16.6 percent and represents a five-year drop (afdb, 2019). one of the latest controversies in reaching higher economic progress is emphasizing regional collaboration above the continental union in pursuing the concept of economic integration. so several researchers of rei have written in support of the various benefits of economic integration (sako, 2006; mwasha, 2008; el-affendi, 2009; seid, 2013), whereas just few others, like as (geda and kebret, 2008) have written in opposition, and others (reddy, 2010; biningo, mwana and nene, 2012; zelalem, 2017) have taken a center ground role to address both the benefits and drawbacks of regional economic integration. according to beneria, strongly developed regions with developed economies like north america (nafta), eu, and east asia (china, japan, and south korea) control three-fourths of global trade. they also have a highly distorted volume of trade and path. they have indeed controlled the industrial trade, accounting for 80% of the total. they have a lot of trade with each other. since africa's share of intra-african trade and global trade is so limited, much emphasis is now being placed on improving south-south trade as a tool for overcoming such marginalization on a global scale. this horizontal method prevents developed nations' vertical reliance on the north (beneria, 2019) 3. benefit of regional economic integration the latest research has concentrated on the advantages of regional economic integration. the majority of them recognize that its advantages should be calculated in terms of the level of integration as well as the level of engagement and willingness of member states to adopt agreements signed. the greater the integration, the greater the advantages to member states. furthermore, the higher the level of integration reached by member states (out of the necessary actions 6 ibid 19 customs union, monetary union, common market, free trade area, and political union), the greater the gains produced (johnson, 2007). some scholars (sako, 2006; mwasha, 2008; reddy, 2010) point to the eu's performance since the 1950s as clear evidence or embodiment of the benefits of regional integration. the eu is frequently cited as evidence of how regional integration begins and ends with a powerful union. nugent outlines the measures in great detail. first, six states created the european coal and steel community (ecsc). second, the foundation of the european economic community (eec) in 1957, and its obvious popularity, culminated in a reproduction of integration systems around the world. third, in 1960, the european free trade area (efta) was founded. fourth, in 1979, there was the first democratic vote to the european parliament. fifth, the european common market has become a fact in 1992. sixth, in 1993, the treaty of maastricht created the european union. the euro is the shared currency of the eu members. this simplifies conducting business, purchasing, selling, investing, and traveling, while also increasing a feeling of connection to the region (nugent, 2017). according to (reddy, 2010), regional integration will boost competitiveness, market size, investment, bargaining power, and political stability. as a result, substantial progress will be made in environmental management, infrastructure construction, and security and defense. according to biningo, economic integration is expected to increase investment and trade, create economies of scale, foster peace, and stability, and strengthen the negotiating power of smaller nations in multilateral or bilateral negotiations (biningo, mwana and nene, 2012). el-affendi addresses integration primarily in terms of peace and stability. pending the results of the cold war, there is a significant trend toward regionalism. in addition, he depicts how regional groups play an important role in peacekeeping, which would be strongly endorsed by the un. he 20 concludes his point by posing the question of whether regional integration reinforces or creates regional conflict. he states the response plainly and simply. it prevents conflict (el-affendi, 2009). according to a study conducted by the united nations economic commission for africa, after agreeing on continental or regional arrangements, a great deal of money will be needed to build knowledgeable infrastructures and institutions. as a result, regional agreements encourage nations to leverage money to build infrastructures such as highways, airways, electricity, and communication technology in each nation. furthermore, regional integration encourages nations to collaborate on human development to provide their citizens with the expertise and skills abdulmalik abukar yusuf 70 needed to operate their organizations at the state level, and active individuals capable of staffing organizations at the continental and regional levels. in other words, states will struggle to get a professional workforce that could help them progress or aid in their transition in any field and to prepare their nationals to travel through integrated areas and find jobs (uneca, 2012). another benefit of regional economic integration is a broader range of services and goods. when various nations join forces, they can supply a range of virtually unlimited products. on the other hand, mwasha's research demonstrates that because neighboring nations incorporate each other, they share mutual values and tastes. as a result, they are unable to provide a wide range of products to customers (mwasha, 2008). lower tariffs decrease the production costs and the cost of products for both manufacturers and consumers. it promotes the purchase of further services and goods. since the range between these nations is limited, the price of product transportation would be lower as well. this encourages even more transactions and consumption. according to (thompson, 2017) “entrepreneurs in member states would be encouraged to invest and trade within the region due to the absence of regulations or tariffs”. therefore, there will be plenty of job opportunities. investors create industries, various business organizations thrive in the region, and employees have numerous employment opportunities (zelalem, 2017). a further advantage is that a coalition of nations in a region could easily and rapidly reach an agreement and have a stronger position in the global marketplace than individual states. they may have a good opportunity to align their strategies because they share a common background, challenges, and opportunities in their area. thompson views regional integration as a critical tool for states with weaker economies that require high levels of foreign trade and investment in their area. as economically larger nations participate in the highest degree of integration, such as the eu, they become weaker, because of the principle of "shared wealth". member states at a lower economic stage of development appear to generate those that are more economically integrated and function effectively to fall behind other foreign competitors in world trade. a good example is the major economic performer in germany in the eu; high integration means that her opportunity to become the global leader could be shattered. in contrast, for lower levels of economic integration (like the fta or the customs union), as is the example in africa, some more well-developed states will benefit at the detriment of those in the zone because they export mostly manufactured products. kenya in east africa is one such example (thompson, 2017). to summarize, the overall goal of all recs should be to boost economic development through collaboration in a variety of economic activities, like infrastructure and trade. although most african nations are too tiny, gaining access to partner nations' markets is critical for maximizing output, generating enormous income, and obtaining a diverse range of products. 4. challenges of regional rconomic integration there are several points of contention when it comes to regional economic integration. scholars (teunissen, 1996; elliott, 2017; thompson, 2017; zelalem, 2017) generally suggest the following drawbacks of rei. firstly, states will cede a few of their state sovereignty to powerful supranational institutions. individual states' financial resources are restricted in large international institutions like the eu. when greece was thrown into a financial crisis, the nation did not control its currency to reflect the country's economic situation. the eu has the authority to print money. it has so much control over each nation's financial circumstances that member states are unable to solve their financial issues. as a result, if states approach the level of monetary integration, they will not be able to make decisions on their own (elliott, 2017). the united nations economic commission for africa's detailed research aims in-depth and scope both the problems and solutions associated with monetary union. while the monetary union has benefits in terms of lower transaction costs, harmonization of the regional price level, and elimination of exchange risk, it exposures the state to asymmetry shocks. asymmetrical shocks result by using a similar monetary policy, which is ineffective for all member nations. as a result, it could have a negative impact on resolving country-specific macroeconomic shocks. enabling wage and price stability across states as well as a high level of fiscal integration and commodity diversification are fixes for these asymmetric shocks. (uneca, 2012). second, since the dominant culture might be promoted, there will be a lack of distinct minority cultures. it's referred to as ethnic centralization. in the eu, for example, the main working languages are french, spanish, and german. as a response, minority communications will face repression because they will no more be used for official language. progress of regional economic integration in east africa 71 moreover, other distinct cultural manifestations would be harmed as dominant cultures rapidly overtake them (berry, 2011). third, there may be a change in the labor market. to increase their profits, investors typically tend to develop their businesses in lesser wage rate areas. as a result, jobs would move from a good wage to a low wage environment, resulting in job gains in one region while job losses in another. this work outsourcing harms one nation while helping another in the area (zelalem, 2017). the fourth factor is trade diversion. trade relations with member states will substitute the prior trade relations with non-member states (teunissen, 1996; thompson, 2017). 5. progress on regional integration in east africa according to (arir, 2016) “progress in african integration is processed across industries, member countries, and regional economic communities”. communications, transportation, trade, and macroeconomic policy have all made progress. therefore, there are significant gaps between most regional economic communities' achievements and goals, especially in better macroeconomic convergence, internal trade, physical connectivity, and production”. 5.1 trade liberalization and facilitation recs are making substantial progress in this field, particularly in terms of comesa and uemoa, but progress regarding integrated and harmonized sub-regional trade is sluggish, with formal intra-community/rec trade at a low of about 10.5%. this is primarily attributable to a shortage of diversification and complementarity of production systems, high production costs, and a few states' dominance of export trading. comesa, cen-sad, sadc, and ecowas are the leaders in intra-rec trade. in the case of comesa, for instance, intra-regional trade totaled us$4.8 billion in 2017, accounting for slightly less than 7% of total comesa trade. while the entry into the strength of the comesa free trade arrangement has resulted in a significant increase in intra-comesa trade, the majority of the region's nations continue to reserve preferential access to trade in north america, europe, or asia rather than draining into comesa markets. while some recs have made progress toward a customs union and free trade, full market integration persists as a long-term goal. 5.1.1 elimination of tariffs  eac members are also implementing tariff cuts. the protocol on customs union was ratified in 2004 and entered into effect in 2005.  comesa started lowering tariffs in 1994 and aimed to have abolished all of them by the time it established a free trade zone under the provision of the trade rules. some states have completely liberalized interregional trade, while some have only partly liberalized it.  the sadc tariff cut system permitted states to select which goods to reduce duties on as well as the overall target was met. tanzania's tariff elimination, for instance, could have been phased if striving for a 100% removal in 2012 and the same is true for south africa.  tariff elimination attempts in ecowas have started, with all members except liberia having abolished tariffs on unrefined goods. the fast track project between nigeria and ghana has kicked off the revival of trade liberalization.  all uemoa member countries were dedicated to the gradual establishment of a free trade zone from 1994 to 2000.  by 1994, all cemac members had abolished tariffs, completing the conditions for a customs union. 5.1.2 non-tariff barriers progress on non-tariff restrictions is more difficult to measure because data on such obstacles is insufficient and, by definition, they are not explicitly observable. customs officials' rent-seeking conduct stalls customs clearance documents; roadblocks that torment cross-border traders; and lengthy customs formalities are examples of such obstacles. a study conducted by the comesa secretariat in 2001 verified the impact of non-tariff restrictions on trade flows in the sub-region. non-tariff restrictions are viewed as a major constraint to intra-regional trade in the east african sub-region, significantly concerning failure to enforce decisions reached via the integration process. one example is the failure to follow the regulatory framework, which was designed to promote trade. such obstacles to the intra-regional market encourage traders to circumvent formal bureaucracy and involve in informal trading. abdulmalik abukar yusuf 72 another impediment to the intra-regional market is inadequate or non-existent infrastructure. this circumstance presents incredibly high transportation costs, particularly for landlocked nations. according to a unctad study from 2010, rwanda's transportation costs can contribute to up to 48% of its export value. other causes that impede trade include insecurity and crime, which create an insecure and unfriendly business climate. 5.2 infrastructure and communication all recs have implemented some kind of instrument to facilitate transit, reduce costs, and improve performance, such as the yamoussoukro determination to progressively liberalize african air transport. railway interconnection schemes have been proposed in the east and west african sub-region. despite this, transport costs in africa continue to be the highest in the global, with several highways, rail networks, and air going unconnected. as a result, the costs of doing business become unsustainable. in areas such as communication, there has been a measurable increase in inter-country accessibility because of global developments in telecommunications technology and private sector participation. for instance, the decision by main telecommunication service provider zain company limited to combine its tanzanian, ugandan, and kenyan networks, creating the globe's first regional "open borders" network (the tariffs for this service are significantly lower than customs duties), can be seen as a significant advance to inter-regional connectivity. some regional economic communities (recs) have greater connectivity than others (comesa, sadc, uma, and ecowas), whereas others (eccas, cemac, and cepgl) fall behind. the phenomenal advent of the internet in recent years has also influenced africa. however, at a slower pace than in other areas of the globe, internet access is changing african nations. the landscape is constantly evolving, thanks to major investments in telecommunication services, new alliances between agencies, ngos, governments, and a slew of public and private programs. the lack of telecommunications infrastructure in most african nations continues to be the most significant impediment to the widespread adoption of internet technology in africa. despite numerous attempts to improve accessibility, such as submarine cable projects, many technical, environmental, operational, and financial bottlenecks continue to stymie africa's rapid rise of internet connectivity in comparison to other parts of the globe. services are mostly restricted to metropolitan areas in most related african nations and are typically only accessible in large cities. in african nations, few such internet service providers (isps) provide points of presence (pops) from outside cities. this, it has been suggested, is mostly due to weak telephone links in rural areas. bottlenecks caused by narrow-bandwidth and low-speed cables, weak connection efficiency, and insufficient coverage of the telecommunications networks, and a limited number of cells accessible are all examples of infrastructure issues. other impediments including usage costs and high installation. another major impediment to internet growth in africa is the massive price of a few of the available long haul (satellite or terrestrial) connections to high-speed internet backbones. as many would imagine, the massive prices of long-distance access normally translate into high payment and link bills for normal subscribers, posing problems for both end-users and isps. finally, there is a severe shortage of skilled personnel to develop, install, run, assist, and backbone networks and manage internet nodes. another significant drawback is the absence of technological assistance for end users. indeed, several internet schemes and programs in african nations have been disrupted or even canceled due to a lack of qualified technical personnel. infrastructure growth in west africa (ecowas) and southern africa has made particularly rapid progress (sadc). in that area, a joint energy strategy is being developed through the s adc power reserve. 6. conclusion since the world's current pattern favors the formation of regional economic groups, east africa's step in this process appears crucial, but much progress has been made for faster integration. pan-african scholars advocate economic integration in order to prevent underdevelopment and the detrimental effects of globalization. rei is more than just calculating future savings and comparing costs and benefits. it entails national economic policies with domestic implications. it is also associated with structural change, which has a particular effect on labor market transition and the sustainability of poor industries. the integration process has advanced steadily and failed miserably of africa's expectations due to the challenging political and economic conditions in some east african states. progress of regional economic integration in east africa 73 economic liberalism, as contrasted to integration and coordination, has long been a popular economic policy. that is because the processes for mitigating the detrimental effect of trade liberalization and integration, which are primarily of limited duration, are not properly established. the article reviews of this study demonstrated that regional economic integration is a seductive strategy for quicker and collective development and growth for the nations and people of africa, that integration has assured long-term advantages, and that such long-term benefits outweigh any potential short-term costs. africa must recognize that the ability to capitalize on opportunities that arise because of these integrations is a critical component in reaping the full advantages of cooperation. recommendation: there is a necessity to establish follow-up processes to ensure adherence to agreed-upon community schedules on issues including tariff and non-tariff restriction reductions, as well as attainment of more challenging goals including macroeconomic stabilization. for example, recs must be able to punish poor performance or crash to address treaty and protocol commitments. 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(2017) ‘assessing ethiopia’s market potential in the new igad fta initative’, higher education policy, 12(2), pp. v–viii. doi: 10.1016/s0952-8733(99)00011-2. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 285-290 285 legal framework of investment in turkey ebru şensöz malkoç istanbul ticaret university, turkey received: may 03, 2023 accepted: may 30, 2023 published: june 01, 2023 abstract: turkey has always been a country that attracts the attention of investors due to its geopolitical position. legislation regarding investment is shaped in line with the social and economic policies of the country. it is seen that our country has accepted investment-friendly regulations in the process up to now. in this context, the “foreign direct investments law” dated 2003 and numbered 4875 is the law which should be examined as a priority. this law brought two important changes in investment law. one of these innovations is the transition from the permission system to the notification system in foreign investment. the other innovation is related to who can be considered as a foreign investor. with the new regulation, turkish citizens residing abroad will also be able to get investor status. we define stocks and capital market investments less than 10% and not giving a control on the company as indirect investments. within the scope of our st udy, direct investments, indirect investments and their legal framework will be explained in accordance with the relevant legislation. keywords: investment in turkey, foreign direct investment law, direct investment, indirect investment. jel codes: k30 1. introduction the principals of international investment in turkey are set forth with in the scope of turkish constitutional code (hereinafter “constitution”) (art. 46, 47) and foreign direct investments law, additionally, bilateral (hereinafter “bits”) and multilateral international investment agreements of which turkey is a party. by these principals, foreign investors and investments are protected in turkey in terms of economic, political and legal risks. essentially, the foreign investment is included in the concept of right to work for foreigners and that right is protected by the constitution (art. 48, 49). according to constitution art. 48, “work, is everyone’s right and duty” and art. 49, “everyone has the freedom to work and contract in any field. private entreprises are free to establish”. these rights and freedoms may only be restricted by law for foreigners pursuant to international law principles (constitution art. 16). in this context, as it is related to right to work for foreigners, right to contract in any field, right to establish private entreprises etc., the “foreign direct investments law” dated 2003 and numbered 4875 is the law which should be examined as a priority. various special laws, such as decision no. 32 on the protection of the value of turkish currency, the petroleum law, the law for the encouragement of tourism and the law on industrial districts, encompass provisions relating to foreign capital investments. however, the primary legislation governing foreign direct investments is the foreign direct investments law (hereinafter “fdi law”) no. 4875 (og 17.6.2003-25141), accompanied by the regulation for implementation of foreign direct investments law (hereinafter “regulation for implementation”). 2. law on foreign direct investments no. 4875 this law brought two important changes in investment law. the first substantial amendment is the transition from the permission and approval system to the notification system in foreign investment. the second substantial amendment made in this law is the extension of the scope of the definitions “foreign investor” and “foreign ebru şensöz malkoç 286 investment”. with the new regulation, turkish citizens residing abroad will also be able to get investor status (çelikel/öztekin gelgel, 230; ekşi, 519; ekşi, 2012, 181; gökyayla/süral, 136). 2.1. transition from permission and approval system to notification system fdi law has been entered into force on june 17, 2003 and the aim of this law is the promotion and protection of foreign investments. for this purposes, two substantial amendments have been made to the fdi law. the first one is, the transition from the permission and approval system, which was the accepted method by the previous law, to the notification system for the direct foreign investors (çelikel/öztekin gelgel, 230; ekşi, 521; ekşi, 2012, 186; doğan, 236; gökyayla/süral, 135). the provision of how to provide information on foreign direct investments is regulated in detail in the 5 of regulation for implementation (çelikel/öztekin gelgel, 233). notification shall be made through a form (see regulation for implementation, annex-1) to the ministry of industry and tecnology. the former authority was the ministry of trade, undersecretariat of treasury, general directorate of incentive implementation and foreign investment before the amendment made in regulation with official gazette dated 16/10/2020 and numbered 31276). aforesaid notification should be made until the end of may at the latest each year (regulation art.5/2). however, the circumstances require to obtain permission, concerning the area to be invested, in special laws are reserved (çelikel/öztekin gelgel, 233). according to new law, the obligation to obtain a permission from the undersecreteriat of treasury (former authority) required by the previous law is abolished. therefore, foreign invested companies may also be established based on the same procedure with the turkish companies. however, even if the new law abolishes the obligations to obtain a permission for the transactions such as establishment, capital increase, share transfer, the new law brings the obligation to provide information for these transactions through specific forms at certain times to the ministry of industry and tecnology, general directorate of incentive implementation and foreign investment (regulation art.5). on june 1, 2018, new requirements have been introduced regarding the notification to the ministry. accordingly, all these informations (such as shareholding structure, share transfers and/or increase or decrease of the share capital) will be provided to ministry via online platform, namely the electronic incentive application and foreign investment information system (e-tuys). companies with foreign shareholders are now required to register certain information (such as shareholding structure, share transfers and/or increase or decrease of the share capital) on the aforesaid online platform (regulation art.5). however, liasion offices still notify on paper (regulation art.6). in summary, under the fdi law, investors are only required to notify of their investment (e.g. greenfield investment, share transfer or otherwise) and the amount of foreign capital brought to türkiye, except for opening a liaison office which is still subject to the prior written consent of the ministry of industry and technology (fdi law art. 3/h, regulation art.5). 2.2. term of “foreign investor” and “foreign investment” the second substantial amendment made in the law is the extension of the scope of the definitions “foreign investor” and “foreign investment”. 2.2.1. term of “foreign investor” in fdi law as stated in fdi law (art.2/a), “foreign investor” is; a) any natural person who is a citizen of a foreign country, b) any natural person whose citizenship is turkish, but who is resident of a foreign country, c) any legal person incorporated or constituted in accordance with the legislation of a foreign country or any international institution. aswell as in fdi law, in bits, foreign investor are defined. in some bits, the scope of foreign investor concept is more extensive than fdi law, in some bits, more constricted (şensöz malkoç, 110). the favorable provision of the fdi law shall be applied fort he investors in turkey. in any case, in order to benefit from the protection and the advantages provided to foreign investors by fdi law and concerning bits, it is not important to be just a foreign investor in accordance with fdi law and concerning bits; it is also necessary that foreign investor should invest a value of foreign investment (existed in home country) determined in the fdi law and in the concerning bit of the host country (çelikel/öztekin gelgel, 230; ekşi, 519; legal framework of investment in turkey 287 ekşi, 2012, 181). host country term includes the land boundaries, territorial waters and continental shelves according to the bilateral agreements. in other words, it means the country which remains within the boundaries of the sovereignty and the jurisdiction of the host country for the investment in accordance with the international law. 2.2.2. term of foreign invesment 2.2.2.1. according to fdi law according to fdi law, the values of "investments" which shall be invested by investors in turkey shall mean; a) capital in cash in the form of convertible currency bought and sold by the central bank of the republic of turkey, b) stocks and bonds of foreign companies (excluding government bonds), c) machinery and equipment, d) copy-rights and industrial property rights. for these kinds of values of investment are accepted as foreign investment values according to fdi law, they should be brought into turkey from foreign countries (fdi law art 2/b/1). besides, “returns” as a result of investments including in particular profit, dividends, interest, license fees, technical assistance and service fees, pecuniary claim and other rights related to the investment having an economic value, and the reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value and commercial rights for the exploration and extraction of natural resources acquired from turkey by foreign investor, are accepted as value of investment as economic assets (fdi law art 2/b/2). share certificates acquired in the stock exchange market are not accepted as direct foreign investments. however, acquisition of the shares exceeding 10% in the stock exchange markets or acquisiton of the shares providing equal voting rights are accepted as foreign investments (fdi law, art 2/b/2/ii). 2.2.2.2. according to bits in bilateral investment treaties (bits) to which turkey is a party, definitions related to foreign investment are also made (see bit between turkey and russia art 1 as an example). the scope of concept of foreign investment in bits is more extensive than the scope of foreign investment in fdi law. all kind of monetary capital is accepted as investment under the concept of “investment” in bits (hüseynov, 93; kostunina/livensev, 106; şensöz malkoç, 111). movable and immovable property as well as property rights accepted as a foreign investment asset (şensöz malkoç, 111). despite that, the host country may accept another value, which is not stated in the bilateral agreement, as the investment. in this case, the dispute arising from the aforesaid investment shall be resolved in accordance with the procedure envisaged under the provisions of the bilateral agreement (hüseynov, 94). in my opinion, in that case, the equity principle and the most favored nation clause stated in bit should be consired. 3. principals of foreign investment provided by fdi law and bits some measures shall be implemented concerning the treatments to be made for the investments in fdi law and in bilateral agreements. 3.1. equity principle “fair and equitable treatment to investments” is one of these measures. it means “each contracting party shall accord fair and equitable treatment to investments made by investors of the other contracting party in its territory”. the other measure “equity principle” shall mean (a) freedom to invest (fdilaw art.3/a) and national treatment (fdilaw art. 3/2) “contracting party shall accord to investments made in conformity with its legislation in its territory by investors of the other contracting party a no less favorable treatment that it accords to investments by its own investors” and (b) the most favored nation clause, “the fair and equitable treatment shall be as favorable as that granted to investments by its own investors or investors of any third state”. the parties shall provide the necessary incentive and protection for the investment to be made by opposing party investors. besides, the most favored nation clause shall be taken into consideration for the contracting party investors at the stage of approval or permission or during the transaction after beginning the activity. the investors shall exceedingly (at least mutually) benefit from the rights provided by the host country to its own citizens (çelikel/öztekin gelgel, 233; ekşi, 520) or third country citizen. arbitrary prohibitions and restrictions, which are ebru şensöz malkoç 288 different from the implementations subjecting to the other investors, shall not be imposed to the other contracting party investors. 3.2. key personnelemployment of foreign national personnel except for the regulation of the transactions relating to the key personnel to be employed concerning the investments in bits (e.g. bit between turkey and russian federation), foreign direct investment law (art 3/g) and regulations on implementation of this law and other legislation define the procedures and principles in relation to the key personnel (çelikel/öztekin gelgel, 235; ekşi, 526, doğan, 237). those are international labour law numbered 6735 (o.g. 13.08.2016-29800) (former law law on work permits of foreigners), the regulation on the employment of foreign national personal in direct foreign investments and foreigners (o.g. 29.8.2003-25214) and international protection law numbered 6458 (o.g. 11.4.2013-28615). in addition to bits, the provisions of residence and trade agreements signed between the republic of turkey and other contracting parties, which set forth the legal status of the citizens mutually, shall be taken into consideration. 3.3. free transfer of interest and capital as the purpose of the foreign investments is making profit, transfers freely through banks and private financial institutions should be allowed (fdi law art. 3/c). the concept of transfer includes all the transferable values (çelikel/öztekin gelgel, 234). the profit to be acquired should also be transferred under certain conditions. in one of the article of bits, the conditions for the transfer of the profit and the capital out of turkey are determined. for example, article 8 of the bit between the republic of turkey and the russian federation determines the conditions for the transfer of the profit and the capital out of turkey. according to bit art. 8, “each contracting party shall permit the investors of the other contracting party, upon fulfilment by them of all tax obligations, unimpeded transfer abroad of payments in connection with their investments, and in particular: (a) returns, (b) principal and interest payments arising under a loan agreement related to an investment, (c) proceeds from sale or liquidation of all or one part of an investment, (d) compensation stipulated in article vi of this agreement, (e) wages and other remunerations received by the nationals of one contracting party who have obtained work permits relative to an investment in the territory of the other contracting party. transfer of payments shall be made without delay in freely convertible currency at the rate of exchange applicable on the date of transfer pursuant to the currency regulations in force of the contracting party in whose territory the investment was made”. 3.4. expropriation and compensation of losses investments shall not be expropriated, nationalized except for instances when such measures are taken in public interest and accompanied by an effective compensation (fdi law m.3/b; constitution art. 46, 47). the compensation shall be equivalent to the real value of the expropriated investment at the time the expropriatory action was taken or at the time when the impending expropriation became known. compensation shall be paid without delay and shall be fully realizable, and freely transferable. in case of a delay the compensation shall bear interest until the date of payment. in bits, general principles of the implementation of expropriation are determined. they are not discriminatory and are accompanied by payment of prompt, adequate and effective compensation (çelikel/öztekin gelgel, 234; ekşi, 520). 3.5. compensation for losses related to force majeur or non-commercial risks connected with an investment and the principle of equity and the most favorable nation treatment in bits, investors of one contracting party whose investments in the territory of the other contracting party suffer losses owing to war, civil disturbances or other similar occurrences shall be accorded no less favorable treatment by such other contracting party that is accorded to investors of any third state, as regards any measures it adopts in connection with such losses. 3.6. stabilization stabilisation clauses specified in articles of bits shall mean “not to realize any administrative transactions and actions and legal amendments which negatively effect the implementation of bit agreement”. legal framework of investment in turkey 289 3.7. transparency of laws additionally, each contracting party shall, with a view to promoting the understanding of its laws that pertain to or affect investments in its territory made by investors of the other contracting party, provide such laws public and readily accessible. this rule shall be named as “transparency of laws”. 4. legal forms of investment in turkey in accordance with fdi law and bits pursuant to art. 2/2, legal forms of investment in accordance with fdi law and bits, (1) establishment of a new turkish company in all incorporated company types designated in turkish commercial code or unincorporated partnerships established through agreements designated in turkish code of obligations under names such as ordinary partnerships, consortiums, business partnerships, joint ventures (2) participating in an existing turkish company, (3) purchase of the share certificates equivalent to 10% of a turkish company. besides, foreing investor shall invest through (4) license, know-how, technical assistance and management agreements, (5) bots or bts subject of construction bridge, tunnel, barrage, watering, energy, manufacturing and similar services in accordance with the law dated june 8, 1994 numbered 4501), (6) opening a branch office of a foreign company in turkey, (7) setting up a liaison office of a foreign company in turkey. furthermore, (8) purchase of movable and immovable property or any percentage of stocks shall also accepted as a foreing investment in bit’s. 5. dispute resolution methods investment disputes may be arisen out of, between the contracting parties concerning the interpretation and implementation of this agreement or between a contracting party and an investor of the other contracting party arising in connection with investment activities. as well as in fdi law, dispute resolution methods for both kind of disputes, are defined in details in bits e.g. bit between russian and turkey art. 10 “settlement of disputes between contracting parties” and art. 11 “settlement of disputes between a contracting party and an investor of the other contracting party”. according to fdi law (art. 3/e, constitution art. 125, law no. 3996, law no. 4501, law no. 4686, law no. 6100 xi part), investment disputes may be resolved by national or international arbitration. according to bits, disputes between host country and an investor arising in connection with investment activities may be related to the amount and procedure of payment of compensation to be paid in accordance with bit or procedure of transfer to be made according to bit. generally, according to bits, in the first step, parties in dispute shall try to negotiate in extend possible and seek a settlement to this dispute in an amicable manner. in case the dispute cannot be settled in this manner within a period determined in bits, dispute shall be submitted for consideration to national courts or national arbitration tribunals or international institutional arbitration (icsid, icc, scc etc.) or ad hoc arbitration with uncitral rules as determined in bits. the investors generally apply to the arbitration due to the its independency, impartiality, confidentiality and efficiency (akıncı, 154; tiryakioğlu, 141). investment conflicts between a contracting state and an investor of other contracting state may be resolved before icsid (convention on the settlement of investment disputes between states and nationals of the other states) arbitration. if both of parties of investment dispute are not contracting party of icsid, the dispute can not be submitted for consideration to icsid even it is agreed on investment agreement signed between the parties (şanlı, 576). on the other hand, the parties may be agreed on icsid additional facility rules. the decision of an arbitral award shall be final and binding upon both parties to the dispute (şanlı, 591). each contracting party shall undertake to enforce this award in accordance with its legislation. 6. conclusion as a result of this study it is concluded that, turkish regulations has been accepted investment-friendly regulations. “foreign direct investments law” and “regulation of implementation” brought appropriate ammendments for the promotion of foreign investment. to continue being an investment-friendly host country, it is observed that turkey refrained from taking harmful measures against foreign investors. ebru şensöz malkoç 290 references akıncı, z. 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(2019). uluslararası ticari akitlerin hazırlanması ve uyuşmazlık çözüm yolları, beta yayınları, i̇stanbul. şensöz malkoç, e. (2015). “international investment and dispute resolution methods in turkey with regard to russian investors”, contemporary studies in law, ehrmann verlag, germany. tiryakioğlu, b. (2003) doğrudan yatırımların uluslararası hukukta korunması, ankara. journal of international trade, logistics and law, vol. 2, issue 1, 2016, 21-26 effects of charter party arbitration clauses under the new turkish commercial code didem algantürk light, (phd) istanbul commerce university faculty of law, turkey visiting researcher professor, york university, osgood hall law school, canada abstract: the new turkish commercial code has became effective on 1 july 2012. the new code covers bareboat charterparty, time charterparty, voyage charterparty and contracts of carriage by sea which is defined in general terms. on the other hand, turkey is the one of the conracting state of convention on the recognition and enforcement of foreign arbitral awards (new york convention, 1958) as well as european convention on international commercial arbitration, 1961. in this study, we will examine the effects of the charter party arbitration clauses under the new turkish commercial code and discuss the characteristics of the clauses to be valid under turkish law. keywords: charter party arbitration clauses, turkish commercial code 1. introduction turkish commercial code book five contains provisions concerning maritime trade divided into 8 chapters. maritime trade agreements covered in chapter four and are governed by articles 1119-1271. this chapter is composed of five sections and covers bareboat charterparty, time charterparty, voyage charterparty and contracts of carriage by sea. new turkish commercial code, book five (articles 931-1400)  chapter 1: ship  chapter 2: shipowner and associations of shipowner  chapter 3: captain  chapter 4: maritime trade agreements  chapter 5: maritime accidents  chapter 6: maritime liens  chapter 7: limitation of liability and indemnification of damages related to oil pollution  chapter 8: special provisions on enforcement chapter 4: maritime trade agreements (art. 11191271)  section one: bareboat charterparty  section two: time charterparty  section three: contracts of affreightment voyage charterparty carriage contracts of goods by sea  section four: time bar / limitation  section five: contracts of passengers carriage by sea 22 didem algantürk light 2. bareboat charter party bareboat charter party is a leasing of a vessel which are referred as bareboat charterparties in practice, are governed by articles 1119-1130 of the turkish commercial code. in paragraph 1 of article 1119 of the turkish commercial code, it is stated that ; “ a bareboat charterparty is an agreement where the owner undertakes to entitle the charterer to use the ship for a certain period in return for a hire” and in paragraph 2, it is stated that; “ if the crew agreements of the ship are also transferred” in other words, if the crew is also hired by the charterer, this shall also be considered as a bareboat charter party. in cases where the legislation on a bareboat charterparty does not contain any relevant provisions, those provisions of the code of obligations that concern ordinary lease agreements shall apply to the extent possible 1). rationale of that article also stated that this application will be relevant for registered and unregistered ships without any differentiation. however, under turkish law, regulation of the registration of boats, vessels and sea and inland waterways vehicles (bağlama kütüğü yönetmeliği) has been in force since 20072, so there is no ship left unregistered under turkish regulations. 2. time charter party time charterparties are agreements under which an owner/possessor transfers the commercial management of an equipped ship to a charterer for a certain period and in return for a certain price which are governed by articles 1119-1130 of the turkish commercial code. the owner, who has the technical management of the ship, is regarded as the possessor of the ship. therefore, the shipowner /possessor is the party that has the technical management of the ship. the charterer, on the other hand, has the commercial management of the ship and enters into a commitment to carriage of contracts. 3. contracts of affreightment according to the article 1138 contracts of affreightments are classified as voyage charter parties and contracts of carriage by sea ( ulgener, charter parties; 2010, 26). voyage charterparty: the carrier agrees to accept a cargo by allocating a part of or a certain section of the ship or the entire ship. carriage contracts of goods by sea: the carrier agrees to accept the carriage of specific goods by sea. ii. charter party arbitration clauses 1. considerations of the arbitration clauses since maritime trade disputes are mostly of an international nature, it is a widespread practice to have recourse to arbitration for dispute resolution. disputes arising from commercial issues such as cargo and passenger transport, cargo loss and damages, carrier’s liability and charterparties are frequently referred to arbitration because the issues are handled by arbitrators who are experts in their fields and disputes are resolved in a short time. for example, the london maritime arbitrators association3 is one of the most well known arbitration centers for the resolution of maritime trade disputes. 1 turkish commercial code, art. 1130 2 regulation of the registration of boats, vessels and sea and inland waterways vehicles (bağlama kütüğü yönetmeliği), offical gazette dated 25 september 2014, no. 29130.http://www.resmigazete.gov.tr/eskiler/-2014/09/20140925-4.htm 3 http://www.lmaa.london/membership-browse.aspx?mtype=1, 12.5.2016 http://www.lmaa.london/membership-browse.aspx?mtype=1 effects of charter party arbitration clauses under the new turkish commercial code 23 bareboat charterparties, time charterparties, voyage charterparties and carriage contracts of goods by sea which are different types of maritime trade agreements, are used in printed form in practice. most widely used forms include the following clauses for the resolution of maritime trade disputes such as;  bareboat charter party barecon 2001 clause 35: dispute resolution article 30: «this contract shall be governed by and construed in accordance with english law and any dispute arising out of or in connection with this contract shall be referred to arbitration in london in accordance with the arbitration act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this clause. according to the clause in general arbitration act 1996 will apply also if london is chosen as the place of arbitration.  time charter party nype (new york produce exchange form) article 17 «arbitration clause» of the nype standard time charter party, amended in 1913, 1921, 1931 and 1946, specifies the place of arbitration as new york. this form was reviewed in 1981 and 1993, and nype 93 became effective. in this form under article 45 «arbitration», there are two options as for the resolution of disputes between parties: arbitration in new york according to united states law arbitration in london according to english law one of these options shall be preferred by striking out the other.  voyage charterparties gencon 1994 gencon charter party was reviewed and updated in 1922, 1976 and 1994. gencon 1922 and 1976 do not contain an arbitration clause. in gencon 1994, however three options are provided under clause 25 / article 19: a) english law as the governing law, and london as the place of arbitration b) united states law as the governing law, and new york as the place of arbitration c) the law of a country to be agreed upon by the parties, and that country as the place of arbitration in cases where none of the options is chosen, english law shall be the governing law and disputes shall be resolved through arbitration in london. in other words, option (a) is the default option.  carriage contracts of goods by sea in practice under the carriage contracts of goods by sea when a bill of lading is issued, there is no need to signing a contract of affreightment. therefore, the clauses in the bill of lading also prove the existence of the contract of affreightment and constitutes its content. in practice, liner bills of lading and container bills of lading are used as printed forms. when we examine these documents we see that the place of arbitration is generally the center where the carrier is based. for example: conlinebill 2000 (liner bill of lading) according to article 4: law and jurisdiction. «disputes arising out of or in connection with this bill of lading shall be exclusively determined by the courts and in accordance with the law of the place where the carrier has his principal place of business, as stated on page 1, except as provided elsewhere herein» 24 didem algantürk light 2. the effects of arbitration clauses turkey is the one of the conracting state of convention on the recognition and enforcement of foreign arbitral awards (new york convention,1958) as well as european convention on international commercial arbitration, 1961. considering these facts about charter parties which are defined in general terms by the turkish commercial code, arbitration clauses in bills of lading and charter parties must have the following characteristics under the turkish law: a. the intent of arbitration must be clear. according to paragraph 2 of article 412 of the code of civil procedure and article 4 of the code of international arbitration4, this intent must be declared either in the form of an arbitration agreement or an arbitration clause contained in the main contract. b. the intent of arbitration must be declared inwriting. to consider of a valid arbitration agreement, the parties’ intent of arbitration must be declared in writing. according to paragraph 3 of article 412 of the code of civil procedure and article 4 of the code of international arbitration: «it shall be sufficient that the arbitration agreement has been recorded by the parties in the form of a written document or using a means of communication agreed upon by them, such as a letter, telegram, fax, telex, etc., or in electronic form, or that the defendant has not objected to the complaint’s claim that there exists an arbitration agreement.» c. the parties may refer to standard terms, rules and standard contracts providing for the resolution of disputes through arbitration. paragraph 3 of article 412 of the code of civil procedure and paragraph 2 of the article 4 of code of international arbitration permit of refering. according to both articles: «an arbitration agreement shall be deemed to have been made if a reference is made to a document containing an arbitration clause in order to incorporate it into the main contract» this clause is known as “incorporation clause” in practice (eksi; 2010, 10). in this case, although the agreement between the parties does not contain an arbitration clause, since the agreement the parties refer to -for example gencon 94contains an arbitration clause, this clause shall be deemed valid. therefore, an arbitration agreement is established through incorporation by reference to a general terms and conditions document containing an arbitration clause. as a result, in the event that if the bill of lading refers to the charterparty, the provisions of that charter party shall become a part of the bill of lading. in other words, the arbitration clause in the charter party shall not bind the holder of the bill of lading if the bill of lading does not refer to the charter party. d. if the holder of the bill of lading is also one of the party of the charterparty (charterer), the arbitration clause shall bind the charterer as well. e. if the holder of the bill of lading is a third party; the arbitration clause in the charter party may not be directly enforced against a third party. this is because the bill of lading is the basis of the relationship between the carrier and consignee. in such a case, the arbitration clause must be stated clearly (şanlı, 2, 774). a general reference to the charter party is not enough5 (eksi; 2010, 110). therefore:  it must be stated in the bill of lading which charter party is referred to, including its name, day and date.  the reference must be clear at the bill of lading. for example; the bill of lading refers to the charter party with the statement 4 offical gazette dated 5 may 2001, no: 24453. 5 however, contrary to the doctrine and previous supreme court decisions, supreme court of appeals, 11th civil law chamber has accepted that the holders of the bill of lading shall be bound by that arbitration clause as long as they have not removed it by striking it out, 6 may 2002, numbered 2002/216-4357. effects of charter party arbitration clauses under the new turkish commercial code 25 «all other terms, including the arbitration clause, shall be the same as in the charter party». is a clear reference and binds the holder of the bill of lading. when a commercial agreement is to be signed, merchants are expected to examine all documents that have been referred to, and must know their content. accordingly, the holder of the bill of lading is expected to examine the charter party referred to in the bill of lading. however, in practice it is questionable to what extent this principle can be exercised by holders of bill of lading or owners of cargo when the amount involved is low. paragraph 3 of the article 1237 of te turkish comercial code contains a provision aimed to resolve that practical issue (atamer, 11, 330-338) «if the voyage charter is referred to in the bill of lading, a copy of the charter party shall be submitted to the new holder during the transfer of the bill of lading. in this case, the provisions of the charter party can also be enforced against the holder of the bill of lading to the extent possible.» according to this new regulation, the voyage charter party should referred to in the bill of lading and when the bill of lading is being transferred, a copy of the charter party shall be submitted to the new holder. if these requirements are met, the provisions of the charter party can be enforced against the holder of the bill of lading «to the extent possible». however it is not clear from the article, what the extent possible» means ?. in our opinion: firstly, the intent of arbitration must be clearly stated such as «all other terms, including the arbitration clause, shall be the same as in the charter party. secondly a valid arbitration agreement must exist. this issue shall be resolved in accordance with the applicable law to the substantive validity of the arbitration agreement. according to article vi/2(a) of the european convention on international commercial arbitration and article v/1 (a) of the new york convention on the recognition and enforcement of foreign arbitral awards, which turkey is a party, the law applicable to the validity of the arbitration clause shall be the law determined by the parties for this purpose, and if they have not chosen a certain country’s law, it shall be the law of the country where the arbitrator’s decision will be made. thirdly, details of the charter party (such as date and number) referred to in the bill of lading shall be specified. the charter party shall not restrict the implementation of the arbitration clause depending on the parties or the subject matter of the dispute. for example, statements like “this arbitration clause shall only apply as between the carrier and the shipper” or “this arbitration clause shall only apply to the case of general average” shall not be used. on the other hand «all disputes arising from this agreement shall be referred to arbitration» is a clear and comprehensible clause. 4. conculusion in the face of these new provisions in turkish law; article 4 of the code of international arbitration must be considered a general article and paragraph 3 of article 1237 of the turkish commercial code must be considered a special provision. it must be concluded that the arbitration clause may be enforced against the holder of the bill of lading to the extent possible and provided that the requirements we mentioned above have been met. another relevant important issue in turkish maritime trade is now whether the arbitration clause in the bill of lading or charterparties form violates the general terms and conditions (genel işlem şartları) according to the turkish code of obligations6. it is expected to have significant impact on commercial transactions as «general terms and conditions » does not have any restriction on its scope of application. that is to say, thus, provisions of the code of obligations on general terms and conditions principally aim to regulate general terms and conditions included in commercial agreements. in the article 25 of turkish code of obligation it is regulated that «provisions, contrary to the rules of honesty (good faith) and against to the other party or provisions aggravating the other party’s situation may not be included in general terms and conditions». for example, under this article, is it a «reason aggravating the situation of the holder of the bill of lading» that, 6 the code of obligations no. 6098, entered into force on 1 july 2012. 26 didem algantürk light according to the arbitration clause in the charter party so that the consignee has recourse to arbitration in england in case of a dispute arising in istanbul in relation to a cargo which is amout of usd 20,000. one of the recent decision of the supreme court of appeals, 11th civil law chamber7 accepts that the jurisdiction clause in the bill of lading is subject to the general terms and conditions pursuant to article 25 of the code of obligations. in this case, defendant's objection to jurisdiction was rejected by the court of first instance as the jurisdiction clause in the bill of lading was void as it was incompatible with general terms and conditions pursuant to article 25 of the turkish code of obligations. although the doctrine mostly accepts that the control on the general terms and conditions does not apply to agreements governed by maritime trade law, from this very recent decision we understand that the supreme court of appeal is contrary of doctrine view. references atamer, k.: “incorporation, fiost and arbitration london clauses under new turksih law, including a review recent supreme court decisionss” turkish maritime association law journal, y.11 no:1-4.,p.330-338. ekşi, n.: “arbitration agreements done by “incorporation” incorporation in international maritime trade 2. ed., i̇stanbul, 2010, p.10. şanlı, c. “in terms of the validity of the arbitration clause in the contracts regarding "implemention of endersmont of the bill of lading, tranfer of the claims, "curtain removal theory" and transferee, receiver and person who remaind behind the veil”, honor of prof. dr. ergin nomer, international law and international private law bulletin, no.2, p.774, http://www.journals.istanbul.edu.tr/iumhmohb/article/view/1019002899, 22.5.2016. ulgener, m.f .: charter party, i̇stanbul 2010, p.26. http://www.lmaa.london/membership-browse.aspx?mtype=1, 12.5.2016 http://www.journals.istanbul.edu.tr/iumhmohb/article/view/1019002899, 22.5.2016. http://www.lmaa.london/membership-browse.aspx?mtype=112.5.2016 www.resmigazete.gov.tr 12.5.2016 7 in actual case supreme court of appeal reversed the court of first instance’s decision stating that article 25 of the turkish code of obligations can not apply to the dispute in view of its effective date. see, supreme court of appeals, 11th civil law chamber decision dated 23.1.2014, 2103/11349 e. http://www.journals.istanbul.edu.tr/iumhmohb/article/view/1019002899 http://www.lmaa.london/membership-browse.aspx?mtype=1 http://www.journals.istanbul.edu.tr/iumhmohb/article/view/1019002899 http://www.lmaa.london/membership-browse.aspx?mtype=1 http://www.resmigazete.gov.tr/ journal of international trade, logistics and law, vol. 9, num. 1, 2023, 251-260 251 the mediator role of global competitiveness in the relationship between high technology export and coverage ratio selim aykaç istanbul ticaret university, turkey mustafa emre ci̇velek istanbul ticaret university, turkey received: april 24, 2023 accepted: may 25, 2023 published: june 01, 2023 abstract: global competitiveness index, high technology exports and coverage ratio variables were used in the study. the effects of high technology exports on the global competitiveness index and coverage ratio, and the effects of the global competitiveness index on the coverage ratio were analysed. positive effects of the analyses were observed. it is also assumed that the coverage ratio is one of the most important criteria of foreign trade performance. in the study, it is seen that the global competitiveness index plays an intermediary role in the effect of technology exports on the coverage ratio. therefore, the increase in the share of technology exports in total trade affects the coverage ratio through the partial effect of the global competitiveness level. therefore, it is assumed that the technological infrastructure and competitiveness of countries will play a key role in improving foreign trade performance. keywords: global competitiveness index, high-tech export, coverage ratio, mediator role 1. introduction the rate of dependence on imported inputs is increasing due to the reduction of trade borders, liberalisation in world economies and technological developments. this situation deeply affects especially developing countries. in order to benefit from the advantages offered by globalisation, an open economy model becomes mandatory. therefore, the demand for technology, energy and raw materials is increasing day by day (alam, 2003). developing economies are becoming more dependent on foreign resources due to reasons such as older facilities and structures and technological inadequacy. therefore, they are at a disadvantage against technologically advanced and highly competitive countries. the existence of technological poverty and the high rate of external dependency lead to an increase in the current account deficit (bayraç & doğan, 2018). the aim of this study is to examine the link between the external dependency ratio of countries, technology exports and global competitiveness. in this context, firstly, the effect of technology exports on external dependence and then the effect of competitiveness on external dependence are analysed. then, it is aimed to determine the effect of competitiveness and technology exports together on external dependence. the data on the ratio of exports to imports is used to represent external dependence. firstly, the concepts of global competitiveness index, high technology exports and coverage ratio, which are the variables used in the study, are analysed. in the hypothesis development section, the relationships between these concepts are analysed and the targeted hypotheses are established. in the next section, the methodology used in the research is mentioned and the final model is drawn. then, detailed information about the data sets used is given. in the analysis results section, the results of the data analysed with the help of spss package programme are shared and interpreted. in the conclusion section, the conclusions related to the study are mentioned. selim aykaç & mustafa emre ci̇velek 252 2. conceptual background the aim of this paper is to identify the links between the global competitiveness index (gci), high technology exports and the ratio of exports to imports. before analysing the relationship between the concepts, it is necessary to define what they mean. therefore, in this section, the global competitiveness index will be discussed first and details about the calculation methods will be given. then, high technology exports and influential countries will be mentioned. finally, the ratio of exports to imports will be discussed and details about foreign trade balances will be mentioned. 2.1. global competitiveness index the world economic forum defines the global competitiveness index (gci) as "the set of institutions, policies and factors that determine a country's level of productivity" (sala-i-martin, et al., 2008). the world economic forum has been analysing the competitiveness level of countries since 1979. sala-i martin laid the foundations of the competitiveness index in 2004 and michael porter finalised it (world economic forum, 2015). while calculating the gci, more than 120 countries are used and results are obtained with approximately 20,000 data. these data are obtained from ministries, agencies, institutes, world bank (imf), regional development banks and affiliated organisations. among these sources, all macroeconomic data are obtained from the imf. identifying a common pool at the international level is also advantageous in terms of analyses. finally, if there is not much data on the relevant country, a survey is conducted by the world economic forum (world economic forum, 2015). the global competitiveness index is analysed under three items: core factors, efficiency enhancing factors and innovation factors. in addition, each factor has its own components. basic factors are analysed as infrastructure, institutions, health and basic education, macroeconomic environment. efficiency enhancing factors are examined as labour market efficiency, financial market efficiency, higher education, technological readiness, financial market development, market size. innovation factors are analysed in sub-components as innovation, business sophistication (world economic forum , 2012). figure 1 global competitiveness index source: (world economic forum , 2012) core factors infrastructure institutions health and basic education macroeconomic environment efficiency factors labour market efficiency financial market efficiency market size higher education technological readiness financial market development innovation factors innovation business sophistication the mediator role of global competitiveness in the relationship between high technology export and coverage ratio 253 when calculating the competitiveness index, not all factors have an equal impact. during the calculation; basic factors have an impact of 60 per cent, efficiency factors have an impact of 35 per cent and innovation factors have an impact of 5 per cent. (world economic forum , 2012). countries need to follow different paths while improving their competitiveness levels. in other words, the methods to be followed by the united states of america and turkey are different from each other. in table 1, the development levels of countries are grouped in three stages. table 1 development levels of countries level 1 factor-driven countries at the factor-driven level have cheap labour and compete on the basis of price. level 2 efficiency-driven countries at the level defined as efficiency-driven enter the production phase with higher efficiency. level 3 innovation-driven countries at innovation-driven level have to compete with different and new products. source: (ay türkmen & aynaoğlu, 2017) according to table 1, the first level includes countries with low production efficiency and these countries can compete by producing cheap products. countries in the second level have a developing structure, but they can now compete with production efficiency instead of cheap labour. countries at the last level only need to produce different and new products in order to maintain their competitiveness (world economic forum, 2012). depending on the level of the countries; the effects of basic factors, efficiency and innovation also vary. to summarise, in a country with low production efficiency, the effectiveness of innovation is more limited in percentage terms. the distributions of competition indicators are analysed in table 2. table 2 competitiveness indicators at the development stage factors / level level 1 transition from level 1 to level 2 level 2 transition from level 2 to level 3 level 3 gdp for capita <2000 2000-2999 3000-8999 9000-17000 >17000 basic factors %60 %40-60 %40 %20-40 %20 efficiency factors %35 %35-50 %50 %50 %50 innovation %5 %5-10 %10 %10-30 %30 total %100 %100 %100 %100 %100 source: (ay türkmen & aynaoğlu, 2017) when table 2 is analysed, the level of national income per capita increases from the first level to the last level. for the countries at the first level, the main factors have a weight of 60 per cent, while at the second level they have a weight of 40 per cent and at the third level only 20 per cent. efficiency has a weight of 35 per cent for the countries in the first level and 50 per cent for the others. innovation has a weight of only 5 per cent for countries in the first level, 20 per cent for countries in the second level and 30 per cent for countries in the third level. from this point of view, the most important concepts for the countries in level 1 are basic factors, while efficiency and basic factors for the countries in level 2, and innovation and efficiency for the countries in level 3 (world economic forum , 2012). selim aykaç & mustafa emre ci̇velek 254 2.2. high-tech export when important studies in the literature are analysed, it is seen that there are significant relationships between economic development and high technology exports. singh (2007), jarreau and poncet (2011), gökmen and turen (2013) emphasised the importance of the link between high value added production, high technology exports and economic development. again, cuaresma and wörz (2005), lee (2011) have analysed the relationship between exports and economic growth in developing economies. when the studies conducted in the last two decades are analysed, it is seen that high technology exports have a critical importance in terms of economic growth and per capita income. newly industrialised countries increase their r&d expenditures in order to close the gap with developed countries and accordingly increase their high technology export levels. one of the driving forces underlying the rapid economic development of far eastern countries such as malaysia, thailand and china is technology exports. the main reason behind the rapid development of malaysia is the high level of high technology exports. (çetin, 2016). figure 2 shows the share of technology exports in total exports in the world and malaysia. figure 2 high technology export (% total exports) source: (world bank, 2022) based on figure 2, it can be said that malaysia has a high technology export rate well above the world average. in fact, more than half of its exports are made with high technology products. it has increased its high-tech product exports ratio from close to 50 per cent in 2010 to almost 55 per cent. worldwide, high-tech exports generally follow a horizontal course, but increased from 20% in 2010 to 22% in 2020 (world bank, 2022). when the share of technology exports in total exports is analysed, it is seen that the rates of asian countries are higher. this shows that asian countries not only make cheap production with cheap labour force, but also start to use technology more efficiently. when table 3 is analysed, the efficiency of asian countries in technology exports can be seen more clearly. table 3 top 10 countries with the highest ratio of technology exports in total trade country 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 hong kong 36,8 20,8 18,5 13,9 11,4 12,3 13,5 61,6 64,7 65,6 singapore 52,3 47,7 48,5 50,3 50,6 52,2 52,2 53,1 51,6 51,8 malaysia 49,3 47,2 47,5 48,5 49,2 48,5 49,1 51,1 53,2 51,6 0 10 20 30 40 50 60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 world malaysia the mediator role of global competitiveness in the relationship between high technology export and coverage ratio 255 vietnam 13,1 18,8 27,2 33,6 32,1 36,4 38,1 41,7 40,8 40,4 iceland 21,2 21,1 15,4 15,7 17,1 20,1 23,4 26,4 23,5 38,1 korea, rep. 32,1 28,2 28,2 29,8 30,1 31,2 30,5 32,5 36,4 32,4 china 32,1 30,5 30,8 31,6 29,7 30,4 30,2 30,9 31,5 30,8 kazakhstan 35,4 25,7 31,0 38,5 39,3 43,4 32,1 24,2 23,5 29,7 malta 47,2 47,4 45,9 38,7 34,7 30,8 21,9 30,4 33,1 29,6 france 26,3 25,1 26,7 27,2 27,4 28,2 27,9 26,0 25,9 26,9 source: (world bank, 2022) according to table 3, seven of the ten countries with the highest proportion of technology exports are asian countries. in addition to the high rates of technology exports of asian countries, it is also seen that they generally continue to rise. namely; hong kong had a technology export rate of 36.8 per cent in 2010 and reached 65.6 per cent in 2019. singapore has generally maintained its rate, which is already above 50 per cent. malaysia has increased its level above 50 per cent, vietnam has increased from 13% to 40% (world bank, 2022). 2.3. coverage ratio coverage ratio and foreign trade deficit are concepts that are frequently used together. although the concepts are related to each other, they do not mean the same thing. foreign trade deficit can be defined as the difference between imports and exports. therefore, these ratios seem to be high in developed and populous countries. this situation provides important data on foreign trade, but it is not clearly evaluated as foreign trade performance. in other words, in countries such as the united states, china and india, these numbers are generally very high or very low (aydin, et al., 2014). formulaic representation of foreign trade deficit: foreigh trade deficit=export-import if the result of the process is above zero, it is interpreted as foreign trade surplus, and if it is below zero, it is interpreted as foreign trade deficit. in order to measure foreign trade performance more efficiently, the ratio of exports to imports is used. the foreign trade deficit is calculated by subtracting imports from exports, while the coverage ratio is calculated by the ratio of exports to imports (aykaç & civelek, 2019). the formulaic representation of the coverage ratio: coverage ratio=export/import x 100 when two countries with the same foreign trade deficit are evaluated, the coverage ratio may be different. namely; considering that the ratio of export and import data of the first country to gdp is 10% and 15% respectively, and the ratio of export and import data of the second country to gdp is 35% and 40% respectively, the foreign trade deficit of both countries is at the level of 5%. however, when considered in terms of coverage ratio; while the coverage ratio of the first country is 67 per cent, the coverage ratio of the second country is 88 per cent. (aydin, et al., 2014). in other words, the foreign trade performance of the second country is higher than the first country. 3. hypotheses development 3.1. the effect of high-tech export on global competitiveness index technological changes have various effects on competition in different ways. one of these is the decrease in labour costs. as the use of technology becomes widespread, the unit costs of labour decrease. because many of the labour intensive jobs are being done with technology. this situation reduces the number of personnel used for intensive labour. however, with the introduction of technology, new business areas and new employment options are created. namely; more use of computer technologies provides more employment of professional groups such as computer engineers, software developers (simpson, et al., 1987). in this respect, the increase in the frequency of technological use increases the need for qualified labour force. one of the important effects of technological developments is the reduction in costs. a company that is weak in terms of technology use needs to keep more stock. however, when technological development is experienced, the selim aykaç & mustafa emre ci̇velek 256 production process will also accelerate. with the acceleration of production, the response time to the customer will shorten and profitability will increase (narin, 1999). again, one of the important effects of technological developments is the increase in the level of service quality. with the development of new technologies and engineering services, product quality is increasing. at the same time, the production of products of different sizes and shapes is carried out more efficiently (narin, 1999). all these processes ensure that customer expectations are met more. in addition to these, with the capture of the technological innovation process, it increases the competitiveness of firms in the micro dimension and countries in the macro dimension. moreover, it is accepted that one of the most important features of technological innovations besides rapid production is to increase the level of competitiveness (erdem & köseoğlu, 2014). depend upon the extant literature the following hypothesis is constructed: h1: high-tech export has a positive effect on global competitiveness index 3.2. the effect of global competitiveness index on coverage ratio the main element of achieving competitive advantage in foreign trade is productivity increase. it is observed that countries that try to achieve foreign trade performance or competitive advantage with different methods instead of productivity increase fail. one of these methods is to suppress employee wages. in other words, it is aimed to keep employee wages as low as possible, thus providing international competitive advantage. although it works in the short term, it is impossible to control in the long term. generally, this suppression process ends with wage explosions (eşiyok, 2014). one of the methods used to achieve international competitive advantage is the low exchange rate policy. although it seems to provide competitive advantage or foreign trade performance in the short term, it fails in the long term. because other countries also apply the same method (eşiyok, 2014). for these and similar reasons, productivity is the main factor in achieving competitive advantage in foreign trade. depend upon the extant literature the following hypothesis is constructed: h2: global competitiveness index has a positive effect on coverage ratio 3.3. the effect of high-tech export on coverage ratio it is accepted that countries with high technology exports have better foreign trade performance, while countries with high technology imports more than exports have weaker foreign trade performance. eşiyok (2014) analysed the technology exports and imports between turkey and eu countries. accordingly, turkey has an advantageous position in technology exports with eu countries only in low technology. eu countries are more advantageous in terms of medium and high technology. in other words, turkey has a foreign trade surplus in low technology trade with the eu. however, turkey has a foreign trade deficit in medium and high technology products. in turkey and similar cases, countries with low high technology exports are disadvantaged (eşiyok, 2014). depend upon the extant literature the following hypothesis is constructed: h3: high-tech export has a positive effect on coverage ratio 3.4. the mediator role of global competitiveness index in the relationship between high-tech export and coverage ratio it is seen that high technology exports, global competitiveness index and coverage ratio data are interrelated with the analyses made in previous chapters. however, the main subject of the study is whether the level of global competitiveness assumes the role of a mediating variable. in the study, while it is seen that an increase in the level of high technology exports will increase the coverage ratio, it is thought that the global competitiveness index will assume a mediating role. depend upon the extant literature the following hypothesis is constructed: h4: global competitiveness index has a mediator role on the relationship between high-tech export and coverage ratio the mediator role of global competitiveness in the relationship between high technology export and coverage ratio 257 4. research method the baron and kenny approach was used to conduct the mediator analysis. when the below mentioned circumstances are true, a variable, in the opinion of baron and kenny, acts as a mediator (baron & kenny, 1986): the mediator variable changes as the independent variable changes. when the mediator and independent variables are analyzed simultaneously, the effect of the independent variable on the dependent variable is reduced or eliminated (çelebi, et al., 2015). changes in the mediator variable lead to changes in the dependent variable. figure 3. conceptual model the conceptual model for the study is displayed in figure 3. the hypotheses are tested using hierarchical regression. regression models are as follows among dimensions which are high-tech export (hte), global competitiveness index (gci) and coverage ratio (cvr): model 1: cvr = β0 + β1.hte + ε (h3) model 2: gci = β0 + β1.hte + ε (h1) model 3: cvr = β0 + β1.hte + β2.gci + ε (h2 and h4) 5. measures and sampling high-tech export (hte), global competitiveness index (gci) and coverage ratio (cvr) were used. it was unnecessary to assess the validity and reliability of the scales because secondary data were used. high technology export data used in the study are taken from the world bank data centre. global competitiveness index data are compiled from the world economic forum's data. coverage ratio data are obtained from trade map and data sets are proportioned. selim aykaç & mustafa emre ci̇velek 258 6. analysis results initially, baron and kenny’s method require significant relationship among the variables in the research model (civelek, 2018). for this reason, pearson correlation coefficients were obtained. as indicated in the table 4, the relationships among variables are found as statistically significant. table 4. correlation coefficients hte gci cvr hte 1 gci ,514* 1 cvr ,345* ,446* 1 * correlation is significant at the 0.01 level r and r2 values of the three models are shown in table 2. table 5. model summaries models r r2 adjusted r2 standard error of the estimate model 1 0,345 0,119 0,118 24,35534 model 2 0,514 0,264 0,263 0,52308 model 3 0,466 0,217 0,215 22,97379 table 6. anova tables models f sig. 1 regression 103,466 ,000 2 regression 275,825 ,000 3 regression 106,215 ,000 in table 6, anova test results for the models are shown. anova results proved that the models are statistically significant. table 7. hypotheses results relationship model 1 model 2 model 3 hte → crv 0.345* 0.157* hte → gci 0.514* gci → crv 0.365* note: regression coefficients are standardized. *p<0.01 the mediator role of global competitiveness in the relationship between high technology export and coverage ratio 259 7. conclusion findings in table 4 demonstrates positive and significant relationship between hte and gci (βmodel2= 0.514, p< 0.01). therefore, h1 (high-tech export has a positive effect on global competitiveness index) was supported. h2 (global competitiveness index has a positive effect on coverage ratio) was also supported (βmodel3= 0.365, p< 0.01). h3 (high-tech export has a positive effect on coverage ratio) was supported (βmodel1= 0.345, p< 0.01) and h4 (global competitiveness index has a mediator role on the relationship between high-tech export and coverage ratio) was not supported (βmodel3= 0.157, p< 0.01). the reason is that after the inclusion of the mediator variable into the model the effect of hte on crv did not disappear. but the value of the β coefficient decrease. it was therefore concluded that gci play partial mediator role between hte and crv. according to the study, the increase in high technology exports leads to an increase in the global competitiveness index. the global competitiveness index also positively affects the coverage ratio. the increase in high technology exports increases the coverage ratio. however, the positive relationship between high technology exports and coverage ratio is realised with the help of the global competitiveness index. in other words, the global competitiveness index creates a link between technology exports and coverage ratio. as a result of the analyses, it is seen that this mediating variable role is not complete but partial. based on the study, increasing high technology exports of countries has positive effects on foreign trade performance. however, the increase in the level of competitiveness along with technology exports will further improve the foreign trade performance of countries and the coverage ratio will increase. references çelebi, ü., civelek, m. e. & 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[online] available at: https://archive.doingbusiness.org/en/data/exploretopics/starting-a-business world economic forum , 2012. global competitiveness report, s.l.: global competitiveness index. world economic forum, 2012. the global competitiveness report, s.l.: wef. world economic forum, 2015. rykgm, s.l.: global competitiveness index 2014-2015. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 154-161 154 the effects of stakeholder’s involvement on performance of public authorities in delivering water services in tanzania: lesson from dawasa taussi ally nyambitta college of business education (cbe) mohamed habibu mohamed college of business education (cbe) received: september 28, 2022 accepted: november 08, 2022 published: december 01, 2022 abstract: the significance of stakeholders involvement towards the performance of public authorities brought several debate in the country. this study established the effect of stakeholders involvement on performance of public authorities in delivering water services in tanzania. the study adopted a cross sectional design on a sample of 52 respondents obtained through stratified sampling and simple random sampling technique. data were collected through questionnaire, interview and documentary review and analyzed quantitatively and qualitatively. quantitative data was analyzed through descriptive statistics, frequency, percentage and inferential statistics analysis while qualitative data was analyzed through content analysis. the study found that stakeholders had a positive and significant effect on the performance of public authorities in delivering water services in tanzania. therefore, it was concluded that stakeholder is a prerequisite for the performance of public authorities in delivering water services. the study recommended that dawasa should have stakeholders’ in different program in order to facilitate performance in water service delivery. since factors affect performance of public authority in delivering water services are many and diverse, this study focused only one predominant factor (stakeholder’s involvement). hence, the finding of this study should not be generalized beyond that particular unit of inquiry. other studies should be conducted to ascertain the extent to which other factors such as organisational resources, management, and technology effect performance of public authority in delivering water services in tanzania. keywords: stakeholders involvement, performance of public authority 1. introduction quality service delivery of water is a problematic in dar es salaam city given the fact that 5.7 million of people lives in dar es salaam but only 75% of the population were estimated to have access to reliable water supply services (ewura, 2018). despite of that accessibility, still water service was extremely defective and characterized by extensive limiting and low pressure. therefore, stakeholder’s involvement is very important to the performance of public authority in water services delivery. stakeholders involvement has been not paid a great attention as a contributing factor to public authority performance in water service delivery. success of water service delivery will depend on how the management interacts with other actors in the form of the stakeholders and how each of the stakeholders reacts to the quality of service received. the interactions could be conflictual, cooperative or competitive (prell, 2017). a number of studies have been done on the factors affecting performance public authorities in water service delivery such as jimenez and reed (2018) and sanders and jennifer (2016)). however, most of the previous studies looked into the general factors on the performance public authority in water service delivery with limited study in stakeholder’s involvement. besides, previous studies have revealed that lack of community participation has a negative impact on sustainability of water service delivery especially after the withdrawal of donors’ support (kanyala, 2017). however, lack of community participation does not represent stakeholder involvement. stakeholder’s involvement focuses on the effects of stakeholder’s involvement on performance of public authorities in delivering water services in tanzania: lesson from dawasa 155 identification of stakeholders so as to understand their behavior, purposes, interrelations and welfares (kanjina, 2011; taesombat et. al., 2012). therefore, it is not well known as to what extent stakeholder’s involvement effects on performance of public authority in water services delivery in tanzania. the current study has been conducted to fill such a gap. 2. literature review 2.1. stakeholders involvement and performance of public authority stakeholder as any group or individual who is affected by or can affect the achievement of an organization’s objectives or an individual and organizations who are actively involved in the project, or whose interests may be positively or negatively affected as a result of project execution or successful project completion (freeman, 2014). stakeholders involvement on the performance of public authority in water service delivery include: roles played by stakeholders in achieving organization water objectives, challenges faced in achieving those objectives, implementation support, stakeholder’s contribution to organizational resources, funding from stakeholders, conflicts and government policies. performance refers to the output derived from a certain task measured against pre-known standards of function, accuracy, cost, completeness and speed. in a contractual agreement, performance is defined as the fulfillment of one’s obligation, in a way that it covers all the performance from all the duties, responsibilities and liabilities as per the terms of the contract (richard et al., 2012). performance of public authority is the act of promoting or improved performance and accountability in respect of specify principles governing the operation of public. public performance also reflects the real output obtained from a public organization as measured against the pre-intended goals and objectives (richard et al., 2012). 2.2. theoretical framework this study was guided with stakeholders theory. freeman (1984) explains stakeholder as any individual that can affect or will be affected with the company objectives when it comes to realizations. jones & wicks (1999) contend that the organization has co relationships with several constituent groups and that it can prompt and maintain the support of these groups by considering and balancing their relevant interests. stakeholder theory has a vital message that organizations should aim at maximizing not only their own profits but also maximizing benefits or minimizing damages to other organizations and individuals on their activities. (donaldson & preston, 1995) stated that stakeholder theory is considered as managerial theory because it depicts managers as individuals who pay simultaneous attention to the legitimate welfares of all suitable stakeholders. the theory further provides a comprehensive picture about the role that stakeholders play in the strategic decisions and strategic future of the organization (eden and ackermann, 1998). the relevant and application of this theory to the current study is that it explain primary and secondary stakeholders of dawasa who corporate with dawasa on water service delivery. stakeholder of dawasa includes employees, customers, suppliers, financiers, communities, governmental bodies, trade associations, and trade unions which support dawasa on water service delivery. 2.3. empirical literature review william, (2012) found that stakeholders’ practices work to develop the performance of the organization in water services through individual knowledge and skills in the long term affects organization performance. however, this study did not discuss much on how stakeholder’s involvement trough attitudes and behaviors influence organizational performance. therefore, the current study is sought to fill such a gap. blyton and turnbull (2013) found that stakeholders’ participation conceptualized a set of deeds that assist stakeholders to develop a sense of ownership and power delegation in water service delivery. however, the study did not discuss on the extent of stakeholders involvement through problem solving, decision making and information processing effects on organizational performance. therefore, the current study is sought to fill such a gap. gallagher (2016) revealed that organizational culture as basic assumptions members of an organization pose towards organizational performance which directs stakeholders’ thoughts and actions. the study further expose organizational culture as a form of shared basic assumptions learned by organizational members as they solve problems of external version. however, the study did not discuss the extent to which stakeholder’s involvement solves internal problems as result of organizational performance. taussi ally nyambitta & mohamed habibu mohamed 156 3. methodology the study employed a cross sectional design whereby information gathered represents what is going on at a particular point in time. this greatly helped in obtaining useful data in a reasonably short period. stratified sampling and simple random sampling were used to obtain the sample of 52 respondents. data were collected through questionnaire, interview, and documentary review and analyzed quantitatively and qualitatively. quantitative data was analyzed through descriptive analyses as well as inferential analyses which were used to test on the effect of stakeholder’s involvement on performance of public authority in delivering water services in tanzania. finally, the result presented on tables. the study also used content analysis to analyze data collected from the documents and interviews. 3.1. sample size determination and sampling method the sample size comprised 52 respondents. these were drawn from the different departments of dawasa whereby in each department 95 percent of significant level was used to draw sample. likewise sample was determined by the small sample technique by barney (1991) through a formula of 100 cn n  table 1: population distribution of dawasa category population sample communication officers 13 11 it officers 15 13 procurement officers 12 10 marketing officers 16 14 human resource officers 3 3 manager 1 1 total 60 52 source: dawasa (2019) 4. results 4.1. demographic characteristics of the respondents table 2 shows that 35 (67.3%) of the respondents were male respondents and 17 (32.7%) of all respondents were female respondents. the respondents have the age of 18-30 years were 30 (57.7%) while about 18 (34.6%) were between the ages of 31-50 years. moreover about 4 (7.7%) were above the age of 50 years. this suggests that most of the respondents were young, energetic and vastly mature to facilitate performance of public authorities in delivering quality water services. table 1 indicates that 39 (75.0%) of the respondents are bachelor level, 7 (13.5%) of the respondents are secondary level of education, 06 (11.5%) of the respondents are masters level and 0 (0.0%) none of them are primary level of education and phd level. the data shows that a big number of respondents have been educated, skilled and knowledgeable. therefore, respondents are capable of reading and providing correct information relevant to the current study. table 2: demographic characteristics of the respondents (n =52) the effects of stakeholder’s involvement on performance of public authorities in delivering water services in tanzania: lesson from dawasa 157 variable characteristics frequency percent age 18 – 30 30 57.7 31 – 50 18 34.6 50 and above 4 7.7 education level primary 0 0.0 secondary/certificate 7 13.5 bachelor degree 39 75 masters 06 11.5 phd 0 0.0 gender male 35 67.3 female 17 32.7 source: field data (2019) 4.2. findings on the effects stakeholder’s involvement on performance of public authority respondent’s responses were computed by making an aggregate of responses given by respondents to the items and 5 point likert scale (1=strongly disagree, 2=disagree, 3=neutral,4=agree and 5=strongly agree) which were categorized according to their percentages and frequencies as shown in table 3: table 3: the effects of stakeholder’s involvement on performance of public authority statement sd d n a sa total f % f % f % f % f % f stakeholder’s involvement affects implementation of water service 0 0 0 0 6 11.5 16 30.8 30 57.7 52 taussi ally nyambitta & mohamed habibu mohamed 158 delivery contribution of resources from stakeholders affects execution of water services 0 0 0 0 7 13.5 14 26.9 31 59.6 52 funding from stakeholders positively affects water service delivery 0 0 0 0 7 13.5 19 36.5 26 50 52 conflicting opinion from stakeholders affects execution of water service delivery 0 0 0 0 18 34.6 28 53.8 6 11.5 52 government policies negatively affect execution of water service delivery 0 0 0 0 6 11.5 13 25.0 33 63.5 52 source: field data (2019) key: f = frequencies, % = percentages table 3 indicates that 46 (88.5%) of the respondents agreed that stakeholder’s involvement affects implementation of water service delivery, 6 (11.5%) of respondents were neutral and remaining 0 (0.0%) of respondent disagreed. 45 (86.5%) of respondents agreed that contribution of resources from stakeholders affects execution of water services, 7 (13.5%) respondents were neutral and 0 (0.0%) of the respondents disagreed. 45 (86.5%) of respondents agreed that funding from stakeholders positively affects water service delivery, 7 (13.5%) were neutral and 0 (0.0%). 34 (65.3%) of respondents agreed that conflicting opinion from stakeholders affects execution of water service delivery, while 18 (34.6%) were neutral and 0 (0.0%) of respondents disagreed. 46 (88.5%) of respondents agreed that government policies negatively affect execution of water service delivery, 6 (11.5%) of respondents were neutral and 0 (0.0%) of respondents disagreed. this implied that stakeholder’s involvement has much contribution on the performance of public authority in water service delivery since stakeholders are contributing on the planning strategies, decision making, implementation support, stakeholder’s contribution to organizational resources, funding, conflicting and government policies. during interview the researcher was eager to know if stakeholder’s involvement effects performance of public authority in water service delivery. key informants demonstrated that; “cooperative potential of supportive stakeholders can be encouraged by involving them in relevant issues. stakeholders can affect the implementation of dawasa in water service delivery, most of our stakeholders are involved on contribution to organization resource, decision making. therefore, their potential cooperative may be overlooked, in order to strengthen involvement of stakeholder on water service delivery to improve performance of dawasa” (interview, hr manager, july 2019). it was further expressed by one of the participant that; “authorization on project decision-making, opinions, contributions or funding should be increased by means of legal aspect, being able to manage stakeholders’ expectations and concerns following government policies is one of crucial success factors for dawasa in water resources project and other infrastructure project management. on the effects of stakeholder’s involvement on performance of public authorities in delivering water services in tanzania: lesson from dawasa 159 the other hand, inadequate management of the stakeholders concerns could lead to conflicts and arguments for a project implementation at dawasa.” 4.3. inferential statistics results this component presents the inferential statistics results. the statistical package for social sciences (spss) was employed to facilitate the computation of measurements of the variables. therefore, the study employed linear regression analysis and pearson correlation coefficient to test the relationship between stakeholder’s involvement and performance of public authority. 4.3.1 the effect of stakeholder’s involvement on performance of public authority table 4: model summary model r r square adjusted r square std. error of the estimate durbin-watson 1 .831a .744 .720 .41257 2.043 a. predictors: (constant), stakeholder’s involvement, contribution of resources, funding, conflicting opinions, government policies. source: field data (2019) table 4 shows that, the r is 0.831 which indicates that there is strong relationship between stakeholder’s involvement and performance of public authority. the r square statistic of the model is implying that 74% of performance of public authority is accounted for stakeholder’s involvement effects much on performance of public authority, contributing in resources, funding various projects and conflicting opinion and government policies. table 5: pearson correlation coefficient pfm stk pfm pearson correlation 1 .493** sig. (2-tailed) .000 n 52 52 stk pearson correlation .493** 1 sig. (2-tailed) .000 n 52 52 **. correlation is significant at the 0.01 level source: field data (2019 key: pfm = performance, stk = stakeholders table 5 present the result on the effects of stakeholder’s involvement on performance of public authority in delivering water services. the results on the table indicate that there is a significant relationship between stakeholder’s involvement and performance of public authority since the p-value is equal to 0.000 and less than alpha value 0.05. moreover, the value of the correlation coefficient which is 0.493 falls under the coefficient range of ± taussi ally nyambitta & mohamed habibu mohamed 160 0.41 to ± 0.70. this indicates moderate correlation between stakeholder’s involvement and performance of public authority. 5. discussion the study found that there is a significant relationship between the effects of stakeholder’s involvement and performance of public authority. the results are in line with mishra and sachan (2012) who found that stakeholder’s involvement is a key driver of organization performance. these results also concurred with grigg (2016) who found that inadequate of social impact on evaluation of various water resources project due to poor identification of stakeholders needs is the main factors of project failure. the study further revealed that the involvement of stakeholder should be in a participatory manner carried out on the basis of dual bottom up and top down interactive for successful performance of the organization, the result also supports the theory (stakeholders theory) that provides a comprehensive picture about the role of stakeholders in strategic decisions and strategic future performance of the organization. performance of public authority is largely contributed by stakeholder as individuals who pay simultaneous attention to the legitimate welfares of organization. 6. conclusion & recommendation 6.1. conclusion the study found that there is a significant relationship between stakeholder’s involvement and performance of public authority in delivering water service. therefore, dawasa should make sure that stakeholders are involved in organization objectives, planning strategies and decision making. furthermore it is recommended that the conduct of employee appraisals should be emphasized since it has significant contribution to the whole performance of the public authority as it helps management to assign different tasks to employee as internal stakeholders. 6.2. recommendation this study was based on establishing the effects of stakeholder’s involvement on performance of public authority in delivering water service in tanzania citing dawasa as a case study. therefore, researcher is inviting other researchers to conduct other factors affecting performance of public authorities in tanzania such as organization resource, technology and organization structure. references barney, j. (1991). firm resources and sustained competitive advantage. journal of management, 17(1), 99–120. blyton, p., and turnbull, p. (2013). stakeholders’ involvement and participation in organisations. the dynamics of employee relations, 217-244. donaldson, t.and preston, l. e. (2015). the stakeholder theory of the corporation: concepts, evidence, and implications, the academy of management review, 20(1): 65-91 eden, c, & ackerman, f. (1998). making strategy: the journey of strategic management. london: sage ewura (2018). water utilities performance report, district and township water utilities, tanzania. freeman, r. e. (2014). strategic management: a stakeholder approach, pitman, boston. freeman, r. e.: (1984). strategic management: a stakeholder approach (pitman publishing inc., marshfield). gallagher, r. s. (2016). the soul of an organisation, understanding the resources that drive organization successful, dearborn trade publishing. grigg, n.s., (2016). water resources management: principles, regulations, and cases, mcgraw-hill professional, 540 p. kanjina, s., (2011). participatory water resources management in thailand: where are the local community, url. kanyala, m. mahinda (2017). community participation in donor funded rural water supply projects: the case of uyui district, tabora region tanzania: a dissertation submitted in fulfillment of the requirements for the degree of master of arts in rural development of the sokoine university of agriculture, morogoro, tanzania. mishra, b. & sachan, d., (2012). stakeholders and organization performance: a key driver of performance and productivity. international journal of management research and review. vol. 2(8): 1334 – 1341. the effects of stakeholder’s involvement on performance of public authorities in delivering water services in tanzania: lesson from dawasa 161 prell, c., et.al. (2017). stakeholder analysis and social network analysis in natural resource management, sustainable research institute, the university of leeds, united kingdom. reed, d., (2018). employing normative stakeholder theory in developing countries: a critical theory perspective, business and society, 41(2): 166-217. richard et al. (2012). measuring organizational performance: towards methodological best practice. journal of management. sanders, h and fitts, j. (2016). assessing the sustainability of rural water supply programme: a case study of pagawa, tanzania. wicks, a. (1999). convergent stakeholder theory. academy of management review, 24, 206-221. william, a.n. (2012). organization performance and stakeholder’s participation. ultimate companion limited. bachelor’s thesis. mikkeli university of applied sciences. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 198-203 198 the relationship between the real effective exchange rate and industrial production in the turkish economy okşan ki̇bri̇tci̇ artar istanbul commerce university, turkey received: march 25, 2022 accepted: may 18, 2022 published: june 01, 2022 abstract: the industrial sector is one of the key sectors for the turkish economy in terms of production, employment and exports. the volatility in the exchange rate in the turkish economy has important effects on industrial production, as well as many economic variables. the main purpose of this study is to empirically analyse the effects of real effective exchange rate on industrial production for the turkish economy in the 2009m08-2022m01 period. according to the results of the study, the real effective exchange rate adversely affects the industrial production in the turkish economy. other things being equal, the depreciation of the domestic currency increases the foreign demand for industrial products, in line with the economic theory. considering these relations between real effective exchange rate and industrial production while designing economic policies is important for sustainable economic growth. keywords: industrial production, real effective exchange rate, economic policies 1. introduction total industrial production and manufacturing industry production play a critical role in the turkish economy in terms of production, employment and exports at the national level. total industrial production is affected by changes in domestic and international demand. in particular, one of the important factors affecting export demand is the real effective exchange rate. the current account deficit, which arises due to the chronic savings deficit in the turkish economy, has significant effects on exchange rates. the sustainability of the external financing deficit for the turkish economy also significantly affects the exchange rate stability. the economic and financial stability of the turkish economy may be adversely affected due to the internal and external economic and non-economic shocks it faces. in this study, it is aimed to analyse the relationship between the real effective exchange rate and total industrial production in the turkish economy with econometric techniques. the original contribution of the study to the literature is to contribute to the effective design of industry and exchange rate policies by reanalyzing the relationship between the current data and the real effective exchange rate and total industrial production within the framework of the covid-19 epidemic. 2. literature on real effective rate of exchange and industrial production in the turkish economy industrial production has a critical role for the turkish economy. the sustainability of industrial supply depends on the sustainability of domestic and foreign demand on the one hand and on the input supply conditions and costs on the other. the real effective exchange rate is an important factor in the export of industrial goods. table.1. gives the share of total industry and manufacturing industry gdp in the turkish economy. accordingly, for 2021, the share of industrial production in gdp is around 25% and the share of manufacturing industry in gdp is around 22%. the relationship between the real effective exchange rate and industrial production in the turkish economy 199 table.1. gdp share of total industry and manufacturing industry in turkish economy table.1. gdp share of total industry and manufacturing industry in turkish economy share of industrial production in gdp (%) share of manufacturing industry production in gdp (%) year/quarter i ii iii iv i ii iii iv 1998 28.82 26.31 22.22 24.28 25.78 23.66 19.70 21.49 1999 24.80 24.12 20.29 22.79 21.92 21.44 17.77 19.83 2000 23.18 22.68 19.57 21.35 20.08 20.03 17.03 18.33 2001 22.91 20.53 19.02 21.73 19.67 17.56 16.09 18.20 2002 22.08 20.98 18.28 19.81 18.28 17.85 15.50 16.70 2003 21.59 21.02 18.20 20.42 18.26 18.03 15.38 17.21 2004 21.61 20.54 18.06 19.52 18.49 17.76 15.45 16.62 2005 21.28 20.23 17.65 20.10 18.28 17.56 15.13 17.05 2006 20.59 20.26 18.35 20.14 17.64 17.67 15.84 17.29 2007 21.31 20.04 17.96 19.61 18.30 17.32 15.27 16.68 2008 20.89 19.91 17.89 19.09 17.87 17.07 14.96 15.50 2009 19.15 18.83 17.19 18.75 15.62 15.68 14.22 15.27 2010 19.40 19.14 16.80 18.75 15.69 15.82 13.58 15.37 2011 20.70 20.10 18.33 20.01 17.24 17.01 15.32 16.48 2012 21.02 20.12 17.52 18.73 17.17 16.75 14.47 15.33 2013 20.33 19.80 18.52 20.16 16.72 16.51 15.35 16.66 2014 21.48 20.84 18.60 19.67 17.76 17.57 15.54 16.48 2015 20.36 20.43 18.17 20.16 17.10 17.31 15.30 17.22 2016 21.02 20.19 17.61 19.82 17.67 17.27 14.72 16.88 2017 21.78 20.79 19.17 21.07 18.39 17.87 16.30 17.99 2018 22.25 21.92 21.45 23.47 19.02 18.85 18.37 19.91 2019 23.10 22.72 20.43 21.44 19.38 19.15 17.07 17.86 2020 23.43 21.48 21.51 24.36 19.66 17.78 18.13 20.60 2021 25.51 26.37 23.96 27.68 21.68 22.35 20.06 23.51 source: tuik in figure 1, the production level in the total industry and sub-sectors in the turkish economy is given annually. accordingly, in the second quarter of 2020, when the covid-19 epidemic was dominant, the contraction in industrial production was observed around 30%, especially in april and may 2020. okşan ki̇bri̇tci̇ artar 200 figure 1. turkish economy total industry and sub-sector production (annual%) source: tcmb, tuik in figure 2, graphs of industrial production and real effective exchange rate variables (log) are given. accordingly, the real effective exchange rate and total industrial production exhibit a volatile trend in the opposite direction to each other. 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 09 10 11 12 13 14 15 16 17 18 19 20 21 lsanayi_uretimi lreel_efektif_doviz_kuru figure 2. industrial production and real effective exchange rate variables graphs (log) the relationship between the real effective exchange rate and industrial production in the turkish economy 201 within the framework of the literature review, the findings of the related studies examining the relationship between industrial production and exchange rate in the turkish economy are summarized as follows. balaylar (2011) stated in his study that the rise in real exchange rates in the turkish economy weakens the relations between industrial production and employment. in the study of barışık and yayar (2012), it was determined that the exchange rate for the turkish economy adversely affected industrial production in accordance with the theory. aytekin and doyar (2019) study found that there is a long-term relationship between industrial production and exchange rate, while there is a mutual causality relationship in the short-term. şanlı and petek (2019) study examined that the exchange rate increases the capacity utilization rate in the manufacturing industry. in the study of aytekin (2020), it was stated that there is a long-term relationship between industrial production and exchange rate, and there is a causality relationship from exchange rate to industrial production in the short run. petek et al. (2020) found a strong and inverse relationship between the real effective exchange rate and the number of manufacturing for the turkish economy. çalışci and gögül (2021) study found an inverse relationship between the turkish economy's exchange rate and industrial production in the long run. in international studies, the effects of exchange rates on industrial production or gdp may differ from country to country (see akinlo and lawal, 2015; tang, 2015) 3. econometric analysis 3.1. data and methodology the variables used in the analysis were obtained from the central bank of the republic of turkey. variables are, • total industrial production index (2015=100) • cpi based real effective exchange rate (2003=100) the data period is the period 2009m08-2022m01 and is monthly data. the variables are logarithmic. the method used in the analysis is time series econometric techniques. 3.2.econometric analysis results descriptive statistics for the logarithmic values of the variables used in the study are given in table.1. accordingly, while the industrial production average was 4.581, the average real effective exchange rate was 4.519. table 1. descriptive statistics (log) industrial production real effective exchange rate mean 4.581 4.519 median 4.597 4.605 maximum 5.109 4.840 minimum 4.040 3.868 std.dev. 0.216 0.222 skewness 0.220 0.770 kurtosis 2.569 2.574 jarque-bera 2.378 15.945 probability 0.305 0.000 total 687.1 677.8 observation 150 150 okşan ki̇bri̇tci̇ artar 202 according to the adf unit root test results in table 2, it has been determined that the variables are stationary at the first difference according to the most appropriate model result. table 2: adf unit root test results for variables data/model industrial production real effective exchange rate level/trends t-stat -2.5155 -2.4051 prob. 0.3203 0.3754 first difference/constant t-stat -5.0516 -9.9642 prob. 0.0000 0.0000 since the variables were not stationary at the level, the johansen cointegration test was performed in table 3 and it was determined that the variables were cointegrated in the long run. table 3: johansen cointegration test results trace test results trace 0.05 rank eigenvalue stats critical value prob.** r = 0, r ≥ 1 0.155807 32.34675 25.87211 0.0068 r = 1, r ≥ 2 0.049409 7.448754 12.51798 0.3000 maximum eigenvalue results eigenvalue 0.05 rank eigenvalue stats critical value prob.** r = 0, r ≥ 1 0.155807 24.89800 19.38704 0.0071 r = 1, r ≥ 2 0.049409 7.448754 12.51798 0.3000 since the long-term relationship between the variables was determined by cointegration analysis, the long-term equation between the variables was estimated with the dynamic ols estimator. the results in table 4 show that the real effective exchange rate adversely affects industrial production. as the value of the turkish lira decreases, industrial production increases depending on foreign demand. this is an economically expected result. the depreciation of the domestic currency leads to an increase in foreign demand, an increase in exports and an increase in industrial production. table 4: dynamic ols regression results for industrial production dependent variable variable coefficient std. error t-statistic prob. real effective exchange rate -0.820572 0.062885 -13.04879 0.0000 c 8.300751 0.275533 30.12618 0.0000 d_2020m04 -0.411128 0.024588 -16.72068 0.0000 r-squared 0.716966 mean dependent var 4.587075 adjusted r-squared 0.709049 s.d. dependent var 0.210560 s.e. of regression 0.113576 sum squared resid 1.844614 the relationship between the real effective exchange rate and industrial production in the turkish economy 203 hac standard errors & covariance (prewhitening with lags = 1 from sic maxlags = 5, bartlett kernel, newey-west fixed bandwidth = 5.0000), cointegrating equation deterministics: c d_2020m04, automatic leads and lags specification (lead=0 and lag=1 based on sic criterion, max=13), jarque-bera (prob) = 0.192 4. conclusion in this study, the relationship between the industrial sector, which has a critical role in the turkish economy in terms of production, employment and exports, and the real effective exchange rate has been investigated. as a result of the analysis, it has been empirically determined that the real effective exchange rate affects industrial production in the opposite direction. in terms of ceteris paribus condition, the depreciation of the domestic currency increases the foreign demand for industrial products. the important result in terms of economic policy is that observing the effects of the economic policies implemented in the turkish economy on industrial production over the real effective exchange rate can play a key role for economic growth within the framework of sustainability. references akinlo, o. o., & lawal, q. a. (2015). impact of exchange rate on industrial production in nigeria 1986-2010. international business and management, 10(1), 104-110. aytekin, i̇. (2020). döviz kuru sanayi üretimi ve ekonomik güven arasındaki i̇lişkinin analizi: türkiye örneği. bitlis eren üniversitesi sosyal bilimler dergisi, 9(2), 322-330. aytekin, i̇., & doyar, b. v. (2019). türkiye’de döviz kuru dalgalanmalarının sanayi üretimi ve tüketici güveni üzerindeki etkisi:(2008-2019). uluslararası bilimsel araştırmalar kongresi, 26-27 ağustos 2019, gölbaşı – adıyaman balaylar, n. a. (2011). reel döviz kuru i̇stihdam i̇lişkisi: türkiye i̇malat sanayi örneği. sosyoekonomi, 16(16). barışık, s., & yayar, r. (2012). sanayi üretim endeksini etkileyen faktörlerin ekonometrik analizi. iktisat isletme ve finans, 27(316), 53-70. çalışci, s., & gögül, p. k. (2021). döviz kuru ile sanayi üretimi arasındaki nedensellik i̇lişkisi üzerine bir uygulama (2005-2019). bulletin of economic theory and analysis, 6(2), 1-25. petek, a., altun, c., & petek, f. f. (2020). türkiye’de reel efektif döviz kuru ve i̇malat sanayi üretiminin karşılaştırmalı analizi (2008-2020 dönemi). nazilli i̇ktisadi ve i̇dari bilimler fakültesi dergisi, 1(1), 39-48. şanlı, o., & petek, a. (2019). türkiye’de gayrisafi yurtiçi hasıla, döviz kurları ve sanayi üretim endeksinin kapasite kullanım oranları üzerine etkileri: zaman serileri analizi. international review of economics and management, 7(1), 49-73. tang, b. (2015). real exchange rate and economic growth in china: a cointegrated var approach. china economic review, 34, 293-310. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 18-22 18 implications of covid-19 pandemic on air cargo transportation sencerhan avci istanbul commerce university, turkey özgür çengel istanbul galata university, turkey okşan ki̇bri̇tci̇ artar istanbul commerce university, turkey received: dec 29, 2021 accepted: april 02, 2022 published: june 01, 2022 abstract: air cargo transportation is a key determinant in meeting the demand for perishable goods, which is highly dependent on timely imports of inputs and exports of semi-finished or finished products as part of global supply and production networks. airports, which are the doors of countries to the outside world, have been closed to passenger transportation, but never to cargo planes. because the entry of the goods needed by the countries is important in terms of raw materials and needs. the aim of this article is to show the current situation of air cargo transportation in the world during the pandemic period and to reveal the importance of air cargo transportation in terms of supply chain. keywords: economic impact, air cargo 1. introduction air cargo transportation is a type of transportation that provides the national or international transfer of a product via air. transported products generally include pharmaceuticals, technological products, food, machine parts, perishable products and products with high material value. air transportation increases its percentage in the transportation sector day by day, as it provides fast and timely delivery of products. with the effect of the globalizing world and the free market economy, air cargo transportation continues to increase its impact. sectoral developments around the world make a significant contribution to production and consumption activities. in this context, the critical role of the aviation industry in social and economic development comes to the fore. air cargo transportation is a key determinant in meeting the demand for perishable goods, which is highly dependent on timely imports of inputs and exports of semi-finished or finished products as part of global supply and production networks. due to the fact that the production is carried out in different regions in the world, as well as the increasing world population and the inadequacy of storage capacities; production and air cargo transportation continue to increase at the right rate. the pandemic epidemic, which affected the world as of 2019, also had an impact on the supply chain. production lines were interrupted by the effect of the pandemic, and each input negatively affected another input process. countries have closed their borders with the effect of the pandemic and there have been impacts in the transportation sector, including border customs controls. in these periods, the transportation of medicine, food and technological products that countries need by air cargo has brought air transportation to the forefront in terms of sector. implications of covid-19 pandemic on air cargo transportation 19 2. air cargo transportation air cargo plays a critical role in the transport of goods and in global trade. air carriers transport us$6.8 trillion worth of goods each year, representing 35% of the global market. as an example of the range of air cargo loads in a typical 24-hour period, international air cargo carries products such as 80,000 flowers, 140,000 tons of cargo, 200 racehorses and 1.1 million smartphones. air cargo is usually transported in one of two ways. one of them can be carried on a cargo plane dedicated entirely to cargo transport, or on the lower decks of aircraft carrying passengers. (bartle , lutte, & leuenberger, 2021) air cargo transportation is a type of transportation that provides the national or international transfer of a product via air. transported products generally include pharmaceuticals, technological products, food, machine parts, perishable products and products with high material value. air cargo includes goods sent from seller to buyer almost anywhere in the world, such as personal items, gifts, donations, samples for the product, equipment and live animals that are highly diverse in terms of physical properties, valuable and can be delivered quickly. (moving air cargo globally, 2013) when we look at the benefits of transporting by air cargo, it can be said that relatively high value commodities tend to go by air despite the much higher cost. when we look at the reasons for the senders to send cargo by air; (bañez, lyall, & walton, 2019) 2.1. small size shipments because of their cost, these goods are relatively small, making air transport more convenient due to their size. for example, electronics, precision instruments, sophisticated industrial machinery, and other high-value commodities are also small-sized shipments in size and weight. 2.2. time sensitive shipments some products are extremely time sensitive. these cover a wide range of perishable foods, pharmaceuticals, products that must meet very specific delivery dates and whose production will affect other inputs by air. 2.3. security based shipments high-value commodities, by definition, refer to air transport of goods that require more security against loss, damage or theft than their lower value. airplanes often offer not only the fastest but also the safest way to move cargo from one point to another. 2.4. shipments containing cost of capital high-value commodities consume large amounts of capital and impose high interest costs on their owners. these value-driven factors increasingly influence the model selection process of shippers, despite their impact on transportation decisions. each factor and how it interacts with the others, it is necessary to first indicate how the modes of transport. 2.5. shipments considering inventory cost air cargo operations offer the advantage of fast, continuous supply, inventory levels and their costs can be reduced. this speed accelerates the delivery of products in terms of time rather than operating large storage facilities for certain products of a manufacturer to customers. by reducing inventory levels, a firm raises more capital, reduces inventory holding costs and reduces obsolescence cost. in summary, air cargo provides the benefits of speed, reliability, safety and reduced inventory cost. 3. air cargo transportation and covid 19 the coronavirus disease caused by sars-cov-2 was first reported in december 2019 from wuhan city of china. (covid-19 – a global pandemic, 2020) covid-19 is a respiratory infection caused by a new coronavirus called sars-cov-2. the covid-19 epidemic continues as a situation that spreads very rapidly and negatively affects human life. (team, 2020) currently, the origin of the coronavirus sarscov-2, which causes covid-19, is unclear. all available evidence indicates that sars-cov-2 has a natural animal source and bats are the natural reservoir of the sars-cov-2 virus. sencerhan avci & özgür çengel & okşan ki̇bri̇tci̇ artar 20 (xiarewana & ci̇velek, 2020). people affected by coronavirus may develop the following signs and symptoms within 2-14 days of exposure: fever, cough and shortness of breath or difficulty breathing. (world health organization, 2020). most people infected with the virus will experience mild to moderate respiratory illness and recover without special treatment. however, some will become seriously ill and require medical attention. older people and those with underlying medical conditions such as cardiovascular disease, diabetes, chronic respiratory disease or cancer are more likely to develop serious illness. the virus can be spread in the form of small liquid particles when coughing, sneezing, talking, singing or breathing from the mouth or nose of an infected person. these particles range from larger respiratory droplets to smaller aerosols. (world health organization, 2020) in the aviation industry, the covid-19 pandemic has severely impacted the airline industry, with travel restrictions and flight cancellations to mitigate the impact of the coronavirus. the aviation industry and airports suffered a great loss of income due to the inadequacy of air traffic and loss of income. the various steps taken by airlines to reduce losses include reducing capacity, parking or retiring aging aircraft, reducing compensation to executives and taking measures regarding voluntary departure early retirement programs for employees, reducing hiring new staff, minimizing unemployed aimed at reducing its impact. the main reason why the aviation industry is in financial trouble is the cancellation of domestic and international flights around the world to stop the spread of the coronavirus. various travel restrictions have also been effective, as governments of different countries around the world do not issue visas to foreigners and close virus-affected areas. this caused an economic downturn in the aviation industry. when we look at the various segments in the airline industry; passenger airlines, cargo airlines, aircraft manufacturing companies, airport operating companies and companies providing catering and service are the main ones. among these, the passenger airline division is one of the most severely affected segments as a result of the pandemic, and airport operators providing services to passenger carriers, aircraft manufacturers, catering and other input sectors have been affected in the same way. in this period, airline companies that wanted to reduce the economic impact of the pandemic aimed to reduce the impact of the crisis by carrying cargo with cargo planes and passenger planes. in may 2020, the federal aviation administration (faa) granted an exemption for carrying cargo in the passenger cabin of aircraft carrying passengers. this exemption was initially granted until the end of 2020 and was later extended until the end of july 2021. as of june 2020, iata stated that carrying cargo by passenger planes had carried out approximately 1300 flights. on july 14, 2020, the faa issued another exemption: the federal aviation regulation (far) provided the option to remove some or all of passenger aircraft's seats. (https://www.faa.gov, 2021) as covid-19 spreads rapidly, it will increase the use of passenger planes in cargo transportation in terms of supply chain day by day. this will increase the functionality of passenger aircraft at 54% of world air cargo capacity. considering other cargo transports in addition to medical transports around the world, the pandemic created the need to use 2500 passenger planes for cargo operations. (boeing, 2020) figure 1: regional analysis of passenger aircraft in cargo transport (boeing, 2020) implications of covid-19 pandemic on air cargo transportation 21 with the pandemic, passenger transportation processes have almost come to an end, but air cargo carriers continued to carry cargo in order not to disrupt the world supply chain in the processes of e-commerce and transportation of products arising from increasing global production. data from the international air transport association (iata) show that in march 2020, air cargo tonne kilometers (ctk) flown increased by 4.4% compared to march 2019 precrisis. air cargo data services firm clive said air cargo volumes for april 2021 increased by 78% from april 2020 and 1% from april 2019. insufficient air cargo vehicles and increasing demands in the world have increased cargo transportation costs. according to the 2020 iata report, while the cargo revenue of airline companies was 102.4 billion dollars in 2019, it reached 117.7 billion dollars in 2020. for example, lufthansa cargo achieved the best result in its 26-year history and increased its revenues by 11%. (thuermer, 2021) the international air transport association (iata) released may 2021 data for global air cargo markets, showing that the strong growth trend in demand continues. while comparing the monthly results of 2020 and 2021, it also revealed the data for may 2019, taking into account the impact of covid 19. global demand, measured in cargo ton-kilometers (ctk*), increased by 9.4% compared to may 2019. although the growth rate slowed slightly in may, demand increased by 11.3% compared to pre-covid-19 levels (april 2019). however, air cargo outperformed global goods trade for the fifth month in a row. north american carriers contributed 4.6 percent to the 9.4% growth rate in may. basic economic conditions and favorable supply chain dynamics remain supportive for air cargo. related to this, global trade is increasing day by day and the cost-competitiveness of air cargo has improved compared to april container shipping. while the average price of air cargo before the crisis was 12 times more expensive than sea freight, it has now decreased to six times.. (https://www.iata.org, 2021) figure 2: economic analysis of air cargo transportation (https://www.iata.org, 2021) the international air transport association (iata) released may 2021 data for global air cargo markets, showing that the strong growth trend in demand continues. while comparing the monthly results of 2020 and 2021, it also revealed the data for may 2019, taking into account the impact of covid 19. global demand, measured in cargo ton-kilometers (ctk*), increased by 9.4% compared to may 2019. although the growth rate slowed slightly in may, demand increased by 11.3% compared to pre-covid-19 levels (april 2019). however, air cargo outperformed global goods trade for the fifth month in a row. north american carriers contributed 4.6 percent to the 9.4% growth rate in may. basic economic conditions and favorable supply chain dynamics remain supportive for air cargo. related to this, global trade is increasing day by day and the cost-competitiveness of air cargo has improved compared to april container shipping. while the average price of air cargo before the crisis was 12 times more expensive than sea freight, it has now decreased to six times. (https://www.iata.org, 2021) 4. conclusion air cargo transportation, which has a critical importance in terms of the global supply chain, is important in terms of transporting products with a short lifetime and providing reliable and fast delivery. with the effect of the globalizing world and the free market economy, air cargo transportation is increasing its impact day by day. sectoral developments around the world make a significant contribution to production and consumption activities. in this context, the critical role of the aviation industry in social and economic development comes to the fore. sencerhan avci & özgür çengel & okşan ki̇bri̇tci̇ artar 22 with the covid 19 pandemic, which affected the world in 2019, many sectors were affected, and even production came to a standstill. one of the sectors affected by the deterioration of the world supply chain has been the aviation sector. as the spread of the pandemic became clear, countries first applied the social distance rules and closed even their airports with the increasing number of cases. airline companies that primarily transport passengers in the aviation sector, catering companies that provide services to them, and companies that manufacture aircraft due to the uncertainty of the pandemic have also been affected. air cargo transportation, which is the fastest means of transportation for growing crops for people who are confined to their homes due to the deterioration of the supply chain, has come to the fore. considering the needs of the countries and the export rates of the airports closed to passenger transport, cargo flights have almost never been closed. although cargo planes are used effectively for the continuation of the supply chain during the pandemic period; the inadequacy of these planes has pushed airline companies to carry cargo on the seats of passenger planes. in addition, companies that have obtained national and international permits have continued to carry cargo by removing their seats, as well as carrying on seat. considering the capacity of aircraft manufacturers to produce cargo aircraft, they could not keep up with the increasing demand for cargo aircraft.2 when the amount of air cargo transportation in 2019 and 2021 is compared, airline companies have increased both the amount of cargo and their revenues by using cargo planes and passenger cargo planes in the troubled period that started with the pandemic. the effective use of air cargo transportation is also of great importance in terms of transporting products such as vaccines and drugs that will affect the pandemic process. air cargo transportation has also been effective in repairing the deteriorated supply chain, as well as its impact on the country's economies. with the pandemic, many airline companies have turned to air cargo transportation and even queued to buy cargo planes from aircraft manufacturers. when we look at the sectoral costs, the pricing, which is 12 times in price with maritime transport, has decreased to 6 times. in these periods when air cargo transportation comes to the fore, the growth rate of the sector is increasing day by day and it has a greater impact on the service of humanity. references (2021, december saturday). https://covid19.who.int/. adresinden alındı bañez, d., lyall, a., & walton, r. (2019). air cargo guide. aci-na air cargo committee. usa. bartle , j., lutte, r., & leuenberger, d. (2021, march 27). sustainability and air freight transportation: lessons from the global pandemic. sustainability. boeing. (2020). world air cargo forecast 2020-2039. usa. covid-19 – a global pandemic. (2020, june 5). https://www.who.int/docs/default-source/coronaviruse/riskcomms-updates/update-28-covid-19-what-we-know-may-2020.pdf?sfvrsn=ed6e286c_2. adresinden alındı garcia, p., jacquinot, p., lenarcic, c., lozej, m., & mavromatis, k. (2021, october). global models for a global pandemic: the impact of covid-19 on small euro area economies. european central bank. https://aci.aero/2021/10/04/aci-world-responds-to-statements-on-airport-charges-by-iata/. (2021, october 4). https://aci.aero/2021/10/04/aci-world-responds-to-statements-on-airport-charges-by-iata/. adresinden alındı https://www.iata.org/en/pressroom/pr/2021-07-07-01/. (2021, may). https://www.iata.org. adresinden alındı https://www.oxfordeconomics.com/. (2020, march). https://www.oxfordeconomics.com/. adresinden alındı moving air cargo globally. (2013). air cargo and mail secure supply chain (s. 2-5). kanada: icao and wco. roy, s. (2020, july 27). economic impact of covid-19 pandemic. researchgate. team, p. b.-1. (2020, march 30). background and overview of approaches to covid-19 pandemic control in aotearoa/new zealand. thuermer, k. e. (2021). pandemic leaves residual mark on sector. logistics management . verschuur, j., e. koks, e., & hall, j. (2021, aprıl 21). global economic impacts of covid-19 lockdown measures stand out in high frequency shipping data. plos one. world health organization. (2020). https://www.who.int/health-topics/coronavirus#tab=tab_1. adresinden alındı xiarewana, b., & ci̇velek, m. (2020). effects of covid-19 on china and the world economy: birth. journal of international trad, 147. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 222-235 222 initial public offering effects on volatility in us stock market abdirahman nor omar ahmed istanbul commerce university, turkey ayben koy istanbul commerce university, turkey received: april 30, 2023 accepted: may 26, 2023 published: june 01, 2023 abstract: this paper aims to investigate the effect of initial public offerings (ipos) on stock market volatility in the united states using the generalized autoregressive conditional heteroskedasticity (garch) model. the study utilizes daily data from january 2020 to october 2022 on the standard & poor's 500 index (s&p 500) and ipo firms listed on the new york stock exchange (nyse) their ipo dates during the same period. the garch model is employed to estimate the volatility of the s&p 500 index stock prices after the ipos announcements during the first day, first five days, and first ten days. the study finds that ipos significantly impact volatility in the us market, and the effect is more pronounced in the short term. we discovered that ipos after their announcements during the first five days have a negative impact on other stock prices in the s&p500 index. the effects are stronger for the first day of initial public offering come to the market while there is a negative impact on the 10th day of ipos in the market but it is not statistically significant. the downward-sloping demand curve hypothesis is supported by these findings. these results have important implications for investors, market regulators, and policymakers. investors should be aware of the potential for increased volatility during periods of ipo activity and adjust their investment strategies accordingly. market regulators may need to consider implementing measures to mitigate the impact of ipos on market volatility. policymakers may also need to consider the potential economic effects of ipos and the associated increase in market volatility to ensure a stable and efficient stock market. keywords: ipos, us, s&p500, nyse, volatility, arch/garch, e-garch 1. introduction the impact of an ipo on the volatility of the us stock market is the subject of this study. when it comes to the theoretical and practical implications of ipos for market participants and regulators, the question of whether or not they have a negative pricing impact on existing equities during the first ten days after their announcements is crucial. near substitutes, or stocks whose price changes are highly correlated with the ipo company's industry's performance, are negatively impacted by the ipo. this is studied by braun and larrain (2009) look into this question by analyzing ipo listing activities in 22 emerging countries. shi, sun, and zhang (2017). find that large chinese ipos have a negative effect on pricing across the board, not just for similar products. both analyses evaluate ipo share trading in the listing month or the days immediately following the ipo listing date, based on actual market data. we extended the analysis to determine if the price of existing stocks would decrease on the first day, the fifth day, and the tenth day following the announcement of an ipo. while prior studies have concentrated on significant event days such as listing day, subscription day, offering day, etc. the purpose of this research is to ascertain if ipos are detrimental to the stock market. the time frame of january 1, 2020, through september 30, 2022, was used in our analysis using arch/garch and e garch models. a company's first-time selling shares of stock to the general public is called an "initial public offering" (ritter,1998). during an initial public offering (ipo), there are different goals at play for investors, underwriters, and the issuing company. underwriters act as a go-between for issuers and investors, and their goal is to build a strong reputation in initial public offering effects on volatility in us stock market 223 the market. companies that decide to go public typically seek the highest possible issue price to maximize their cash flow from the ipo. investors prefer underpriced shares at a discounted price to maximize their profit. however, there are many other reasons for a company to go public besides raising capital for investment opportunities. these include: determining the firm's market value; enhancing the firm's image in the market; reducing the cost of capital; broadening the basis of ownership; allowing one or more principals to diversify personal assets; attracting analysts' attention; attracting venture capitalists; and attracting talent. one of the most consequential choices a private company can make is whether or not to go public. this decision affects the very foundation of the company. it should come as no surprise that ipos are of interest to academics, investors, and policymakers. since ipos have become increasingly common in recent years, many studies have been conducted on them (shen & wei, 2007). (pagano, 1998). u.s. and international companies from a wide range of industries choose to sell shares to the public in the united states by listing on a u.s. exchange because of the country's deep and liquid capital markets. businesses try to go public for a variety of reasons, including the opportunity for higher valuations, the elimination of liquidity discount coupons, strict corporate governance guidelines, increased flexibility to offer workforce share incentives, extensive research industry expert coverage, and the availability of investment returns. in 1783, the united states saw its first initial public offering (ipo), and the new york stock exchange (nyse) has now been in continuous operation for 240 years. u.s.-based companies listed on the nyse and nasdaq, the two largest stock exchanges in the country, had a combined market cap of nearly $40 trillion as of october 2022. the two markets are currently worth $22 and $17 trillion and are growing at a rapid rate. over 15,000 ipos have occurred in the united states since 1960. (mujalovic, halbhuber, & bogdanov, 2022). investors use "styles" in asset pricing and capital allocation, according to the behavioral literature. examples of easily discernible characteristics that investors use to classify assets include inclusion in the s&p 500 index and a stock's book-to-market ratio. since 2003 (barberis & shleifer). when an initial public offering (ipo) is released, investors may make changes to their portfolios to maintain the level of exposure they had hoped for across asset classes. in this procedure, some assets are purged at a higher rate than others because of their similarity to the ipo's aesthetic. for instance, a growth ipo may crowd out and depress the prices of other growth stocks as we move along the demand curve for growth if the demand for "growth" is sloping downwards (low book-to-market). the capm forecasts an uncertain market reaction to equity issues, while the model with downward-sloping demands forecasts a negative one. both models predict cross-sectional variation (i.e., some prices decreasing less than others or even increasing), but this does not affect the market-wide projections. market reaction is typically negative, supporting a model with downwardly sloping demands, as shown by evidence from stock picking that shows periods of active issuing are followed by periods of poor stock return in the united states. baker and wurgler (2000) similar to the previous models, the ipo effect results from a change in long-term stock demand rather than shortterm price pressure (harris & gurel, 1986). pricing pressures are based on the idea that market makers will only buy stocks at a discount in the run-up to an initial public offering (ipo), thus compelling investors to liquidate existing holdings to fund the purchase of new shares. to fund the acquisition of the new asset, investors may liquidate similar stocks, and the discount amount may be related to the ipo covariance. when investors' cash reserves improve again, however, they buy back some of the shares they had sold, causing the price to rise to its previous level. equities with a high ipo covariance should see a greater price increase in the time after the ipo if the initial effect is due to a lack of liquidity. the central tenet of the price pressure school of thought is that market prices will turn around after a major event, or, more precisely, after the event's resulting surge in demand. in many different contexts, such as index expansions, this has been the most distinguishing prediction (kaul, mohrotra, & morck, 2000). what follows is a synopsis or outline of the remaining parts of the paper. the literature is reviewed in the article's second section. section 3 provides a high-level overview of the data and parameter setup. the methodology of the empirical tests is discussed in greater depth in section 4 of this article. in section 5, we present the empirical results and a battery of statistical tests; in section 6, we draw conclusions and discuss policy implications. 2. literature review according to amarilysya (2021), an initial public offering (ipo) is the process by which a company or other issuer offers and sells securities to the public for the first time in the form of shares. in developed economies, initial public abdirahman nor omar ahmed & ayben koy 224 offerings (ipos) are preferred to other forms of internal financing like secured loans and venture capital because of their speed and lower cost (chemmanur, he, & nandy, 2010). moreover, an initial public offering (ipo) is the capstone of the startup funding life cycle. initial public offerings have been studied extensively in the academic literature (ipos). ipos have been shown time and time again to be underpriced and to generate excessive profits in the short term. more research is being conducted to learn if the performance of other listed equities on different event days is affected by ipos. this article explores the ripple effect an initial public offering (ipo) has on the market. the purpose of this chapter is to provide a summary of the research done on the topic at hand. we will scour a wide range of resources for relevant content that advances the study's objectives. the argument stems from the theory that the supply shock caused by a highly anticipated initial public offering (ipo) could cause a drop in demand for previously traded stocks. baraun and larrain (2009), building on the work of grossman and stiglitz (1980), propose a model in which the demand curve for stocks is assumed to fall. in addition, their model predicts that the covariance between ipo stock and market ipo issue size will increase as ipo size increases. literature on ipo effects on us volatility helps paint a complete picture. our findings are consistent with those found in the vast literature on the topic of price changes caused by changes in supply. a supply shock occurs when there is an abrupt change in the availability of a product or commodity. as a result of an increase in output caused by a positive supply shock, prices fall. on the other hand, a negative supply shock causes output to fall and prices to rise. the question of whether or not the price of other stocks is affected by an initial public offering (ipo) is an important one. the first to investigate the cross-stock ipo effect, baraun & larrain (2009) widened their focus on supply-side effects. using event study methods, they analyzed 254 ipos across 22 developing markets between 1989 and 2002 and found that none of the offerings caused a precipitous decline in stock price. they showed that portfolios with a high degree of covariance with the new asset experienced a price decline during the issue period. securities with similar characteristics to the ipo in terms of size and book-to-market ratio saw a decline in relative price. these results are consistent with the supply mechanism since they are more pronounced when the supply shock was larger. the authors also note that substantial ipos have the potential to affect market prices as a whole. they devise a precise means of determining whether or not large ipos are having an antagonistic effect on individual chinese markets. according to shi, sun, and zhang (2017), large ipos in china have a negative effect on market prices overall, not just for similar stocks that are close to going public. both investigations are grounded in the actual trading of ipo shares and examine the month of the ipo listing or the days before and after the ipo listing date. they take their time analyzing the ipo announcement and how it will affect the value and volatility of existing stocks that could be used as direct substitutes for the ipo shares. circumstantial evidence shows that initial public offerings (ipos) cause a crash in the value of chinese stocks. on its first day of trading after being listed on the shanghai stock exchange (sse) on november 5, 2007, china oil (petrochina) had a market value of 70 billion yuan or about 45% of the day's total trading value on the sse. from a morning high of 5,748 to a final tally of 5,634, the sse composite index experienced a decline. consequently, the negative theoretical and practical implications of an ipo's effect on existing share prices are a major concern. according to scholes, (1972) and mikkelson & partch, (1983), the demand curve for stocks should be skewed if companies in the market are not perfectly matched to one another (1985). there would be a negative effect on the equilibrium price of stocks that are close substitutes for ipos if the supply of those stocks were to increase. baraun and larrain (2009) state that the primary reason for the negative cross-stock effect of an ipo is portfolio rebalancing. however, shi, sun, and zhang (2017) discovered that chinese investors speculated on the undervaluation of major ipos by selling some of their existing shares to buy for ipo shares, temporarily lowering the price of existing stocks. the portfolio rebalancing method expects a drop in market equilibrium prices, which, barring a temporary liquidity crisis, should be maintained for a long time. in contrast, the speculating argument anticipates a drop in price that should be quickly reversed. both arguments, however, rely heavily on ipo share trading as their primary source of evidence. both of these hypotheses are consistent with the theory of the downward-sloping demand curve, which states that an increase in supply due to ipos reduces demand for their near substitutes and, consequently, their prices in a initial public offering effects on volatility in us stock market 225 market with different defects. in other words, adding a new asset to the portfolio is at the expense of current assets, assuming aggregate demand stays the same, so any price decline caused by rebalancing the portfolio should not be followed by a price recovery. however, due to liquidity or behavioral issues, the impact may be short-lived (harris & gurel, 1986). during the initial public offering (ipo) period, investors may sell their stock holdings and buy new shares for speculative or rebalancing purposes (attracted by ipo underpricing). the selling of stocks by investors would put downward pressure on their prices. later, when liquidity has improved, these investors buy back the securities they sold, driving prices higher. market reaction to an initial public offering (ipo) is time-sensitive, occurring most frequently around the subscription date (t), when investors can submit subscriptions for shares, and the listing date (ld) when investors can trade the ipo shares on the stock exchange. a lot of people save up for the ipo subscription date. investors no longer need to sell existing shares to purchase ipo shares thanks to the availability of these reserve funds. previous studies of supply shocks have assumed, at least implicitly, that aggregate demand for the associated asset remains constant. supply shocks are the primary driver of price changes in these stocks (meidan, 2005). (baraun & larrain, 2009). given that not every potential investor can afford to make a bet on the ipo with their own money, a portion of the subscription must still be generated by selling existing shares. not all of the daily trading market amounts need to come from this fraction of the total frozen funds. since ld is the day on which ipo investors can trade in their shares, it is another important event day. investors who speculate can buy shares in an initial public offering (ipo) and then sell them for a profit on the first trading day. in the meantime, regular investors can rebalance their holdings by selling current equities that closely parallel the ipo on or before ld and purchasing shares of the listing stock on ld. because it provides a natural experiment to study the effect of an ipo announcement on the price of existing stocks, the study of china's ipo approval regime deserves your attention. what makes china's ipo approval system stand out is that after an ipo approval announcement is made, the supply of ipo shares will almost certainly increase. in china, however, where obtaining ipo approval is much more difficult, ipo approval guarantees the delivery of new shares; in fact, no chinese firm has ever voluntarily withdrawn its ipo after receiving approval. in the united states, companies have more freedom during the initial public offering (ipo) process, and they can stop the distribution of shares at any time. the study found strong evidence that stock market declines following the approval or announcement of an ipo could be attributed to investors' anticipation of future share offerings. from 2004 to 2014, 1,056 initial public offerings (ipos) were made on the chinese stock market. before and following the ipo listing date, shi, sun, and zhang (2017) also analyzed the effects on price. they found that the close substitute of an ipo had a negative price effect in the days leading up to the listing days of the ipo. after five trading days after the listing, there is some evidence to suggest that the price decline related to the ipo issue is reversed. larrain & braun, 2005 looked into the impact of ipos on the price of other publicly traded stocks. quantitatively significant shifts in the availability of assets in emerging markets were the primary area of investigation. they found that new assets entering a market affect the prices of existing assets. hsu, rocholl, & reed, (2006) analyzed the stock price, operating performance, and survival chances of publicly listed businesses following a massive ipo in the market. their research showed that competitors in the same industry see low stock price returns in the lead-up to their ipo and a precipitous drop in performance afterward. the results showed that other companies operating in the same industry felt the effects of the ipo. there are implications for investors who are weighing the risk and reward of businesses in industries where there is a high probability of new ipo entries, as suggested by the article's research. the effect of stock issues on pricing was studied by loderer, cooney, and van drunen (1991) for regulated companies. their studies focused on cross elasticity or the potential effect of shifts in the quantity of one asset on shifts in the value of another. the researchers looked into the impact ipos had on the prices of other stocks and found that the negative price reactions they observed could not be attributed to the disclosure of information about the fundamentals of the companies involved. the relationship between investor demand for ipos and the subsequent performance of those companies has been studied by other researchers. according to (hanley, 1993), equities that are priced below the initial filing range perform poorly on the first day and have a negative effect on other stocks already traded in the market, while stocks that are priced above the first listing range perform wonderfully despite being provided at a higher price. abdirahman nor omar ahmed & ayben koy 226 chintya et al. (2020) examined the impact of an ipo firm on a rival stock's performance in developing markets, and they were the first to provide empirical experiments on the short-term and long-term influence of ipo firms on the performance of their rival companies in indonesia from 2010 to 2017. they found that the short-term effects of ipo stock performance are negative, while the long-term effects are positive. between 2010 and 2018, avci (2021) conducted research in turkey to examine the valuation and intra-industry effects of initial public offerings (ipos). and it was discovered that the stock prices of rival turkish companies drop significantly after ipos. nonetheless, there are still sizable ipos that harm the performance of competitors. according to the research of spiegel and tookes (2020), competitors' performance typically declines after an ipo due to industry-wide trends. kupianen (2020) used data on finnish ipos from 2000 through late 2020 to examine if the stock prices and operating performance of competing firms were affected by ipos. he found that stock prices drop sharply and noticeably right before and after the initial public offering (ipo) filing events, but only slightly after the ipo is completed. min (2020) investigated the impact of ipos on the stock prices of existing competitors in the same sector on the korean stock market. by looking at how the stock prices of similar companies responded to the news of their ipo and listing. the outcome suggests that rival companies' stock prices dropped after word of the ipo shares leaked out. 3. data and methodology quantitative research is the type of research that is being conducted here, and the data that is being utilized in this investigation is secondary data obtained from the eikon thomson reuters database. the purpose of this research is to investigate the impact that a company's initial public offering has had on the stock market in the united states. the data are collected daily, which is the most frequent interval. the schedule of daily initial public offering (ipo) dates that will take place on the nyse market between january 1, 2020, and september 30, 2022; this is a series of the closing prices of the s&p 500 market index daily. all initial public offerings that were listed on the nyse (new york stock exchange) during the aforementioned period make up this study's population. the method of sampling that was utilized in this research was non-probability sampling, and the technical analysis of the data that was carried out in this investigation consisted of testing the data with the assistance of the arch/garch and e-garch models. the s&p 500 is the volatility indicator that we use for the variable that we are studying. the quotes of the 500 largest american companies are used to calculate the s&p 500 (spx), which is a market index. it is frequently regarded as the stock market indicator in the united states that is most representative of the overall market. to measure ipo dates, we made use of dummy variables for the first day, up to the fifth day, and up to the tenth day. the dates of nyse-listed initial public offerings served as our independent variable. the new york stock exchange (nyse), which has its roots in 1792, is currently the stock exchange that has the highest total market capitalization of its listed securities. it is also the oldest stock exchange in the world. 4. methodology the model that produces the least amount of squares is the cornerstone of applied econometrics. given that applied econometricians are frequently tasked with predicting how much one variable will change in response to a change in another variable, it is easy to comprehend why this would be the case. however, econometricians are being asked more and more to forecast and evaluate the number of flaws in the model. in light of this circumstance, the problems revolve around volatility, and the conventional methods have been replaced by the arch and garch models. the auto-regressive conditional heteroskedasticity/generalized auto regressive conditional heteroskedasticity (arch / garch) method was applied in this time series data study that was conducted. in this particular investigation, the arch/garch approach was selected because the variance of the error occurred frequently, was not dependent on the independent variable, but frequently changed over time. specifically, there is a period of extremely high volatility that follows a period of extremely low volatility. in both of these scenarios, there is a period in between. these types of fluctuations are examples of heteroscedasticity because there are multiple error variants in which the degree of the error varies based on the prior volatility (nachrowi & usman, 2007). the arch and garch models have demonstrated that there are helpful tools for analyzing time series data, particularly in initial public offering effects on volatility in us stock market 227 applications about the financial industry. when the objective of the study is to analyze and make predictions regarding volatility, these models are of great assistance. an explanation of each of the research models used in this study can be found in the following: in the modeling and forecasting of asset dynamics, the garch model, also known as autoregressive conditional heteroscedasticity (arch), as well as its derivative models, are frequently utilized. bollerslev, (1986) improved engle's (1982) work by developing an approach that enables both autoregressive (ar) and moving average (ma) factors in heteroskedastic variance. bollerslev's approach was published in 1986. this is an example of the generalized autoregressive conditional heteroscedasticity model is known as the garch (p, q) model. garch models are constructed to accurately reflect the effects of both positive and negative shocks on conditional volatility as well as other types of asymmetry. the provision of a volatility measurement that applies to the process of making financial decisions is the objective of this model. a generalized version of the garch model is used to express the variance. arch (q) 𝛔𝑡 2 = 𝛼0 + ∑ 𝛼𝑖 𝑞 𝑖=2 𝜀𝑡−𝑖 2 garch (1,1)𝛔𝑡 2 = 𝛼0 + ∑ 𝛼𝑖 𝑞 𝑖=1 𝜀𝑡−𝑖 2 + ∑ 𝛽𝑗 𝑝 𝑗=1 σ𝑗−𝑖 2 where _t2 represents the conditional variance, _t represents the residual, and _0, i and _j stand for the parameters that need to be estimated. the presence of a positive variance necessitates the use of nonnegative values for the parameters _0, i, and _j. this implies that the volatility cannot have a mean that is either zero or negative, and the i and _j parameters must be less than 1 for the model to be considered acceptable. additionally, they show that if there is a significant change in the share prices, the conditional variance predictions will improve. this is because the model will be able to capture the generalized characteristic of volatility clustering. higher values of the i coefficient in financial data series indicate greater responsiveness of volatility to market shocks, whereas higher values of the j coefficient indicate market shock persistence. both of these coefficients are measured in terms of their values in financial data series. according to brooks and burke's research from 2003, the garch (1,1) model is sufficient for accurately representing the clustering of volatility found in financial data. according to the recommendations made by brooks and burke, we apply garch (1,1) with the equations that are listed below in this investigation. mean equation: p_(t=) µ+ ε_t variance equation: σ_t^2=α_0+α_1 ε_(t-i)^2+β_1 σ_(j-i)^2 with α_0 > 0 and α_1 ≥ 0 and β_1 ≥ 0 conditions where p is the price of one share of stock at time t, is the average price of one share of stock, and _t is the price of one share of stock after taking into account any dividends. it is known as a conditional variance, and it indicates the variance during time t based on prior knowledge at time t-1. the value _t2 indicates this variance. the conditional variance equation is the combination of three parameters: a constant term, known as (_0; volatility news from the past time, known as _(t-i)2 or arch term; variance from the past time, known as _t2 or garch term; and the lag of the squared residuals computed from the mean equation. this indicates that the conditional variance of at time t has an effect not only on the volatility news from the most recent period but also on the conditional variance of the time before that. first, the mean equation needs to be solved to obtain the regression residuals for the model. only after this is done can the arch and garch effects be tested. the squared residuals series and the conditional variance are both produced using the lags in the subsequent step. the null hypothesis of no garch effects (that is, no volatility clustering in s&p500 index stock prices) states that the _0, _1, and _1 parameter must be nonnegative in favor of conditional variance 2 t to be nonnegative. this is because the nonnegative value of conditional variance 2 t favors the null hypothesis of no garch effects. as a measurement of volatility shock persistence, the sum of the coefficients _1 and _1 is expected to be less than 1, and this result is expected to be in line with expectations. when the sum of the coefficients is greater than one, the shock has a significant effect because of the magnitude of the difference. the garch model with an exponential component abdirahman nor omar ahmed & ayben koy 228 according to standard garch models, both positive and negative error components have an asymmetric influence on volatility. this influence can be either positive or negative. on the other hand, financial time series exhibit asymmetrical and nonlinear patterns for several reasons, including transaction costs, market conflicts, arbitrage restrictions, and a few more. (aliyev, 2019). the fact that this is the case suggests that "bad news" or negative shocks may have a greater impact on conditional volatility than "good news" or positive shocks. the garch model does not take into account the effect that leverage has. the asymmetric influence of the media is accounted for by nelson's exponential garch (egarch) model, which was developed (in 1991). this model makes it possible to have an asymmetrical response to shocks in the conditional variance, and egarch (1,1) is represented as log 𝛔𝑡 2 = 𝛼0 + ∑ 𝛽𝑖 𝑙𝑜𝑔 𝑝 𝑖=1 σ𝑡−1 2 + ∑ 𝛼𝑗 𝑞 𝑗=1 [ і𝜀𝑡−𝑗 і σ𝑡−𝑗 ( і𝜀𝑡−𝑗 і σ𝑡−𝑗 )] + ∑ 𝛼𝑗 𝑞 𝑗=1 ( 𝜀𝑡−𝑗 σ𝑡−𝑗 ) mean equation: 𝑃𝑡= µ + 𝜀𝑡 variance equation: ln 𝛔𝑡 2 = 𝛼0 + 𝛽1 ln (𝛔𝑡−1 2 ) + 𝛼1 [| 𝜀𝑡−1 σ𝑡−1 | − √ 2 𝑛 ] − γ 𝜀𝑡−1 σ𝑡−1 where is meant to represent the leverage effects, which are responsible for the asymmetry in the model. if it is less than zero, it means that negative shocks (also known as bad news) cause greater volatility than positive shocks (also known as good news), whereas if is greater than zero, it means that positive shocks are more volatile than negative shocks. if equals zero, this establishes that the model is symmetric. since ln _t2 could potentially have a negative value, there are no significant restrictions placed on the parameters. 5. results of empirical research the generalized autoregressive conditional heteroscedasticity, also known as the garch (1, 1) model, was utilized to investigate the correlations between the independent variables (ipos date) and the dependent variable (s&p500 closing price). this model was also utilized to test the hypotheses regarding the study. to convert accurate data, the natural logarithm was used for the closing price of the s&p 500 index. because the residuals were greater for wider ranges of the dependent variable when real values were used. because of the adjustment, it became possible to compare and analyze the results in a meaningful way, even though the independent variable was treated as a dummy variable with values of either one (1) or zero (0). (0). after that, the assumptions of stationarity, constant error variance, independence, and normality were tested against the data in natural logarithms to make certain that they had not been violated. this was done to determine whether or not the assumptions had been invalidated. for this purpose, this narrates is generated using eviews 12. the index either has a unit root or the data are not stationary, as was discovered by the phillip peron test, the dickey -fuller test, and the kwiatkowski-phillips-schmidt-shin test statistic. these three tests are considered to be the best unit root tests. after that, the log difference was used in place of the natural logarithm data to get observed contradiction. after that, arima regression models in eviews 12 were used to analyze the data of the s&p500 series in natural logarithmic difference. initial public offering effects on volatility in us stock market 229 -.15 -.10 -.05 .00 .05 .10 i ii iii iv i ii iii iv i ii iii 2020 2021 2022 dfsp500 figure:1 daily prices of s&p 500 the clustering of the s&p 500 index's volatility for daily frequencies may be seen in the picture below. it spans the period from the first of january 2020 to the 30th of september 2022. the level of volatility has been relatively constant over time; however, there is a sizable void in the first three months of 2020, and the reason for this is the problem with covid-19. according to the graph, the level of volatility has grown somewhat but not significantly, and it has stayed rather high during the first three months of 2020. to mention that volatility clustering is a common effect in equity markets, consider the following graph, which shows that periods of low volatility are followed by periods of high volatility. additionally, periods of higher volatility than those periods are followed by periods of higher volatility as well. as a consequence, the assumption that the variance remains constant over time might not be appropriate, and we might not incorporate all of the volatility that is present in the dependent variable. in the year 2020, there has been a significant decrease, which is the reason why volatility has increased. the term "arch" refers to a series whose volatility varies over time (a property known as heteroskedasticity), and it is dependent on the autocorrelation of the lags that came before it. hence, volatility models are carried out over stationary time series (mean) with non-constant variance, and that variance is going to be conditionally dependent on what his place in the preceding lags in the recent past. after determining the average of the univariate time series arma/arima models, the next step is to determine whether or not the model displays periods of increased volatility by determining whether or not arch effects are present. table:1 arma models arma (1,1) arma (2,1) arma (1,2) arma (2,2) c 0.000142 0.000136 0.000135 0.000141 ar (1) -0505492* -0.057610 -0.208023** -1.741996* ar (2) 0.175429* -0.884641* ma (1) 0.281221* -0.142563 0.008595 1.587623* abdirahman nor omar ahmed & ayben koy 230 ma (2) 0.166272* 0.700350* 𝑅2 0.063469 0.073055 0.076767 0.144104 adjusted rsquared 0.059385 0.067658 0.071392 0.137865 akaike info criterion -5.467211 5.474571 -5.478563 -5.550667 schwarz criterion -5.440970 5.441771 -5.445763 -5.511307 hannan-quinn criterion -5.457062 5.461885 -5.465877 -5.535444 the significant level of *%1**%5 ***%10 is specified after putting several arma (p, q) models through their paces, we chose the one that performed the best. the information criteria developed by akaike, schwarz, and hannan-quinn were used in the process of selecting the model that was found to be the most appropriate. four potential arma models may be estimated using the mean equation of possible arma models. these models are denoted as arma (1,1), arma (2,1), arma (1,2), and arma (2,2). according to the findings of our study, the arma (2,2) technique has the lowest aic, sbc, and hqc while also having the greatest adjusted r-square. table:2 results of the lm test for the arch effect arch 1 f-statistic 113.5195 prob. f (1,689) 0.0000 obs*r-squared 97.74460 prob. chi-square (1) 0.0000 arch 2 f-statistic 2.6673109 prob. f (1,689) 0.0698 obs*r-squared 5.328049 prob. chi-square (1) 0.0697 while trying to estimate the arch model, you will need to look at two parts: the mean equation and the variance equation. each of these equations has two stages. to determine the mean equation, the first step is to ensure that the variables in question are in a stationary state. after this step has been completed, the second step is to choose a suitable arma or arima model. the mean equation was brought up in the prior chapters of this discussion. after determining the value of the mean, we do a heteroskedasticity test to determine whether or not the arch effect is present in the data. the variance equation follows this step. hypothesis h0 states that there is no existent arch impact up to the given lag. there are arch effects up to the given latency, as stated in hypothesis 1. in the event that the p-value is lower than 0.05, we will not accept the null hypothesis, and this will indicate that arch effects do exist. to assess the hypothesis of whether or not this model has an arch effect, we calculate the estimates of the lmtest, also known as the lagrange multiplier test. the results of the arch lm test are shown in this table. given that the probability values for p = 0 are less than 0.05, the test concludes that the null hypothesis should be rejected; initial public offering effects on volatility in us stock market 231 hence, we may infer that this model has a significant arch effect. adding two arch effects is acceptable, and the heteroskedasticity of two arch effects works just well in this model arch2; hence, we are unable to rule out the null hypothesis that h0 exists. table:3 garch (1,1) findings for the dependent variable dlogs&p500, the period beginning on 1 january 2020 and ending on 30 september 2022 variable coefficient std. error z-statistic prob. c ar (1) ar (2) ma (1) ma (2) 0.000804 -1.616212 -0.822547 1.552773 0.782125 0.000387 0.092118 0.089455 0.106336 0.101273 2.080036 -17.54501 -9.195058 14.60246 7.722925 0.0375 0.0000 0.0000 0.0000 0.0000 variance equation c resid (-1) ^2 garch (-1) 7.06e-06 0.211632 0.766300 1.71e-06 0.036551 0.036296 4.120318 5.790005 21.11232 0.0000 0.0000 0.0000 garch 1,1 lm-test f-statistic obs*r-squared 0.177334 0.177805 ` prob. f (1,687) prob. chi-square (1) 0.6738 0.6733 both the arch and the garch parameters are positive, and with a p-value of 0.0000, their positive values are very significant. we can draw the conclusion that the volatility is very persistent and clustering as a result of the fact that the garch coefficient value is larger than the arch coefficient value. due to the fact that the total of the coefficients for the arch and garch parameters is very near to 1 (0.211632 + 0.766300), it may be deduced that any shocks encountered by conditional variance would be very persistent. since the garch parameter is important, a substantial excess of stock share prices in either direction will cause future estimates of the variance to be high for an extended period. this will be the case regardless of whether the excess is positive or negative. at times of high volatility, this indicates that the garch model will perform better as a forecasting model than its counterpart, the arch model. our arma 2,2 model is suitable for less than 5% of the data when it comes to the mean equation. additionally, the lm-test of garch 1,1 shows that it is suitable, which means that we are unable to reject the null hypothesis. table:4 the market situation on the first day after the ipo announcement was made variable coefficient std. error z-statistic prob. garch 1,1 c 1.25e-05 2.67e-06 4.683161 0.0000 adjusted r-squared 0.079347 akaike info criterion 6.024535 schwarz criterion -5.965360 log-likelihood 2087.464 resid (-1) ^2 0.168650 0.034886 4.834267 0.0000 garch (-1) 0.789883 0.036428 21.68321 0.0000 d1 -1.21e-05 3.25e-06 -3.726390 0.0002 arch2 variable coefficient std. error z-statistic prob. adjusted r-squared 0.020988 akaike info criterion 5.928314 schwarz criterion -5.869140 log-likelihood 2054.268 c 7.92e-05 8.76e-06 9.041935 0.0000 resid (-1) ^2 0.307828 0.060690 5.072165 0.0000 resid (-2) ^2 0.445801 0.071681 6.219242 0.0000 d1 -3.67e-05 9.08e-06 -4.041168 0.0001 abdirahman nor omar ahmed & ayben koy 232 e-garch variable coefficient std. error z-statistic prob. adjusted r-squared 0.091693 akaike info criterion 6.059993 schwarz criterion -5.994244 log-likelihood 2100.698 c (6) -0.866051 0.146591 -5.907930 0.0000 c (7) 0.205734 0.048539 4.238536 0.0000 c (8) -0.159394 0.027654 -5.763799 0.0000 c (9) 0.912553 0.014512 62.88287 0.0000 c (10) -0.234133 0.037644 -6.219636 0.0000 we can see that the p-value of the dummy variable d1, when considered with the other variables in the variance equation, is lower than the 5% significance threshold. this indicates that the null hypothesis is not supported, and that the model is significant. there is a decreased value in the existing stocks with an amount of (-1.21e-05), which shows that the 1st day of the ipo announcement in the market will have a negative effect on the other shares outstanding in the exchange market. because the coefficient of the dummy variable 1 for the first day of ipos is negative, this means that there is a decreased value in the existing stocks. this model's initial offering day parameter had a probability value that was statistically significant at level 5% or even (0.0002) 1%. this was the lowest level at which statistical significance could be achieved. these results are consistent with what shi et al. found in their investigation (2018). they concluded that offering day has a one percent chance of having a negative effect on the market return of the shanghai stock exchange (sse) composite index which is equal to 0.14% of the index's value. according to the findings of arch, the first trading day after initial public offerings (ipos) were made available to the public had a negative impact on the share prices of the s&p500 index. while the e-garch result shows that the leverage effect in the stock exchange market for announcing ipos had a negative (– 0.234133) impact on the previous shares in the market, share prices are expected to drop (-3.67e-05) on the first day of ipos in the market. this indicates that 23% of ipos coming to the market for the first day will have a negative effect on the other share prices in the s&p 500 market. table 5: the market's activity over the first five trading days following the ipo announcement variable coefficient std. error z-statistic prob. garch 1,1 c 1.55e-05 4.73e-06 3.265251 0.0011 adjusted r-squared 0.080694 akaike info criterion 6.017754 schwarz criterion -5.958579 log-likelihood 2085.125 resid (-1) ^2 0.183867 0.034724 5.295051 0.0000 garch (-1) 0.777005 0.036854 21.08360 0.0000 d2 -9.10e-06 4.16e-06 -2.185562 0.0288 arch2 variable coefficient std. error z-statistic prob. adjusted r-squared 0.024114 akaike info criterion 5.922745 schwarz criterion -5.863571 log-likelihood 2052.347 c 9.78e-05 1.94e-05 5.028792 0.0000 resid (-1) ^2 0.304058 0.060493 5.026330 0.0000 resid (-2) ^2 0.455311 0.065341 6.968235 0.0000 d2 -4.15e-05 1.91e-05 -2.172114 0.0298 e-garch variable coefficient std. error z-statistic prob. adjusted r-squared 0.092519 akaike info criterion 6.029784 schwarz criterion -5.964035 c (6) -0.876032 0.151877 -5.768028 0.0000 c (7) 0.273504 0.042999 6.360694 0.0000 c (8) -0.114257 0.025845 -4.420888 0.0000 c (9) 0.916899 0.016370 56.01179 0.0000 initial public offering effects on volatility in us stock market 233 c (10) -0.101907 0.038252 -2.664079 0.0077 log-likelihood 2090.276 we can see that the p-value of the dummy variable d2 together with the other variables in the variance equation is lower than the 5% significance threshold of (0.0288), which indicates that the null hypothesis has been invalidated and the model is significant. because the coefficient of the dummy variable 2 for the first five days of ipos is negative, this indicates that there is a decreased value in the existing stocks with an amount of (-9.10e-06). this indicates that the first five days of ipos in the market will have a negative effect on the other shares outstanding in the exchange market. according to the findings of arch, the first five trading days after the launch of initial public offerings (ipos) had a negative impact on the share prices of the s&p500 index. although the e-garch result reveals that the leverage effect in the market for stock exchanges for announcing ipos had a negative (-0.101907) influence on the prior shares in the market, share prices are predicted to drop (-4.15e-05) on the first day that ipos are traded in the market. this indicates that 10% of ipos coming to the market for the first day would have a negative impact on the other share prices traded in the s&p 500 market. although initial public offerings (ipos) have a 23% impact on the volatility of stock prices, research has shown that this influence diminishes or disappears as the period under consideration lengthens. as a result, the impact of market volatility is best illustrated by looking at the shortest time frames. table:6 the first 10 trading days in the market after the announcement of the ipos variable coefficient std. error z-statistic prob. garch 1,1 c 1.95e-05 1.00e-05 1.942041 0.0521 adjusted r-squared 0.078599 akaike info criterion 6.015590 schwarz criterion -5.956416 log-likelihood 2084.379 resid (-1) ^2 0.193968 0.035365 5.484813 0.0000 garch (-1) 0.771636 0.037659 20.48981 0.0000 d3 -1.25e-05 9.51e-06 -1.318608 0.1873 arch2 variable coefficient std. error z-statistic prob. adjusted r-squared 0.029613 akaike info criterion 5.922178 schwarz criterion -5.863004 log-likelihood 2052.152 c 0.000126 4.04e-05 3.131344 0.0017 resid (-1) ^2 0.316760 0.058362 5.427512 0.0000 resid (-2) ^2 0.427390 0.066687 6.408910 0.0000 d3 -6.63e-05 3.93e-05 -1.684331 0.0921 e-garch variable coefficient std. error z-statistic prob. adjusted r-squared 0.083303 akaike info criterion 6.021133 schwarz criterion --5.955383 log-likelihood 2087.291 c (6) -0.895781 0.151888 -5.897635 0.0000 c (7) 0.318646 0.045033 7.075788 0.0000 c (8) -0.106925 0.026921 -3.971760 0.0001 c (9) 0.919771 0.016513 55.69827 0.0000 c (10) -0.071391 0.046925 -1.521384 0.1282 we can see that the p-value of the dummy variable d3, when considered with the other variables in the variance equation, is lower than the 5% significance threshold. this indicates that the null hypothesis is not supported, and that the model is significant. the coefficient of the dummy variable 3 during the first ten days of initial public offerings (ipos) is negative, which indicates that there was a reduction in value in the existing stocks with an amount of (-1.25e-05). although the results of the statistical analysis are inconclusive. it was difficult to determine whether or not the findings were reliable since the p-value was small (0.1873). to conclude, the offering days of d3 short-term negative effects were not sustained since there were no other factors remaining in the first ten days. we are trying to see whether it had an influence on the volatility of stock share prices and if its importance or not after ten days, abdirahman nor omar ahmed & ayben koy 234 whereas the e-garch demonstrated in the d2 decrease for the effect of the ipos during the first five days in the market. 6. conclusion this analysis gives a more detailed and accurate view of the ipo price’s influence on existing shares listed in the s&p500 index from the period 01, jan 2020 to 30, sep 2022. the price reaction to an ipo is mostly connected to the actual trading of ipo shares, and previous writers have shown that an ipo has a negative influence on existing equities, particularly its near substitutes, around the time of the ipo issue. we find a negative impact of ipos after their announcements on the 1st day and up to the 5th day on the stock market share prices in the s&p500 index. since this study was limited in its ability to assess all potential contributors to share price fluctuations, such as the impact of economic variables (inflation, foreign currency rates, interest rates) on share prices. the study recommends additional research that includes all external and internal factors that influence stock exchange market returns and share prices. references aliyev, f. 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(2020). why does an ipo affect rival firms? . review of financial studies 33(7), 3205-3249. doi:10.1093/rfs/hhz081. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 28-36 28 measuring the potential economic impact of a japan–us free trade agreement: can it enable the us to eliminate its trade deficit in goods with japan? shun hasegawa hokkaido university, japan hirokazu akahori akita prefectural university, japan daisuke sawauchi hokkai school of commerce, japan yasutaka yamamoto hokkaido university, japan received: january 24, 2022 accepted: march 29, 2022 published: june 01, 2022 abstract: japan and the us are two major global trading partners that have at times been at odds regarding each other’s international trade policies. in particular, the ongoing us trade deficit in goods with japan has been one of the primary disputes between japan and the us. however, the recent withdrawal of the us from the trans-pacific partnership (tpp) sent a clear signal that the us would take a new approach to international trade issues and has potentially paved the way for a bilateral free trade agreement (fta) with the remaining tpp countries, including japan. this paper contributes to the debate on the potential economic impact of a japan–us fta (jufta) by evaluating whether it could enable the us to eliminate its trade deficit in goods with japan. to do this, we measure the potential impact of a jufta using a dynamic global trade analysis project (gtap) model. we find that a jufta is unlikely to enable the us to eliminate its trade deficit in goods with japan, although the deficit will certainly decrease as a result. keywords: free trade agreement, trade deficit in goods, gtap model jel codes: f15, f17 1. introduction japan and the us are two major countries in the global trading system, which at times have been at odds regarding each other’s international trade policies. overall, the us has fears about its ongoing trade deficit, with the trade deficit between it and northeast asian countries a major concern (park, 2018). the us trade deficit in goods with japan has also been one of the major disputes between japan and the us. recently, the us withdrawal from the trans-pacific partnership (tpp) sent a clear signal that the us would take a new approach to trade issues and paved the way for a potential bilateral free trade agreement (fta) with the remaining tpp countries, including japan (office of the united states trade representative, 2017). consequently, the so-called trade agreement between japan and the united states of america came into effect in early 2020 (ministry of foreign affairs of japan, 2020). however, if the us trade deficit were to increase because of this trade agreement, it could become a major flashpoint for future japan–us relations. measuring the potential economic impact of a japan–us free trade agreement: can it enable the us to eliminate its trade deficit in goods with japan? 29 the purpose of this paper is to contribute to the debate on the potential economic impact of a japan–us fta (jufta) by questioning whether it would enable the us to eliminate its trade deficit in goods with japan. to respond to this research question, we measure the potential impact of a jufta using a dynamic global trade analysis project (gtap) model. a jufta is an example of one of the so-called “mega” ftas, which in addition to the tpp, includes the regional comprehensive economic partnership and the japan–china–korea fta (kim et al., 2015). the potential economic impacts of ftas have been most widely evaluated using numerical simulation with a computable general equilibrium model such as the gtap model, with several studies quantifying the effects of mega ftas using both static (e.g., akahori et al., 2014; areerat et al., 2012) and dynamic (e.g., akahori et al., 2021; bhattacharyay and mukhopadhyay, 2015; lee and itakura, 2016) gtap models. however, to our knowledge, there is no existing assessment using the dynamic gtap model to determine the economic impact of an fta between the us as the world’s largest economy and japan. in this study, we assume that a jufta is implemented from 2017 onwards, with tariffs uniformly reduced over five years and tariffs on all items eliminated by 2021. 2. methodology 2.1. the dynamic gtap model the dynamic gtap model is a recursively dynamic computable general equilibrium model of the world economy that extends the standard static gtap model to improve the treatment of the long run but retains all other features of the model (ianchovichina and walmsley, 2012). within a recursively solvable discrete-time framework, a given database refers to a given period. a simulation then takes the database to the next period, with simulation results representing changes between the initial period and the next (ianchovichina and walmsley, 2012). to understand policy effects using the dynamic gtap model, two types of simulation are possible. the first is a baseline simulation, which assumes an economy in which the policy is not implemented. the second is a policy simulation, which assumes an economy in which the policy is implemented. we compare the results of these simulations to evaluate the effects of the policy (itakura, 2012). the baseline scenario contains information on macroeconomic variables. these variables include projections of real gdp, gross investment, capital stock, population, and the total labor force (lee and itakura, 2016). ianchovichina and walmsley (2012) provide additional details on the key features of the dynamic gtap model. 2.2. data and scenario in this study, we employ gtap database version 9a, which covers 140 countries/regions and 57 sectors with 2011 as the base year. for the present analysis, we aggregate the data into nine countries/regions and 25 sectors (see appendix-1 and appendix-2). this regional aggregation highlights the importance of the major trading partners of japan and the us. the sector aggregation framework was designed to distinguish between the agricultural sectors that are important for the present analysis. the farm sector comprises 12 sectors, ranging from no. 1 (paddy rice) to no. 12 (wool, silkworm cocoons), and the food sector includes eight sectors, ranging from no. 13 (meat: cattle, sheep, goats, horses) to no. 20 (beverages and tobacco products). in this paper, we define the agricultural sector as including all farm and food sectors (nos. 1–20). we define the goods sector as comprising sectors nos. 1–23 (the manufacturing industry) and the service sector as including no. 24 (transport) and no. 25 (services). table 1 provides details on the initial bilateral tariffs between japan and the us. as shown, japan’s highest tariff on us imports is levied on paddy rice (410.0%), while the us’s highest tariff on japanese imports is levied on sugar (26.5%). to evaluate the effects of a jufta using the dynamic gtap model, the baseline scenario was first established, showing the path of each of the nine countries/regions over the period 2011–2021. real gdp projections and capital stocks were obtained from fouré et al. (2010). projections for the population were taken from the united nations (2015), whereas those for labor are based on the working-age population (14–65-year-olds). labor is divided into skilled and unskilled labor. in the base case scenario, tertiary education is used to estimate the amount of skilled labor (walmsley et al., 2000). for the dynamic gtap model, we applied the same scenario, which assumes the complete removal of all import tariffs, not only those on the agricultural sector but also those applying in the nonagricultural sector. although it is shun hasegawa, hirokazu akahori, daisuke sawauchi & yasutaka yamamoto 30 unlikely that the jufta would remove all import tariffs across all sectors between the two countries, this scenario provides an upper bound of the economic impact of the import tariff reduction only. for the dynamic gtap simulation, we assume that the jufta is implemented from 2017, tariffs are uniformly reduced over a five-year period, and tariffs on all items are eliminated by 2021. we assume that there is no productivity change in each sector resulting from the jufta. although a jufta will likely affect productivity in some sectors, it is extremely difficult to determine such effects, and thus there is little basis for estimating specific values for productivity change (such as a 1% increase in a year) in each sector resulting from the jufta. table 1: initial bilateral tariffs on different sectors source: version 9a of the gtap database. nec – not elsewhere classified. in addition to measuring the impact on the economy, the jufta simulations in this analysis particularly focus on the economic impacts on agricultural sector output. changes in real gdp are used as the indicator of the impact on the entire economy and these are then compared with the changes in agricultural sector output. sector japanese tariffs on imports from the us (%) us tariffs on imports from japan (%) paddy rice 410.0 1.3 wheat 18.6 1.6 cereal grains nec 7.6 0.1 vegetables, fruit and nuts 9.9 7.6 oil seeds 2.8 0.0 sugar cane, sugar beets 0.0 0.1 plant-based fibers 0.0 0.3 crops nec 0.1 1.5 bovine cattle, sheep, goats, horses 11.0 2.8 animal products nec 4.3 1.0 raw milk 0.0 0.0 wool, silkworm cocoons 27.9 2.1 bovine cattle meat products 38.4 2.2 meat products nec 56.5 3.0 vegetable oils and fats 1.7 0.3 dairy products 88.8 19.6 processed rice 241.0 3.2 sugar 23.1 26.5 food products nec 11.0 3.6 beverages and tobacco products 2.6 3.3 forestry, fishing 0.6 0.5 natural resources 0.0 0.1 manufacturing 0.7 1.2 transport 0.0 0.0 services 0.0 0.0 measuring the potential economic impact of a japan–us free trade agreement: can it enable the us to eliminate its trade deficit in goods with japan? 31 note that an fta may result not only in a trade creation effect but also in a trade diversion effect. this trade diversion effect may discriminate against non-fta member economies. the inefficiencies resulting from the trade diversion effect may mean that the benefits accrued from the trade creation effect are overestimated. to shed light on this, we estimate movements in bilateral trade flows under the jufta in terms of both trade creation and trade diversion effects (siriwardana, 2007). 3. results the impact of the jufta on the gdp of the two countries is less than one percentage point when compared with their baselines. however, japan is likely to experience a more substantial gain in real gdp than is the us (table 2). as a result of the jufta, the real gdp of japan in 2021 will be 0.14 percentage points higher than its baseline. in contrast, the real gdp of the us in 2021 will be 0.01 percentage points higher than its baseline. table 2: impact of the jufta on real gdp (percentage point differences from baseline). year 2017 2018 2019 2020 2021 japan 0.02 0.04 0.07 0.11 0.14 us 0.00 0.00 0.00 0.01 0.01 the impact on the agricultural output of the two countries in 2021 is more than one percentage point compared with the baseline (table 3). the impact of full trade liberalization is more observable in terms of agricultural output, as shown in table 3, than in terms of real gdp, as shown in table 2. indeed, the agricultural sector output of japan in 2021 is predicted to decline by 5.22 percentage points compared with the baseline because of the jufta. in contrast, the agricultural sector output of the us in 2021 is predicted to increase by 2.44 percentage points compared with the baseline. table 3: impact of the jufta on agricultural outputs (percentage point differences from baseline). year 2017 2018 2019 2020 2021 japan –0.40 –1.02 –1.93 –3.26 –5.22 us 0.30 0.69 1.17 1.74 2.44 table 4 provides details of the impact of the sectoral output changes in 2021 in percentage point terms. as shown, output from the agricultural sector tends to decline in japan, whereas that from the agricultural sector in the us tends to increase because of the jufta. in percentage point terms, the largest decline in sectoral outputs in japan occurs in the paddy rice sector (–30.49 percentage points from the baseline). correspondingly, in the us, the largest increase in sectoral outputs occurs in the processed rice sector (61.11 percentage points from the baseline), with the second-largest increase in the paddy rice sector (18.91 percentage points from the baseline), followed by the meat products sector (9.61 percentage points from the baseline). table 5 displays the movements in bilateral trade flows under the jufta. the results show that the jufta not only has huge impacts on the trading relationships between japan and the us but also has adverse impacts on the trading relationships with third-party countries that trade with japan and the us because of trade diversion effects. japan experiences a substantial increase in imports from the us (27.72 percentage points from the baseline), indicating a trade creation effect. however, japan experiences trade diversion from non-fta member economies toward the us. these trade diversions are most significant for the rest of north america, followed by australia and new zealand. in 2021, japan’s imports from the rest of north america (australia and new zealand) decline 11.11 (4.21) percentage points from the baseline. the us experiences trade creation effects with japan as well as with all other non-fta member economies, except for the rest of the world category. in addition, the trade diversion that seems to occur with the rest of the world is almost negligible. shun hasegawa, hirokazu akahori, daisuke sawauchi & yasutaka yamamoto 32 table 4: impacts of the jufta on sectoral outputs in 2021 (percentage point differences from baseline). sector japan us paddy rice –30.49 18.91 wheat –22.50 –0.62 cereal grains nec –4.84 1.87 vegetables, fruit and nuts 0.28 –0.34 oil seeds 2.88 –1.37 sugar cane, sugar beets –0.91 0.27 plant-based fibers 3.38 –1.91 crops nec –2.76 –2.08 bovine cattle, sheep, goats, horses –11.94 3.73 animal products nec –19.40 5.63 raw milk –12.71 3.71 wool, silkworm cocoons –0.55 –4.84 bovine cattle meat products –13.87 3.86 meat products nec –25.44 9.61 vegetable oils and fats 1.20 –0.45 dairy products –15.77 4.43 processed rice –26.58 61.11 sugar –0.99 0.18 food products nec 0.83 0.66 beverages and tobacco products 0.46 0.01 forestry, fishing 0.36 –0.12 natural resources 0.02 –0.06 manufacturing 0.69 –0.39 transport –0.08 –0.03 services 0.09 0.02 nec –not elsewhere classified. table 5: movements in bilateral trade flows under the jufta in 2021 (percentage point differences from baseline). country/region japan us trade creation trade diversion trade creation trade diversion japan 8.32 us 27.72 china –1.79 0.37 korea –0.61 0.23 asean –1.54 0.38 australia and new zealand –4.21 1.54 rest of north america –11.11 0.23 eu27 –1.90 0.23 rest of world –0.51 –0.03 total (world) 2.10 0.64 measuring the potential economic impact of a japan–us free trade agreement: can it enable the us to eliminate its trade deficit in goods with japan? 33 finally, to answer our main research question, the jufta is unlikely to eliminate the us’s trade deficit in goods with japan, although the deficit will decrease (figure 1). more precisely, the trade deficit in goods will decrease from – 40,088 million usd for the 2021 baseline scenario to –20,251 million usd for the full trade liberalization scenario. this result occurs because of the increase in the trade surplus for agricultural goods (rising from 23,514 million usd in the baseline 2021 scenario to 53,525 million usd for the 2021 full trade liberalization scenario), which exceeds the increase in the trade deficit for nonagricultural goods (which increases from –63,602 million usd for the 2021 baseline scenario to –73,776 million usd for the 2021 full trade liberalization scenario). figure 1: us trade balance with japan (usd millions). 4. conclusion we aimed to contribute to the debate on the potential economic impact of a jufta by asking the following question: can a jufta enable the us to eliminate its trade deficit in goods with japan? to address this question, we measured the potential impact of a jufta using a dynamic gtap model. we assumed that the jufta is implemented from 2017, tariffs are uniformly reduced over five years, and tariffs on all items are eliminated by 2021. the main results are as follows. first, japan is likely to experience a more substantial gain in real gdp than is the us because of the jufta. second, the impact of the jufta is more observable in terms of agricultural output than in terms of real gdp in both japan and the us. third, the jufta not only has large impacts on the trading relationship between japan and the us but also adverse impacts, resulting from trade diversion effects, on trading relationships with third-party countries that trade with japan and the us. finally, to answer our main research question, the jufta is unlikely to enable the us to eliminate its trade deficit in goods with japan, although the deficit will decrease because of the jufta. these results should be treated as preliminary because of the inevitable limitations associated with this type of simulation research task. for example, future research should consider simulations of other trade liberalization scenarios, such as a scenario excluding sensitive products, and the effect of nontariff barriers. 18.520 23.514 53.525 –75.546 –63.602 –73.776 –57.026 –40.088 –20.251 -100.000 -80.000 -60.000 -40.000 -20.000 0 20.000 40.000 60.000 2011 base year 2021 baseline 2021 jufta agricultural goods nonagricultural goods goods (total) shun hasegawa, hirokazu akahori, daisuke sawauchi & yasutaka yamamoto 34 acknowledgments this work was supported by jsps kakenhi grant numbers jp20k06261 and jp21k14927. references akahori, h., hasegawa, s., sawauchi, d., & yamamoto, y. (2021), “economic impact of the japan–china–usa free trade agreement on japan using both static and dynamic gtap models”, journal of international trade, logistics and law, 7(2), 59–66. akahori, h., masuda, k., yoshida, y., & yamamoto, y. (2014), “agricultural nutrient balances under a japan– china–korea free trade agreement: nitrogen and phosphorus”, journal of rural problems, 50(1), 60–64. areerat, t., kameyama, h., ito, s., & yamauchi, k. (2012), “transpacific strategic economic partnership with japan, south korea and china integrate: general equilibrium approach”, american journal of economics and business administration, 4(1), 40–46. bhattacharyay, b. n., & mukhopadhyay, k. (2015). “a comprehensive economic partnership between india and japan: impact, prospects and challenges”, journal of asian economics, 39, 94–107. fouré, j., bénassy-quéré, a., & fontagné, l. (2010), “the world economy in 2050: a tentative picture”, cepii working paper, 2010–27. ianchovichina, e. i., & walmsley, t. l. (2012), dynamic modeling and applications for global economic analysis, cambridge university press, cambridge. itakura, k. (2012), “baseline scenario: a case of dynamic gtap model” (in japanese), available at: https://www.ide.go.jp/library/japanese/publish/reports/interimreport/2011/pdf/109_ch5.pdf (accessed august 25, 2017). kim, g. p., lee, h. k., & kim, e. j. (2015), “japan’s fta strategy and its implications for korea”, research paper no. world economy update–15–06, keip, available at: https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2770231 (accessed august 25, 2017). lee, h., & itakura, k. (2016), “the implications of the trans-pacific partnership for japan: agricultural policy reforms and productivity gains”, paper presented at the 19th annual conference on global economic analysis, the world bank, washington, dc, available at: https://www.gtap.agecon.purdue.edu/resources/res_display.asp?recordid=5049 (accessed august 25, 2017). ministry of foreign affairs of japan. (2020), “trade agreement between japan and the united states of america”, available at: https://www.mofa.go.jp/na/na2/page24e_000260.html (accessed january 7, 2022). office of the united states trade representative. (2017), “2017 trade policy agenda and 2016 annual report of the president of the united states on the trade agreements program”, available at: https://ustr.gov/sites/default/files/files/reports/2017/annualreport/annualreport2017.pdf (accessed august 25, 2017). park, s. c. (2018), “u.s. protectionism and trade imbalance between the u.s. and northeast asian countries”, international organizations research journal, 13(2), 86–114. siriwardana, m. (2007), “the australia–united states free trade agreement: an economic evaluation”, north american journal of economics and finance, 18(1), 117–133. united nations. (2015), “world population prospects database”, available at: https://esa.un.org/unpd/wpp/ (accessed august 25, 2017). walmsley, t. l., dimaranan, b. v., & mcdougall, r. a. (2000), “a base case scenario for the dynamic gtap model”, available at: https://www.gtap.agecon.purdue.edu/resources/res_display.asp?recordid=417 (accessed august 25, 2017). measuring the potential economic impact of a japan–us free trade agreement: can it enable the us to eliminate its trade deficit in goods with japan? 35 appendix–1: regional aggregation no. aggregated country/region gtap country/region 1 japan japan 2 us united states 3 china china 4 korea korea 5 asean indonesia, singapore, malaysia, philippines, thailand, vietnam, cambodia, lao people's democratic republic, brunei darussalam, rest of southeast asia 6 australia and new zealand australia, new zealand 7 rest of north america canada, mexico 8 eu27 austria, belgium, bulgaria, cyprus, czech republic, denmark, estonia, finland, france, germany, greece, hungary, ireland, italy, latvia, lithuania, luxembourg, malta, netherlands, poland, portugal, romania, slovakia, slovenia, spain, sweden, united kingdom 9 rest of the world all other economies/regions source: gtap database version 9a. shun hasegawa, hirokazu akahori, daisuke sawauchi & yasutaka yamamoto 36 appendix–2: sector aggregation no. aggregated sector gtap sector 1 paddy rice paddy rice 2 wheat wheat 3 cereal grains nec cereal grains nec 4 vegetables, fruit and nuts vegetables, fruit and nuts 5 oil seeds oil seeds 6 sugar cane, sugar beets sugar cane, sugar beets 7 plant-based fibers plant-based fibers 8 crops nec crops nec 9 bovine cattle, sheep, goats, horses bovine cattle, sheep, goats, horses 10 animal products nec animal products nec 11 raw milk raw milk 12 wool, silkworm cocoons wool, silkworm cocoons 13 bovine cattle meat products bovine cattle meat products 14 meat products nec meat products 15 vegetable oils and fats vegetable oils and fats 16 dairy products dairy products 17 processed rice processed rice 18 sugar sugar 19 food products nec food products nec 20 beverages and tobacco products beverages and tobacco products 21 forestry, fishing forestry, fishing 22 natural resources coal, oil, gas, mineral nec 23 manufacturing textiles, wearing apparel, leather products, wood products, paper products, publishing, petroleum, coal products, chemical, rubber, plastic products, mineral products nec, ferrous metals, metal nec, metal products, motor vehicles and parts, transport equipment nec, electronic equipment, machinery and equipment nec, manufactures nec 24 transport transport nec, water transport, air transport 25 services electricity, gas manufacture, distribution, water, construction, trade, communication, financial services nec, insurance, business services nec, public administration, defense, education, health, dwellings source: gtap database version 9a. nec – not elsewhere classified. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 171-178 171 importance and application examples of service export insurance figen şanlier i̇stanbul commerce university, turkey i̇smet kahraman arslan i̇stanbul commerce university, turkey received: april 05, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: this study has been prepared in order to research the forms of application of the service export insurance product on the basis of countries in the world, to determine who prefers this product and in which situations it is applied. another aim of the study is to research how it can be applied to economic activities in the most efficient way in our country's own dynamics. service exports in turkey were included in the coverage of receivables insurance by turk eximbank in 2021. the purpose of this insurance is to protect the forward receivables formed by exporting services against commercial and political risks in order to encourage and develop service exports. in the study, the applications of export credit institutions operating in the global market were researched with the literature review method, and based on these examples, suggestions were made by turk eximbank about improvements in existing applications and new applications that are not currently available. in consequence of review of the studies in the field of export, it has been seen that there are studies in different fields, but academic studies on service insurance in exports are very limited, and therefore, it is aimed to bring a study to the literature with this study. (this study was produced from a doctoral thesis.) keywords: service, service export, service export insurance, export credit agency 1. introduction considering the forms of payment preferred in international trade, open account export, also known as "goods against goods", is the most widely used form of sale in cross-border trade. the exporter ships the products directly to the buyer and issues the invoice with a certain maturity on it. at the due date of the invoice, the receiving party is expected to pay the invoice to the exporter company. if the buyer does not pay the price of the product or service on the due date of the invoice; trade risk occurs in case of default or when the buyer goes bankrupt after loading. with regard to sustainability of trade, the risk management tools ensuring safe exports began to rise in importance. the export credit insurance is an insurance instrument preferred to minimize the said risks the exporter company is faced with. it secures the exporter companies against the commercial and political risks they may encounter in the open account sales. in the event that the buyer parties default or go bankrupt, the insurance company pays compensation to the exporter company, which is in the insured position in the policy, depending on the conditions in the insurance policy. considering the developments in the world, it can be seen that such programs are started to be made in many countries and efforts are made to encourage exports. the "berne union" was established in 1934 to meet the need for an umbrella union in export credit insurances. it is the export credit institutions in france, italy, spain and the united kingdom that established this union. one of the most important benefits of the export credit insurance is the insuring of receivables. in this context, a certain portion of the price of product or service sold abroad is guaranteed in the product credit insurance. the second benefit is to obtain credit by pledging the export credit insurance contract, that is specified in the form of figen şanlier & i̇smet kahraman arslan 172 “policy” in practice, as security. in addition, in this way, the insured company can determine the amount of exports based on the buyer’s solvency and the political risk situation of the country by obtaining information from the insurer company (export credit institution) regarding the buyer of the product or service to be sold and the country of the said buyer. in this way, the insured company will reduce its risk by reducing its sales volume in the context of low limit buyers, choosing to sell to buyers in non-risky or less risky countries (pamukçu, 2009). 2. conceptual framework of credit insurance in export some of the activities that analyzed the effect of export credit insurance on the increase in exports are briefly mentioned below. felbelmayr and yalçın conducted a study using the data of the german official export credit insurance agency, euler hermes, to discuss the importance of guarantee supports in exports. based on the results of the said research, supporting exports with insurance significantly increases exports. 1% increase in the guarantees given increases export by around 0.012%-0.017% (felbermayr & yalçın, p. 2013). in the research conducted by van der veer, the effect of the increase in open account exports, which are covered by insurance, on the international trade volume was examined by using the data of 3 important companies (euler hermes, atradius, coface) with a market share of 95 percent. based on the results of the said research, every 1 euro (€) of export insured creates a multiplier effect of 1.3 € on the total exports. one of the reasons for this situation is that it can safely export to countries that are seen as risky, only with the assurance provided by credit insurance. another reason is that the ability to conduct export in the form of an open account without the need for a certain bank guarantee such as letter of credit, etc. affects the import demand positively (van der veer, 2015). in the research conducted by auboin and engemann in the years 2005-2011, the effect of supplier credit on the global trade volume was examined. according to the result of the analysis carried out with the data provided by berne union, insured export has a very high impact on the global trade volume. (auboin & engemann, 2014). in the research conducted by egger and url, the effect of export guarantees given by the austrian export credit insurance institution kontrollbank (oekb) on exports was examined. according to the results of the said research, exports increase by 100-130% with insurance support (egger & url, 2006). in the research conducted by köksal and genç, 22 high-income states were selected and the effect of short-, mediumand long-term export credit insurance on exports was examined by panel data analysis method. according to the results of the said research, the effect of short-, mediumand long-term export credit insurance support on exports is positive. it has been found out that the effect of mediumand long-term export insurance is more. our country is not included in this study. (köksal & genç, 2019). polat and yeşilyaprak tried to measure the effect of turk eximbank export credit insurance on our country's exports in their research covering the years 2000-2015. according to the results of the said research conducted by panel gravity regression analysis with 16-year data for 212 states, export credit insurance is very effective in increasing exports (polat & yeşilyaprak, 2017). in köksal's research covering the years 2005-2016, the relationship between gdp, export, and export credit insurances was examined. in the said study, “turkey, malaysia, thailand and indonesia” were analyzed comparatively. according to the results of the said research, there is a cointegration between these 3 variables for malaysia and thailand. cointegration cannot be found for our country and indonesia. in this research, which was carried out with granger causality analysis, a two-way causality relationship can be established between gdp and exports for our country and malaysia, but it has not been concluded that export credit insurance has an effect on the country's exports and gdp. thailand is the only country where a causal relationship can be established between export credit insurance and exports (köksal, 2018). in a field research conducted by özyüksel in 2017, the value of istanbul as a regional commercial center is emphasized. for this purpose, a survey was conducted on exporter companies. according to the results of the survey, the importance of export credit insurance support in increasing exports was emphasized (özyüksel, 2019). importance and application examples of service export insurance 173 3. service export insurance example; switzerland (serv) and south korea (k-sure) 3.1. reason for selection although the service insurance in export is provided indirectly, it is not marketed as a separate product in a widespread manner by the export insurance institutions. switzerland (serv) and south korea (k-sure) are two countries that offer service insurance in export as a separate product. for this reason, these two institutions were selected as examples for our study. although there are various studies in the literature regarding credit insurance in export, there is scarcely any academic study special to service insurance in export. the purpose of this study is to fill this gap in the literature. 3.1.1. switzerland (serv) service export insurance example serv (swiss export risk insurance), switzerland's export support institution, has classified the products for service providers under the following headings. 3.1.1.1. supplier credit insurance supplier credit insurance protects swiss export companies against defaulting on cash or credit receivables for goods or services supplied to a customer abroad. exporters receive their money from serv if an insured risk leads to nonpayment. insurance is available for political, transfer, force majeure and del credere risks. maximum protection rate: 95% (serv, 2021a). the insurance covers the fulfillment of the policyholder's claims agreed in the export contract in return for the goods supplied and services provided (original claim) up to the maximum amount specified in the insurance policy. 3.1.1.2. pre-shipment risk insurance serv pre-shipment risk insurance covers the exporter's major costs of an export transaction if production has to be stopped because an insured risk has occurred. coverage can be provided for political risks and the foreign customer's del credere risk. the insured amount may include any cash paid in response to the wrongful use of the advance payment guarantee. this eliminates the need for additional contract bond insurance. maximum protection rate: 95% (serv, 2021b). the insurance covers the following up to the maximum amount specified in the insurance policy: • the policyholder's production costs for goods to be supplied and services to be provided, as agreed in the export contract with the debtor; • fulfillment of the request for the agreed price for export goods and services, to the extent that the policyholder has a contractual or statutory right, in case the debtor terminates the export contract prematurely (evaluation request). 3.1.1.3. contract bond insurance contract bond insurance protects swiss exporters from losses caused by a customer seeking a contract bond (usually a bank guarantee) issued to secure the exporter's contractual obligations to the customer. a bond is usually a down payment, performance or guarantee bond, but serv insures all types of contract bonds. the down payment insurance is implicitly included in the pre-shipment risk insurance and does not need to be insured separately. contract bond insurance covers the loss of the guaranteed amount if the foreign customer legally seeks a guarantee because the exporter is unable to fulfill his commitments due to political risks or force majeure or an embargo imposed by switzerland makes it impossible to fulfill the export contract. even if the customer unfairly seeks the guarantee and the loss is not reimbursed within three months, the guaranteed amount is covered (serv, 2021c). contract bond insurance may be supported by a counter guarantee. maximum protection rate: 95%. 3.1.1.4. counter guarantee the serv counter guarantee covers the swiss exporter's payment obligation to the guarantor financial institution. serv will reimburse the financial institution upon first written request if a contract bond is called and subsequently the exporter fails to meet its payment obligations to the guarantor financial institution (serv, 2021d). figen şanlier & i̇smet kahraman arslan 174 the counter guarantee complements the contract bond insurance obtained from serv and allows exporters to obtain contractual guarantee from their financial institutions more easily. counter guarantee helps exporters save cash by eliminating the need to provide additional collateral for their financial institutions. the guarantee rate is 90%. in some exceptional cases, a guarantee of up to the full amount guaranteed is possible. 3.1.1.5. confiscation risk insurance confiscation risk insurance protects swiss exporters from losses resulting from confiscation or similar measures taken by foreign countries. it covers the exporter's main costs for owned or leased goods exported abroad for purposes such as contractual services, storage, exhibitions or testing (serv, 2021e). the insurance may cover the losses arising from political risks or force majeure risks. maximum protection rate: 95%. 3.1.2. south korea (k-sure) service export insurance example k-sure provides export credit guarantees and insurance on behalf of the korean government. korea export insurance corporation (keic) was established in 1992 based on the korea export insurance law, which evolved into the korea trade insurance corporation (k-sure) in 2010 to cover exports and overseas investments as well as imports. k-sure offers a variety of trade insurance programs for international trade in goods and services, overseas project contracts, and currency exchange risks. it also offers credit information services and debt collection services. the export credit guarantee provides a guarantee for export financing of korean manufacturers. currency risk insurance covers the foreign exchange risk associated with international trade and overseas investment transactions. finally, the overseas debt collection service provides services on behalf of korean exporters for the recovery of uncollected export account receivables that are not covered by export credit insurance programs with the experience and network of k-sure (kim & choi, 2019; 11). k-sure offers the widest range of insurance programs, including short term export credit insurance, medium and long term export credit insurance, export credit guarantee and currency risk insurance. an export credit guarantee is provided to korean exporters to finance working capital for upcoming export transactions. currency risk insurance covers the losses arising from foreign exchange transactions arising from the exports. 3.2. serv vs. k-sure comparison serv k-sure maximum loss coverage rate 95% 95% offered products  supplier credit insurance  pre-shipment risk insurance  contract bond insurance  counter guarantee  confiscation risk insurance  short-term export credit insurance  medium and long term export credit insurance  export credit guarantee  currency risk insurance importance and application examples of service export insurance 175 scope it covers the service exports to be realized by swiss citizen traders. i) export of goods produced, processed or collected in korea, ii) export of goods produced or processed by an overseas subsidiary of a domestic company, or export of goods processed abroad by a third party commissioned by korean companies, iii) export of goods imported for export to a third country. general operation supplier credit insurance protects swiss export companies against defaulting on cash or credit receivables for goods or services supplied to a customer abroad. exporters receive their money from serv if an insured risk leads to nonpayment. insurance is available for political, transfer, force majeure and del credere risks. liability for insured risks begins as follows: • for deliveries, when the goods are shipped; • for services rendered abroad, at the beginning of service provision; • upon provision of the service or partial service and receipt by the orderer in switzerland; • for claims for reimbursement of ancillary individual shipments of direct exports are insured by either a comprehensive policy or a single short-term export credit insurance scheme. the comprehensive policy is issued as an open policy in which ksure and the exporter agree that the exporter must notify ksure of all shipments that match the types of transactions listed in the open policy, and that k-sure covers the notified shipments without the need for further underwriting. comprehensive policies allow the insured to be provided with a bigger credit limit and a lower insurance premium for each overseas buyer. with the comprehensive policy, the insurer can spread the risks by enforcing the law of large numbers and the insured can expand into the overseas market without worrying about nonpayment events. once insured by k-sure by considering the buyer's creditworthiness, payment term, history of transactions between counterparties, etc., a single policy is issued for each figen şanlier & i̇smet kahraman arslan 176 financing costs as they become due. serv pre-shipment risk insurance covers the exporter's major costs of an export transaction if production has to be stopped because an insured risk has occurred. coverage can be provided for political risks and the foreign customer's del credere risk. the insured amount may include any cash paid in response to the wrongful use of the advance payment guarantee. this eliminates the need for additional contract bond insurance. overseas buyer upon the application of the exporter. 4. the place of service insurance in the global economy export credit insurance policy is issued by private capital insurance companies and officially supported export credit insurance institutions all over the world. export credit insurance products of official institutions of some countries are managed by private sector organizations. euler hermes in germany and atradius in the netherlands carry out these programs on behalf of governments. the said companies are also global companies that operate in different countries all over the world to insure exports and domestic risks (muge & eke, 2018). another example is french credit insurance firm coface, which until 2016 managed the export guarantee program for the french government. starting this year, coface has transferred these activities to bpifrance, an investment bank (coface, 2016). within the framework of the statistics published by berne union with the data provided by the world trade organization, according to the data at the end of 2018, the member institutions insure 2.5 trillion dollars, almost 13 percent, of the world product trade of 17 trillion us dollars ($) against payment risk. these institutions have paid more than 50 billion dollars in damages, starting from 2008, when the global financial crisis began. the short-term export insurance included in the statistics by berne union includes risks with a credit term of up to one year and generally between 30-90 days. in these policies, risks in the trade of industrial goods are generally covered. based on the data provided by berne union, based on the distribution of new jobs in terms of turnover, at the end of 2017, short-term export credit insurance has a share of around 90 percent in the total with an amount of 2.1 trillion dollars. medium and long-term export credit insurance has a share of around 8 percent with an amount of 179 billion dollars. the share of insurance related to investment risks is 2 percent with an amount of 64 billion dollars (berne union, 2019). 5. conclusion and suggestions when the world trade volume of recent years is examined, it is seen that service exports have increased over the years, and this gives us an idea about how and in which direction foreign trade will take shape in the coming years. in today's digital world, purchases of goods have left their former position to service trade. in this context, it has become very important to support and protect the sectors that export services in our country. awareness of turkish importance and application examples of service export insurance 177 service exporter companies on the advantages and insurance coverages they have will contribute to the increase in volumes and the exponential growth of total service exports. the common feature of developed countries is known as the strong structure of companies exporting to all over the world and the support provided by strong insurance companies. it would be appropriate to manage the same strategic importance in the insurance of service exports, which have a strategic importance in turkey's exports. world practices should be closely followed, innovations should be immediately integrated into our country's system, insurance companies should be encouraged to be ambitious in this area, and the healthy and sustainable growth of service exports as a national issue should be supported. since the service export credit insurance, which came into effect in 2021, will have a leverage effect for all parties, its awareness and prevalence can only be achieved by reaching the audience it addresses. export companies that need to get to know and introduce the product into their economic life can be reached through promotion and incentives through exporters’ associations. thus, the quick and easy acceptance of the product will ensure a sustainable development. exporters' associations should be supported and informed by the relevant public authorities while 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(2015). the private export credit insurance effect on trade . journal of risk and insurance, 601624. doi:doi:http://doi.org/10.1111/jori.12034 journal of international trade, logistics and law, vol. 2, num. 2, 2016, 113-125 analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems mehmed cihad çağlayan, (msc) istanbul commerce university, turkey mustafa köksal, (phd) istanbul commerce university, turkey abstract: nowadays, it cannot be thought that companies carry out their activities stand away from technology. especially, with fourth industrial revolution 4.0 (industry 4.0) smart technologies has started to play big role in factories. one of the innovation of industry 4.0 is rfi technology, today used by various industries in multiple areas, and there are widespread researches about this subject thus aims that to improve these technologies one step further. besides that, management of technology becomes more crucial from many points of view of companies. inaccurate technology investment usually might cause loss for companies. in this context, in order to choose best rfid option with defined criteria, at a company in automotive sector where technological development is followed and implemented, hierarchical model is established and from based on this model analytical hierarchy process used and an application is carried out. keywords: energy, energy supply, logistics 1. introduction usage of the radio frequency identification systems goes back to the years of 1940s; it is used to identifying live or ordinary objects with or without movement using radio frequencies. (üstündağ, 2007, p.74) first active long range electromagnetic carriers were used on planes at the 2 nd world war, for identifying allied and enemy planes (landt, 2005, p.9). 1950’s can be determined as the year of discovery for rfid techniques. after reaching 1960s, many researchers and inventors worked on model systems and improved them. sensor and control points “electronic article surveillance” were released into the market to prevent certain commercial systems from being stolen. in the year of 1970s, rfid applications are used for the purpose of identification more than inspection. rfid labels including integrated circuits are used for object tracking, object monitoring, identifying farm animals and monitoring them during the process of manufacturing (üstündağ, 2008, p.9). los alamos scientific laboratory had become one of the leading centres with improving these rfi d systems at the same years and developed a new tracking system to tracing nuclear materials. from the years of 1990s, rfid’s use on commercial fields became more common. at the years of 2000s, american ministry of defence and large retail companies that operates all around the world (wall -mart, metro, tesco…), with sanction decisions for their suppliers, affected improvement of the rfi d market at a significant level (üstündağ, 2008). as we reach the years of 2010s, rfid application fields are wider; they are now used at many fields such as material management, supply chain management, manufacturing, product life cycle management, health and sports. 114 mehmed cihad çağlayan, mustafa köksal now seen as the technology of our day(with the 4 th industry revolution), rfid technologies gained more importance and with increasing interest at the business world, academic studies have become more common. özmen and birgün, in a study they conducted, taking the current state air forces command implementation system following technological developments closely into consideration, while choosing a rfi d system, created a model for the purpose of choosing the most suitable rfi d and a new application using analytic hierarchy process (ahp) while taking investment criteria and suppl ier criteria into consideration (özmen and birgün, 2011, p.81). in a study conducted by chow, choy, lee and lau, for storage operations, resource management situation focused rfid design was considered on a preferential basis, a new rfi d focused resource manage system was presented that might help choosing the right appropriate resource usage package and at the same time give bonuses on time and on a financial approach (harry and king, 2006, p.561). sounderperdian, boppana and chalasani, to the model that they created; taking application, label reading, communication network and other infrastructure costs into consideration, under the costs -benefits relationship, analysed rfid applications in the retail sector (sounderpandian, 2007, p.107). erkan and can in their studies, mentioned the benefit obtained by using barcodes and rfid, using analytic hierarchy process and fuzzy ahp methods they chose the most appropriate sys tem amongst the rfid systems for data storing and gathering system. criteria that effected the decisions are determined to be: costs, functionality, sustainability and performance (erkan and can, 2014, p.87). cebeci and kılınç, in their studies, using ahp method, conducted a study that focused on a choosing an rfid system for a company that operates in the glass industry. in their studies, while there are many rfi d applications, this decision was seen to be very critical due to technological investment ad aptation and high cost risks and because of this, they chose the most appropriate rfi d system by using multiple criteria decision making approach. studies in literature about choosing rfid show that, rfid technology have superior qualities compared to other identification systems. the feature that makes this technology more important is, it having the capacity to perceive. as the last years improving technology rfid, with increasing demand caused a rise in the amount of antenna and system supplier and at the same time helped reduce investment costs. on the other hand, companies planning to make rfid come to life faced different alternatives. in this context, choosing the right system for users have become important and benefiting from an analytic system whi le doing so became a necessity. used in a wide field and as a method for choosing the best alternative from choosing analytic hierarchy method supplier to rfid systems. in this study, existing rfid systems are examined and criteria’s that are prioritized while choosing the system are spotted, previously in a company that operates within the automotive sector, on a pilot region specified from before, an analytic hierarchy process model was created that would help choosing the most suitable rfid system and create a sample application. based upon the created pairwise comparison matrixes, the main criteria the pairwise comparison matrixes were assessed by experts of rfid subjects and the importance levels in comparison to each other were established. purpose of this study is to obtain a more realistic data in logistics and manufacturing planning departments and actualize this using the best rfid system choice. analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 115 2.rfid technology rfid, with the simplest explanation, is a system that delivers inf ormation about the object using radio frequencies. information that is affixed on the object is saved with an electronic label and when required, information is transferred to a reader. (fesçioğlu, choi and sheen, 2014, p.1369) figure 1. rfid system [11] as a revolutionary information transfer system, rfid technology provides that every object is identified as being tagged with only one label automatically, be tracked and monitored. data and energy transfer occurs without any contact between the label and the reader. for the information to be transmitted between rfid label and the reader, both system components create separate different radio waves. all labels at the same radio frequency clearance, receives the signals sent by the reader with the help of the antenna, solves the signal received in the form of code with the help of the reader labelling antenna and transfers that as data to the computer. components that create a rfid system aremade of 6 basic components as given below (erkan and can, 2014, p.89):  tag, label  reader  antenna  integrator  controller  special software one of the most important components of this technology, labels, are essentially divided into two groups depending on the power source being used as active and passive. in addition to this, half-passive labels that carry certain properties of both labels are also used. feature of the active rfid label; is the fact that it has its own power source and feeds of that power source. besides that, having long reading range and a large memory capacity with a large size is also within the properties of active rfid labels. as for the properties of passive rfid labels; feeding from the radio waves sent to the label, does the process accordingly. it’s range compared to active rfid is shorter and its memory and size is also smaller. 116 mehmed cihad çağlayan, mustafa köksal figure 2. rfid labels (a. zircanavo, "zircanavo-abyss.blogspot.d," [online]. available: http://zircanavoabyss.blogspot.de/2015_05_01_archive.html.) readers, receives the signals sent by the labels and turns signals received as codes into data by the reader. it can either be stationary or hand-held in types and its components are the same. antenna is the device that spreads the radio signals produced by the reader. it can be mounted to be used in different ways at the storage entrances, on-site carriers, on the route determined on-site with a portal structure. for the antenna to work properly, most important factors are the reading antenna and the label antenna having the same polarization. otherwise it causes signal loss and reduces the reading range. (üstündağ, 2008, p.29) rfid software is a component that helps turn the data exchange between the label and the reader into meaningful information, keeping this data and print it out. benefits that come with using rfid technologies are, for real timed information to reach employees, reaching close to actual stock number values and connected to this, having the right amount and time for the orders. on a business that manufactures with traction system, by providing visibility and real time data, overproduction for the subcomponents is another one of the benefits that are expected with using rfid. by doing so, costs, quality and delivery triangle can occur as expected. 3. analytic hiearchy process analytic hierarchy process is one of the important techniques used on making decisions with multiple criteria, developed by thomas saaty l. saaty at the year of 1997 (erkan and can, 2014, p.87-93). problems in complex state are turned into simple, useful and understandable state by turning them into hierarchic structures with ahp method. for ahp management to take qualitative and quantitative characters into consideration, is one of the main preferential reasons for them to be used in multiple criteria decision making problems. ahp is based on three principles; examining complex problems that is not constitutive, reasoning of problems while in comparison with each other and synthesizing priorities derived from provisions (saaty, 2001, p.13). analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 117 in ahp method, identifying the problem is the first step. following the identification of the problem, using ahp method, every level can be turned into a hierarchic structure consisting of certain criteria. paired comparisons are what make ahp’s building blocks. in order to obtain paired comparisons, relative and absolute measurements are used. while doing paired comparisons, paired comparison scaled suggested by saaty is used. it is shown at table1. importance level definition description 1 equally important both sentences carry the same importance. 3 reasonably important one in two sentences carries reasonable importance compared to other. 5 strongly important one in two sentences carries strong importance compared to other. 7 very strongly important one in two sentences carries very strong importance compared to other. 9 extremely important one in two sentences carries extreme importance compared to other. 2,4,6,8 mid values when there is hesitation between two sentences and preference values are so close to each other, these mid-values are used. table 1. paired comparison scale used in ahp (saaty, 2001) importance level, as shown at the table, is from 1 to 9. at the bottom of the table are the values of 2,4,6,8 mid-values. for example, if the decision maker hesitates between 5 and 7, it can use 6 from the table. these criteria are then divided into sub criteria. to the bottom step, evaluated options are entered. by doing so, for a hierarchic structure to be formed and necessary criteria to be established, system as a whole, its components and their relations between each other should be monitored carefully. after creating the model, next process is, determining the relative weight of the factors at the same hierarchy level. same process is done by paired comparisons for the criteria at the sub level. at the next step of ahp, comparison matrixes are created. comparisons are done in accordance with choosing which criteria are superior compared to the other. relative weight of the criteria is obtained by taking eigenvector of the comparison matrix and normalizing it. (madlberger, 2009, p.4) while decision makers are doing paired comparisons between the criteria, in order to measure if they are consistent or not, consistency ratio (c.r) must also be calculated. in this calculation, assuming n is the amount of criteria; depending on that amount random index numbers are used. if the value at the end of the calculations reaches below 0.10, comparison matrix is deemed to be consistent. otherwise comparison matrix should be corrected again (rao, chandran, 2009, p.2). last step for ahp is multiplication of the importance weight of the criteria and alternatives importance weight and having a priority level for each alternative. sum of these values are equal to 1. highest valued alternative is the best alternative for the decision problem. 4. choosing rfid systems with ahp method in this study, forjust in time manufacturing brought by the traction system in our company that operates as a supplier in the automotive sector, as real timed data and transparency carry a great importance, using rfid systems in the field of manufacturing is decided and a decision support model based on analytic hierarchy process to choose the best rfid system for the specified field is presented. 118 mehmed cihad çağlayan, mustafa köksal after deciding to use ahp method, at the first step, hierarchic model related to the problem was established, firstly aim of the study, then alternatives to it, main criteria and sub criteria are determined. purpose of this study is to obtain a more realistic data in logistics and manufacturing planning departments and actualize this using the best rfid system choice. after determining the target, rfid system alternatives are determined with the steps following main and sub criteria. rfid system alternatives are determined to be as x,y,z systems, main criteria are determined to be; rfid system properties, investment criteria and business criteria and the following sub criteria is mentioned at the following step.  rfid system properties: o label features (lf): one of the essential reasons for failure in rfid applications is choosing the wrong label or not using the right label in the right manner. o antenna performance (ap): importance for the reader and label antenna having the same polarization is significantly high. otherwise, antenna having different polarizations will cause signal loss and a reduction with the reading range. o working frequency (wf): working frequency factor that effects data transfer speed, reading range, single or multiple reading is one of the most important factors. in accordance with the frequency types, there are possibilities to use it in different fields. o flexibility (flex): taking improvements in the future into consideration, system that needs to be established parallel to upcoming demand should be open to innovation. o crosstalk integration feature (crs): is a software that is used for purposes that are important in internet with tracking and monitoring visualization crosstalk, iot (internet of things) and it carries an importance to evaluate the data received from rfid devices. o working environment (we): temperature, steam, humidity, used chemicals might cause labels to lose their features. o easy integration with sap (sap): simple integration of the rfid devices used by the company with erp (enterprise resource planning) is also another criteria that evaluators give importance to.  investment criteria o first investment cost (fic): total costs of the first investment and if consultancy service is taken, it is added to the cost of investments. o enterprise costs (ec): during the adaptation period after the system is installed, all costs that might occur and adding monthly network service costs provided by the central information processing unit to it. o depreciation/life (amor): businesses use their purchased fixed assets that they use for more than a year in normal circumstances. for this reason, fixed assets should be written as costs for its whole economic life.  operating system: o answering customer demands (acd): properties of the rfid device determined by the manufacturer needs to be able to answer the customer demand. analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 119 o compliance with company strategies/new solutions (ccs): the device needs to be suitable for the changes in the direction of the strategies of the company and new improvements. o easy installation (ei): installed rfid system should also be understood easily by the users (userfriendly). o released by the company (fc): for some companies to use this device within the company, central units should give freedom to use for its usage. devices determined for evaluation has freedom of use given by the company. in the subject of rfid, important criteria about choosing rfid was determined with competent individuals and doing a survey evaluation on the criteria at the next step, it was evaluated with prioritized important criteria once more and it was deducted that, as seen in graph 1, using devices with “power ethernet input” does not create much added-value compared to other criteria and it was removed from the criteria of choice. graph 1. determiningchoicecriteriafor rfid 120 mehmed cihad çağlayan, mustafa köksal main and sub criteria that will be studied on took its shape as shown at figure2. established paired comparisons, again by competent people on the subject of rfid systems, was evaluated with the priority scale support as pushed forward by saaty. in order to calculate the priorities, provision values at the paired comparison matrix were exported to microsoft excel file and results were tried to be obtained. 5.application based upon the created pairwise comparison matrixes, the main criteria the pairwise comparison matrixes were assessed by experts of rfid subjects and the importance levels in comparison to each other were established. completely independent assessment from each other during the creation of pairwise comparison matrixes were requested, formulating each pairwise matrix created by decision makers in microsoft excel and presenting the results in the table. table2. randomness indicators n 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ri 0 0 0,58 0,90 1,12 1,24 1,32 1,41 1,45 1,49 1,51 1,54 1,56 1,57 1,59 reference: karagiannidis et al., 2010:225; wang et al., 2010:1024 table3. pairwise comparison matrix according rfid system properties criteria rfid system properties x y z x 1 0,2 0,5 y 5 1 3 z 2 0,333333333 1 column totals 8 1,533333333 4,5 analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 121 rfid system properties x y z importance level x 0,13 0,13 0,11 0,12 y 0,63 0,65 0,67 0,65 z 0,25 0,22 0,22 0,23 total 1,00 1,00 1,00 1,00 3 weighted total vector readings lamda lamda max consistency index consistency ratio x 0,3667 3,0013 3,0037 0,0018 0,0032 consistent y 1,9485 3,0071 z 0,6902 3,0026 three alternative companies established within the hierarchy according to the importance level scale recommended by saaty at second step. in the comparison conducted according to rfid system properties criterion, the assessment was done based on the designated sub-criteria such as tag properties, antenna performance, operation frequency, flexibility… etc, and the table3 according to those are given above. table4. pairwise comparison matrix according to investment criteria investment criteria x y z x 1,00 0,33 2,00 y 3,00 1,00 3,00 z 0,50 0,33 1,00 column totals 4,50 1,67 6,00 x y z importance level x 0,22 0,20 0,33 0,25 y 0,67 0,60 0,50 0,59 z 0,11 0,20 0,17 0,16 total 1,00 1,00 1,00 1,00 122 mehmed cihad çağlayan, mustafa köksal 3 weighted total vector readings lamda lamda max consistency index consistency ratio x 0,7667 3,0441 3,0539 0,0270 0,0465 consistent y 1,8222 3,0943 z 0,4815 3,0233 in the comparison done on investment criterion, the assessment was conducted taking sub-criteria such as investment cost, operation cost and depreciation factors into account, then presented in table 4 above. table5. pairwise comparison matrix according to operation criteria operating criteria x y z x 1,00 2,00 1,00 y 0,50 1,00 1,00 z 1,00 1,00 1,00 column totals 2,50 4,00 3,00 x y z importance level x 0,40 0,50 0,33 0,41 y 0,20 0,25 0,33 0,26 z 0,40 0,25 0,33 0,33 total 1,00 1,00 1,00 1,00 3 weighted total vector readings lamda lamda max consistency index consistency ratio x 1,2611 3,0676 3,0537 0,0268 0,0463 consistent y 0,7944 3,0426 z 1,0000 3,0508 in the comparison done on operation criterion, the assessment was conducted taking established sub-criteria such as catering to client needs, company strategies, ease of installation and liberty from the company into account, then presented above at table5. analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 123 according to the obtained results, the preferred devices are; y rfid device according to rfid system properties, y rfid device according to investment criteria and x rfid device according to operation criteria. the consistency ratios of the created matrixes were calculated simultaneously and all readings were observed below 0,10. the fourth step in ahp is assessment of established criteria for rfid device selection and calculation of the priority values for each criterion. the matrix for this comparison is given below at table 5 with the systematic constructed at microsoft excel like the previous matrixes. table 6. pairwise comparison matrix according to the main criteria criterias rsp ic oc rfid system properties 1 0,333333333 0,5 investment criteria 3 1 3 operating criteria 2 0,333333333 1 column totals 6 1,666666667 4,5 criterias rsp ic oc importance level rfid system properties 0,166666667 0,2 0,111111111 16% investment criteria 0,5 0,6 0,666666667 59% operating criteria 0,333333333 0,2 0,222222222 25% column totals 1 1 1 100% 3 weighted total vector readings lambda lambda max consistency index consistency ratio rfid system properties 0,4815 3,0233 3,0539 0,0270 0,0465 consistent investment criteria 1,8222 3,0943 operating criteria 0,7667 3,0441 according to the obtained values, the primarily prioritized criterion is investment criterion with %59, operation criterion with %25 and rfid system properties with %16. the final step of ahp is to multiply the obtained criterion priorities with the priorities of device properties established by experts and calculating the priority of each device. calculations for the three identified devices were conducted and obtained 0,2713 for x device, 0,5157 for y device and 0,2129 for z device. 124 mehmed cihad çağlayan, mustafa köksal table 7. main criterion values and multiplication table of device readings candidate devices x y z rfid system p. 0,122 0,648 0,230 x 0,159 investment c. 0,252 0,589 0,159 x 0,589 operating c. 0,411 0,261 0,328 x 0,252 0,271310461 0,515742977 0,212946562 6.conclusion and evaluation the utilization of rfid systems at production sites of the companies allows the production flow to become more transparent, in turn showing very close readings of actual physical quantities to the raw material and semi-finishing amount. however by using rfid, physical inventory and reduced inventory on the system can prevent extra costs that can occur with emergency orders. this study recommended the ahp model to solve the rfid device selection problem; the sub-criteria under the main criteria are established by experts and assessed via a subjective approach. in studies on rfid technologies, it may be advisable to develop the hierarchical structure proposed in this study and based on the specified rfid implementation project phases, so that verbal indicators can be measured as numerically as possible. how to apply ahp to rfid device selection problem and how to include a multitude of application criteria to the selection problem are shown in this paper. the values of the three determined devices were found as; 0,2713 for x device, 0,5157 for y device and 0,2129 for z device. as it can be inferred from these values, the device priority and importance values are very important in system selection. in this context, it is doubly important to focus on the device with the highest calculated importance level. references a. kavas, (2007). radyo frekansı ile tanımlama sistemleri, yıldız teknik üniversitesi elektrik-elektronik fakültesi mühendisliği dergisi, pp.74-80. j. landt, (2005). the history of rfid, ieee potentials, p.9. a. üstündağ, (2008). rfid ve tedarik zinciri, i̇stanbul: sistem yayıncılık. a. üstündağ, (2008). pazar ve sektörel uygulamalar, rfid ve tedarik zinciri, i̇stanbul: sistem yayıncılık. g. özmen and s. birgün, (2011). radyo frekansı ile tanımlama sistemi seçiminde analitik hiyerarşi prosesi uygulaması, havacılık ve uzay teknolojileri dergisi, vol.5, no.1, pp.81-88. c. harry, c. l. king, l.b.w. and k. c. lau, (2006). design of a rfid case-based resource management system for warehouse operations, elsevier, pp.561-576. sounderpandian, r.v. boppana and s. chalasani, (2007). models for cost-benefit analysis of rfid implementations in retail stores, ieee system journal, vol.1 pp.107-114. t. e. erkan and g. f. can (2014). selecting best warehouse data collecting system by using ahp and fahp methods, tehnički vjesnik, vol. 21, no. 1, pp. 87-93, 2014. u. cebeci and s. kılınç, selecting rfid systems for glass industry by using fuzzy ahp approach," department of industrial engineering. n. fesçioğlu, s. h. choi and d. sheen, (2014). rfid production and service systems: technology, application and issues, springer science, vol. 17, pp. 1369-1380. analytic hierarchy process while choosing authentication with radio frequency identification (rfid) systems 125 d. j. glasser and n. g. goodman, (2007). 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[online]. available: http://www.intechopen.com/books/designing-and-deploying-rfid-applications/rfid-middleware-design-andarchitecture. t. e. erkan and g. f. can, (2014). selecting the best warehouse data collecting system by using ahp and fahp methods, tehnicki vjesnik, p.89. a. zincanova, (2015) "zircanavo-abyss.blogspot.d," [online]. available: http://zircanavoabyss.blogspot.de/2015_05_01_archive.html. a. üstündağ, (2008).radyo frekanslı tanıma (rfid) teknolojisi,rfid ve tedarik zinciri, i̇stanbul, sistem yayıncılık, 2008, p. 29. t. l. saaty, (2001). fundamentals of decision making and priority theory," pittsburgh, rws publications. m. madlberger, (2009). a model of antecedents of rfid adoption intention in the supply chain," in proceedings of the 42nd hawaii international conference on system sciences, the institute of electrical and electronics engineers, hawaii. k. s. rao and k. r. chandran, (2009). new and efficient data warehousing algorithm for multi-level rfid readers, international advance computing conference, the institute of electrical and electronics engineerings. m. dağdeviren and t. eren, (2001). tedarikçi firma seçiminde analitik hiyerarşi prosesi ve 0-1 hedef programlama yöntemlerinin kullanılması, gazi üniversitesi mühendislik ve mimarlık fakültesi dergisi, vol. 16, pp. 41-52. karagiannidis, (2010). http://zircanavo-abyss.blogspot.de/2015_05_01_archive.html http://zircanavo-abyss.blogspot.de/2015_05_01_archive.html journal of international trade, logistics and law, vol. 7, num. 1, 2021, 41-57 41 cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia temesgen mitiku university of jimma, ethiopia negese tamirat mulatu university of jimma, ethiopia received: march 05, 2021 accepted: may 07, 2021 published: june 15, 2021 abstract: this study aims at examining the major push and pull factors which cause rural urban migration to hosanna town and its effect on the socio-economic condition of non-migrants and migrants in destination. a cross – sectional field survey was conducted among 196 respondents from four selected kebeles in hosanna town during 2019. for the study both primary and secondary sources of data were used. descriptive statistics and econometric methods were employed for data analysis. descriptive analysis was applied to discuss the behavior of rural urban migration in the study area and performed using frequencies, figures, graphs, percentage, means, standard deviation, maximum and minimum values. while the econometric analysis was employed to identify variables that affect rural urban migration and to evaluate the effect on the socio-economic condition of non-migrants and migrants. the regression results of probit model estimation raveled that family size, gender (being male), age; unemployment, poor education status, land owning and inadequate income were significantly push factors from the rural area whereas marital status (being unmarried), expected income in urban, short distance, education level and relative’s dwellers at receiving area are significantly pull factors in the study area. the study also revealed that putting pressure on social service and housing, increasing urban unemployment, rising of living cost, expansion of informal sector and unplanned urban expansion were the main impact in the town. policies aimed at reducing rural-urban migration should focus on job creating on farm and non-farm activities, provision of social service and amenities in rural area. hence, provision of facilities and amenities, job creation and proper urban managements should be needed in the town. keywords: cause; consequence; rural-urban migration; push and pull factors; probit regression model, hosanna 1. introduction migration is not a recent phenomenon which reveals that the movement of people from one geographical location to another involving permanent or temporary settlement. among several type of migration rural-urban migration is one of most commonly occurred type of migration in developing countries. rural-urban migration has been historically connected with industrialization, urbanization, infrastructure, good living condition and economic growth [1]. one noticeable aspect in the society today is the rate at which people migrate from rural to urban centers. as regard of this urban population is increasing whereas rural population is decreasing. in line with this, the major sources of the growth of urban population in developing countries will not only be natural population increase but also the continuing rural urban migration to the urban area exacerbates already serious urban unemployment problems. this influx population growth of ethiopia including the study area put pressure in urban social services, infrastructure and stagnant public utilities in urban. however, migration is embedded in the broader debate on development on schools, health services, and food items prices to rise [2]. further, it spread urban unemployment, over-crowded housing and severe shortage of public amenities [3]. in ethiopia urban population grew at an average annual rate of 3.8% from 1994 to 2007 compared to a growth rate of 2.3% for the rural population. rural-urban migration of ethiopia was share of 28.7%, 24.8% and 23.5% in 1984, 1994 and 1999 respectively. the rate of urbanization is expected to further accelerate in the coming years averaging temesgen mitiku& negese tamirat mulatu 42 3.9% between 2015 and 2020 compared to an estimated average growth rate of 3.1 for africa. with regard to the rate in the year 1994 to 2007 in ethiopia the average annual increase in the rate of rural-urban migration was 5.68% whereas for the same period the migration increase rate for southern nations nationalities people regional state was equal to 7.28% which is higher than the national average. according to total population of hosanna town were 13,467, 31,701 and 69, 957, and out of this 40.1%, 43.2 %and 47.1% were migrants respectively. data regarding the population size of the town taken from the 1994 and the 2007 national census result the population growth rate of the town to be 6.1 % [4]. rapid population growth and physical expansion of the hosanna town is attributed to rural to urban migration. majority of the squatter settlers were internal migrants to the town coming in search of employment opportunities. so, demand for housing and social services is rapidly increasing beyond the supply capacity of the town. rural urban migration has created big gap in the provision social service and infrastructure, increased complexity of the town economic and increased geographic expansion alongside with limited increase in the capacity of the providing institutions in hosanna. in this regard, the provision of water supply did not cover the demands of the residents [5]. the town with a very low level of public services and stagnant public utilities poses large challenges and has been faced a series of problems. similarly, migration certainly puts pressure on available and stagnant public utilities in urban puts pressure on schools, health services, and food items prices to rise. in contrast rural-urban migrants are considerably playing an important role in supplying cheap labor to the town. a suitable mechanism to improve own and families’ living standards and to relax land constraints in the rural areas. spread urban unemployment, overcrowded housing and severe shortage of public amenities. economic, social, environmental, and cultural factors play an important role in rural-urban migration. rural people with low income, poor access to social services could migrate to urban centers to obtain better income and to get a better social infrastructure [6]. environmental degradation, lower agricultural productivity, inadequate social services, demographic pressure, land shortages and lack of agricultural resources in rural areas were identified as the major push factors of migration. most of the studies agree that the ethiopian rural areas are characterized by weak socioeconomic conditions, unreliable weather for agricultural activities, poor infrastructure and environmental degradation. in contrast other argued that people with better off in their income could migrate to get a better social infrastructure education and health driven by urban amenities, urban culture and life style etc. however, the poor tend to migrate more than the rural wealthy in ethiopia with diminishing income opportunities. contrary to experiences in other countries, the majority of cases in ethiopia demonstrate that the poor are more inclined to migrate than the wealthier. among different factors: high unemployment rate, low income, high population growth, unequal distribution of land, demand for higher schooling have been identified some of the well-known determinants of which affecting migration [7]. further, study conducted by [8] found that the combination of rural economic push factors such as unemployment and underemployment, shortage of farming land, and weakening livelihoods, and urban economic pull factors particularly high wages in urban areas ultimately leads to migration. rural-urban migration in ethiopia could be triggered by the low income generated in the rural agriculture sector and the need to diversify activities in other sectors. strengthen this point poverty gap and poverty severity indices have respectively declined from 10.1% and 3.9% in 2000 to 3.7% and 1.4% in 2016. nonetheless, poverty is still a challenge in ethiopia as over 22 million people are living below the national poverty line. accordingly, to escape from this rural poverty due to agricultural and non-agricultural constraints people forced to leave their home. the city in general offers more jobs and higher wages than can be found in rural areas [9]. similarly, poverty in the countryside, as the most important contributors to the rural-urban migration flows in africa. however, rural-urban migration in ethiopia is largely driven by pull factors such as employment and educational opportunities in the city. moreover [10] has conducted his works in addis ketema sub city in addis ababa through cross section survey of 210 sample size. he found that overpopulation, landlessness and small landholdings play an important role in determining most youths to migrate to addis ababa. this shows that the high people-land ratio and low productivity of land tend to drive a large number of rural people to urban areas in search of better livelihood options in the study area. consequences of migration are of equal importance as those of the causes of migration. migration has its own positive and negative consequences on the place of departure and destination. however, this study concerned only negative consequence of rural urban migration only on destination. migration has not only impact on demographic and economic aspects but it has also different impacts on urban basic facilities [10]. as study conducted by [11] found that many developing countries in the world such as asian, african, and latin american cities are currently cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 43 experiencing high influx growth of urban population due to migration over the years. this view is brought about by the large numbers of unemployed or under employed young people in many urban areas. natural resource depletion, environmental pollution, earning disparities, redundancy, urban expansion, social unrest, population crowding is some of the negative effects of migration. whereas migration has paved the way for development, enhanced process of industrializations, serve as means of livelihood and even more the remittance become sources of family income and mechanism of to escape drought and famine. furthermore, economic and social factors could play role of the rural urban migration [6]. in this regard, this study tried to examine purely pushed and pulled factors that are cause and consequence of rural urban migration in the study area. in ethiopia only very few studies have been undertaken, studies were lack of adequate understanding and of sound knowledge of causes and consequences on the migrants in both areas of origin and destinations as a prerequisite for the effective urban management, formulation and implementation of sound rural development policies. the general objective of the study is to examine and assess the causes and consequences of rural-urban migration to hosanna town. conceptual framework: is developed based on the empirical literature review and it showed that how the particular variables in the study connect with each other. it describes cause and consequence rural-urban migration in short forms by chart. migration can be considered as a significant feature of livelihoods in the study area to pursuit better living standards of rural people. rural to urban migration is influenced by both push factor refers to circumstances at home that repel while pull factor refers to those conditions found elsewhere or abroad that attract migrants. there is no doubt that apart from these factors urban areas also offer a chance to enjoy a better lifestyle. there are also several effects resulting from high rate of rural-urban migration in the destination of migrants. these pushes and pull factors contributed for initiate people to move from their place of birth to urban. the effects of migration are viewed from two directions on one hand migration have negative consequences while on the other hand; migration has positive consequences. the effect of rural-urban migration can be seen on social, economic and demography of cities. nevertheless, this conceptual framework shows the ideal cause-effect of rural-urban migration in the figure 1 below: temesgen mitiku& negese tamirat mulatu 44 figure 1: conceptual framework 2. research hypotheses 2.1. description of study area this study was conducted in hosanna town southern national nationality and peoples region, ethiopia. hosanna town is one of the oldest towns in snnprs that was established as a municipality in 1942. the town of hosanna is located to south west of addis ababa 232 km away via alemgena-butajira route, 280km from via wolkite route, and 305km via ziway. the town is also located 168km away via halaba-angeca and 203km via halaba-durame from hawassa a capital of snnpr. astronomically, the location of hosanna is 7015’00” north latitude and 37050’30” east longitude with an elevation of 2177 meters above sea level. the altitude of the town ranges from 2340 masl. to 2435 masl indicating that it is a highland climate. the administrative area of hosanna city is 10,414.3 hectare and planed boundary city is 4,585.48 hectare. the total population of hosanna in 1984, in 1994 and in 2007 was 13,467, 31,701, and 69, 957, and out of this 40.1%, 43.2 %and 47.1% were migrants respectively. currently, this population number is supposed to be 158,522, out of this 77,154 are male and 81,368 are female with 6.5 rate of population growth. push factors  poverty  low land access  inadequate income  low employment  age of households  marital status  low agricultural products  high number of family size  poor rural social services and amenities pull factors  urban job opportunities  urban better income  years of schooling  relative at receiving area  urban better social service and amenities socio economic and demographic consequence of rural urban migration in the destination negative impacts  unplanned urban expansion  expansion of informal sector  rising, cost of living  rapid urban population growth  urban unemployment  inadequate or shortage of social services and amenities positive impacts  serve as source of labor  facilitate urban expansion  equilibrate population distribution reason of rural urban migration cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 45 2.2. data collection the data for study was collected from both primary and secondary sources. cross-sectional data was collected from the survey of randomly selected sample migrants. for the primary data collection specifically designed and pre tested questionnaire based on the objective of the study and trained data enumerators was used. to collect primary source of data quantitative primary data collection methods such as direct personal observation method and survey, and qualitative data collection approaches such as focus group discussions and key informant interviews was used. both quantitative and qualitative information of households’ demographic and socioeconomic characteristics were collected. in addition to primary data the study was used secondary data. secondary information like migrant population number, total population number, agricultural inputs and outputs, farm use pattern, rainfall amounts (annual mean and cropping season), temperature and agroecology, etc were also collected. the survey was carried out in the months of may and june 2019. questionnaire: this study employed questionnaire as a primary tool for data gathering to the purpose of getting necessary information from the migrants in destination. this instrument was covered the total inhabitants of 196 with the member of household heads. in this study migrants defined as person who has migrated to hosanna town from surrounding rural areas for different reasons. structured questionnaire with closed ended questions and unstructured questionnaire with open-ended questions developed in consultation with literature. focus groups discussion: were used to verify and complement data gathering through other methods to produce insight that would be difficult to obtain through individual interviews or large-scale survey. in this regard focus groups discussion used to gather information used to explore the social, economic and demographic consequence of migration in hosanna town and conducted to substantiate the responses acquired using questionnaires. this study stimulates focus groups discussion in order to examine how knowledge operated in a given group on the reason for rural urban migration. the group discussion was conducted with non-migrant and migrants in the town such as town elders, kebele administrators, young, experts from municipality and other concerned authorities. moreover, consideration of gender and others who have expected to accumulate knowledge about the aspect of study were taken account. furthermore, women considered shameful focus group discussion with female alone had taken. there were four focus group discussions each held in selected kebele. each group comprising of ten persons in the discussion and the total numbers of individuals involved in the group discussion were 40 individuals. interview: to get the necessary information in-depth interviews was given more attention in the consequence of migration in social economic, provision of social services and infrastructure. the interview was conducted face to face with elders, administrator experts, municipality officer, small and micro enterprises officer and other concerned authorities of the town who can give their participant experiences of the past and present developments. further, they were selected on the basis that their professional roles covered migration and poverty reduction. the study uses semi-structured interviews to gather qualitative data from key informants. 2.3. sampling techniques and sample size hosanna town has three sub-cities and eight kebeles, out of the eight kebeles four kebeles such as meleamba, goferemeda, jalonarammo and heto were purposively selected. as a result, the reason behind to select purposively is a place where the majority of the migrant households’ dwell very high informal street based self-employed business undertaken. total population of the hosanna town is 158,522 of which 26,420 are households. out of total households, 7,407 are migrants. in the selected four kebele the migrant households are 4,807 from the sampling frame for simple random sampling, 93% confidence level and 7% precision level were used. the sample size for the study determined by yamane’s formula [12] n = n/(1+n(e^2)) = 4807/(1+〖0.07〗^* 〖0.07〗^* (4807)) = 196 where n is the number of total populations in selected four kebeles (4807), n is sample size (196), e is precision level 7% and 1 is the probability of events occurring. the target populations of the study were rural urban migrants in hosanna town. the population participated in the study has been selected using the stratified sampling method. sample size of the study has been drawn by stratifying the study area based on location. proportionate number of migrant household heads was assigned for each keble and stratum, while simple random sampling method was employed to select sample migrants’ household heads from each stratum. in-depth interview would also conduct to substantiate the responses acquired through questionnaires. a purposive-sampling technique was employed to select temesgen mitiku& negese tamirat mulatu 46 key informants and focus groups discussion. accordingly, four focus groups of communities comprise 10 individuals in each four selected kebeles in total 40 individuals were selected. in addition, from concerned authorities 20 individual of key informants were selected. table 1: distribution of sample migrants kebeles number of household heads sample household heads sampling techniques male female total male female total sechduna 583 621 1204 30 19 49 simple random sampling janonaramo 614 639 1253 29 22 51 simple random sampling heto 484 496 980 26 14 40 simple random sampling meleamba 649 721 1370 35 21 56 simple random sampling total 2330 2477 4807 120 76 196 2.4. method of data analysis depending up on the objective of the study descriptive and inferential method of data analysis were used to examine the pull and push factors that cause rural urban migration. both quantitative and qualitative methods of data analysis were employed. the completed interview was checked for completeness and the collected data was edited; coded, classified, and checked its consistency to facilitate data analysis. then the collected data was analyzed using the stata version 13. in addition, fo the data analysis appropriate tables, figures, pie chart, histogram and graphs were used to present the data. the findings of the study were presented in a manner that meets the purpose of the study. the multiple response scheme used in the survey conducted of migrants takes care of this as the survey-takers were in no way forced to choose one instead of the other. therefore, the ones who chose both a “push” and a corresponding pull factor can be classified as a set of people for whom both the push and pull factors were important for migration. to separate the purely push from the purely pull factors the present study generates the dependent variable. yi=(number of pull reason for migration chosen)/(total number of reason for migration chosen ) where variable yi, for each individual migrant, yi varies from 0 to 1, with the value 0 indicating that the individual’s reasons for migration are only push in nature, and with the value 1 referring to only pull factors. in order to understand the factors which, determine the extent of push versus pull factors in migration the present study used the probit regression model. the two most important disadvantages of linear program model (lpm) are that the fitted probability lies can be less than 0 or greater than 1 and the partial effect of any explanatory variable appearing in level form is constant. these limitations of the lpm can overcome by using more sophisticated binary response models [13]. the logit and probit approaches of modeling binary response variables overcome the problems associated with lpm. since both models logit and probit estimated by maximum likelihood estimation no one has any advantage over the other. in practice there is little difference in the predicted marginal effects obtained from the two models, unless most of the outcomes are 0 or 1. thus, an explicit migration model which help in the present study to examine the urban pull and rural push factors that cause rural-urban migration in the study area. the functional form of the probit model for the study is given: mi=β0+β1gen+β2msta+β3age + β4famsz+β5ocups+β6edul+β7ldow+β8incom+β9dst+β10rltv+ei where gen is gender, msta is marital status, age is age of household heads, famsz is family size of migrants at time of migration, ocups is occupational status of migrants, edul is year of schooling, ldow is land owning in the rural, incom is urban rural monthly income differentia, dst is distance from receiving area, rltv is relative dweller in urban center and ei is error term. the probabilities of the two binary outcomes are formulated in terms of the cumulative distribution function of the standard normal distribution. further, we start by defining a variable z that is a linear function of the variables that determine the probability. z= β0+β1gen+β2msta+β3age + β4famsz+β5ocups+ β6edul+β7ldow+ β8incom+β9dst+β10rltv pr (yi =1) = pr (yi* > 0) = փ (z) pr (yi=0) = pr (yi*< 0) = 1փ (z) cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 47 փ (z), the standardized cumulative normal distribution, gives the probability of the event occurring for any value of z: pi= փ (zi). maximum likelihood analysis is used to obtain estimates of the parameters. the marginal effect of xi is: (∂pr⁡(pull=1/x=xi) )/∂xi = փ (z)*βi 2.4.1. hypotheses and justification of explanatory variables the important parts in this section are to justify and hypothesize two main variables: these are dependent and independent variables that were used in the econometric model. the dependent variable can be shown as number of pull reasons for migration chosen / total number of reasons for migration chosen and independent variables were the cause of migration in the study area. according to empirical literatures reviews the main cause of rural urban migration were explanatory variables through rural push and urban pull factors. the dependent variable for the probit model is individual migrant. dependent variable is a dummy variable given a value of 1 if the individual’s reasons for migration were only pull in nature and 0 indicated that the individual’s reasons for migration were only push. the explanatory variables of importance in this study are those variables which are a consideration to have an influence of individual migration in the study area. this included personal and demographic variables, socioeconomic variables, household socio-capital variables and institution variables. table 2: summary of hypothesized independent variables and their expected signs definition of variable nature of variable variable definition and measurement expected sign dependent variable individual migrant binary if 0 push factor and 1 otherwise explanatory variable gender dummy male is reference marital status dummy unmarried is reference + age continuous in completed years at the time of migration relative dummy if 1 yes and 0 otherwise + distance continuous in working minutes land size continuous in hectare occupation categoral occupational status of people in the villages family size continuous in number of family size + urban rural income differentials continuous in number + years of schooling continuous in number of schooling years + 3. result and discussion 3.1. socio economic and demographic characteristics of the respondents 3.1.1. gender and age structure of respondents the survey data results showed that the dominant male migratory groups are between the ages of 20 and 29 years. however, the corresponding dominant age groups for female migrants are between15 and 19 years. due to these result women migrants are younger than male migrants in the study area. the results show that the rate of migration was found significantly higher for the people who belonged to the age group of 15 to 29 years is 62.75%. the rate of migration was relatively lower for age group less than 15 years 6.1%; and greater than 45 years old 9.7%. about 21.4% of migrants belonging to the age group 30 to 44 years old. this study found that young people are more likely to migrate to town in both sexes with elder people and children left in rural area. hence, this affects the rural economy since productive age groups were involved in migration process. the study shows that most of in-migrants temesgen mitiku& negese tamirat mulatu 48 to hosanna are male who comprises for 61.2% of rural-urban in-migration to hosanna and the rest 38.8% were female. this implies that among the demographic characteristics, age and sex compositions are the one which have influence on migration process. 3.1.2 marital status of respondents marital status is another important characteristic influencing the propensity to migrate response given by the respondents to strengthen this idea. the result of this study revealed that more than half (62.24%) of the migrants were single out of this 60.66% were male and 39.34% were female. 37.74% were married out of married migrants 62.16% male and 37.84% female at the time of migration during the survey period. according to current marital status of the migrant in hosanna town about 60% (71 male and 47 female) of respondent were married whereas 40% (49 male and 29 female) of them were unmaried. the results indicates that more than 22% of migrants got married after migration in the destination, of this 25 were male and 19 were female.this showed that female more likely have got marriege than that of male based on sampled migrants. 3.1.3 family size of migrants before migration as survey data results revealed that out of total respondents about 41.84% of respondents had 4 to 6 numbers of family members in their villages at migration whereas 23.98% had greater than 10 members. the rest 7.85% were 7 to 9 numbers of family members and about 16.32% were less than three numbers of family members in the place of origin at migration. the majority of the respondents were greater than five family sizes within migrant. this implies that the higher proportion to family size in rural area with low income and agricultural constraints lead to higher probability of migration to urban in the study area. 3.1.4 land size of migrant’s accordingly, in our survey data results about 79.8% of the respondents owned farmland in their home village meaning that either they or their family did and the rest 20.2% did not have land. from out of farm land owned migrants about 83% of respondents owned only one and less than one hector of farm land and remain 17% had larger in size. this implies that migrants may not decide to migrate if their families land is large. because the larger their families land in size the highest probability is to be shared by their children. however, some of migrants reported that they sold their farm land at the time of migration to town to involve in intercontinental (south africa) or international (arab) migration serving hosanna as departure. as the survey results of place of origin of migrants indicated the majority of migrants came from snnpr like hadiya, wolayita, kambata, silte and gurage. according to the central statistics of ethiopia the labour land ration in such mentioned areas the farmland is low due to this high land-labour ratio people are engaged in rural urban migration. further, landless family took their decision for migration more often comparing those with land. this study revealed that low productivity of agricultural sector mainly due to agricultural constraints such as land scarcity have played a vital role in rural urban migration in the study area. 3.1.5 occupation of migrants before migration pre migration occupation plays an important role for the decision to migrate. here we discussed about their occupational status. as the survey data illustrated that about 36.73% of the surveyed migrants were students before in-migrate to hosanna town whereas 31.63% were farm worker either on own their land or on their parent’s land. about 11.73% unemployed before in-migrate to hosanna town while 8.67% were employed under governmental organization. the rest 4.59% and 6.63% were house wife and other sector employed at migration respectively. as the report of the migrants indicated in search of employment the desire for urban better income and social service could play a critical role in participation of migration. this implies that the rural area does not provide employment to all the people living there. even the agricultural sectors, and small and micro enterprise of the rural area fail to provide employment to the entire rural community. cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 49 table 3: occupational status of respondents before migration occupational frequency percent cumulative percent students 72 36.73 36.73 farm worker 62 31.63 68.36 unemployed 23 11.73 80.09 house wife 9 4.59 84.68 govt employed 17 8.67 93.35 other 13 6.65 100.00 source: computed from own survey data 2019 3.1.6 educational characteristics as several studies indicate that the role education in determining internal migration can be viewed from tow perspective. one is whether different level of education attainment or years of education is associated with different rate of migration. the second prospective is whether the desire to acquire a higher level of education leads to migration from rural to urban area. as can be seen from survey data about 40% and 22% respondents had obtained primary and secondary level of education respectively. about 28.5% were no education and remain, 9.5% of the respondents were tertiary at migration. as the survey data majority of the respondents about 71.5% had primary and above educational level when they migrated to hosanna town. this implies that there is a strong relationship between migration decision and education attainment in the study area. 3.1.7 distance from receiving area as indicated in the (figure 2) below about 38.78% of rural-urban migrants in the study area came from a radius of 50 km around their destination, while about 33.67% of rural urban migrants came from distance of 51 to 100 in the study areas. the majority of the migrants came from nearby woredas and surrounding zone of hadiya, wolayita, kambata, gurage, and silte. this shows that most of the rural-urban migrants came from nearby regions woreda, kebeles and villages in the study areas. figure 2: distance from departure to receiving area source: computed from own survey data (2019) 3.2. cause of rural urban migration to hosanna town in some developing countries like ethiopia the phenomenon of rural-urban migration which is mainly triggered by rural push factors and urban pull factors. out of 196 respondents 26.53%, in-migrants to hosanna said that they move to urban to find a job which makes this category the most important one. as they said that the reason for their migration is lack of job opportunities in rural and the desire to obtain job in urban area. lacks of job 0 5 10 15 20 25 30 35 less than 50 51-100 101-150 150-200 201-250 251-300 301-350 greater than 350 percent percent temesgen mitiku& negese tamirat mulatu 50 opportunities either in agricultural and non-agricultural sector or in limited access to land are the core reason for rural urban migration in the study area. in response to this question migrants identified some reasons which they assumed are responsible for rural out migration in the study areas as indicated figure 3 below. figure 3: the reason for rural urban migration source: computed from own survey data (2019) 3.3. results of coefficients and marginal effects of probit regression model results from the probit estimation of push versus pull factors as being dependent on a variety of socio-economic and demographic characteristics of respondents. we considered the pull versus push factor as dependent variable which has dichotomy, or binary variable which takes 1 for migrant mainly who migrated due to pull factors and 0 for migrant who migrated mainly due to push factors shown table 4 below. table 4: the coefficients and marginal effects of probit regression variable robust coefficient p>│ z│ p value marginal effect (dy/dx) gender -1.390861 -3.52 0.000 -.3549684 marital status .7212679 2.04 0.041 .2294922 age at migration -.0293209 -1.97 0.049 -.0087589 relative at receiving area 1.281454 3.96 0.175 .3950497 distance from sending areas -.0036147 -2.02 0.044 -.0010798 farm land in home town -.5299743 -2.46 0.014 -.1583176 occupation at migration .1294303 2.17 0.230 .0386643 family size -.3330326 -4.21 0.000 -.0994858 income difference .0003303 3.41 0.001 .000987 years of schooling .1339431 3.32 0.001 .0400124 cons 2.1637 2.62 0.009 source: computed from own survey data (2019) job opportunities 26% higher expected income 16% large house hold size 5% shortage of farm land 8% to get education 12%marriage 6% urban services 2% inadequate income 15% others 10% reason for rural urban migration cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 51 variance inflating factor (vif) =1.83, pseudo r2 =0.6170, lr chi-square (10) =164.00, prob>chi2=0.0000 the probit model is pr (pull=1/x=xi) = փ (2.1637 -1.39gender +0.7213martial status 0.029age +1.28rlv 0.0036distance 0.53land size +0.13 occupations 0.333famly size +0.0003303 income difference +0.134 year of schooling). the marginal effects provide insights into how the explanatory variables change the predicted probability of success. (∂pr⁡(pull=1/x=xi) )/∂xi = փ (2.1637-1.39gender + 0.7213marst 0.029age +1.28rlv 0.0036dist 0.53lndsz+0.13 occup 0.333falsz +0.00033incmdiffc +0.134 year of schooling) *βi. in the coefficients and marginal effects of probit regression in the table 3 above the likelihood ratio chi-square of 164.00 with prob>chi2 of 0.000 tells us that our model is statistically significant. the hypothesis that all coefficients are equal to zero can be rejected at the 1% and 5% significance level. a high value of r2mcf does not necessarily indicate a good fit and r2mcf increases with additional variable. therefore, an adjusted measure may be appropriate. according to (table 4) a positive coefficient of probit regression model means that an increase in the predictor leads to an increase in the predicted probability. this means an increase in urban rural income differentiates and years of schooling increase the predicted probability. gender being female and marital status being unmarried are more likely predict the probability p that y takes the value 1 which means for migrant mainly who migrated due to pull factors. while a negative coefficient means that an increase in the predictor leads to a decrease in the predicted probability. similarly, this means also an increase in farm land size, number of family size of parents, distance from departure to destination area, and an increase in the age of people decrease the predicted probability ‘p’ that ‘y’ takes the value ‘1’ which means for migrant mainly who migrated due to pull factors. gender the probability of being male, distance, age, shortage of farmland, rural low income, being unemployed, being students, housewife and higher family size of parents were the push factors. in contrast, being female, being unmarried, present of relative dweller in receiving area, urban-rural income differentiates, being employed in rural areas, years of schooling and employment opportunities in urban were the pull factor that forces people to attract with urban area in the study area. 3.4. consequences of rural urban migration in hosanna town migration has its own positive and negative consequences on the place of departure and destination. however, migration has economic, social, political, cultural and demographic impacts on both the place of origin and the place of destination. here the study was presented, discussed and identified the negative impacts of migrants on destination only because of time and budget constraints. one among the interests of migrants of urban center is to participate in the urban labor force, skilled profession and others. however, participation into urban labor force, skilled profession and others again depends on different factors like level of education, presence of relatives, skills and others. thus, examining the current occupational status educational, income and other socio-economic conditions of migrants is important to assess the impact of migration on individual migrants as well at destination area. 3.5 current occupational status of respondents about 8.67 % and 5.61% were students and housewife respectively during survey period. as to the type of employment, about 47.46% were found to be employed in self-informal sector and self-formal sector during the survey period. however, 11.22% and 8.16% were employed under governmental and private organization. this implies majority of migrants engaged in informal and formal self-employed sector, self-employment comprise a greater share informal employed than wage employed. table 5: current occupation status of migrants current occupation frequency percent cumulative percent construction 28 14.29 14.29 government employed 22 11.22 25.51 private employed 16 8.16 33.67 shoe shining 12 6.12 39.79 coffee vender 15 7.65 47.44 trade 19 9.69 57.13 student 17 8.67 65.80 temesgen mitiku& negese tamirat mulatu 52 house wife 11 5.61 71.41 unemployed 37 18.88 90.29 other 19 9.71 100.00 source: computed from own survey data 2019 3.6 current education attainment of migrants assessing current educational level of migrants at their destination area is important to investigate both positive and negative effects of migration in urban. in this regard during the survey period migrants were asked about their current educational attainment. about 36%, 26% and 22% of migrants have attained primary secondary and tertiary educational level respectively. this implies that there is improvement in level of education when we have compared premigration and postmigration educational attainment of migrants. accordingly, the literacy rate of migrants had increased from 71.5% of premigration to 80% of postmigration. this shows that the desire to acquire a higher level of education leads to migration from rural to urban area. although, the migrants put pressure on the educational institution in the urban in turn creates opportunities for the migrants to upgrade education. this may be because in hosanna town there are different public and private training and educational institution such as primary, secondary, tvt, health college and university. the survey result shows that the rest 20% of the migrants no education until this data has collected. figure 4: current educational level of migrants source: computed from own survey data 2019 3.7 current income level of migrants the impact of migration as well as household economy depends on the amount of income that the migrants earned at the destination and any change in the quality of life. according to the results of survey data indicated most migrants about 51.53% were earn an average income level of less than 1000 birr per-month whereas 16.33% of migrants earn monthly income 1001 to 2000. this implies more than 67% of migrants in destination earn monthly income 2000 and less than 2000 birr. the remain 11.73% and 9.18% of migrants earn monthly income 2001 to 3000 and 3001 to 4000 birr respectively. the rest 6% earn greater than 4000 birr. as the reports of migrants showed that there was income difference between urban and rural area although the living cost was high and increased from time to time. 0 50 100 150 200 250 300 no education primary secondary tertiary total 39 63 51 43 196 20 32 26 22 100 frequency percent cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 53 table 6: distribution of migrants by monthly average income income frequency percent cumulative percent less than 1000 101 51.53 51.53 1001 – 2000 32 16.33 67.86 2001 – 3000 23 11.73 79.59 3001 – 4000 18 9.18 88.77 greater than 4000 12 6.10 94.87 not stated 10 5.13 100.00 source: computed from own survey data 2019 3.8 length of residence in hosanna migrants may not arrive at the same time to a certain place. some of them may arrive earlier than others and some of them may have arrived recently. an attempt was made to examine when the migrants arrived at hosanna tow. the length of arrival may have an influence on occupational status, income level and on other related activities. the finding of the study reveals that the trend of migration is increasing from time to time in alarming rate. accordingly, 41.33% of migrants arrived within the period of less than 2 years, while 20.4% within 2 to 4 years. the remain 11.22% within 4 to 6 years, 8.16% within 6 to 8 years, 8.19% within 8 to 10 years and 10.71% of them arrived more than 10 years ago. figure 5: length of residence of rural-urban migrant in hosanna town source: computed from own survey data 2019 3.9. problems faced by migrants in destination as migrants were reported that about 30(59%) were faced the problem of obtaining job or unemployment whereas about 27.5(54%) of the surveyed migrants had problem of housing. housing problems were identified by the migrants they had reported to face problems in that sector as high rent for the house owner’s monopoly to raise the house-rent and lack of rental house for single persons. the respondents suggested that the government should impose house-rent rule strictly and the house-owner should change their attitude in order to reduce the problems in the housing sector. as the reports of respondent’s shows about 71% of migrants have been living in rented house of this more than half living with group especially involved in informal sectors. this living with group may create conducive environment for the transmission of stds such as hiv/aids and for other health problems. 0 10 20 30 40 50 less than 2 2_4 4_6 6_8 8_10 greater than 10 41,33 20,4 11,22 8,16 8,19 10,71 percent temesgen mitiku& negese tamirat mulatu 54 figure 6: problems faced by migrants in hosanna town source: computed from own survey data 2019 3.10. socio-economic impacts of rural urban migration in hosanna town studies of consequences of migration are of equal importance as those of the causes of migration. rural-urban migration is attributed to have both negative and positive consequences at community, household and individual levels. it is important to remember that migration activities have implications for those moving, left behind and at the destination. however, this study has concerned in the negative consequence of migration on the destination. moreover, migration affects socio-economic condition of the wider public in developing countries [3]. natural resource depletion, environmental pollution, earning disparities, redundancy, urban expansion, social unrest, population crowding is some of the negative effects of migration. growing number of street children, growing rate of the prostitution, and growing rate of crime and expansion of urban informal sectors are the major problems that have resulted from rural-urban migration [3]. unemployment is one of the major socio-economic problems and challenges facing today’s word couple with population growth and increase poverty, it has a significant impact on growth and development at large. the pace of urbanization or the tide of migration to urban areas which is triggered by rural push factors is consistently higher than the capacity of new job openings [3]. it is one of the greatest economic concerns not only in ethiopia but also in the world. thus, unemployment is the most attention-seeking challenge that faces the ethiopia economy of today [14]. according to hosanna town profile the unemployment number increased from time to time thus more jobs are demanded to mitigate the economic problem of the unemployed youth and women resulted from high influx growth of population. then this study recognizes unemployment is the dominant problem that the hosanna town encountered like another town in ethiopia. this is because urban areas are not capable of absorbing migrants in gainful jobs and unable to provide adequate living conditions [15]. in this regard to survivable their life they engaged in informal sectors. in ethiopia, employment in the informal sectors is less secure and incomes are lower than formal sector. these diverse activities share the common thread of low status, low wages, long hours, often dangerous and insecure working conditions. ethiopia in the world is currently experiencing high influx growth of urban population due to migration over the years. this view is brought about by the large numbers of unemployed or under employed young people in many urban areas [4]. these chronic unemployment problems are a key cause of crime as people need to find ways of putting food on their tables. 30 27,5 9,5 12,75 5 6 5 4,25 percent cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 55 ethiopia is one victim of the consequences of unemployment. effects of unemployment are social too not just economic frequently; crime rates rise as people are unable to meet their needs through work. divorce rates often rise because people cannot solve their financial problems [14]. management of urban population and unplanned urban expansion, provision social services and amenities are an important investment that leads to urban development’s [16]. further, the study suggested that the negative pressures that result from rapid population growth are much more severe when urban expansion is poorly planned and urban governance is inequitable. according to, [13] urbanization mainly due to rural urban migration has been expansion rapidly agricultural land use transformation in to urban land use due to expensive urban expansion resulted from migration. hosanna is one of town in which unplanned urban expansion would have been occurring as the result of this rapid unplanned urban expansion many farmers in pri-urban surrounding displaced from their land [17]. the study conducted in hosanna found that rapid population growth and physical expansion of the hosanna town is attributed to rural to urban migration [5]. moreover, majority of the squatter settlers were internal migrants to the town coming in search of employment opportunities. furthermore, slum settlements represent over one-third of the urban population in all developing countries. 3.11. effects of migration on provision of urban social services and infrastructure access to serviced land, safe drinking water, energy and sanitation can be mentioned as some of the services required of a town too at least support a healthy and decent living. population growth results in migrants having to cope with insufficient infrastructure and cities having to manage the lack of urban planning to meet the needs of all peoples. according to the survey data reports lack of housing (42%), shortage in water supply (25%), inadequacy of electricity (21%), put pressure in school and health center (12%) and others were the problems that the dweller encounters in the study area as their reports revealed. rural urban migration puts pressure on social services and amenities provision such schools, health services, and food items prices to rise. the rapid rural urban migration can in principle contribute to infrastructure, housing and service shortages, and create financial and delivery problems for the responsible local governments and national agencies [2]. 4. conclusion and recommendations 4.1. conclusion in ethiopia, rural-urban migration is alarmingly increased time to time and has become a tradition to rural population. the current rapid increases in the urban population relative to rural population is due to the fact that rural-urban migration has depopulating effects on rural areas and increases the growth rate of urban population. hosanna town is one of which has experienced an accelerated growth rate of population because of in-migration. the objective of this study was to examine the push and pull factors that forces people to migrate, to investigate problems faced by migrants and to explore socio economic and demographic impacts of migration in hosanna town. for data analysis both descriptive analysis and econometric model were employed. as the findings of descriptive analysis and econometric results indicated there is no single factor that causes the rural urban migration rather a collection of push and pull factors which leads for massive migration. male migrants comprise for 61.2% and the rate of migration was found significantly higher for the people who belonged to the age group of (15 to 29). similarly, majority of migrants (about 71.5%) had primary and above educational level and about 62.24% of the migrants were single at the time of migration. the results showed that searching for job, urban job opportunities and expected better income, shortage of farming land, seeking better education, in search for basic amenities and rural inadequate income are main causes for rural-urban migration in the study area. probit model revealed that the family size, gender, marital status, age present of relative dweller at receiving area, distance from receiving area, farmland size rural unemployment, educational attainment and facilities, urban rural monthly income differentials and years of schooling are statistically significantly affecting the rural urban migration in the study area. economic activities of rural-urban migrants at receiving areas the study showed that the major occupations of the migrants at receiving areas are construction workers, shoe shining, coffee vending. therefore, this study indicated that most of the rural urban migrants in the study areas are engaging in informal sectors and self-employed. policymakers must take into consideration that rural urban migration in urban areas will also affect rural residents. temesgen mitiku& negese tamirat mulatu 56 4.2. recommendations this study to solve the problem of negative implications of migration, promote agriculture and farming in order to avoid poverty among rural people creating employment opportunities in both farming and nonfarm activities priority be given to reduce on mobility of labor. increasing agricultural productivity through the provision of modern agricultural inputs, the expansion and development of small-scale irrigation projects in rural areas would have a significant impact in minimizing the flow of people due to agricultural constraints such as low productivities, seasonal rain dependency and low income from agricultural sector. a large number of migrants move from different rural area to the town in search of modern urban social services, amenities and infrastructure due to the gap between urban and rural. rural development policies should pay a special attention for the rural population with provision of social services, amenities and infrastructure to reduce the infrastructure gap that drives rural urban migration. focus should also be placed on the establishment of institutions, local industry, small and medium town in rural area to reduce rapid rural urban migration in the study area. rapid population growth in a town mainly due to rural urban migration affects urban social services and infrastructure. taking into account the population growth of the town to solve the existing housing unit’s problem and satisfy the growing population size housing demand needs to build additional number of housing. furthermore, constructing additional social service and infrastructures such as schools, health institutions, recreational centers, roads, transport facilities, drinking water and electricity are important in providing needed services and better quality of life. in urban areas the government should facilitate housing services for the migrants in order to protect the health of the migrants and other problems happen on the migrants such as theft and rape. problems with urban unemployment and underemployment greatly affect the urban economy. because of rapid population growth of urban mainly resulted from rural urban migration. therefore, appropriate urban policy that will reduce urban unemployment rate and enhance job opportunity should be implemented by government policy for urban dwellers. the government and private sector should create employment opportunities in the rural and urban economies to reduce the level of open and disguised unemployment as well as chronic poverty of rural and urban regions. government should create better job opportunity by organizing the migrants to work together through creating different micro and small enterprises, which helps to increase the income of the migrants and reduce unemployment in the study area. references ashine, e. (2013). trafficking of ethiopian women and girls to the middle east. m.a. thesis .central european university. melesse and kavitha. (2017). a review on causes and consequences of ruralurban migration in ethiopia. international journal of scientific and research publications,. bimerew, h. (2015). rural-urban migration and its consequence on urban living. global journal of human-social science: economics. tegenu, t. (2010). urbanization in ethiopia: study on growth, patterns, functions and alternative policy strategy. stockholm: stockholm university. ochocho, worku and yitna. (2018). determinants of expansion of squatter settlements the case of hosanna town, hadiya zone, southern ethiopia. ethiopian journal of environmental studies & management . assefa, b. (2012). economic impact of rural-urban migration on income and poverty of migrant sending rural households: with evidences from southern ethiopia. bochum: ruhr university. amin and mohammad . (2011). factors behind internal migration and migrant’s livelihood aspects dhaka city, bangladesh. finland: institute of migration. haddis, z. ( 2014). rural-urban migration and land and rural development policies in ethiopia. world bank conference on land and poverty . washington : usaid/ethiopia. evers, r. (2012). a focus on their social networks and vulnerability dynamics. port elizabeth & cape town, south africa: radboud university nijmegen. deksiso, l. (2017). socio-economic effects of rural-urban migrant youths in addis ketema sub city. addis ababa, federal state, ethiopia: ignou. mccatty, m. (2004). the process of rural-urban migration in developing countries. ottawa, ontario. cause and consequence of rural-urban migration: evidence from hosanna town, snnpr, ethiopia 57 yamane, t. (1967). statistics, an introductory analysis, 2nd ed., new york: harper and row wooldridge, j. m. (2013). introductory econometrics a modern approach f i f t h e d i t i o n. cengage: south-western, cengage learning. abera, b. (2013). socio-economic and demographic determinants ofunemployment in ethiopia. addis ababa, ethiopia: addis ababa university. ilo. (2019). the international labour organization. ethiopia. tacoli, gordon,david. (2014). urbanization rural-urban migrration and urban poverty. london. lombeso, a. ( 2018). challenges in urban infrastructure service provision the case of water, power and road sub sector in hossana town,snnprs, ethiopia: addis ababa university. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 55-58 55 understanding pancasila in social life: study of the balai kerajaan saksi – saksi yehuwa and the free catholic church of st. bonifacius surabaya luvia friska narulita universitas 17 agustus 1945 surabaya tomy michael universitas 17 agustus 1945 surabaya received: july 13, 2022 accepted: september 05, 2022 published: december 01, 2022 abstract: this research is an empirical juridical research, namely the method or procedure used to solve the problem in this research by collecting and processing primary data first and then analyzing it based on secondary data. the primary data analysis in question is an analysis of the data obtained directly by the researchers themselves in the field, namely jehovah's witness surabaya and the surabaya free catholic church which were used as locations in this study. meanwhile, secondary data analysis is an analysis of the legislation, literature and legal documentation relating to the formulation of the problem. interviews were conducted by meeting directly with the informants and in the process of researching the quantity of informants and respondents. pancasila must be interpreted in a broad scope. pancasila as an ideology is the main thing in indonesia along with the legality of the balai kerajaan saksi yehuwa and the free catholic church. this must also have the support of balai kerajaan saksi yehuwa and the free catholic church where information disclosure will be effective when there is resistance from the community. keywords: social life; pancasila; law 1. introduction in a state of law, law means as a regulator. this means that everything is based on the law but the question arises whether everything that is based on the law will fulfill the purpose of the law? as is known in the practice of legal life, people who do not carry out their obligations to maintain ontological rights, for example eliminating a person's life will be legally responsible, for example through criminal charges under article 338 and article 340 of the criminal code and other provisions. rights are rational reasons for sustaining obligations. obligations become the main gate to see the order of rights with various implications. in economic, social and cultural aspects. theo huijbers said that it is the obligation of each individual to build a life together, because if there is no such contribution, these rights cannot be realized. (hakim & kurniawan, 2022) the researcher continued the legal issues to a more specific realm where a case study was conducted regarding the understanding of pancasila in relation to the kingdom hall of jehovah's witnesses in surabaya and the free catholic church of st. bonifacius surabaya. pancasila as the nation's ideology has many legal implications depending on how one understands it. pancasila always arises because of different politics. in the philosophy of pancasila, there are levels, namely basic values, instrumental values, and practical values. first, the basic values of pancasila are divine values, human values, unity values, populist values, and justice values; second, instrumental values are values in the form of social norms and legal norms which will then be crystallized in the regulations and mechanisms of state institutions; and third, practical value, is a value that is actually implemented in reality. this value is a touchstone whether the basic values and instrumental values really live in society. (yusuf, 2020) pancasila, which is easy to interpret because it is truly an integral part of indonesia, also has different legal implications. when someone makes pancasila a part of his life, there are two possibilities, namely obedience to luvia friska narulita & tomy michael 56 pancasila and obedience to pancasila but eliminating those that contradict him. pancasila is the basis of the indonesian state which contains useful values for the life of the nation. van langenberg said that one of the values contained in pancasila is moral values as the basis for every behavior. meanwhile, according to ki hajar dewantara (1962), that pancasila contains cultural values which are the basis for a multicultural education process. pancasila is the business output of the thoughts of indonesian people so that they can seek the truth, so that it becomes an ability that they grasp in rhythm with the use of space. ideology is knowledge or values, which are generically the basis for a person to know and choose the basic behavior of the understanding that is believed. (aeni et al., 2021) balai kerajaan saksi yehuwa surabaya which has a legal basis through the decree of the attorney general of the republic of indonesia no. kep-255/a/ja/06/2001 and the decree of the ministry of religion's christian guidance decree no. f/kep/hk.005-/22/1103/2002 dated march 22, 2002, while the free catholic church of st. bonifacius surabaya is part of the directorate general of guidance for the protestant christian community, ministry of religion of the republic of indonesia. especially the free catholic church of st. bonifacius surabaya still uses the old nomenclature – not the ministry of religion. after having a legal basis, it still creates a different understanding of the kingdom hall of jehovah's witnesses in surabaya and the free catholic church of st. bonifacius surabaya from the public due to various reasons. based on the background, the research question arises, namely whether one's understanding of pancasila will reduce the essence of pancasila itself, thus leading to rejection or support for the balai kerajaan saksi yehuwa surabaya and the free catholic church of st. bonifacius surabaya? 2. research method this research is an empirical juridical research, namely the method or procedure used to solve the problem in this research by collecting and processing primary data first and then analyzing it based on secondary data. the primary data analysis in question is an analysis of the data obtained directly by the researchers themselves in the field, namely jehovah's witness surabaya and the surabaya free catholic church which were used as locations in this study. meanwhile, secondary data analysis is an analysis of the legislation, literature and legal documentation relating to the formulation of the problem. interviews were conducted by meeting directly with the informants and in the process of researching the quantity of informants and respondents the approach used is a statutory approach (written regulations formed by state institutions or authorized and binding officials in general), a conceptual approach (an approach to legal concepts originating from certain legal systems that are not universal), and a case approach (to be able to understand facts). interviews are also a major part of this research because of the information from sources that support the provision of legal facts. then the researchers visited the kingdom hall of jehovah's witnesses in surabaya and the free catholic church of st. bonifacius surabaya and were supported by journal literature and existing laws and regulations. 3. research result and discussion 3.1. pancasila as a reflection pancasila as a legal reflection is a necessity that is the basis in the life of the nation and state. as a pluralistic nation, different understandings of pancasila are unavoidable. the pluralism that occurs in indonesia is concretized into a positive law. the facts show that the indonesian people cannot fulfill their many and diverse wants and needs with their own abilities and skills. (arip, 2018) pancasila should be used as the basis for acting so that there are no unlawful acts and unlawful acts. when there is a rejection of pancasila, it cannot be resolved with restorative justice but with the criminal code. when the settlement is only with restorative justice, it is contrary to the civil law system adopted in indonesia. in addition, the rejection of pancasila means a conscious rejection of the state ideology. the provision of criminal sanctions by the court must be under the control of the judicial commission of the republic of indonesia, the independence of judges is the main thing. 3.2. community life in the balai kerajaan saksi yehuwa surabaya and the free catholic church of st. bonifacius surabaya an example of the rejection of balai kerajaan saksi yehuwa in north kalimantan where there are students with the initials m (14) who is now in 5th grade, then y (13) who is now in 4th grade, and yt (11 ) who is in the 2nd grade of understanding pancasila in social life: study of the balai kerajaan saksi – saksi yehuwa and the free catholic church of st. bonifacius surabaya 57 elementary school. commissioner of the indonesian child protection commission (kpai), retno listiarty said the beliefs held by the three children were the main reason they did not go to grade. this family of three children has adhered to the jehovah's witness belief since 2018, previously they were christians. kpai also suspects that there have been acts of intolerance and discrimination against the beliefs held by the three brothers, thus affecting their right to education. meanwhile, the principal of the public elementary school where the three children are educated, hasto budi santoso, denied the allegation. he stated that what happened was "not intolerance", but "a learning problem". (case of three students of saksi yehuwa in tarakan, form of 'stuttering' education system accommodates rights of all believers bbc news indonesia, n.d.) from the news, it is known that there is a conflict between positive law in indonesia and religious law. such meaning will make positive law not have coercive power so that how to resolve it becomes overlapping. rejection must be an important part because there must be legal arguments. such refusal based on interviews conducted by researchers to the balai kerajaan saksi yehuwa, it is known that accepting differences is a legal consequence and that makes living together within the framework of pancasila a must. obedience to the law is the obligation of every citizen of the unitary state of the republic of indonesia. acceptance from the community has a difference between the closest and the uninitiated. acceptance of the whole community is also the easiest thing to do. humanistic introduction is the hallmark of introducing teachings. st. boniface's free catholic church, surabaya, also did the same thing, where the church became the place for filming videos. this shows that their openness has a positive effect so that pancasila can also be understood from their openness. with the making of the film, it will indirectly announce the existence of the free catholic church of st. bonifacius surabaya for the wider community. there needs to be a balance of meaning between promoting teachings and letting people know with support. promoting the teachings was not carried out by the balai kerajaan saksi yehuwa and the free catholic church of st. bonifacius surabaya because it was not in accordance with the concept they believed that existence must embrace everyone. 4. conclusion pancasila must be interpreted in a broad scope. pancasila as an ideology is the main thing in indonesia along with the legality of the balai kerajaan saksi yehuwa and the free catholic church. this must also have the support of balai kerajaan saksi yehuwa and the free catholic church where information disclosure will be effective when there is resistance from the community. references aeni, z. n., nugraha, d. m., & . s. (2021). pentingnya ideologi pancasila dalam menghadapi berita yang tersebar di masa pandemi covid-19. harmony: jurnal pembelajaran ips dan pkn, 6(2), 119–124. https://doi.org/10.15294/harmony.v6i2.46433 arip, s. a. (2018). kemajemukan visi negara hukum pancasila dalam misi hukum negara indonesia. refleksi hukum: jurnal ilmu hukum, 2(2), 109–124. https://doi.org/10.24246/jrh.2018.v2.i2.p109-124 hakim, l., & kurniawan, n. (2022). membangun paradigma hukum ham indonesia berbasis kewajiban asasi manusia. jurnal konstitusi, 18(4), 869. https://doi.org/10.31078/jk1847 kasus tiga siswa penganut saksi yehuwa di tarakan, bentuk ‘kegagapan’ sistem pendidikan mengakomodasi hak semua penganut aliran kepercayaan bbc news indonesia. (n.d.). retrieved june 23, 2022, from https://www.bbc.com/indonesia/indonesia-59394034 yusuf, n. (2020). restorasi ideologi pancasila dalam pemiki ahmad syafi’i ma’arif. jurnal civic hukum, 5(2), 220– 229. https://doi.org/10.22219/jch.v5i2.11776 zeifert, m., & tobor, z. (2021). legal translation versus legal interpretation. a legal-theoretical perspective. international journal for the semiotics of law. https://doi.org/10.1007/s11196-021-09837-7 mriya afifah furqania and tomy michael, ‘legal construction and implications related to protection of making sex tape with a couple’, 14.2 (2021) https://doi.org/10.30996/mk.v14i2.4843 shinichi takeuchi and jean marara, ‘land law reform and complex state-building process in rwanda’, in african land reform under economic liberalisation (springer singapore, 2022), pp. 137–52 <https://doi.org/10.1007/978-981-16-4725-3_7>. luvia friska narulita & tomy michael 58 jelang hardika, igaa noviekayati, and sahat saragih, ‘hubungan self-esteem dan kesepian dengan kecenderungan gangguan kepribadian narsistik pada remaja pengguna sosial media instagram’, psikosains (jurnal penelitian dan pemikiran psikologi), 14.1 (2019) <https://doi.org/10.30587/psikosains.v14i1.928>. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 83-96 83 the influence of procurement audit on procurement effectiveness alfred ain sallwa college of business education (cbe), tanzania. received: april 21, 2022 accepted: may 29, 2022 published: june 01, 2022 abstract: the contribution and significances of procurement audit towards the procurement activities brought several debates in the country. this study examined the influence of the procurement audit on the procurement effectiveness of public organizations in tanzania. the study identified compliance audit, value for money audit and strategic audit as the main procurement audits that are implemented in the public sector. the specific objectives were therefore, to ascertain the influence of each of the stated procurement audit on the procurement effectiveness. the study was carried out in dar es salaam city, surveying five public organizations (tra, ttcl, dcc, msd and tanesco) that were selected to represent all other public organizations in generalizing the findings. in this survey design, 154 respondents were selected via snowball sampling techniques to represent a total of 250 respondents in data collection. primary data were collected by self-administered questionnaires and four ppra reports were reviewed to compile secondary data. data were quantitatively analysed using inferential statistics; correlation and regression analysis with the aid of statistical packages for social sciences (ibm spss statistics 23). the findings revealed that, value for money audit has high significant contribution to the procurement effectiveness followed by the compliance audit. on the other hand, the strategic audit showed an insignificant contribution to the procurement effectiveness. the study recommends, the government and ppra to emphasize and ensure matters and recommendations given by procurement auditors are dealt accordingly while also strengthening procurement audit so as to improve procurement effectiveness and public funds management at large. keywords: procurement audit, procurement effectiveness, tanzania 1. introduction 1.1. background and essence of procurement audit from the theory of stewardship, auditing is said to start a while ago, and it kept spreading as a result of civilization which came along with the emphasize of the importance of checking upon fidelity of a man who has being entrusted with the property of another and / or to act on behalf of another person. in the last phase of the 20th century, the success brought by the internal audit in the field of accounting and the influence it showed in boosting organizational performance, other disciplines started to adopt and apply auditing thereafter (aulia and isvara, 2021). and from there auditing started to be implemented in the information and communication technology (ict), in operation (performance and quality auditing) and in procurement (andrease, 2012). at its introduction, procurement auditing was designed to prevent fraud, to ensure effective and efficient procurement operations, to counter corruption and to prevent current and future risks (davis and donaldson, 1991). as formalization of procurement kept on going, a need to ensure compliance to the laws and regulations governing the discipline was added to the list of procurement audit objectives. the objectives kept on changing from time to time resulting from the new developed literatures and the enacted laws specifically in each ones nation. according to cips (2015), the now inherited procurement audit types that apply in general cases in procurement audit are value for money, strategic, reporting and compliance. globally, the procurement audit started to be adopted by the giant war states like the united states of america (usa) and the united kingdom (uk) from 1880’s with minimal formalization at that time (davis and donaldson, alfred ain sallwa 84 1991: drozd et al., 2021). in usa, the us federal procurement policy of 1859 was among the earliest remarkable policies in the history public procurement audit. the policy had specified the interest that the government has in procurement especially the defence procurement. from there, both public / federal procurement and procurement audit started to be more effective as several changes were introduced from time to time to enable the function to adopt with the changes happening in the world at that particular time (fazekas and blum, 2021). us federal procurement audit then passed through the contract dispute act of 1920 to the contract act of 1984 to the current laws that specifically address the procedures of procurement audit, the authorities responsible and all matters concerned such as the federal acquisition reform act and the federal property and administrative service act of 1949. the evolution has been more of a union matter in the european union (eu) as now the procurement audit is stipulated in the eu procurement law and all procurement laws of the respective member nations (aulia and isvara, 2021). in africa, just like the above mentioned nations above, procurement audit evolution has undergone several drastic formalization changes to ensure it becomes a tool for effectiveness procurement function in public sector. the main difference of african procurement audit evolution with that of western nations is that, in africa the function came late and its emphases became more critical in the 1990’s (ebimowei and binaebi, 2013). taking ghana as an example, procurement audit emerge in 2003 after an enactment of the public procurement act of 2003. later on, the function was emphasized much by the ghana’s public procurement manual of 2006 under (section 1.8) that directed each procurement entity to ensure regular internal auditing of its procurement activities and overall annual procurement audit that is to be conducted by the public procurement board and the auditor general from the ghana audit service for the aim of ensuring overall procurement effectiveness in ghana (etse and asenso-boakye, 2014). in tanzania, public procurement audit is not an emerging nor an older function as it was in use since the ppa no. 21 (2004) to the present. currently, the practice is mandatory and it is to be implemented in all public organizations in the country. according to the ppa no. 7 of 2011 as amended in 2016, the public procurement regulatory authority (ppra) is responsible to organize procurement audit to all public procuring entities through its appointed and qualified procurement auditors. the process is conducted systematically and systemically so as to assess the law compliance level of the procurement activities and to ascertain if value for money is achieved. different studies such as that of (etse and asenso-boakye, 2020; jembe and wandera, 2019; ochriri et al, 2018) agrees that generally the public procurement audit is there to ensure public procurement effectiveness. most of these studies show that, there is a link between procurement audit (compliance audit, value for money audit and strategic audit) and attainment of procurement effectiveness in public sector and explain much that this is the justification of all the formalization stages that procurement audit has passed through. what was still missing in the literature was the narration and explanation on the link between these variables and possible justification to generalize the particular link in the entire public sector. thus motivated the conduction of this survey study on the influence of the procurement audit on the procurement effectiveness of public organizations in tanzania. 1.2. statement of the problem for a quite some time now, there has been plenty of establishments and reforms in the public sector procurement system which aim at improving the effectiveness of procurement function in tanzania such as laws enactments and amendments (such as the public procurement act (no.7) 0f 2011 as amended in 2016) and establishment of various bodies such as the ppra, public procurement appeal authority (ppaa), public procurement policy division (pppd), procurement and supplies professionals and technicians board (psptb) and the government procurement services agency (gpsa), (mwarizo, 2021). various studies show that, the effectiveness of procurement function in public sector has been influenced by a number of factors, (mshamu, 2020). among the frequently mentioned factors recorded as in charge for the procurement effectiveness include procurement cycle duration, quality of the purchased product / service, lead time, economic efficiency of the procurement process and the return on investment, (yusuf, tonya and mohamed, 2021). different empirical studies show that, the efforts of the government and other relevant stakeholders have turn into enhancing procurement audit, as it seems from its objectives to be a major tool to ensure procurement effectiveness is achieved in public sector in the country, (mshamu, 2020; mwarizo, 2021; lac, 2014; joesbury, 2016). since procurement audit acts as a watchdog to oversee the procurement function undertakings in the public sector, the enforced procurement audits may be among the major influencers of procurement effectiveness of procuring the influence of procurement audit on procurement effectiveness 85 organizations in public sector. unfortunately, this area has received less attention and emphasis in the literature of procurement and supply chain specifically in the public sector. little is known to narrate the impact of procurement audit on the effectiveness of procurement performance in tanzania’s public sector. this is to say, there is lack of scientific proven knowledge to explain and generalize the influence of procurement audit on the procurement effectiveness of the public organizations in tanzania. among the assumptions of agency theory is that, when an audit is enforced and implemented leads to the effectiveness of the audited function in return; therefore the main procurement audits are more likely to influence the effectiveness of procurement function at large in the public sector. in this regard, this study was carried out to examine the influence of the procurement audit on the procurement effectiveness of public organizations in tanzania. 1.3. research objectives the main objective of this study was to examine the influence of the procurement audit on the effectiveness of the procurement function of public organizations in tanzania. specifically, the study examined the influence of compliance audit, value for money audit and strategic audit on the procurement effectiveness of public organizations. 1.4. research hypothesis the study was guided by the following hypotheses; h1: compliance audit positively influence procurement effectiveness of public organization. h2: value for money audit positively influence procurement effectiveness of public organization. h3: strategic audit positively influence procurement effectiveness of public organization. 1.5. significance of the study theoretically, the study bridges the gap of knowledge that existed in the literature of procurement and supply chain involving the relationship between procurement audit and procurement effectiveness in public sector in tanzania. the findings adds some vivid knowledge to scholars and establishes a well-defined relationship between the two variables and their interdependence nature. the study calls for public sector and public organizations like tra, ttcl, dcc, msd and tanesco to correct the small shortfalls that are observed in their procurement audit as a measure to increase the effectiveness of procurement function. the findings give the public organizations and their leaders the awareness and understanding on the importance, value and impact that procurement audit in their organization. 2. literature review 2.1. theoretical literature review 2.1.1. agency theory aulia and isvara, (2021) explain agency theory as a principle that mostly explains the relationship between business principal and the agents and proposes better ways to resolve any issues that may hamper that relationship. according to the theory, principal(s) hire agents for day to day transactions and supervision on their behalf and they delegate the authority to make decisions to agents. an agent will make decisions that may affect the principal because the theory assumes the interests of principal and an agent are not always guaranteed to be compatible. despite the principal being the investor and the great risks are attached to him / her, still lacks day to day input and decision making authority. this situation calls for an audit on all functions and sectors, be it finance, operations and / or procurement. (sekaran and bougie, 2010). according to gunter and claus (2012), agency theory explains how to best organize relationships in which one party determines the work while another party does the work. agency theory assumes both the principal and the agent are motivated by self-interest. this assumption of self-interest dooms agency theory to inevitable inherent conflicts. thus, if both parties are motivated by self-interest, agents are likely to pursue selfinterested objectives that deviate and even conflict with the goals of the principal. alfred ain sallwa 86 2.1.2. stewardship theory according to davis and donaldson (1991), stewardship theory explains the relationship between principals and stewards (appointed executives or managers) in an organization and how to maintain their relationship. stewardship theorists assumes that stewards are pro-organizational and trustworthy given they are self-serving and operating in a good environment with full support and cooperation. a steward is referred as a person who protects and take care of the needs of others on their behalf on well agreed terms (in our case are company executive). stewards are there to create and maintain a successful organization for the prosperity of the shareholders through protecting the interests of shareholders and the company and making decision on behalf. the theory is used much in audit studies as it is designed well to explore the presence of the relationship between executives in organizations who acts as stewards and very motivated to perform their duties in the high interest of the principals, (drozd et al., 2021). implication of the stewardship approach in an organization is of many advantages and relevance as it enforces various changes within an organization, since the theory plays a significant role in ensuring accountability in monitoring activities, auditing and reporting functions for the better achievement of organization objectives (aulia and isvara, 2021). these theories have many implications relating to procurement audit, particularly in an organization that is exposed to risks of compliance, ethical practices and strategic ones. therefore these theories gives a constructive relationship between the level of performance an organization an organization is seeking and the procurement audit performance as a profession and as a function, (kertali and tahajuddin, 2018). these theories are relevant and important to the study as they explains the essence and composition of an institute and gives emphasis on several tools such as procurement auditing to enable the effectiveness of the procurement function and institute while countering possible risks and ensuring effectiveness of the internal processes (fazekas and blum, 2021). the theories also enabled the formulation of the hypotheses and the conceptual framework of the study. 2.1.3. procurement audit types cips (2015) listed five categories of procurement audit in both private and public organizations that are mostly applicable globally and implemented in the regulative instruments of procurement audit of so many nations (yusuf et al., 2021). these procurement audit types (compliance, value for money, strategic, operational and reporting) serve the big goal of enhancing better governance of public funds when applicable in the public sector and they are conducive for both internal and external procurement audit. these types and their objectives have turn public procurement audit into a comprehensive approach of ensuring the effectiveness of the procurement function, effectiveness of the entire organization while managing all risks likely to affect the procurement function while managing the total quality of the entire process (aulia and isvara, 2021). in tanzania, three types of auditing are mainly practiced; two being per the enacted law (compliance and value for money audit) 2.1.4. compliance audit according to ochriri (2014), the compliance audit ensures the audited public organization comply to the public procurement law and regulations, policies, procedures and other relevant laws of the respective country in the procurement operations. by virtual of section 9(1)(b) and (i) of the ppa 2011, the public procurement authority is mandated to monitor the extent of compliance to the public procurement act, public procurement regulations and other guidelines issued by the authority in the implementation of public financed projects. in carrying out the compliance audit, the authority have prepared seven indicators to be used in assessing the extent of compliance to the ppa 2011, ppr 2013 and their amendments of 2016. 2.1.5. value for money audit this audit significances has rouse in the 21st century as it is considered to be the overall tool for the performance of not only procurement but the organization at large (lyson and farrington, 2006). value for money is assessed and ensured through observing the economy, efficiency and effectiveness of the procurement function at large, (murage and ndeto, 2021). by virtual of section 9(1) (h) of the ppa 2011, the public procurement authority is mandated to audit the award and implementation of the awarded contracts to ascertain if contracts are implemented as per terms and conditions stated therein and if the value for money spent is adequate. the influence of procurement audit on procurement effectiveness 87 2.1.6. strategic procurement audit this last category of procurement audit deals with the assurance of the organization’s long term goals and objectives through the performance of procurement function. currently as a business tendency and organizational practice, all organizations (be it private or public) have established long term targets that they hope to be attain in the near future. in tanzania, strategic procurement audit is very rare and always performed in a long interval of time, and in some organization it is yet to be practiced, (mwarizo, 2021). to support this, procurement audit also check the strategic compliance of the procurement process to the organization’s strategic agenda (drozd et al., 2021). 2.2 empirical literature review bonnie et al., (2016) conducted a study on the evaluation of audit of procurement practices in canada. this descriptive study was taken at the library and archives canada (lac) for the aim of understanding the procurement auditing and recommends measures to improve it. findings of the study showed that, lac had an opportunity to improve its monitoring and reporting activities, improve its procurement processes and trends and improve its effectiveness to strengthen the organizational performance through improving its procurement audit. the study was more aggressive in finding ways of improving organization performance and procurement process output compared to other studies before like that of lac 2014. despite recommending ways of improving procurement audit, the study was silent on the certainty of the influence of procurement audit to the procurement performance and effectiveness and questions like; to what extent will the improvement of procurement audit improve procurement monitoring and reporting activities remained unanswered. joesbury (2016) did a research with the title, ‘improving the effectiveness of procurement’ which was conducted in the united kingdom. in this study, the researcher was assessing factors that can be used to improve the effectiveness of the procurement function in the united kingdom. the researcher pointed out various factors that determine and can improve procurement effectiveness such as procurement strategy, role of corporate management, proactive procurement approach, internal marketing and procurement audit. in this mixed study (applied both qualitative and quantitative approaches) the researcher failed to generalize the findings and there was lack of evidence to justify the relationship between procurement audit and effectiveness of procurement function, and / or other mentioned factors. many researchers criticized the study on the basis of the approach used that was not compatible to the objectives of the study. in the study of etse and asenso-boakye (2020) it was revealed that the essence of implementing public procurement audit in ghana was to ascertain whether procurement performance adheres to the pre-determined procurement goals and standards within the defined parameters so that needed changes can be adopted to improve procurement effectiveness. this study was evaluating the public procurement audit process in practice, a case study of the public procurement authority offices in kumasi and the procurement unit of the kumasi polytechnic in ghana. in the study’s recommendations, the researchers recommended a critical analysis of the procurement audit reports and called for a great emphasis to be put on the improvement of procurement standards thorough to improve the procurement performance in ghana. the main criticism of this study is the sample size used. the researcher included only two public sector institutions in the study out more than 90 institutions that are in ghana; and the study involved only one administrative region out of ten. therefore, the study cannot be used to generalize for all the public sector institutions in ghana. a study of jembe and wandera, (2019) which was conducted in assessed the existence of a link between procurement audit and procurement performance. this quantitative study was based on non-government organizations in kenya, a case study of compassion kenya (an international non-government organization) which is located in mombasa. this study was able to evaluate the relationship between the stated variables through the pearson correlation and multiple regression analysis. the findings revealed that, there is a positive and significant relationship between the variable and procurement audit has a significant influence to the procurement performance in non-governmental organizations in kenya. despite the truth that this study was well organized and statistical analyzed, the study only based on non-governmental organizations living away the public sector under researched despite the fact that procurement audit is statutory in public sector in kenya, and the research could be very effective if it could base in this sector or on both sectors. alfred ain sallwa 88 yusuf, tonya and mohamed (2021) in their study which aimed in identifying the impact of procurement audit towards the procurement performance in tanzania showed different impacts of procurement audit such as enhancing law compliance and ethical practices in procurement, it improves the performance by ensuring the procurement goals are attained and if not it proposes measures to improve the situation. this qualitative study was conducted in dar es salaam and at tra headquarters offices as the case study involving only 15brespondents as sample of the 25 respondents who were identified as the population. in this descriptive study, the researcher failed to show the significance level of procurement audit to the procurement performance. a study of mwarizo (2021) which assessed the contribution of procurement audit in enhancing ethical and compliant of procurement practices showed that, among other factors procurement audit also improve the efficiency and effectiveness of the procurement function and the organization at large. others impacts of procurement audit included the enhancement of ethical and compliance to the law. this descriptive study was conducted in morogoro at the sokoine university of agriculture as a case study. the study did not elaborate much of the relationship between procurement audit and procurement effectiveness as expected, it just focused in identifying the impacts of procurement audit. and as a result, it ended by recommending to procurement officials and head of departments to ensure honesty and objective procurement audit for the betterment the organization and prosperity. mshamu (2020) conducted a study to assess the effectiveness of procurement process in public sector, using temeke municipal council as the case study. the researcher was able to show different factors that lead to the procurement effectiveness and among them was; lead time performance, cost efficiency, law compliance, ethical practices and effective procurement audit. in the discussion, the researcher referred the procurement audit as a watchdog of the entire procurement process in the public sector since no assurance on the behavior and conducts of procurement professionals. however the study did not show in what extent is procurement audit an important tool to watch over the entire procurement function in the sector. independent variables dependent variable figure 1 conceptual framework source: modified from (mwarizo, 2021; drozd et al., 2021; joesbury, 2016) procurement effectiveness compliance audit value for money audit strategic audit the influence of procurement audit on procurement effectiveness 89 table 1: operationalization matrix variables variable definition (code) measurement scale compliance audit law compliance (com1), procurement standards adherence (com2), environmental law compliance (com3), standard operating procedure (com 4), procurement policies (com 5) the agreement extent to the influence of compliance audit on the procurement effectiveness of public organization in tanzania (1-5 likert scale) value for money audit economy (vfm 1), total quality management (vfm 2), effectiveness (vfm 3), efficiency (vfm 4), outsourcing (vfm 5) the agreement extent to the influence of value for money audit on the procurement effectiveness of public organizations in tanzania (1-5 likert scale) strategic audit procurement goals (str 1), alignment to organizational vision(str 2), alignment to organization mission (str 3), supplier buyer relationship (str 4), supply chain integration (str 5) the agreement extent to the influence of strategic audit on the procurement effectiveness of public organizations in tanzania (1-5 likert scale) procurement effectiveness procurement results (pro 1), time delivery and quality (pro 2), annual procurement plan performance (pro 3), contract management and relation (pro 4), law compliance (pro 5). the agreement extent to the attainment of procurement effectiveness as a result of the implemented procurement audits in the public sector in tanzania (1-5 likert scale) source: modified from (mshamu, 2020; mwarizo, 2021; lac, 2014; joesbury, 2016). 3. research methodology 3.1. research design the study adopted a cross sectional survey design with an analytical approach. since the study employed a quantitative approach, the accepted design enabled the collection of information from a wide range of area and population at once, and helps the researcher explore, analyse and understand well the subject matter to generalize the findings to a large extent. the study was limited to examine the influence of the three types of procurement audit on the procurement effectiveness of public organizations in tanzania, specifically the tanzania revenue authority (tra), tanzania telecommunications company limited (ttcl), dar es salaam city council (dcc), medical stores department (msd) and tanzania electric supply company limited (tanesco). the composition of these five selected organizations fulfil the definition of public organizations all together, as there is an authority, a council, a limited company, a corporation and a department to represent all other public organizations left. alfred ain sallwa 90 3.2 population and sample size of the study the study population included procurement officials, internal auditors and managerial officials (managers) from the five selected organizations whose total was 250 (as per the preliminary survey conducted prior to the main study). to draw a sample size from the study’s population which was 250 staffs of the five selected organizations in dar es salaam, the researcher used the famous formula developed by yamane (1967). with a 5 % margin of error, the sample size obtained was 154 respondents out of 250. n = n ÷ (1+n (e) 2) table 2: the selection of sample organization no. of elements sample percentage tra 61 31 51% tanesco 52 31 60% dcc 35 30 86% ttcl 50 31 62% msd 52 31 60% total 250 154 62% source: field survey (2022) 3.3 sampling technique snowball sampling technique was adopted due to the ease of identifying the needed respondents and assurance that the selected respondents consists of the pre-defined characteristics needed to participate in this study as a respondent. the researcher placed efforts to identify the first elements / respondents in each organization and after gathering information from them they helped to identify other respondents to be included as per the listed criteria and the process went on until the desired number of respondents was reached. 3.4 data and data collection method the study adopted both primary data and secondary data to generate a wholesome conclusion on the relationship of the studied variables. the researcher collected primary data via well designed questionnaires that were formulated to capture both, the demographic features of the respondents and the variable information on the three procurement audit types and their influence towards procurement effectiveness in the five selected organizations. with the documentary review, secondary data were reviewed to aid and support the primary findings generated. the secondary data collected came from four annual performance evaluation reports of ppra (2017 to 2021). 3.5 data analysis the study adopted pearson correlation to explore the relationship and strength of the relationship between each independent variable and the dependent variable, the direction of the relationship and its strength. while multiple regression was used to explore the predictive ability of a set of three continuous independent variables (procurement audit types) on one continuous dependent variable (procurement effectiveness). however the collected information form the reviewed documents were analysed thematically. the influence of procurement audit on procurement effectiveness 91 4. findings and discussion 4.1 reliability test results the overall alpha coefficient in this test was 0.914. all the four variables used in this study were measured on a multi-dimensional basis using the ibm spss version 23 and all four variables had an alpha value of above 0.8 as shown in table below. table 3: reliability statistics cronbach's alpha n of items .914 4 source: study findings, 2020 table 4: data reliability breakdown; cronbach's alpha construct variable items (α) compliance audit com1, com2, com3, com4, com5 0.94 value for money audit vfm1, vfm2, vfm3, vfm4, vfm5 0.91 strategic audit str1, str2, str3, str4, str5, 0.89 procurement effectiveness pro1, pro2, pro3, pro4, pro5 0.92 source: study findings, 2022 4.2. validity of data the designed survey questions were originated from well-known models and theories so as to maintain construct validity and the use of 5 points likert scale format to ensure content validity of all the variables. 4.3. pearson correlation analysis pearson correlation output usually shows the significance, strength and direction (positive or negative) of the relationship of the studied variable. in determining if there is a relationship we normally observe the p-value obtained and in determining the strength and direction we observe the correlation coefficient value. the following table shows the results of pearson correlation. table 5: correlations compl iance value_ for_mo ney strate gic procure ment_pe rfomanc e complian ce pearson correlation 1 sig. (2-tailed) n 154 value_fo r_money pearson correlation .460** 1 sig. (2-tailed) .000 alfred ain sallwa 92 n 154 154 strategi c pearson correlation .481** .668** 1 sig. (2-tailed) .000 .000 n 154 154 154 procure ment_per fomance pearson correlation .460** 1.000** .668** 1 sig. (2-tailed) .000 .000 .000 n 154 154 154 154 source: study findings (2022) 4.3.1. compliance audit and procurement effectiveness the above results show that there is a significant relationship between the compliance audit objectives in public sector and the procurement effectiveness of the public organizations. this is evidenced by the p-value obtained (0.000) which is less than the alpha value of 0.05. the value of the correlation coefficient was 0.460 which falls under the coefficient range of ± 0.4 to ± 0.59. this implies that there is a moderate positive relationship between the implemented compliance audit objectives and the procurement effectiveness of public in tanzania. 4.3.2. value for money audit and procurement effectiveness the findings also show that, there is a significant relationship between the implemented value for money audit in public sector and the procurement effectiveness of the public organisation in tanzania. this was evidenced by the pvalue obtained, that was 0.000 which is less than the alpha value of 0.05. furthermore, there is a positive very strong relationship between the implemented value for money audit objectives and the procurement effectiveness of public sector in the country. the correlation coefficient obtained was 1.000 which falls under the coefficient range of ± 0.8 to ± 1.00 which depicts a very strong relationship. 4.3.3. strategic audit and procurement effectiveness the pearson analysis also revealed that, there is a significant relationship between the implemented strategic audit and the procurement effectiveness of the public organizations in tanzania. this was shown by the obtained p-value that is 0.000 which is less than alpha value of 0.05. in exploring the strength and direction of the relationship, it was found that there is a positive strong relationship between strategic audit implemented in public sector and the procurement effectiveness of public organization in the country. this was shown by the correlation coefficient (r) obtained that is 0.668 which is positive and falls under the coefficient range of ± 0.6 to ±0.79. 4.4 multiple regression analysis 4.4.1. model summary results from the table below, the score of r square that is 0.859 shows that the model (which includes all three independent variables) explains 85.9% of the variance in procurement effectiveness, leaving only 14.1% unexplained. generally, the used model was very good for the prediction of the relationship between independent and dependent variable. table 6: model summary model r r square adjusted r square std. error of the estimate 1 .927a .859 .854 .21307 a. predictors: (constant) compliance, value for money, strategic b. dependent variable: procurement effectiveness source: study findings (2022) the influence of procurement audit on procurement effectiveness 93 4.4.2. analysis of variance (anova) the analysis of variance (anova) summary table shows the statistical adequacy of the used model. from the table below, the p-value / significance level is 0.000 which is less than 0.05 and f-test result is 58.098. these results shows that the model explains well the dependent variable and it is accepted as a better predictor for population values and the model can be generalized in the entire sector in tanzania. table 7: anova model sum of squares df mean square f sig. 1 regression 40.880 5 8.176 58.098 .000b residual 6.719 148 .045 total 47.599 153 a. dependent variable: procurement_effectiveness b. predictors: (constant), compliance, value_for_money, strategic source: study findings (2022) 4.4.3. coefficient results in this analysis, reference will be made on the standardized coefficient beta (since the study based on the conceptual model and not the equation) and sig (p-value) to make some inferences on the explored relationship. table 8: coefficients results model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .070 .181 .389 .698 compliance .247 .062 .223 3.964 .000 value_for_money 1.009 .080 .849 12.538 .000 strategic .096 .083 .098 1.154 .251 a. dependent variable: procurement effectiveness source: study findings (2022) the influence of the implemented compliance audit on the procurement effectiveness of public organization. results from table 1.8 above shows that, compliance audit have a significant influence to the prediction of procurement effectiveness of public organizations from the observed sig value score of 0.000 which is less than 0.05. from the obtained beta coefficients, compliance audit have a beta coefficient value of 0.223 in explaining the procurement effectiveness of public organization. this means, procurement effectiveness increases by 0.223 for every improvement of the implemented compliance audit. these results supports hypothesis 1, hence h1 was accepted. the findings above were compatible to that of (mwarizo, 2021). in both studies, the implemented compliance audit were observed to be of significance on predicting the procurement effectiveness in public organisation in tanzania. alfred ain sallwa 94 furthermore, the findings concur with that of mwarizo (2021) as both studies found that there is a contribution of procurement audit on procurement effectiveness. however, this study showed that the predictive ability of compliance audit on the procurement effectiveness (beta (β) coefficient was 0.223) unlike mwarizo (2021) were the findings did not show a direct statistical link between the procurement audit objectives and procurement effectiveness in public organization in tanzania the influence of the implemented value for money audit on the procurement effectiveness of public organizations. findings reveal that, the implemented value for money audit objectives have a significant influence to the prediction of procurement effectiveness of public organizations from the obtained sig value of 0.000 which is less than 0.05. the standardized beta coefficient of 0.849 which value for money audit objectives have scored in predicting the procurement effectiveness means, by every one unit improvement in the implementation of value for money auditing objectives, the procurement effectiveness increases by 0.849. these results supports hypothesis 2, hence h2 was accepted. these findings concur that of mshamu (2020). in assessing the effectiveness of procurement process, one of the factor that was listed as an influencer to procurement effectiveness was value for money audit. this implies that the implementation of the value for money audit objective is very important in influencing procurement effectiveness. the findings also are compatible to that of jembe and wandera (2019) that also revealed that procurement audit through the value for money implemented audit contribute much on the procurement effectiveness, despite the study basing on private sector. this means without considering the sector (private/public) value for money audit objectives and value for money procurement at large positively influence the improvement and achievement of procurement effectiveness. ppra 2019 also showed the same, in the financial year ending june 2019 the value for money audit and objectives in particular were found to be of much contribution to the procurement effectiveness in public sector like in this study, were the prediction ability of value for money audit was large (0.849) compared to other two independent variables. this shows that, in tanzania value for money audit objectives are much relevant in the prediction of procurement effectiveness than all other factors. the influence of the implemented strategic audit on the procurement effectiveness of public organizations. with a sig value of 0.251 which is greater than 0.05, the implemented strategic audit objectives have an insignificant contribution to the prediction / influence of procurement effectiveness of public organizations in tanzania. this can also be proven by the beta coefficient value of 0.098 that the independent variable has scored. this means the procurement effectiveness will slight increase by 0.098 for every improvement in implementing the strategic audit in the public organizations in the country. these results do not support hypothesis 3, hence h3 was rejected. the findings differ to that of etse and asenso-boakye (2020), as that particular study which was conducted in ghana revealed a significant relationship between the implemented strategic audit objective and procurement effectiveness. the difference might be due to the difference in the study area of the two studies. the study’s findings also diverge from that of bonnie et al (2016) which showed the presence of significant contribution of the implemented strategic audit objectives of the procurement effectiveness and performance. despite the study been descriptive and not showing the exactly numerical contribution of the variable, the difference of the findings have also been attributed by the fact that, in canada where bonnie et al., (2016) conducted, the study, there are five procurement audit types including the strategic one unlike in tanzania where only compliance and value for money auditing are the mainly performed audits. for this reason, one is likely to find strategic audit significant relevant in canada’s procurement effectiveness attainment than in tanzania. 5. conclusion & recommendations 5.1 conclusion generally, the study was successful in filling the literature gap that was present prior to the study. the study was able to examine the influence of three procurement types that are applicable in tanzanian public sector towards procurement effectiveness. the study revealed the presence of a stable relationship between procurement audits implemented in tanzanian public sector and the procurement effectiveness in the sector. the study concluded that, both compliance and value for money audit have a positive influence towards procurement effectiveness in the public sector. that is to say that, any improvement and effective compliance and value for money audit leads to enhancement of preserving and achieving procurement effectiveness in the sector. unlike the two types of the influence of procurement audit on procurement effectiveness 95 procurement audit, the strategic audit was revealed to have an insignificant contribution towards the procurement effectiveness. that is to say, currently the practice of strategic procurement audit does not necessarily prompt procurement effectiveness in the public sector. public entities can continue the practice of strategic audit by their own justification since it is not mandatory in tanzania and without expectations of influencing procurement effectiveness. 5.2 recommendations the government of the united republic of tanzania and specifically the ministry of finance and planning should emphasize and ensure the observed matters and recommendations given by procurement auditors on public organizations are clearly dealt with in order 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(2021), “the effect of internal auditing on procurement performance in parastatal organizations of tanzania”, business education journal, vol 10, no. 3. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 189-197 189 commercial diplomacy in the context of export sophistication: the mikta case meral uslu istanbul commerce university, turkey received: april 01, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: commercial diplomacy has been of interest to researchers in the context of export development due to the many empirical studies indicating that the international economic integrations provide more growth and employment for the governments and internationalization for the enterprises. unlike the strict and/or regional economic integrations, mikta was created as an informal and cross-regional group of ‘middle powers’ bringing together mexico, indonesia, the republic of korea, turkey, and australia in 2013. being distant apart from each other geographically and having many differences besides their similarities, each of the member states is considered influential in their regions and of high importance for the paradigm shift to a new world order. this paper aims to figure out if mikta has been utilized as a powerful advocate for enhancing exports of the member states while also resuming sustainable economic growth. for this reason, it is analyzed to what extent the members’ exports were and have become sophisticated, meaning capital intensive or labour intensive, over the past 20 years and how the members’ economic growth rates were contributed. for the analysis, prody and expy indices are calculated representing the sophistication levels of, respectively, product groups and the total exports of the states. keywords: commercial diplomacy, integration, export promotion, sophistication, mikta 1. introduction commercial diplomacy has been of interest to researchers in the context of export promotion due to its definition as “all public policy measures that actually or potentially enhance exporting activity either form a firm, industry or national perspective” (seringhaus 1986). naray (2008) defines commercial diplomacy as “an activity conducted by state representatives with diplomatic status in view of business promotion between a home and a host country”, and studying the commercial diplomacy concept as a business promotion activity the author reviews many empirical studies indicating that the international economic integrations provide more growth and employment for the governments and internationalization for the enterprises. this study begins with the background information over the global conditions and motives regarding the evolution of international integrations to the emergence of middle power concept. subsequently, mikta is addressed as the research subject representing an informal and cross-regional group of middle powers. in the methodology section, the research question, export sophistication model of hausmann, and the data gathered and shortlisted for the study are introduced, and model results are presented. the study finishes with conclusion with research recommendations for the future. 2. economic integrations and emerging concept of middle powers there may be multiple motives for building any integration or commitment and they cannot be fully understood without considering the political context within which they are formed. according to the world trade organization’s world trade report 2011 which was focused on trade agreements, motives for building trade agreements can be neutralizing beggar-thy-neighbour trade policies based on the idea that trade policy decisions of one country be harmful the another country through cross-border effect, gaining credibility serving as instruments to stop governments from implementing “beggar-thyself” policies and making more credible commitments than it meral uslu 190 would otherwise make, increasing market size, increasing predictability, developing commitments, attracting investors by strenghtening the “open economy” perception, political considerations, and some other drivers. in line with the empirical findings, the increase in the regional trade agreements (rta) have become a dominant feature of global trade since the early 90s. the figure 1 shows that while many integarations dissolved over time, on the other hand the increase in the number of rtas has not weakened ever since, and 355 rtas are in force currently. figure 1: rtas in force and inactive, 1948 2022 source: world trade organization, retrieved from https://rtais.wto.org/ on 20 may 2022 taking into consideration that this era faced with the decline of the united states as the sole hegemonic power in the world and the empowerment of china as a new economic and political superpower and the insights towards a reorientation of the world to the pacific, together with international institutions facing enormous challenges, the need for innovative alternatives has emerged. thus the concept of “middle powers” has been highlighted. cooper (2015) explains the g20’s raising to the level of leaders in the wake of the 2008 financial crisis as a turning point for middle power activity. an agreement has not yet been reached in the literature for definitions or clear-cut lists of “middle power”, and “regional power”. trying to find out the intersections of multiple definitions, criteria, and the country lists performed by other authors, schiavon and domínguez (2016) reached to two basic criteria for a country to be considered a middle and constructive power. according to the authors, those countries should be “sufficiently important in terms of territory, population, capabilities and resources to have a significant influence in the international system but, at the same time, not so big to be a threat to other countries”, and should “serve as bridges in multiple policy areas, especially between developed and developing countries” (schiavon & domínguez, 2016). while many acronyms such as brics, mikta, mint, mist, next-11 have been produced within the scope of this new conceptualization, brics and mikta were among the most striking of these acronyms (kırbaşoğlu & tüfekçi, 2020). however, table 1 shows the google scholar search results with mikta and brics keywords, and it is understood that studies on brics are almost 50 times of the studies on mikta. also, the studies on mikta are dominantly from political science perspective while there is an enormous literature on trade and economics about brics. taking into consideration that mikta is younger than brics, which is effective on the divergence in the research numbers, this paper aims to contribute to the literature in this sense. commercial diplomacy in the context of export sophistication: the mikta case 191 table 1: search results on google scholar keyword number of results brics 292.000 mikta 6.080 3. mikta as an informal and cross-regional group of middle powers unlike the strict and/or regional economic integrations, mikta was created as an informal and cross-regional group of ‘middle powers’ bringing together mexico, indonesia, the republic of korea, turkey, and australia (mikta, 2022). in mikta’s vision document, it is underlined that in this rapidly changing world, new global issues are emerging including in the areas of finance and economics, environment and sustainable development, and setup motivations were included as “the world needs to foster renewed and innovative partnerships to provide pragmatic and constructive solutions to these challenges. with this as its context, mikta was created in new york in september 2013 at a meeting held on the sidelines of leaders’ week of the un general assembly.” (mikta, 2022). the seven key priorities of mikta countries are defined as energy, anti-terrorism and security, commercial and economic cooperation, good governance and democracy, sustainable development, gender equality, peacekeeping operations (t.c. dışişleri bakanlığı, tarih yok). mikta is chaired by each member in turn. the chair hosts a series of meetings and coordinates joint activities between mikta headquarters and missions during its one-year tenure. in 2022, it is turkey’s presidency since march for the second time, the first of which was in 2017 (t.c. dışişleri bakanlığı, 2022). being distant apart from each other geographically with its membership coming from the asia pacific, the middle east, and the americas, and having many differences besides their argumentative similarities, each of the member states is considered influential in their regions and of high importance for the paradigm shift to a new world order. mikta diverges from other dialogue platforms in such a way also that some mikta members (turkey, australia and korea) have close links with the traditional powers, still another member mexico have avoided formal alliances, while indonesia has kept still in alignment (cooper, 2015). mikta members benefit from open economies with robust growth rates and a significant level of economic power. it is important to see that members members have had two stages in their development process. after following an inward import substitution industrialization model, they implemented outward oriented export promotion model to sustainably abide by the highly interdependent international system (schiavon & domínguez, 2016). foreign trade figures of the mikta group are drawn from itc trademap database and summarized in the table 2. mikta’s share in world exports is almost 9 percent. the exports and trade balance in 2020 indicates that these countries are exporting countries and except turkey they have trade surplus. table 2: trade indicators of mikta country exports in 2020 (billion usd) trade balance in 2020 (billion usd) annual growth in exports between 20162020 (%) annual growth in exports between 20192020 (%) share in world exports (%) gdp pc in 2020 south korea 513 45 0 -5 2,9 31.631 mexico 417 34 3 -9 2,4 8.329 australia 255 52 8 -7 1,5 51.693 turkey 170 50 5 -6 1 8.536 indonesia 163 22 2 -3 0.9 3.870 mikta aggregation 1.517 103 8,7 world 17.503 203 3 -7 100 meral uslu 192 4. research methodology 4.1. research question mikta is an informal and cross-regional group of middle powers unlike the strict and/or regional economic integration, and the group recognized commercial and economic cooperation and also sustainable development among its priorities. in the light of these given facts, this study aims to find out if this integration has been utilized as a powerful advocate for enhancing exports of the member states while also resuming sustainable economic growth. 4.2. calculating export sophistication in this study, the guidence of hausmann, hwang, and rodrik’s (2007) studies are utilized. hausmann, hwang, and rodrik (2007) have shown that “… not all goods are alike in terms of their consequences for economic performance. specializing in some products will bring higher growth than specializing in others” therefore, what kind of goods a country exports matters more for its economic growth compared to its total export volume. here is where the sophistication eclipses specialization. focusing on the statistical testing of this phenomenon, hausmann created the prody index, which represents the sophisticated value of exported products. the higher the prody value, the more technology-intensive, capital-intensive and sophisticated the product, and the lower the prody, more ordinary, labor-intensive and lower value added the product. most studies prefer to use the hausmann’s prody since it excludes any normalization procedure. being a variant of balassa’s revealed comparative advantage index (rca), the formulation is as below: (1) where 𝑋𝑖𝑘: export of country i in the product k, 𝑋𝑖 : total export of country i, 𝑌𝑖: gdp per capita of county i. using the prody indices, hausmann (2007) obtained the expy index which represents the sophisticated value of the export baskets of the countries. the higher the expy value, the more sophisticated the country's export basket become. formulation of expy is as follows. (2) where 𝑋𝑖𝑘: export of country i in the product k, 𝑋𝑖: total export of country i, prodyk:prody value of product k. some products are more sophisticated as a result of associating with higher productivity levels. the authors show that countries that export goods associated with higher productivity levels grow more rapidly. in this sense, the sophistication of a country’s production structure may evolve over time through an increase in the quality of alreadybeing-produced goods or a move into new, more sophisticated products (anand, mishra, & spatafora, 2012). 4.3. data embarking from the argument that the more a country’s export basket is similar to the rich countries (hüseyni & çakmak, 2017), the more sophisticated that very country’s exports mean, the exports of g7 country group was examined in order to determine the products for which the prody index will be calculated. export data were retrieved from itc trademap in 4-digit harmonized system (hs) codes for the interval 2005-2020. as a result, the following list of products were selected because they are the products the most exported by the g7 country group and also excludes some of the highest ones related with the energy sources, the petroleum, since they are resource intensive and thus not sophisticated in the means this paper is in search for. table 3 gives the final list of products with the 4-digit hs codes and full explanation of the codes, and it includes medicaments, medical appliances, electronics, electro-medical apparatus, various transportation vehicles, and gold plates. commercial diplomacy in the context of export sophistication: the mikta case 193 table 3: selected products with the highest export figures by g7 code product label 3004 medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale. 7108 gold, incl. gold plated with platinum, unwrought or not further worked than semi-manufactured or in powder form 8411 turbojets, turbopropellers and other gas turbines 8486 machines and apparatus of a kind used solely or principally for the manufacture of semiconductor boules or wafers, semiconductor devices, electronic integrated circuits or flat panel displays; machines and apparatus specified in note 9 c to chapter 84; parts and accessories, n.e.s. 8542 electronic integrated circuits; parts thereof 8703 parts and accessories for tractors, motor vehicles for the transport of ten or more persons, motor cars and other motor vehicles principally designed for the transport of persons, motor vehicles for the transport of goods and special purpose motor vehicles of heading 8701 to 8705, n.e.s. products ınclude: parts of car windsheild glass, water pump spare parts 8708 parts and accessories for tractors, motor vehicles for the transport of ten or more persons, motor cars and other motor vehicles principally designed for the transport of persons, motor vehicles for the transport of goods and special purpose motor vehicles of heading 8701 to 8705, n.e.s. products include: parts of car windsheild glass, water pump spare parts 8802 powered aircraft "e.g. helicopters and aeroplanes"; spacecraft, incl. satellites, and suborbital and spacecraft launch vehicles. 9018 instruments and appliances used in medical, surgical, dental or veterinary sciences, incl. scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments, n.e.s. products include: disposable surgical face mask. instruments and appliances used in dental sciences, n.e.s. as an indication of the importance of these selected goods for g7 economies and the competition around these goods, the export data of these goods were drawn for each country in the world. accordingly, figure 2 reveals the share of the exporters in this product group cumulatively. g7 had made 57% of the exports in this product group in 2005. in the course of the last 15 years, this share has decreased down to 35 % in 2020. mikta countries’ share in the exports of this product group seems to hover around 10%. the increase in the years just after 2013 which is the foundation of the group cannot be meaningfully explained with the limitations of this hausmann’s method. so apparently, there are some new players in the exports of the developed countries favourite products. the newcomers of this particular export basket have been china, singapur and taiwan mainly according to itc trademap data. meral uslu 194 figure 2: share of the exports in the selected product group in addition, the gdp per capita data required for the index calculations are retrieved from the world bank database. 4.4. results prody indices which represent the sophistication of the selected products (as 4 digit hs codes) were calculated for each year in between 2005-2020 using the export data and gdp pc and the results are summarized as in table 4. the change in the indices can be observed throughout the years. for instance, 8486 hs code represents semiconductor devices, and some relating apparatus. its prody is always the highest in the study’s time period. (in fact, in the years 2005 and 2006, there is not any export record regarding this product.) being at the top means that this product is dominantly exported by the developed countries and thus this product is highly sophisticated. table 4: prodys of the products hs code 2005 2010 2015 2016 2017 2018 2019 2020 change 8486 42.928 38.439 33.271 40.436 32.522 43.659 42.395 8411 24.656 30.663 22.762 28.081 25.959 28.013 33.272 32.753 33% 3004 24.103 28.185 27.976 26.806 29.793 33.026 32.154 31.008 29% 8802 18.931 27.744 27.289 37.638 25.924 30.506 12.106 28.094 48% 8703 20.462 23.537 20.995 22.113 24.106 25.969 26.756 26.179 28% 8542 13.666 20.761 22.204 22.786 19.217 26.058 25.879 24.380 78% 8708 18.149 21.945 16.445 18.752 20.521 23.279 23.315 21.972 21% 9018 19.796 20.938 19.114 18.191 19.937 20.375 20.868 21.002 6% 7108 1.911 3.652 10.156 6.964 7.209 6.697 6.075 5.281 176% commercial diplomacy in the context of export sophistication: the mikta case 195 after having the product sophistication values, the country sophistication values were calculated depending on the selected products, which means that expy indices which represent the sophistication of export of each country (195 countries in total) were calculated using these prody values for each year in between 2005-2020. table 5 shows the expy indices of some selected countries and it is designed in descending order according to the expy value of the year 2020. the higher the expy value, the more sophisticated the countrys exports. using the particular export basket, the most sophisticated exports belong to taiwan, singapore, hong kong, japan, south korea. countries marked with single star (*) indicate the g7 countries. countries marked with double star (**) indicate the mikta countries. average change over the 15 years is conducted with the compund interest formulation. table 5: expy of some selected countries country 2005 2010 2015 2016 2017 2018 2019 2020 average % change over 15 years taipei, chinese 2.283 4.288 6.137 10.067 6.430 8.267 8.801 9.510 10,0 singapore 731 5.695 6.384 8.983 6.391 7.658 8.168 9.138 18,3 hong kong, china 1.508 3.362 4.992 9.238 5.059 6.952 7.575 7.974 11,7 japan * 4.472 6.133 5.770 6.661 6.820 7.290 7.885 7.574 3,6 south korea ** 3.714 4.466 5.052 6.485 5.866 7.758 7.384 7.355 4,7 switzerland 3.842 5.166 6.468 9.068 6.456 6.917 6.736 6.461 3,5 france * 4.786 6.423 6.048 3.794 6.220 6.901 5.842 6.113 1,6 uk * 3.916 4.992 5.662 6.057 6.049 6.083 6.240 5.858 2,7 germany * 4.385 5.339 5.426 4.663 5.803 6.140 5.914 5.785 1,9 mexico ** 2.700 3.571 3.700 4.375 4.613 5.228 5.409 4.861 4,0 sweden 3.349 3.289 2.985 3.218 3.762 4.332 4.763 4.790 4,2 usa * 2.879 3.490 3.235 3.490 3.417 3.422 3.678 3.942 2,1 italy * 2.115 2.609 2.615 2.578 2.935 3.097 3.336 3.484 3,4 india 917 1.415 2.384 2.168 2.276 2.647 2.854 3.103 8,5 turkey ** 1.744 2.053 2.170 3.325 3.013 2.952 2.859 2.543 2,5 china 496 781 1.086 1.517 1.115 1.511 1.674 1.701 8,6 afghanistan 0 0 0 0 0 0 0 1.602 uae 466 0 1.134 1.872 1.431 1.519 1.491 1.374 7,5 indonesia ** 321 473 814 1.076 918 1.002 1.163 987 7,8 australia ** 1.241 972 1.061 2.029 845 775 763 738 -3,4 ukraine 450 698 652 553 412 370 406 472 0,3 canada * 49 982 1.203 814 1.043 265 102 316 13,2 sierra leone 0 0 281 26 103 137 126 232 albania 75 61 87 213 47 26 114 128 3,6 seychelles 857 127 146 79 2.892 1.769 131 44 -18,0 in figure 3, the three countries with the highest expy values are shown with the tones of gray colur, and mikta is colurful. the dotted line represents the foundation year of the mikta. the colurful lines show a tendency to increase following the dotted line although turkey and australia seems behind the other mikta countries. meral uslu 196 figure 3: epxy for mikta members and the countries with highest index values 5. conclusion in this paper, it is aimed to analyze whether mikta as a informal and cross-regional group of middle powers has provided export sophistication for the member states since it prioritized commercial and economic cooperation and sustainable development with its establishment. it is seen that export sophistication of mikta has increased in cumulative. however the members performs different from each other. the increase is led by south korea and mitigated by australia in particular. on the other hand, the number of the products are limited with the most exported products of the g7 group and thus evaluation of the change in export sophistication of mikta is limited within the competition conditions g7 sets. as a future task, all the 4 digit hs codes which makes 1259 products in the year 2020 should be studied for prodys. since the effect of covid-19 pandemic was heavy on international trade flows and the pandemic has made some products all the more important, the rapid change in the prodys might be read easier when the trade statistics of the year 2021 becomes fully available. therefore, the study should be updated with the new year’s figures. references anand, 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law, vol. 8, num. 1, 2022, 162-170 162 green marketing and its impact on consumer buying behavior omar al-dubai istanbul ticaret university, turkey evrim i̇ldem develi̇ istanbul ticaret university, turkey received: april 01, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: environmental awareness is growing, as is consumers’ interest in ecologically friendly products. as a result, businesses have adopted green marketing methods to fully use resources by decreasing waste, accomplishing organizational goals, and adhering to environmental regulations. this study aims to look at how green marketing and the marketing mix have evolved through time. furthermore, this study focuses on consumers purchasing habits regarding green products. the primary goal of this questionnaire is to determine the impact of green marketing on consumers’ awareness of the green product in yemen. it’s a descriptive-analytical approach to achieve the research objectives and the study tool is a questionnaire. the questionnaire is made up of twenty items. within the participants it is found that the actuality of green marketing mix elements was high, with the green product element coming top, followed by green promotion, green pricing, green place, and finally green product. furthermore, it’s found that consumers’ knowledge of green products is quite strong and that there is a statistically significant influence of green marketing mix elements on environmental consumer awareness, culture, directions, and behavior. the study is made in yemen and this makes the study unique. it is offered a series of suggestions as a highlight of the study results, including the need for enterprises to provide numerous green options and satisfy consumers in yemen. keywords: green marketing, green marketing mix, green environment, consumer behavior jel classification: m30, m31, d24, d12, f64 1. introduction consumers are more aware that their purchasing decisions have a substantial environmental impact. according to philip kotler (2011), 5% of buyers prefer to purchase products and services from businesses that have clever environmental names. the technique of exchanging products or services based on their environmental advantages is known as green marketing. some of these items or services may be ecologically friendly or manufactured and/or packaged responsibly. green marketing is the promotion of items that are said to be environmentally friendly. phosphate-free and recyclable are two examples. some of the terms consumers associate with green marketing are refillable, ozone-friendly, and ecologically friendly (mishra and sharma, 2014). environmental factors should be considered in every step of marketing, including new product creation, communication, and everything in between. ecological/environmental marketing is another term for green marketing. although consumer habits have gotten the greatest attention, research in this field has grown. nonconsumer and post-consumer actions such as energy-saving, effective waste disposal, and recycling are commonly linked with these consumers. overall, it is acknowledged that consumers may have a substantial environmental influence. these behaviors are seldom cost-effective, need repeated effort, and can cause discomfort to green goods attempting to accomplish their jobs( kotler and gertner, 2002). consumers' abilities and resources, which include the requisite skills, knowledge, and time, have a big role in whether or not they can engage in certain acts such as ecological behavior. beliefs and norms are important behavioral determinants that encompass a wide range of values and attitudes, as well as those particular to green consumer green marketing and its impact on consumer buying behavior 163 behavior. studies have indicated that the main hypothesis about these aspects is significant for household energy usage, conservation behavior, and the adoption of green products (armstrong and kotler, 2005). despite its advantages, green marketing has several drawbacks that require additional research and improvement. one of the most serious concerns in green marketing, according to experts, is the use of deceptive promotions and false promises by some firms and organizations to gain consumers' trust. as a result, some consumers are hesitant to purchase green products. as a result, the study's purpose is to see how green marketing mix elements influence consumers' environmental behavior and direction (hasan and ali, 2015). 2. evaluation of green marketing the idea of green marketing has been around at a minimum starting around 1970. in the last part of the 1980s, green marketing arose. during the 1990s, advertising research demonstrated that numerous consumers were worried about the climate. many firms reacted to this worry by changing their special missions. there is presently a developing revenue in green promoting and maintainable impetuses using greening techniques and environmental naming practices, particularly in europe. characterizing green marketing is certainly not a basic assignment. a greater part of individuals accepts that green displaying alludes only to the advancement or publicizing of items with ecological qualities. many terms that are frequently connected with green marketing are recyclable, ozone friendly, and harmless to the ecosystem (peattie, 1999). green marketing is most often connected with the greening of the various parts of customary promotion. this largely includes the creation of "green" items available to be purchased by green consumers who are keen on reusing the loss from their utilization. research in green purchaser conduct proposes that concerning the natural correspondence procedures to arrive at consumers, they should target defeating mental hindrances that keep the planned consumers from the genuine acquisition of green items. it is suggested that green advertising correspondences ought to be based on and redone to the various necessities of the consumer's change of conduct ( kotler and gertner, 2002). according to peattie (1999), collaboration propensities all the more intimately with consumers practices and stay uncertain about their effect on the acquisition of high-inclusion green items. whether or not individuals can participate in explicit activities like green conduct relies significantly upon their abilities and assets. among these squares, measure the necessary abilities and information time accessible status cash, and proficiency. qualities, convictions, and standards are key attitudinal elements that incorporate more broad qualities and perspectives close to those particular to specific green consumer practices. a key hypothesis connecting these variables has been used in investigations and is seen as critical for family energy utilization protection conduct and green item use. nonetheless, green marketing has progressed through a variety of periods. according to peter kangis (1992), there are three stages to the development of green marketing: the first stage was dubbed " ecological" green advertising, and at this time, all marketing activities were focused on assisting natural difficulties and providing answers to environmental problems. the next level was "environmental" green showcasing, with the focus shifting to clean innovation, which included detailed preparation of innovative new things that address pollution and waste concerns. green advertising that was "sustainable" was the third level. in the late 1990s and early 2000s, it became a force to be reckoned with. 3. green marketing mix traditional marketing is used to create a green marketing mix. it usually has four p's in it. on the other hand, each company adapts its preferred marketing mix. as a result, the green marketing mix is not restricted to only four ingredients, but may also include additional successful variables. bradley ( 2007), has introduced the notion of a green marketing mix. he initially presented this notion in the late 1980s, but he has changed it regularly since then. according to the author's knowledge, few studies have been undertaken on how organizations gather their marketing mix. bradley has established himself as a key figure in this field. however, because bradley's study is limited and is not considered a high-quality academic publication, more research into the green marketing mix is required. according to the authors, many academics feel that a thorough examination of the green marketing mix is necessary. the establishment of a strong marketing mix is seen as a significant problem for every business, and it is always important to a company's future growth. as a result of these facts, this is an essential topic to research and investigate (polonsky, 2001). omar al-dubai & evrim ildem develi̇ 164 several viewpoints on how to integrate green marketing have been identified by other green marketing mix specialists. prakash (2002), discusses how the product and price are greened, and shows how some researchers only address some topics and focus on other elements of their research. this is thought to be one of the most likely studies on the gap theory's existence. there isn't a single researcher who has figured out how to bring the green marketing mix together. researchers provide an abstract to what other researchers have mentioned while examining different areas. another reason for the theoretical gap is that experts always do and propose the greening of the marketing mix since consultants do not publish their work as academic studies (prakash, 2002). green product marketers, like traditional marketers, must contend with the following four marketing modes: 4. product green product characteristics may be divided into two groups. to begin with, the social and environmental consequences of product and service experiences are obvious. several organizations employ the concept of the "five rs" in their plans to make safe post-use recycling of items easier. repair, reconditioning, reuse, recycling, and remanufacture are some of these options. the second set of characteristics is concerned with product development and the traits of a responsible business. (tiwari and jaya, 2004). according to mahmoud (2017), the product is at the heart of the green marketing mix, and green products encompass all aspects of the product, including the materials utilized, the production process, the product packaging, and so now. a green product is an ecologically sustainable product that promotes the protection of the natural ecosystem while reducing negative environmental consequences. eco-friendly items have grown in popularity in yemen as green consciousness has grown, and yemenis have worked to eliminate single-use plastic materials. bamboo, glass, and steel have all been employed as sustainable materials. to reduce environmental strain, several beverage businesses and restaurants have begun to employ bagasse boxes instead of disposable and plastic items. 5. price in the green marketing mix, price is a critical component. green items are generally more expensive than traditional products. the phrase "premium pricing" in the green context refers to the extra cost that buyers are ready to pay for ecologically friendly items. the green marketing strategy's pricing strategy is a blend of brevity and sensitivity. the most important factor influencing a consumer's decision to purchase a green product is the price (fan and zhang, 2011). in industrialized nations, particularly in europe, where three-quarters of consumers claim to be able to spend more for ecologically friendly items, the desire to pay more for green products is increasing. consumers bear the environmental cost associated with less damaging items. green goods at a fair and competitive price, so that existing green criteria may be met and enterprises can adopt more efficient production techniques (tiwari and jaya, 2004). 6. promotion according to mahmoud (2017), stated that by delivering advertising, marketing materials, sales promotions, direct marketing, on-site promotions, films, and other promotional tactics, green promotion, which is a marketing concept does not harm the materialistic consumer interests. green promotion is an effective promotion approach that piques consumers' attention while also satisfying them. the major goal of green advertising is to influence consumers purchasing behavior by raising awareness of the product's environmental benefits and encouraging them to utilize it. green item advertisers utilize different advancement devices to sharpen their likely customers on the advantages of their items. deals advancements, direct promoting, advertising, and publicizing are a portion of the method for passing on to the consumer the center message of greenness. the point of such missions ought to be to convince purchasers to alter their impression of green products. an essential issue in such a manner is the utilization of related terms that might be befuddling to shoppers. organizations meaning to make their items engaging ought to foster methodologies that will assist expected consumers with appreciating the terms(nandini , 2016). green marketing and its impact on consumer buying behavior 165 7. place a product's location determines whether or not it is available for purchase. the term "green place" refers to the process of managing logistics to decrease transportation emissions and hence lower one's carbon footprint. furthermore, the green place is an essential part of the green marketing mix since it focuses on giving consumers greener access to their products along the distribution process. those participating in the distribution chain, including those who ship products from the manufacturer to the market, as well as those who distribute and convey products from stores to customers (fan and zeng, 2011). environmental factors influence the fuel utilized and materials generated for transportation because of the massive environmental implications of manufactured products. carbon taxes will have a significant impact on how profits are distributed. it will strive to help firms replace production and distribution networks. (nandini , 2016). 8. green marketing concept green marketing means making, advancing, deciding costs, and circulating goods that make negligible or no damage to the regular biological system. procedures incorporate changing the creation interaction, item alteration, or developing advancement strategies. the beginning of the idea traces back to the 1970s with the development of green marketing, which zeroed in on industrial facilities that seriously affected the climate. it was additionally during this time that expanding accentuation was put on corporate social obligation (csr). the period starting in the mid1990s was described by the rising mindfulness and interest in eco-accommodating items, prompting the development of the ideas of the green buyer. from that point forward, green marketing has drawn the consideration of researchers, earthy people, firms, and the general population (zaharia and zaharia, 2015). as of now, green marketing keeps on getting expanding consideration as companies plan to improve their endurance, the elements that have prompted this example to incorporate the developing number of eco-touchy buyers, rising government pressures, and expanding hippie crusades toward a green economy (mcclendon, 2010). in any case, the reception of green methods by firms stays low as they battle to offset ecological necessities with their monetary obligation. mcclendon (2010), conducted a study associated with green marketing, they found that enterprises that fuse green methods of reasoning enjoy a few serious upper hands over their non-green counterparts. investigators bunch these advantages into five classifications: opportunities or competitive advantage, corporate social responsibilities, those connected with government pressures, cost/benefit issues, and those related to competitive pressure. 9. green marketing important green marketing is viewed as a critical entry point for consumer and environmental protection in the communities where consumers reside. the significance of green marketing may be divided into two categories: the first is related to the institution's reputation and abilities, and the second is associated with what green marketing achieves, which is associated with human and environmental protection. one of the most essential aspects of green marketing is meeting consumer wants and providing alternatives that do not damage or hurt the environment due to a lack of resources, which is based on the economic definition. a study of how humans use their limited resources to meet their seemingly endless desires (mctaggart, findlay, and parkin,1992). as a result, solutions with limited resources must be found to meet these infinite demands for each sector and individual while being compatible with business aims. firms are currently concentrating on product development and strategies to link it with sustainability. the methods for manufacturing, distribution, usage, and recycling must have a minimal detrimental impact on the environment. it's crucial to look at the resources utilized in each step, as well as what resources are necessary throughout the product life cycle and whether the methods employed are ethical (ottman, 2011). firms in society have increasing responsibilities, and as a result, their active role is growing more significant. firms must believe that their policies and activities are ethically committed to having a beneficial impact on the environment (azzone, giovanni, and manzini,1994). as a result, companies that employ green marketing techniques have a competitive edge over companies that do not engage in responsible activities. this present trend is increasing to better meet the demands of consumers (polonsky,2001). omar al-dubai & evrim ildem develi̇ 166 10. problem of the study mid-twenty-first century, the social and natural results of the unquestioning quest for financial development have become progressively clear. expanding levels of nursery gasses in the climate, an opening in the ozone layer, inescapable obliteration of the rainforests, and a developing rundown of jeopardized species and environments are only a couple of the pointers that everything isn't well. for promotion, the test is two-crease. for the time being, natural and social issues became fundamental outer impacts on partnerships and subsequently the business sectors among those they work with. organizations are responding to changing consumers' needs, new guidelines, and another social soul, which reflects expanding worry about the socio-natural effects of business (mullekyal and akhil, 2016). most current company platforms believe green marketing to be a need since it represents the ideal path toward tackling rising environmental concerns and appropriate ways for preserving a pollution-free environment. in addition, rising efforts on environmental impacts have resulted in a rise in the dimensions and activities of their repercussions. significant issues arose in the philosophical orientation of marketing theory, and the phrase "green marketing" was coined (banyte et al., 2010). eco-friendly, safe, and clean things that do not pollute the environment are becoming increasingly popular among customers. green marketing has an impact on two fronts, according to yazdanifard and mercy (2011), consumer satisfaction and environmental conservation. as a consequence, the research problem is simplified to a single main question: what impact does green marketing have on consumer attitudes regarding green products? 11. research goals  to discover the consciousness of shoppers in regards to green items.  to investigate the conduct and demeanor of buyers towards green items.  to concentrate on the significance of green marketing in the advancement of future brands.  to evaluate assuming consumers' support of ecological worries, familiarity with eco-accommodating items, and information on natural issues influence their purchasing of eco-accommodating items.  to distinguish assuming that shoppers will pay something else for eco-accommodating items. 12. research method the quantitative method is used in this study since it is the most common approach to this sort of research. the research is based on a questionnaire distributed to university of sana'a academics and students by collecting the data from the study sample by using a questionnaire of 20 items. the data we've gathered will be evaluated, and our findings will be acquired using the statistical package for the social sciences (spss 22.0). furthermore, the theoretical portion of the research was based on green marketing magazines, articles, theses, university publications, and books. the study's participants are students and academics from the university of sana'a who were contacted via a paper questionnaire delivered between february 20th and march 10th, 2022. the researcher circulated 250 papers, and 200 acceptable answers were received. the acquired data were analyzed using the statistical program for social sciences (spss). to assess the results, the researcher utilized a variety of statistical methods to examine the study questionnaire questions, such as the mean and standard deviation of cronbach's alpha. all cronbach's alpha coefficients are more than (0.9), with the overall cronbach's alpha coefficient of (0.96). this average is deemed quite high and relates to the stability and reliability of our questionnaire answers. the information was gathered by a questionnaire using the likert scale, which ranges from 1 to 5, with 1 indicating strong agree and 5 indicating strongly disagree. green marketing was used to ask questions like: would you like green products, would you pay more for them, is your purchase choice influenced by green marketing, and so on. 13. findings this is the axis of the questionnaire and includes 20 questions. the objective of this section is to collect the opinions of the participants about green marketing and its impact on consumer buying behavior. and it is shown in table 1. green marketing and its impact on consumer buying behavior 167 table 1:answers of respondents (n=200) s r. no. item s trongly disagree d is agree n eutral a gree s trongly agree 1 you desire green products. 6 1 3 2 8 5 9 9 4 2 pay extra for green products 9 1 4 4 4 4 8 8 5 3 your purchasing decision affected by green marketing 1 0 1 2 3 9 5 0 8 9 4 i'm concerned about organizations polluting environment. 5 1 6 3 4 4 5 1 00 5 organizations should practice green marketing. 6 1 4 3 5 5 6 8 9 6 companies should abide by environmental laws. 5 1 2 3 6 4 7 1 00 7 customers affected by green marketing while making purchasing decisions. 9 2 1 4 3 4 6 8 1 8 buyers prefer to repurchase such products which are green. 1 2 1 3 3 9 5 5 8 1 9 i would describe myself as environmentally responsible. 5 2 2 4 0 4 9 8 4 1 0 increase in greenhouse gases will affect the future of next generation. 3 1 5 3 5 5 0 9 7 1 1 i have convinced members of my family or friends not to buy products which are harmful to the environment. 5 2 7 3 4 5 5 7 9 1 2 there is no truth in to environmental problem issue. 1 0 2 8 3 7 4 3 8 2 1 3 global warming is biggest threat for the degradation of environment. 1 2 1 7 2 9 5 2 9 0 1 4 rapid industrialization is harming environment. 9 1 2 3 3 5 9 8 7 1 5 i am fully aware about the product promoting green are using environment friendly process. 8 1 5 4 2 5 7 7 8 omar al-dubai & evrim ildem develi̇ 168 according to table 1, 153 respondents desire green products. 133 respondents will pay extra for green products. 139 respondents purchasing decisions were affected by green marketing. 145 respondents feel concerned about organizations polluting the environment. 145 respondents said that organizations should practice green marketing. 147 respondents said that companies should abide by environmental laws. 127 respondents give their opinion that customers are affected by green marketing when making purchasing decisions. 136 buyers prefer to repurchase such products which are green. a total of 133 people say they are environmentally conscious. 147 people believe that rising greenhouse gas levels will have an impact on the next generation's future. 134 people attempted to persuade members of their family or friends not to buy environmentally damaging items. 125 people believe there is no reality to the environmental crisis. global warming is the greatest danger to environmental deterioration, according to 142 respondents. the ecology is being harmed by increased industrialization, according to 146 respondents. 135 responders are completely aware of the product's green message and are employing environmentally beneficial methods. 140 respondents are aware that organizations that use green techniques face more expenses throughout the manufacturing process. 137 people said they would not buy a product if the company selling it was environmentally unfriendly. companies do not employ eco-friendly techniques in the manufacture and packaging of their products, according to 129 respondents. if a toilet soap was packaged in recyclable paper, 124 people said they would buy it. 135 people are willing to buy items from firms that use renewable energy to meet their electrical demands. 14. challenge of green marketing  green goods necessitate the use of pricey renewable and recyclable resources.  requires a technological advancement that demands a considerable investment in r&d.  green products and their uses are mostly unknown to the general public.  the majority of consumers are hesitant to pay a higher price for things that are ecologically beneficial. 15. conclusion and recommendations because of its important role in environmental preservation and the capacity of businesses to maintain their social and financial status by minimizing waste and raw materials, green marketing is one of the most important concerns for business platforms. companies nowadays work in a fast-paced, changing environment. as a result, it is critical to stay up with this transformation by continuously enhancing their performance via the development of goods and services that satisfy the changing wants of consumers. furthermore, businesses aim to use green marketing elements to get a competitive advantage over their competitors, as well as to enhance manufacturing capabilities and improve marketing effectiveness. this research has two limitations that will be discussed. to begin, this research looked at green marketing and its impact on consumer's purchasing behavior. it was distributed among 250 selected students and professors at the 1 6 companies using green process are incurring extra cost for the production process. 8 1 5 3 7 5 3 8 7 1 7 i would not buy a product if the company which sells it is environmentally irresponsible 1 0 1 9 3 4 6 2 7 5 1 8 companies do not use eco-friendly processes in manufacturing and packaging of their products 1 1 1 2 4 8 4 8 8 1 1 9 i would buy a toilet soap if it wrapped in recycle paper 1 4 2 0 4 2 4 3 8 1 2 0 i would buy products of those companies which are fulfilling their electricity need through renewable sources. 8 1 4 4 3 5 6 7 9 green marketing and its impact on consumer buying behavior 169 university of sana'a, making it impossible to reach all students and academics. furthermore, the sample group must be larger to get a more scientifically representative result. more study is needed to evaluate consumer habits and lifestyle features to analyze more deliberate and behavioral aspects so that yemeni consumers may engage in sustainable behavior. second, the questionnaire's variables were limited and focused solely on the influence of green marketing, leaving the results ambiguous. more study is needed in the future to fully comprehend green marketing and its impact on consumer's purchasing behavior, particularly in yemen. green marketing research is very new and significant, and more should be done in this field, particularly studies on the impact of green products on consumer loyalty. as well as studies on green culture among academics and students in yemeni universities and how it relates to their environmental attitudes. the researcher also wants to undertake research on the parts of the green marketing mix and their link with customer loyalty. the researcher also examines the importance of enterprises in yemen adopting green goods and their impact on consumers, as well as the level of environmental knowledge among students in yemeni colleges and its link with green product loyalty. furthermore, research links the impact of green marketing mix elements on consumer behavior in various groups, such as school teachers and personnel in health institutions. 16. recommendations  in yemen and other nations, commercial organizations and corporations must implement various and satisfactory green alternatives to meet consumers demands.  the importance of price-to-demand compatibility for green products, and so enterprises should research this relationship and implement appropriate pricing for green products.  place a high value on green products since they help to realize the notion of land development.  organizing programs, seminars, and conferences to emphasize the relevance of green goods in the context of environmental issues and natural resource concerns.  the need for businesses and organizations to make an effort to publicize environmental culture. through pricing processes, companies and business organizations must evaluate the predicted benefits of green products.  adoption is required of commercial groups and corporations.  companies and commercial groups must conduct magazines in order to promote green products.  national firms must establish plans to create environmentally friendly areas, often known as green places.  the government must keep track of green spaces and explain their value to customers.  raise yemeni people's understanding of green culture, particularly among students 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zaharia, i. and zaharia, c., (2015). the growth of environmentally sustainable consumerism. economics, management and financial markets, 10(2), p.115. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 37-41 37 role of environmental uncertainty in the effect of innovativeness and sustainability in supply chain on a company’s performance demet soylu istanbul commerce university figen yildirim istanbul commerce university received: june 09, 2022 accepted: september 05, 2022 published: december 01, 2022 abstract: the acceleration of industrialization in parallel with the increasing world population has facilitated humanity’s use of natural resources in an extravagant, uncontrolled and even ruthless manner. sustainability is a philosophy that aims to put an end to this tendency, ensure that these resources are used in a more controlled manner, and minimize, or if possible, eliminate damage on the nature. it is essential for organizations, especially export companies, to determine the maturity levels in sustainable supply chain approach and make the necessary improvements in order to achieve competitive advantage. as a result of digitalization, enterprises, which establish the right partnership relationship management scenarios create competitive advantages for themselves. in this study, the importance of innovation even in an environment of uncertainty and the contribution of sustainable supply chain management on the exporter performance was analysed. the study is developed based on the question: “what is the role of environmental certainty or innovativeness in the relationship between sustainable supply chain management and the exporter company performance?” keywords: supply chain management, sustainability, exporter company performance, environmental uncertainity 1. introduction today, supply chain management is considered as the point where the most critical decisions of companies are taken. the supply chain, which also establishes the balance of power in the competition, and the relationship between the players in the chain, determines the management of the business. during literature review, company performances were reviewed in several scientific studies conducted so far, and they were subject to detailed analyses. in the majority of these studies, it was concluded that several factors such as entrepreneurial orientation (wales, parida, patel, 2013; alegre, chiva,2013), information technology (santhanam, hartono, 2003; chae, koh, prybutok, 2014) are important aspects that affect the performance of the companies analysed. when the studies of other authors specialized in the field of research on the consumption of resources, it is observed that there are many studies which address the effects of innovative skills on the success or failure of the organizations (strychalska et. al.., 2021). this study aims to make a different contribution to the literature in the context of combined effect of innovativeness and sustainability on the company performance. the popularization of the concept of innovation has not only affected the behaviours of the companies and the personnel, but also encourages the employees to embrace the organization, its culture and values, and adopting to business objectives. in the business world, where the severity of competition is far more intense than competition in nature, companies’ gaining a competitive advantage and their efforts to outrun the competitors has become as important as their corporate success in their field of activity. one of the most fundamental dynamics, which make this process more accessible and easier for companies is company’s ability to make use of its innovative capacity. innovativeness and innovation are concepts that directly contribute to company's ability to reach to new generations and carry out activities for many years. innovation is one of the most important driving factors of company’s economic demet soylu & figen yildirim 38 development. in order to grow, companies aim to produce new products with high added value. transforming the current products into new and more qualified products is quite significant for growth and becoming a company that has sustainable resources. the process is commonly known as innovation application.” the motivation of this study is to provide an academic discussion ground for addressing the effects of innovation on today's economic environment and conceptualize the innovative company phenomenon in the future. the process characterized as innovation is a key tool for companies to become more productive and more adaptable to changes. another point in which it serves a critical function is the fact that innovation is an indispensable aspect of companies’ strategies to gain competitive advantage. in an economy that is dominated by the competition between the companies, organizations make huge investments in innovation to outrun their rivals. adopting correct strategic decisions is a vital factor for implementing successful innovations. in this study, it has been analysed the innovation measurement in the light of innovation inputs and outputs, and focused on the areas, which are of maximum importance in turkish business sector. in addition to this, it has been investigated the innovation activities, direct effects of various types of innovation on the company performance and whether they have a contribution on the innovation concept. the study was based on quantitative research methods, one of the scientific research methods conducted to obtain accurate data. 2.literature review: one of the main objectives of the study is to understand supply chain management and present its development process with scientific methods. in the competitive environment, which is aggravated as a result of globalization, the companies aim to have more market shares. accordingly, activities such as demand and supply planning, material procurement, production and product planning, product maintenance service, inventory control, distribution, delivery and customer services, which were previously realized on company level, are now transferred to supply chain level for ensuring compliance with the increasing competition conditions (nunes et al., 2020). supply chain and the majority of this newly developing process involves the requirement of managing all these activities in a coordinated manner and maintaining control over them. another factor, which is as important as supply chain is sustainability. sustainability has become one of the most important aspects especially in recent years due to the environmental and social effects of economic activities. sustainability increases the number of uncertain parameters in the supply chain and accurate information cannot be provided about price, customer demand and other parameters due to the effect of various factors such as weather conditions, politics, natural disasters etc. therefore, it is important to take into consideration the uncertainty in this type of chains (rajeev et al., 2017). over the course of the study, it has been discovered the important areas of focus as it has been analysed the relationship between sustainability and supply chain. “sustainable supply chain” management, which involves both concepts, allows developing plans to improve the general performance of the whole supply chain in the long term. it allows the strategic integration of organizational objectives in economic, environmental and social aspects, and achieving these through systematic coordination within the organization. on the other hand, integration of strategic decisions with the concept of sustainability is important for achieving the sustainability level planned under dynamic conditions. structures with legal entity, organizations, companies, enterprises etc. must adopt to the changes taking place within their field of activity in order to achieve economic growth and competitive advantage in their development process. the role of innovation in supply chain processes has become more important for the acceleration of this adaptation. for this reason, it is essential that leaders of economic organizations / firms institutionalize innovation as a strategic principle in all organizational processes. innovation is a means of survival, growth and profitability in the organizational processes of companies. one of the prerequisites of a healthy and functional innovative process is to keep up with the innovations and the effort to find the “state of the art” in all instances. new perspectives must be developed for coming up with new and innovative ideas (sabahi & parast, 2020). today, manufacturing companies in different parts of the world confront several challenges such as the rapid development of technologies, changing market positions, continuous customer / user demand for top quality products and global competition. in the light of all this information, organizations use innovation strategy as a valuable tool in administrative science in order to achieve competitive advantage, increase company performance (camison & lopez, 2014) and profitability (damanpour & schneider, 2009) and having the ability to adopt to environmental dynamics. certain models must be developed for using this tool effectively. in organizational innovation processes, activities are analysed by using specific models. the first of these role of environmental uncertainty in the effect of innovativeness and sustainability in supply chain on a company’s performance 39 models is activity-phase models. organizational innovation consists of different phases according to the fundamental activities of the process. these phases are: 1) conducting research to find the root cause of the problem. 2) providing various innovative plans to solve the problem, 3) evaluation of innovative solutions and new plans, 4) selecting and initiating one or more than one solution. 5) confirming and setting as a routine. in addition to activity-phase models, another important model is reactive process models. according to this model, innovation if one of the fundamental tools to adopt to changing and turbulent environments. in other words, innovation is a reaction to the external stimulants to the company organization such as pressures from the competitors and changes. it takes place as an inevitable reaction to not only the external stimuli, but also pressures for revising and innovating the working methods and processes within the company’s organization. steps of this process are as follows: 1presence of individual motivations for creating new ideas in the organization, 2conceptualization of an idea for innovation, 3presenting a development plan and 4accepting the innovation. innovation process in this model is divided into phases, which are based on the stimuli. another important model is the decision-phase model. these types of models are: 1collecting data to minimise uncertainties, 2evaluation of information, 3decision-making and 4determining the key factors and remaining uncertainties. 2. research and findings the first section of the study is focused on the conceptual framework, description of concepts in literature, and presenting the current discussions in the relevant fields. the final section of the study presents the scientific research analyses conducted within the scope of the study. conceptual model, as a reflective model, aims to analyse the current status in various industries in turkey, and determine the factors which affect the performance of supply chain. based on this, factors were determined and confirmed by using the confirmative factor analysis. following this, based on the data collected from the current conditions, the relations between the factors and research components were analysed in each field by means of structural equality model. the hypotheses adopted for the research method are: • h1a: innovativeness has a direct positive effect on environmental management applications. • h1b: innovativeness has a direct positive effect on operational applications. • h1c: innovativeness has a direct positive effect on supply chain integration. • h1d: innovativeness has a direct positive effect on socially inclusive applications for employees. • h1e: innovativeness has a direct positive effect on socially inclusive applications. • h2: innovativeness has a direct positive effect on company performance. • h3a: environmental management applications have a direct positive effect on company performance. • h3b: operational applications have a direct positive effect on company performance. • h3c: supply chain integration has a direct positive effect on company performance. • h3d: socially inclusive applications for the employees have a direct positive effect on company performance. • h3e: socially inclusive applications for communities have a direct positive effect on company performance. the study, hypothesis of which are determined, has, as mentioned above, has a quantitative approach as its research methodology. in accordance with the methodology of the study, a questionnaire, which consists of two sections and 46 questions, was developed. the first section measures the research variables. the second section addresses the demographic variables. likert scale is one of the most commonly used scales for measuring the attitude consisting of a series of regular items (expressions) formulated in a specific order. likert scale was used for measuring the attitudes of respondents. these items represent the specific states of the measured phenomenon or variable with equal distance in value. the scales selected for this study are relative and 5-point likert scales. as is the case with all scientific research, data collection tools must have the required validity and reliability in order for the study to collect the relevant data, analyse data, test the hypothesis through analyses and finding answers to research questions. internal validity was applied to ensure reliability in this regard. internal validity is a type of validation used to examine the components of a measurement tool. internal validity of a measurement tool depends on the questions that constitute it. cronbach's alpha method was also used for testing the reliability of the questionnaire used in the research. demet soylu & figen yildirim 40 the questionnaire was implemented on a limited and qualified group as a population determined specifically and appropriate for the subject of the study. questionnaire data was analysed, and conclusions were made based on this analysis. all hypothesis were accepted except h3a,h3b,h3d. 94.1% of the participants of the questionnaire, which was conducted within the scope of the study, are male, and 5.9% or female. with regards to education status. 62% of participants hold bachelor's degree, 22% of them are high school graduates, and 16% of them hold master’s degree. 91.5% of the companies participating in the questionnaire were represented by top level managers, and 8.5% of them were represented by mid-level managers. with regards to the industry and production sectors, 35.1% of the companies are in manufacturing sector. 8.5% of them are in food sector, 8% of them are service companies, 1.3% of them are in agriculture, and 47% of them were in other sectors. significant amount of data was derived from a population of participants that show quite a wide range of diversity. other significant data related to the questionnaire are as follows: average life of the companies participating in the questionnaire is 30.4. 61.2% of the companies participating in the questionnaire have an annual revenue over 10 million tl, 19.4% of the companies have an annual revenue between 5-10 million tl, 14.2 of the companies have an annual revenue between 1-5 million tl, and 5.2% of the companies have an annual revenue below 1 million tl. 66.4% of the questionnaire participants consider sustainability as equal to showing due diligence for financial, environmental aspects and the future generations, and meeting the needs of the future. 30.2% of the participants consider sustainability in relation with the ecologic and social processes, and 3.4% of the participants have other views on sustainability. in the analysis of the answers given by the respondents, it was observed that 13.7% of the participants consider the performance of the company as equal to demands of the major shareholders and operational capacity. 28.4% of the participants consider the performance of the company as equal to the efficiency of the organization. according to 16% of the participants, performance of the company depends on how the company makes use of the environment for having access to and using the limited resources. according to 40.8% of the participants, performance of the company depends on efficiency, flexibility and adaptability. 1% of participants have different views on the performance of the company. significant data was also collected for evaluating the contribution of planning and strategy on the process as an important factor for measuring and analysis purposes. 33.1% of the participants of the questionnaire, as the majority, consider the planning and strategy as the key process of supply chain. on the other hand, 19.4% of the participants consider the purchasing process, 16.5% of participants consider the production process, 12.1% the inventory management, 1% stock, 1.8% the distribution and delivery management, 10.9% of them the order management, and 5.2% of the participants consider other processes as the fundamental supply chain process. 4. conclusion: conclusions were reached with specific analyses by using the answers to other questions in the main text of the study. this study, above all, shows the fundamental role of innovativeness in adopting the supply chains. it is more probable that producers will be more effective in integration process in their continuous effort to discover and grasp the innovative ideas. as far as the components of innovativeness in the context of supply chain are concerned, discovering new ideas and roads, creative methods of supply chain operations, introducing new ways of providing service to supply chain, introducing new processes in supply management will carry companies to higher levels. as companies design plans to improve the performance of the supply chain for a sustainable supply chain, they must acknowledge the roles of the supply chain integration activities and applications. supply chain visibility, as a critical factor that affects the performance of the companies, can be improved through close integration with supply chain partners by making use of cutting-edge technology information systems to provide guidance especially to the partners on how inventory visibility can be increased. sustainability is quite important for the future and production wealth of supply chain companies. another behavioural model that can be adopted by the companies in order to achieve this sustainability, is to grant their managers with the authority to promote supply chain improvement applications. also, to maintain their sustainable supply management, the companies must establish an innovative culture and learning patterns that encourage new ideas and interest in new technology to the benefit of its managers, employees, stakeholders for providing new information and opportunities. role of environmental uncertainty in the effect of innovativeness and sustainability in supply chain on a company’s performance 41 in order to shed light on future research, it is important to advise that academic contribution will increase if the research is applied in different sectors. for future research, it is recommended to broaden the scope by collecting data from all partners of the supply chain and analyze the company's innovation and their impact on performance. this study provides the research methods for the future. for instance, analysis on how the cooperation between companies can revitalize their innovative profiles as they carry out innovative actions, will establish a promising line of research. references alegre, j., & chiva, r. (2013). linking entrepreneurial orientation and firm performance: the role of organizational learning capability and innovation performance. journal of small business management, 51(4), 491-507. büschgens, t., bausch, a., balkin, d.b. (2013). organizational culture and innovation: a meta-analytic review. journal of product innovation management, 30(4), 763-781. chae, h. c., koh, c. e., & prybutok, v. r. (2014). information technology capability and firm performance: contradictory findings and their possible causes. mis quarterly, 38(1), 305-326. camison c., villar-lopez, a. (2014). organizational innovation as an enabler of technological innovation capabilities and firm performance. journal of business research, 67: 2891–2902. damanpour, f., & schneider, m. (2009). characteristics of innovation and innovation adoption in public organizations: assessing the role of managers. journal of public administration research and theory, 19(3), 495522. guo, z. f., & cao, l. (2012). an analysis of the degree of diversification and firm performance. international journal of business & finance research, 6(2), 53-58. nunes, l. j. r., causer, t. p., & ciolkosz, d. (2020). biomass for energy: a review on supply chain management models. renewable and sustainable energy reviews, 120, 109658. rajeev, a., pati, r. k., padhi, s. s., & govindan, k. (2017). evolution of sustainability in supply chain management: a literature review. journal of cleaner production, 162, 299-314. santhanam, r., & hartono, e. (2003). issues in linking information technology capability to firm performance. mis quarterly, 125-153. sabahi, s., & parast, m. m. (2020). firm innovation and supply chain resilience: a dynamic capability perspective. international journal of logistics research and applications, 23(3), 254-269. strychalska-rudzewicz, a., & rudzewicz, a. (2021). the impact of organizational innovativeness on firm performance in poland: the moderating role of innovation culture. european research studies, 24, 130-148. wales, w. j., parida, v., & patel, p. c. (2013). too much of a good thing? absorptive capacity, firm performance, and the moderating role of entrepreneurial orientation. strategic management journal, 34(5), 622-633. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 15-20 15 virtual general assembly meetings in joint stock companies with foreign capital ebru şensöz malkoç i̇stanbul ticaret university, turkey zehra badak i̇stanbul ticaret university, turkey received: june 07, 2022 accepted: august 07, 2022 published: december 01, 2022 abstract: the possibility of holding general assemblies in electronic environment, which has been included in the tcc (2012), and the restriction of physical travel opportunities of individuals during the pandemic process, and the electronic holding of general assemblies of turkish companies with foreign partners gained importance. with this study, it is aimed to discuss how virtual general assemblies can be held and how solutions can be produced for the problems that may be encountered in the framework of both the pandemic measures and the current tcc. keywords: virtual general assembly, joint stock companies, shareholder rights, general assembly jel codes: k20 1. introduction the primal platform where shareholders can exercise their managerial rights in joint stock companies is the general assembly. it will be very difficult for the shareholder who cannot attend the ordinary general assembly meeting once a year or extraordinarily for important decisions, to use their managerial rights in the partnership and to protect their rights arising from the partnership, especially their financial rights.therefore the possibility of holding general assemblies in electronic environment, which has been included in the turkish commercial code no. 6102 (tcc), especially for turkish companies with foreign partners gained importance. the importance of such facilities prove themselves with the restriction of physical travel opportunities of individuals during the pandemic process. within the scope of this study, it has been examined whether invited, uninvited, ordinary or extraordinary general assemblies can be held electronically. in this respect, it is observed that electronic general assembly bears many advantages such as cross-border voting, instant notification, electronic proxy, electronic voting order, simultaneous voting, instant access to voting results, access to foreign investors, cost reduction, transparency, security and confidentiality. however, these advantages also bring along some technical problems that require quick intervention. these problems may be encountered at all stages of the meeting, execution and conclusion of the general assembly, including voting, representation and participation of the shareholders, and may provoke questions regarding the invalidity of the general assembly or the decisions taken in the general assembly. and as a result, while trying to protect the shareholders, may cause them to suffer losses. 2. virtual general assembly 2.1. the concept “general assembly the general assembly (ga) is an obligatory body where the shareholders or their proxies declare their will, have information about the activities of the company and use their rights arising from the shareholder status (hamamcıoğlu,184). it is the decision body of the company, in which the shareholders come together and discuss and decide on a specific agenda upon a duly call. this organ is essential for shareholder democracy since it is the ebru şensöz malkoç & zehra badak 16 place, fundamental shareholder rights such as gaining information and participation in management will be exercised (pulaşlı 8 et al, tukur 14 et al). this is regulated under tcc art 360 by stating that the shareholders may exercise their corporational rights in ga. this is called as the right to attend to ga in the doctrine, and in order to facilitate this right to attend to ga, the shareholder can use a represantion, a proxy. 2.2. types of general assembly the gas can be classified according to their timing, invitation or gathering style. as per timing, it is grouped into two cathegories; ordinary (annual) / extra-ordinary gas (art. 409 tcc). ordinary gas are the compulsory gathering accroding to tcc, since it is the sole platform that the shareholder can exercises its managerial rights. however there is no specific sanction regulated under tcc if it is not held. therefore in practice, companies may prefer to hold these gas once in two or three years, to avert the expences. on the otherhand extra-ordinary gas are held whenever necessary. this necessity mainly derives from the conditions that require a ga decision (i.e. art 408/2 tcc). as per invitation, gas are divided into two groups as gas with invitation and without invitation (art.410 – 416 tcc). the ga should be invited to a meeting at least fifteen days prior to the meeting via an announcement on turkish trade registry gazette and company’s website accordingly to the articles of association. however, if all the shareholders representing 100% of the company’s capital are present, then they can hold a ga without an invitation. a new type of gas can be classified as gas as per gathering. according to this classification the meetings can be held in physical form, in which all the parties physically attend the meeting at the meeting vanue, or the meeting can be held virtually, in which the parties can attend the meeting through the means of internet and technology. it is observed that although some jurisdictions allow electronic/virtual attendance to a physical meeting, others allow the meeting to be held entirely virtually (hamamcıoğlu, 187 et al). 2.3. electronic general assembly at the end of the 20th century, as a result of globalization, capitals and companies became multinational through takeovers or partnerships. the investors spread around the globe affected the usage and application of shareholder rights (arı, 178). the solution mainly seem to be in "multi-media" over the internet (pulaşlı, 18). one of the ways to use technology seemed to be adaptaion of a way of online attendance to gas. therefore electronic gas are proposed. at this point it is important to explain there are scholars that beleives to differentitate online attendance to a physical ga with a completly virtual ga. by these scholars, the physical gas where rightholders can attend online are mainly called as electronic gas, and the latter as virtual gas (bahtiyar, 113 et al; arı, 191 et al; yayla, 42; işık 625 et al. also please refer to tukur 57 et al). according to tukur a virtual general assembly “is the meeting in which the shareholder or his representative, in other words, the right holder, can attend the general assembly meeting by using technical means, not physical” (tukur, 28). when the chronological development of electronic ga in turkey is observed it can be said that turkey is one of the first countries to require companies listed on its stock exchange (istanbul stock exchange, ise) to allow shareholders, custodians and intermediaries to participate and vote at general assemblies through an electronic platform. the main aim to introduce electronic platforms for gas is to eliminate the barriers of cross-border voting and complying with international standards (ararat/eroğlu, 2). furthermore, not only the listed companies but also unlisted commercial companies can implement virtual gas on an optional basis. this system is not only applicable for the general assembly, but also the board of directors can convene in this manner (gürpınar, 1101 et al). in an announcement of capital markets board (cmb) in 2019, it is stated that a preliminary agreement was signed between mkk and nasdaq omx on the sales and marketing of the electronic general assembly system to 18 developed and developing countries. in the announcement it is explained that “e-gks: electronic general assembly system” allows company shareholders to transact electronically without blocking their shares, to appoint representatives and give voting orders, to watch the general assembly live from anywhere with internet access, without physically attending the general assembly, thanks to image and sound transmission, to the agenda being discussed” system, which allows people to send their opinions and suggestions on the issue simultaneously, to cast their votes simultaneously with those who physically attend the meeting, and to receive information and notifications about all processes instantly (mkk, “nasdaq omx on the sales of the central registry agency electronic virtual general assembly meetings in joint stock companies with foreign capital 17 general assembly system abroad” agreed with”, (online) http://www.spk.gov.tr/duyuru/goster/20140926/0 , 08 may 2019). in other words, electronic gas can be defined as an information system in which both the preliminary preparation and the meeting can be carried out electronically (tukur, 110). in terms of the shareholder, it refers to a system where the shareholder can appoint representatives from anywhere with internet access, ask questions, express opinions, and vote electronically, simultaneously with other shareholders who attend the general assembly physically or electronically, without physically attending the general assembly (tukur, 111) (mkk, “electronic general assembly system applications”, (online) https://www.mkk.com.tr/tr/general-mektup/604, 05 august 2019; mkk, “electronic general assemblies to be held by joint stock companies listed on the ise”, (online) https://www.mkk.com.tr/popup/ genel-mektup-duyurulari/604-mkk-elektronikgenel-kurul-system -applications, 08 may 2019). with the enhancements of technology it is suggested that especially the cross-border voting opportunity, electronic voting, participation in person or by proxy, simultaneous voting and comment possibility will be possible (arı, 178; ergincan/karaağaçlı 104). in other words, any foreign investor, who is residing in another country will be able to attend the ga and pur questions forward to the board of directors just within the comfort of his residing office. in addition to those, the company may benefit from the instant notification (e-mkk information portal/sms/email/swift), access to the information and documentation from the e-mkk information portal, smart reports, instant access to vote results and simultaneous registration withrelevant registries possibilities (mkk, “incorporated shareholders general assemblies (electronic general assemblies)” (online), https://egk.mkk.com.tr/egkweb/assets/home/content/egks-sunum.pdf 14 may 2019) (c.eyüboğlu, 67 et al; turgut, 25 et al, hamamcıoğlu, 186; ergincan/karaağaçlı, 104). these enhancements will also result with an increasing interest and participation in the meeting, decrease of costs due to internet usage, opportunity to lure foreign investors, transparent qualification, security and privacy as well as a more efficient audition of the company for institutional shareholders. moreover, the electronic platform developed fort he electornic assemblies also provides an unified source for all company disclosures and functions as a central communication medium between the stakeholders and the company (ergincan/karaağaçlı, 104). since tcc does not require blocking the shares before attending a ga, one of the most critiszed barriers to proxy voting is removed (ararat/eroğlu, 3). on the otherhand, there are some disadvantages that have been discussed throughout the process. the foremost resistance is regarding the costs, since the technology should bear some specific standards according to the regulations. in addition to that, in turkey it is accepted by the doctrine with majority that the comanies should held both online and physical gas at the same time (bahtiyar/hamamcıoğlu). furthermore, if any technological problem occurs during voting or in the use of shareholder rights through egas, such conditions may increase the annulment of gas by courts (ararat/eroglu, 7). it is justifiably stated that considering the lengthy law suits in turkey, such judicial process could put companies at risk of being unable to function effectively (ararat/eroglu, 7). as a result, especially technical issues, issues with the instruction forms for the shareholders and problems related to the participation of the right holder are main concerns reagrding virtual gas (eyüboğlu, 76; turgut, 25; for a detailed review tukur 40 et al). 2.4. regulations in turkish legislation in turkish company law, there are various primary and secondary regulations as well as principles implementing the electronic meetings. it can be said that these regulations are finding their source in eu directive 11.07.2007 – 2007/36/eg on the exercise of certain rights of shareholders i̇n listed companies as well as german and swiss law. to name some of the major regulations and principles, tcc, capital markets law, corporate governance principles of capital markets can be listed as the governing rules. however, the application and procedure of the virtual gas are mainly regulated under regulation on attendance at general assembly meetings of joint stock companies by electronic means (official gazette no. 28395, 28.08.2012) and communiqué on electronic general meeting system applicable at general assembly meetings of joint stock companies (official gazette no. 28396, 29.08.2012) the main concern of the corporate governance principles is facilitating the exercise of shareholders’ statutory rights, and one fundamental way to do is enableing the shareholder to use their right to participate in the ga. the ii-17.1 ebru şensöz malkoç & zehra badak 18 communiqué on corporate governance (published in the official gazette dated 3 january 2014 and numbered 28871) requests companies to take precautions to facilititate the exercise of shareholders rights, and states that in order to promote the attendance of the shareholders, the general assembly meeting shall be conducted in a manner not to cause an inequality among the shareholders and to provide the attendance of the shareholders with minimum cost. for this purpose, the meeting shall be conducted at the place where the shareholders exist in nominal majority, provided that this matter is set forth in the articles of association. in addition to that, any actions that may complicate the use of voting rights must be avoided, and each shareholder should be given the opportunity to exercise his/her voting right, including cross border voting, in the most appropriate and convenient manner. in tcc art. 1527 / 5 (amended by code no. 6335) it is regulated that electronic participation and electronic voting in joint-stock companies shall bear the same legal consequences as physical participation and voting (hamamcıoğlu, 2016, 196). the conditions for the application of this article will be regulated by a regulation, and such regulation will include the aoa provision, that will be insterted within the aoas of the companies which opts for electronic ga.the application of virtual gas are compulsory for publicly listed joint stock companies (for the critisizm: arı, 190 et al.). it is stated by the scholars that according to this article, the company should held a physical meeting, and should enable shareholders to attend the meeting virtually (bahtiyar 120; özer 635. also to be considered; arı 193 et al; keser berber 63.). in art. 1528 tcc it is stated that any shareholder who wishes to participate in general meetings virtually must notify his/her e-mail address to the company in order to benefit from such opportunity. according to capital markets law no. 6362 , the participation in the electronic environment to the general assemblies of joint-stock corporations the shares of which are dematerialised shall be realised through the electronic environment provided by the cra (central registry agency / mkk) (art. 30). regulation on attendance at general assembly meetings of joint stock companies by electronic means (regulation on e-ga), introduces the procedural rules to allow shareholders, custodians and intermediaries to participate and vote at general shareholders meetings through an electronic platform. (ararat/eroğlu, 4). in additon to that, the regulation presents a compulsory provision for aoas of the joint stock companies (art 5). communiqué on electronic general meeting system applicable at general assembly meetings of joint stock companies (communiqué on e-gm) regulates establishment, operations, and technical issues regarding electronic general assembly meetings and principles and procedures on security criteria. (ararat/eroğlu, 1). under art. 6 of the communiqué right owner may convey maximum two opinions for each agenda item and each opinion is limited to maximum 600 characters. furthermore, voting related to each agenda item included at general meeting agenda shall be consecutively started by meeting chairman for right owners participating physically and electronically. sending votes electronically is limited to two minutes (art 7) (hamamcıoğlu, 196). under regulation on principles and procedures of general assembly meetings of joint stock companies and representatives of the ministry of customs and trade (regulation on ga) it is stated that the presence of a ministry representative is mandatory at all general meetings of companies whose incorporation and articles of association amendments of which are subject to ministerial permission and for all other companies at general meetings with an agenda item on capital increase or decrease, switching and exiting there from registered capital system, increasing registered capital ceiling or changing field of activity as well as merger, demerger, type change, general meetings of companies implementing system of participation in general meetings electronically, all general meetings held abroad and special board meetings of privileged shareholders held abroad. […] (art 32) (hamamcıoğlu, 195). 2.5. an overwiev of the procedure and application as can be understood from the above mentioned regulations the shareholder, who has the right to attend the ga of the company, may attend virtually in accordance with art. 1527 of the tcc. in accordance with the provisions of the regulation on e-ga, if a company wishes to provide online attendance option, it should establish an electronic general assembly system that will enable the right holders to participate in the general assembly meetings electronically, express their opinions, make suggestions and vote, or purchase services from the systems created for this purpose. the right owners should be able to exercise their rights through an electronic system established and supervised by mkk (the central securities depository institutiona subsidiary of settlement and custody bank and the ise, the electronic platform operated by central registry agency for capital market instruments (mkk) (tukur, 37 et al; hamamcıoğlu, 196). virtual general assembly meetings in joint stock companies with foreign capital 19 to summarize it can be said that, in order to held a virtual ga, there should be a regulation in the aoa, the company should have a website dedicated to the gas, the shareholder should request to attend the meeting in virtual form and should have an electronic signature and registered electronic mail. the company should make the invitation duely including the agenda and should inform the shareholders that they can attend the meeting virtually. in other words, it is crucial that the invitation to include the option for virtual attedance and explain the system in detail. the meeting and decision quorra will be the same as a physical meeting. the discussions and voting should be held in a way that enables both physical and virtual attendees to use their rights such as suggestions, declaring opinion and voting effective and in an equal way. and the ministry representative must be present during the meeting. after the metting, the list of attendees and the meeting minutes should be given to the ministry representative at in an environment suitable for the transportation and storage of electronic documents (regulation, art. 12). all documents created through the electronic general assembly system can be signed with secure e-signatures by the members of the meeting chairmanship, company executives and ministry representative, and these documents must be made available to the shareholders on the company's website (tukur 37 et al; turgut, 105 et al;hamamcıoğlu, 192 et al). 3. conclusion as a result of this study it is concluded that virtual general assemblies for ordinary general assemblies are a very useful method in terms of facilitating the use of the shareholder's right to attend and vote in the general assembly and the related rights. it has been understood that if the technical problems can be minimized, virtual general assemblies will be a method that can be preferred for all companies. references ararat, m./eroğlu, m. 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(2013). anonim ortaklık genel kurulları elektronik genel kurullar, xii levha yayınları, i̇stanbul. journal of international trade, logistics and law, vol. 1, num. 1, 2015, 1-7 the mediator role of logistic performance index: a comparative study vittorio d’aleo, (ph.d. student) università degli studi di messina abstract: logistics sector is recognized as one of most important element of an advanced economies. many studies tried to understand the relationship among the logistic sector and the prosperity of a country. we start to understand what is the meaning in the academic literature of logistic so as to better understand the logistic performance index (lpi), published by the world bank in 2007, 2010, 2012, 2014. this research through the use of explanatory linear regression model was aimed to analyze the mediator role of logistic performance index (lpi) on the relation between the global competitiveness index (gci) and gross domestic product (gdp) from 2007 to 2014 in europe (eu 28). keywords: logistic; lpi; gdp; growth; mediator effect 1. introduction: in 2015 a research of istanbul commerce university (civelek et al. 2015) demonstrate through the use of regression linear model how the logistics performance index (lpi) play a mediator role on the relation between global competitiveness index (gci) and gross domestic product (gdp). in that study (civelek et al. 2015) tested the mediator variable analysis method suggested by baron and kenny (1986) to a global model that covering 96 countries around world, they used world bank data and took lpi, gci and gdp data for the years 2007-2010-2012-2014. civelek, uca and cemberci demonstrated four point: logistic performance index (lpi) is positively influenced by global competitiveness index; gross domestic product (gdp) is positively influenced by logistic performance index (lpi); gross domestic product (gdp) is positively influenced by global competitiveness index (gci) and finally the logistic performance index (lpi) has a mediator effect on the relation between competitiveness index (cpi) and gross domestic product (gdp). the mediator model tries to identify and explain the process that underlines a relation between an independent variable and a dependent variable via the inclusion of a third explanatory variable. to establish the consistency of mediator model baron and kenny (1986) recommend three tests: first regressing the mediator on the independent variable; second, regressing the dependent variable on the independent variable and third regressing the dependent variable on both the independent variable and on the mediator. baron and kenny (1986) asserted that the evidence for mediation is strongest when there is an indirect effect but no direct effect, which they call “full mediation.” when there are both indirect and direct effects, they call it “partial mediation.” zhao et al. (2010) starting from baron and kenny study identify three patterns consistent with mediation and two with non mediation: complementary mediation: mediated effect (a # b) and direct effect (c) both exist and point at the same direction. callto:/2007-2010-2012-2014 2 vittorio d’aleo competitive mediation: mediated effect (a # b) and direct effect (c) both exist and point in opposite directions. indirect-only mediation: mediated effect (a # b) exists, but no direct effect. direct-only non mediation: direct effect (c) exists, but no indirect effect. no-effect non mediation: neither direct effect nor indirect effect exists. 2. conceptual framework in 2007 the world bank has developed a benchmarking tool, based on a index of six indicators, that measure and compare the logistics system performance in to 150 countries. the index allows a country to identify the strengths and weaknesses of its logistics system and partners too, and set actions to improve it. the countries able to effectively connect to logistics global network have easier access to the markets and this is a key factor for economic development. the index and the indicators are estimated according to a worldwide survey aimed to forwarders and express carriers. *model building by zhao, lynch and chen (2010) the mediator role of logistic performance index : a comparative study 3 the six indicators used by the world bank are:  customs transit efficiency from the border (speed, simplicity, predictability, formalities) by border control agencies, including customs.  infrastructure quality of trade and transport infrastructure (ports, railways, roads, information and communication technologies).  international shipments ease of arranging competitively priced shipments.  logistics competence logistics services competence and quality.  tracking & tracing ability track shipments the logistics performance index and its indicators have been constructed from information gathered in a world wide survey of the companies responsible for moving goods and facilitating trade around the world—the multinational freight forwarders and the main express carriers. it relies on the experience and knowledge of professionals (avis et al. 2007). the idea that the economic success of country depends on its international competitiveness took hold among business, political, and intellectual leaders in the late 1970s. the world economic forum which hosts the famous davos conferences began issuing its annual world competitiveness index in 1980, and the ranking became a major criteria to judge a national performance. the world economic forum’s annual global competitiveness report has studied and benchmarked the many factors underpinning national competitiveness. the global competitiveness report is comprehensive tool that measures the microeconomic and macroeconomic foundations of national competitiveness. they define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. this concept of competitiveness thus involves static and dynamic components are grouped into 12 pillars of competitiveness:  institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, labor market efficiency, goods market efficiency, financial market development, technological readiness, market size, innovation it is important to keep in mind that they are not independent: they tend to reinforce each other, and a weakness in one area often has a negative impact in others (world economic forum). the gdp concept has historically been used to measure human wellbeing and progress. gdp world bank data at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. it is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. the annual percentage growth rate of gdp at market prices based on constant local currency. aggregates are based on constant 2005 u.s. dollars. 3. research model main research question is to understand if the study “the mediator effect of logistics performance index on the relation between global competitiveness index and gross domestic product” (civelek, et al. 2015), taking into consideration 96 countries (we called it global model) it is replicable taking into consideration the 28 european country (eu 28), if exist a mediator effect of lpi on the relation between gci and gdp. 4 vittorio d’aleo figure1. shows the conceptual model regarding the relation between the tree variable, using the mediator effect model of baron and kenny (1986). consequently to make a proper comparison we accept the four assumptions derived from the research model (civelek et al. 2015) as show on table one. table 1. summary of hypothesis h1: logistics performance index is positively influenced by global competiveness index. h2: gross domestic product is positively influenced by logistics performance index. h3: gross domestic product is positively influenced by global competiveness index. h4: logistics performance index has mediator effect on the relation between global competiveness index and gross domestic product. primarily relation among three variables was observed by means of the calculation of pearson correlation coefficient. table 2 showed that the correlation relation among variables are powerful and statistically signaficant. 4. hierarchical regression model to test the mediator model, we can prove the existence of baron and kenny conditions: 1. change in the independent variable cause the mediator variable change. 2. change in the mediator variable cause the dependent variable to change. the mediator role of logistic performance index : a comparative study 5 3. when the mediator and the independent variables are included together, the influence of independent variable on dependent variable to decrease or completely disappear. the same hierarchical regression of global model is used: (a) lpi = β0 +β1 gci+ε (b) gdp = β0 +β1 lpi+ε (c) gdp = β0 +β1 gci+ε (c’)gdp = β0 +β1 gci+ β2 lpi+ε
 table 2. correlation coefficients the results of the regression analysis eu 28 are shown in the tables 3, 4 and 5. table 3. model summaries (eu 28) as shown in table 3., difference between r2 value of model (c) and r2 value of model (c’) was found as 0,154. 6 vittorio d’aleo table 4. anova tables ( eu 28) all the models are generally meaningful as shown in the table 4. coefficients of the models are as shown in table 5. table 5. coefficients (eu 28) the mediator role of logistic performance index : a comparative study 7 as shown in table 5, the change in the independent variable cause the mediator variable to change. the change in the mediator variable cause the dependent variable to change. after the mediator and the independent variables are included to the analysis together, the influence of independent variable on dependent variable to decrease. 5. conclusion: according to these results, all the hypothesis are accepted. therefore the mediator effect of logistics performance index on the relation between global competiveness index and gross domestic product is statistically significant. the mediator model proposed in the examined study (civelek et al.2015) operate with the observations used eu28 model. after the demonstration of the replicability of the work (civelek et al.2015) we can state that lpi is a good predictor of the gdp performance. this confirms that the improvement of logistics systems of a nation has a positive effect on a wealth. to assess fully this study i invite the researcher to a careful reading of the previous search (civelek et al.2015). according to baron and kenny (1986) model when there are both indirect and direct effects, there is “partial mediation.” according to zhao et al. (2010) exsist a complementary mediation: mediated effect (a # b) and direct effect (c) both exist and point at the same direction. the most important contribution of this study is to test the research (civelek et al 2015) replicability and the mediator model (baron, kenny). the main limitation of the research is only determining if the baron and kenny model working, without giving any explanation about the macroeconomic data results. references: arvis, j. f., mustra, m. a., panzer, j., ojala, l., & naula, t. (2007). connecting to compete: trade logistics in the global economy. world bank. washington, dc. http://www. worldbank. org/lpi. baron, reuben m. and david a. kenny (1986), “moderatormediator variables distinction in social psychological research: conceptual, strategic, and statistical considerations, “journal of personality and social psychology, 51 (6), 1173 -82 civelek, m. e., uca, n., & cemberci, m. (2015). the mediator effect of logistics performance index on the relation between global competitiveness index and gross domestic product. european scientific journal, 11(13). schwab, the global competitiveness report 2014-2015; world economic forum wto, 2007, ‘connecting to compete-trade logistics in the global economy, the logistics performance index and its indicators’, trade report, washington. wto, 2012, ‘connecting to compete-trade logistics in the global economy, the logistics performance index and its indicators’, trade report, washington.
 wto, 2014, ‘connecting to compete-trade logistics in the global economy, the logistics performance index and its indicators’, trade report, washington. zhao, x., lynch, j. g., & chen, q. (2010). reconsidering baron and kenny: myths and truths about mediation analysis. journal of consumer research, 37(2), 197-206. journal of international trade, logistics and law, vol. 2, num. 2, 2016, 81-95 analysis of trade relations of bosnia and herzegovina within cefta mirza kulenović, (ma) university college “ceps – center for business studies” kiseljak , bosnia and herzegovina abstract: as a member of cefta, bosnia and herzegovina is trading with other countries in accordance with the principles of this organization since 2007. the subject of this paper is to analyse the trade relations of b&h within the cefta countries in the period from 2013 2015. as an analysis tool used is a modified balassa rca index for analysing the competitiveness of industry in b&h in comparison to other member states. analysing the top 10 export tariffs in comparison with other cefta countries, individual results showed that b&h is competitive in major export industries (in all cases over 50% of the top 10 export products is competitive), but, on the other hand, b&h has recorded constant aggregate deficit compared to other countries. keywords: cefta, bosnia and herzegovina, modified rca index, trade relations, export jel classification: f14, f15, f36 1. introduction after a long time, bosnia and herzegovina (hereinafter: b&h), in some way, is at a crossroads of its development. first of all, on the 1st june of 2015, the agreement on stabilization and association with the european union entered into force, and on 11th december of 2015 the first meeting of the council for stabilisation and association between b&h and the european union was held. also, b&h adopted the reform agenda for b&h for the period from 2015 to 2018. after large oppositions, b&h has received a permit for exports of dairy products on the territory of the european union. everything stated represent a shift of b&h, both on the economic front as well as in terms of joining the european union; however, we set several important questions: what is the current situation with the export of bosnian companies? are b&h companies export competitive? is b&h, from an economic point of view, ready to join the european union? in this context, we want to analyse the export competitiveness of b&h, especially in relation to the member countries of cefta. it is important to present the export competitiveness of b&h, and see in what situation is b&h compared to cefta countries, where free trade regime is applied. one of the reasons we chose cefta is that other countries are a lot closer to b&h, in economic values, compared to other european countries. looking at gross domestic product per capita, we can notice that the differences are not excessive. according to the world bank , the highest gdp per capita in 2015 was in montenegro in the amount of $ 6,415. next follows serbia with $ 5,144, b&h with $ 4,198, albania with $ 3,965 and unmik with $ 3,553. the lowest gdp per capita has moldova with $ 1,843. it follows that all countries have roughly similar gdp per capita, where no country does not deviate to a large extent (except moldova). cefta (central european free trade agreement) was founded in 1992 by hungary, poland and former czechoslovakia. after four years, slovenia joined cefta (1996), and afterward romania (1997), bulgaria (1999), croatia (2003) and macedonia (2006) (zejnic-zeljkovic, 2011). after joining european union czech republic, 82 mirza kulenović hungary, poland, slovakia and slovenia withdrew from cefta joining the eu in january 2004. in 2006 rest of the countries in cefta, romania, bulgaria, croatia and macedonia, joined with b&h, serbia, albania, montenegro and moldavia negotiated changed and extended cefta named cefta 2006. cefta 2006 came into force in july 2007 (bjelic et al, 2013). the cefta 2006 is a comprehensive free trade agreement (fta) between the see countries. the markets are allowing fully liberalised trade aiming at supporting trade and investment among its members. the agreement augmented previous 32 bilateral ftas between the see countries (mojsovska-blazevski & petreski, 2010). since 2012, there are not many studies on this topic. as stated by petreski (2013, p.32), there are three main reasons for this case: “(1) the agreement is relatively new, now dating back only four years; (2) the cefta-2006 countries have less research capacity relative to the original cefta countries; and (3) the perception and possibly the evidence based on descriptive data is that these countries are oriented more toward trade relationships with the european union than toward trade relationships among themselves, due to their desire to join the european union, as has been envisaged with the saa process”. kurtovic et al. (2014) analyse the non-tariff barriers and their impact on trade flows within cefta 2006, and mojsoska blazevski and petreski (2013) analyse western balkan's trade with the eu and cefta 2006: evidence from macedonia. other research articles we were not able to found. therefore, the aim of this analysis is to present the competitiveness of bosnian industry compared to other member countries of cefta. with reference to the last 3 years, from 2013 2015, the total amount of b&h deficit in these trade relations is 2.352.445.000 bam. the question is, if the country cannot be competitive in this environment how it can be in the territory of the european union? our main hypothesis is: b&h has expressed comparative advantages in trade with other member countries of cefta? in this context, we will use the modified balassa rca index, sectorial-bilateral trade intensity ratios (sbtx) (seymen, 2009) in order to gain insight about the bilateral competition between two countries. this paper is structured as follows. in section 2 we present the literature review. in section 3 we will analyse trade relations in cefta in the period from 2013 2015, and in section 4 we will do an analysis of comparative advantage using the modified rca index. in the last section we will conclude this paper and make recommendations for further work. 2. literature review since the emergence of the economy economists are trying to find an answer to the question why countries trade with each other and what determines the structure of this trade. one of the pioneers in this area, adam smith (1776), in his "inquiry into the nature and causes of the wealth of nations" seeks to explain the principles and reasons for international trade. the next theory was given by david ricardo (1817) decades after smith when he presented his law of comparative advantage. commodity structure of international trade in the ricardo model is determined by differences in the relative labour productivity of individual products, expressed in differences in labour costs per unit of product (brkić, balić, 2014). comparative advantage in certain product will have a country whose ratio of unit production costs is lower than in other countries, which will result in a complete specialization. in ricardo model country will produce and export products in which it has a comparative advantage, and import other products it needs. the neoclassical theory of international trade accepted ricardo's law in its original form. the original form of the law is based on the differences in the relative costs of products, resulting from the difference in the relative supply of factors of production countries or differences in the efficiency of these factors. analysis of trade relations of bosnia and herzegovina within cefta 83 in the modern theory of international trade the law of comparative advantage is reformulated, and is based on the differences in relative prices, rather than differences in the relative costs. the differences in relative prices may occur due to differences on the supply side (cost terms), due to the difference in terms of demand or due to a combination of these two elements (kenen, 1994:38.) the main problem occurred and consisted in immeasurability of relative prices in the pre-trade position. the solving problem was the index of comparative advantage. the first index of comparative advantage was presented by liesner (1958) and operationalized by balassa, the concept of the so-called "discovered” comparative advantage (revealed comparative advantages – rca). balassa was trying to determine whether a country has distinct comparative advantage, not pretending to set up their sources. rca index is presented as the ratio of the share of exports of specific products / industries that country in total world exports of that product / industry according to the share of total exports of the country concerned in the total world exports (balassa & noland, 1989): rca = (xij/xj)/(xiw/xw) where x stands for exports, i, j and w refer to industry (product category), country and world respectively. (erkan & sarıçoban, 2014). the values of rca can be equal to 1, greater than 1 or less than 1. in the first case (=1), no specialization or no disadvantage when the country’s exports structure reflects the exact structure of global trade, in second (>1) the country has a comparative advantage in the concerned product and in the third one (<1) he country has a comparative disadvantage in the concerned product (bojnec and ferto, 2014). to this day, the index of comparative advantage has seen many modifications, depending on the mode of observing countries, so it can be observed on global level (vollrath, 1991), regional level or as a measurement of bilateral trade (dimelis and gatsios, 1995). in order to closer explain trade relations between b&h and other countries of cefta in this paper will use bilateral rca index which shows sectors of observed countries relatively export the most in bilateral trade agreements with its trading partner (seymen, 2009). the index is represented by the following formula: where: xijk exports of country i to country j in the industry group k; xijt total exports of country i to country j; xikt total exports of country i in industry group k xit total exports of the country. the share of a country’s exports in a certain industry group in total exports of that country is compared to the share of the country’s exports of the relevant industry in its total exports. in the case that sbtx index is greater than 1, this leads to the conclusion that the country in question intensifies the trade of the relevant industry group within the bilateral trade with the trading partner (seymen and gumustekin, 2012). 3. data and methodology for evaluating comparative advantages of an industry we will use sbtx index introduced by seymen (2009). for the purposes of this study "sector" means a group of products in the two-digit level of aggregation by hs classification or "head" customs tariff . for the analysis of comparative advantage of b&h will analyse the 10 leading export 84 mirza kulenović tariffs in comparison to other country members of cefta. all the data was collected from the website of foreign trade chamber of b&h and calculated by author 4. analysis of trade relations of b&h in cefta in the period 2013 -2015 as noted previously, b&h became a member of cefta in 2007. after romania and bulgaria left cefta in 2007 and croatia in 2013, remaining cefta members were the following countries: b&h, serbia, montenegro, albania, macedonia, moldova, and kosovo (at first as part of serbia, later as unmik). in total export of b&h in 2015, the export to cefta countries was around 15.5% of total exports, which declined compared to 2014. b&h mostly trades with eu countries, and according to data from the last year the volume was 69.5% of total exports, and followed by trade with cefta countries in the amount of 15.4% (table 1). table 1. total volume, export and import of b&h 2014 2015 volume import export volume import export eu 68,2% 66,1% 71,9% 69,5% 68,5% 71,2% cefta 14,9% 14,3% 16,1% 15,4% 15,4% 15,5% efta 5,0% 6,8% 1,9% 3,8% 5,0% 1,8% other 11,8% 12,8% 10,1% 11,3% 11,1% 11,6% source: obtained by authors by using data from http://komorabih.ba/vanjskotrgovinska in the context of the analysis of the trade relations with the cefta member countries, b&h has a constant negative overall balance (table 2). if we take into account the aggregate balance for the past 3 years, we will see that b&h has a negative balance in the amount of over 2 billion. (table 3). table 2. trade relations of b&h with cefta countries in the period from 2013 2015 (in 000 bam) country moldova albania unmik macedonia montenegro serbia import 1.665 6.404 8.729 152.466 48.202 1.799.815 2013 export 3.001 47.980 160.729 102.278 290.263 814.472 volume 4.666 54.384 169.458 254.744 338.465 2.614.287 balance 1.336 41.576 151.999 -50.187 242.062 -985.343 import 1.716 7.152 7.913 147.424 80.263 2.007.101 2014 export 3.062 50.722 124.157 103.310 310.762 849.846 volume 4.778 57.874 132.070 250.734 391.024 2.856.948 balance 1.346 43.570 116.243 -44.113 230.499 -1.157.255 import 1.821 11.978 14.681 148.460 62.091 2.133.816 2015 export 2.900 47.001 150.913 125.157 286.586 816.113 volume 4.721 58.980 165.595 273.617 348.676 2.949.928 balance 1.079 35.023 136.232 -23.303 224.495 -1.317.703 source: obtained by authors by using data from http://komorabih.ba/vanjskotrgovinska -razmjena analysis of trade relations of bosnia and herzegovina within cefta 85 according to table 2 we can see that the largest volume of trade b&h has with serbia, however, the balance is also consistently negative in the previous three years. constant positive balance b&h has with montenegro, unmik and albania, macedonia with negative or declining, while trade with moldova is negligible. as shown in table 3, the overall positive balance achieved with 3 countries in the end is cancelled in trade relations with serbia. table 3 shows the average value of coverage of import to export in the past 3 years. table 3. trade relations of b&h with cefta countries in the period from 2013 2015 (in 000 bam) collective balance total for the period from 2013 to 2015 country import export volume balance coverage serbia 5.940.732 2.480.431 8.421.163 -3.460.301 41,93% montenegro 190.556 887.611 1.078.167 697.055 483,67% macedonia 448.350 330.745 779.095 -117.605 73,83% unmik 31.323 435.799 467.122 404.476 1479,37% albania 25.534 145.703 171.237 120.169 616,93% moldova 5.202 8.963 14.165 3.761 172,60% source: obtained by authors by using data from http://komorabih.ba/vanjskotrgovinska -razmjena according to table 3, b&h has a more than positive balance compared with montenegro, albania and kosovo, and the coverage rate well above 100% on average in the previous three years. export-import ratio in relations with serbia and macedonia is below 100%, and coverage in the average amount in the previous three years is 41.93% and 73.83%. also, b&h has coverage of over 100% in the average amount o f the last three years with moldova. however, when we look at the absolute value, the total positive balance in relations with the four countries where coverage is over 100% is 1.225.461.000 bam, while only with serbia; b&h has a negative balance in the last three years totalling 3.460.301.000 bam. if we add the negative balance in relation to macedonia, we come to the amount of -2.352.445.000 bam in the last three years. if we look according to sectors (according to the customs tariff of b&h), b&h has e xported a total of 30 different tariffs in 2015, according to customs tariffs in cefta countries. the most exported products are under tariff no. 27 mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes a percentage of 32,92%, then tariff no. 72 iron and steel in amount of 20,18%, tariff no. 44– wood and wood products; charcoal with 7,75%. the values of all other tariffs are below 5%. (see appendix 1) as far as the total imports in 2015, b&h has imported products that fall under 37 different tariffs. in percentage values b&h has mostly imported products under tariff no. 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates in the amount of 25,38%, then under tariff no. 17 sugars and sugar products in the amount of 24,75%, tariff no. 19 cereal based products, flour, starch or milk; confectionery (16,78%) and tariff no. 15 fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; animal or vegetable waxes (11,30%). all other rates do not exceed the value over 3%. (see appendix 2) 5. an analysis of comparative advantage using the modified rca index 86 mirza kulenović in the analysis of comparative advantages, we will use data from 10 leading exporting tarif fs into countries of cefta for 2015. in this context, we will explain the analysis for each country. 5.1.albania as far as trade relations between b&h and albania, we can see that b&h has achieved a surplus in trade with albania in the last three years in the amount of 120.169.000 bam. the top ten export tariffs in albania for 2015 are as follows: 72 – iron and steel, 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, 44 – wood and wood products; charcoal, 24 – tobacco and manufactured tobacco substitutes, 21 – miscellaneous food products, 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere, 66 – umbrellas, sun umbrellas, walking sticks, whips and their parts, 48 – paper and paperboard; articles of paper pulp, paper or paperboard, 19 – cereal based products, flour, starch or milk; confectionery and 64 – footwear, gaiters and the like; parts of such articles. the total of these 10 export tariffs represent 86% of total exports to albania in 2015. using sbtx index in table 4 are presented the results in comparison with albania. table 4. sbtx index for 10 leading tariffs in comparison with albania in 2015 sbtx for 72 – iron and steel 4,50 sbtx for 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 2,80 sbtx for 44 wood and wood products; charcoal 2,43 sbtx for 24 – tobacco and manufactured tobacco substitutes 20,48 sbtx for 21 – miscellaneous food products 12,02 sbtx for 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere 5,24 sbtx for 66 – umbrellas, sun umbrellas, walking sticks, whips and their parts 23,13 sbtx for 48 – paper and paperboard; articles of paper pulp, paper or paperboard 1,06 sbtx for 19 – cereal based products, flour, starch or milk; confectionery 3,20 sbtx for 64 – footwear, gaiters and the like; parts of such articles 0,26 source: author’s calculation according to table 4 b&h has the index greater than 1 in 9 of the 10 products. the greatest competitive advantage has in export tariff no. 66 umbrellas, sun umbrellas, walking sticks, whips and their parts, then 24 – tobacco and manufactured tobacco substitutes. index is less than 1 per tariff no. 64 – footwear, gaiters and the like; parts of such articles, and minimal advantage in export tariff no. 48 – paper and paperboard; articles of paper pulp, paper or paperboard. 5.2. serbia the largest volume of trade b&h is in relations with serbia, however, this relationship is in the last three years consistently negative with total over 3 billion. analysis of trade relations of bosnia and herzegovina within cefta 87 the top ten export tariffs in serbia for 2015 are as follows: 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, 72 – iron and steel, 44 – wood and wood products; charcoal, 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof, 76 – aluminium and aluminium products, 48 – paper and paperboard; articles of paper pulp, paper or paperboard, 39 – plastic masses and plastic products, 30 – pharmaceutical products, 08 – edible fruit and nuts; peel of citrus fruits or melons, 73 – products of iron and steel. these tariffs account for 70% of total exports to serbia. table 5. sbtx index for 10 leading tariffs in comparison with serbia in 2015 sbtx for 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 4,15 sbtx for 72 – iron and steel 2,27 sbtx for 44 – wood and wood products; charcoal 0,96 sbtx for 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 0,54 sbtx for 73 – products of iron and steel 0,60 sbtx for 48 – paper and paperboard; articles of paper pulp, paper or paperboard 1,29 sbtx for 76 – aluminium and aluminium products 0,50 sbtx for 30 – pharmaceutical products 2,42 sbtx for 39 – plastic masses and plastic products 0,98 sbtx for 08 – edible fruit and nuts; peel of citrus fruits or melons 2,45 source: author’s calculation according to table 5 b&h has a comparative advantage in 5 of the 10 top exported products. the greatest comparative advantage is in exporting tariff no. 27– mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, (4,15) while the lowest comparative advantage in export of tariff no. 84– nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof (0,54). 5.3. montenegro b&h has a positive trade balance in comparison with montenegro in the last 3 years, and b&h has achieved the second largest amount of volume (1.078.167.000 bam). the top ten export tariffs in montenegro for 2015 are as follows: 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, 28 – inorganic chemicals; organic and inorganic compounds of precious metals, rare earth metals, radioactive elements and isotopes, 72 – iron and steel, 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere, 76 – aluminium and aluminium products, 73 – products of iron and steel, 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof, 64 – footwear, gaiters and the like; parts of such articles, 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles, 39 – plastic masses and plastic products. these tariffs account for 68% of total exports to montenegro. 88 mirza kulenović table 6. sbtx index for 10 leading tariffs in comparison with montenegro in 2015 sbtx for 28 – inorganic chemicals; organic and inorganic compounds of precious metals, rare earth metals, radioactive elements and isotopes 2,32 sbtx for 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 1,90 sbtx for 72 – iron and steel 2,01 sbtx for 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere 10,29 sbtx for 73 – products of iron and steel 1,53 sbtx for 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 0,43 sbtx for 39 – plastic masses and plastic products 0,89 sbtx for 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles 0,56 sbtx for 76 – aluminium and aluminium products 1,12 sbtx for 64 – footwear, gaiters and the like; parts of such articles 0,40 source: author’s calculation compared with montenegro in 6 of the 10 tariffs b&h has a competitive advantage, and the biggest in the tariff no. 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere (10,29). in other tariffs b&h has the advantage, but it is not expressed, it is little above 1. in 4 of 10 tariffs b&h does not have a competitive advantage, and the lowest index is for tariff no. 64 – footwear, gaiters and the like; parts of such articles (0,40). 5.4. unmik with unmik or the republic of kosovo, b&h has a positive trade balance in the last three years; how ever, the amount is not too large, although higher than in relations with albania and moldova (467.122.000 bam). the top ten export tariffs in unmik for 2015 are as follows: 72 – iron and steel, 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates, 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere, 44 – wood and wood products; charcoal, 30 – pharmaceutical products, 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles, 15 – fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; animal or vegetable waxes, 24 – tobacco and manufactured tobacco substitutes, 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof, 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes and these tariffs account for 80% of total exports in unmik. analysis of trade relations of bosnia and herzegovina within cefta 89 table 7. sbtx index for 10 leading tariffs in comparison with unmik in 2015 sbtx for 72 – iron and steel 7,16 sbtx for 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 0,34 sbtx for 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates 16,15 sbtx for 44 – wood and wood products; charcoal 0,64 sbtx for 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere 9,67 sbtx for 30 – pharmaceutical products 3,45 sbtx for 15 – fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; animal or vegetable waxes 2,16 sbtx for 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles 0,77 sbtx for 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 0,46 sbtx for 24 – tobacco and manufactured tobacco substitutes 10,08 source: author’s calculation compared to unmik, b&h has a competitive advantage in 6 of the 10 leading tariffs exported to this country in 2015. it should be noted that in most of these tariffs, b&h has a strong competitive advantage (in 4 of the 6 has an index greater than 7). the highest index b&h has in the tariff no. 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates. b&h has a competitive disadvantage in 4 of the 10 leading export tariffs in unmik in 2015, and the lowest index is for tariff no. 27– mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes (0,34). 5.5. macedonia in trade relations with macedonia, b&h in the last 3 years has the third largest amount of trade (779.095.000 km), however, the final sum is negative for b&h (-117.605.000 bam). the top ten export tariffs in macedonia for 2015 are as follows: 72 – iron and steel, 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere, 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates, 17 – sugars and sugar products, 44 – wood and wood products; charcoal, 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof, 18 – cocoa and cocoa products, 48 – paper and paperboard; articles of paper pulp, paper or paperboard, 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles and tariffs account for 68% of total exports in macedonia. 90 mirza kulenović table 8. sbtx index for 10 leading tariffs in comparison with macedonia in 2015 sbtx for 72 – iron and steel 2,16 sbtx for 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere 16,70 sbtx for 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates 18,23 sbtx for 17 – sugars and sugar products 19,13 sbtx for 44 – wood and wood products; charcoal 1,16 sbtx for 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 0,52 sbtx for 18 – cocoa and cocoa products 12,47 sbtx for 48 – paper and paperboard; articles of paper pulp, paper or paperboard 1,54 sbtx for 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 0,47 sbtx for 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles 0,65 source: author’s calculation in trade relations with macedonia, b&h has a competitive advantage in 7 of the 10 export tariffs, and in 4 of the 10 has an index of over 12. the largest is for the tariff no. 17 – sugars and sugar products in amount of 19,13. as for the comparative disadvantages, b&h does not have a comparative advantage in 3 of the 10 export products, and the lowest index is for tariff no. 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes (0,47). 5.6. moldova as far as trade between b&h and moldova, it should be noted that the volume of trade is extremely small, i.e. 0.12% of the total volume of trade with the cefta. we consider that analysing comparative advantage with moldova we could get results that will send the wrong conclusions, and all for the reason of very little amount of export or import with this country. according to previously made analysis, state of comparative advantage of b & h in relation to the other member countries cefta is as follows: b&h has a comparative advantage in 9 out of 10 leading export tariffs in albania, 5 out of 10 in serbia, 6 out of 10 in montenegro and unmik and 7 out of 10 in macedonia. in this case, we can confirm the hypothesis that b&h is competitive compared to other member countries of cefta, because according to every country 50% of the tariffs (total 10) of b&h have an advantage over the analysed country. 6. conclusion in this paper we have tried to as concise and detailed introduce trading relationship of b&h and other member countries of cefta. as previously mentioned, b&h is a member of cefta since 2007, however, we have followed the trading relationship in the past 3 years (2013 -2015) because we believe that this analysis is extremely important for analysing relations with the countries economically similar to b&h. the main question was whether b&h competitive compared to other member countries of cefta. final results are twofold: b&h, according to an analysis of the top 10 export products in other member states for the most part has a majority competitive analysis of trade relations of bosnia and herzegovina within cefta 91 advantage in these products; however, the aggregate balance of relations with cefta countries is negative and over 2 billion. it should be noted that this amount comes from the majority of relations with serbia, with which in the past 3 years, b&h has a negative balance in the amount of over $ 3 billion, and with macedonia, which is about 100 million. in relations to other countries b&h achieved a positive balance of trade relation; however, the sheer volume of trade is still quite small. finally, with moldova, trade volume is very small (0.12%) and there should be a lot of work on this issue. we consider that this analysis can help policy-makers of the future to see the actual situation of exports of b&h, because if we cannot be competitive and achieve a positive balance in relation to cefta countries (realistically economically weaker in relation to the eu), what can we expect from the future joining the european union. according to the author, b&h certainly should raise the ratio of trade with countries with which they have a majority competitive advantage, and try to stabilize the relationship with serbia in the context of reducing the overall balance of trade. references balassa, b. & noland, m. 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(1991), a theoretical evaluation of alternative trade intensity measures of revealed comparative advantage, weltwirtschaftliches archiv, 130, 265-79. zenic-zeljkovic, j. (2011), influence of the cefta 2006 agreement on serbian trade of industrial goods in the region: conditions, issues and prospects, cefta 2006–challenges and opportunities, collection of essays, isac fond, belgrade. appendix 1 bosnia and herzegovina total export in cefta countries in 2015, according to customs tariffs of b&h tariff total value (in bam) percent (%) 04 – milk and other dairy products; poultry eggs; birds' eggs; natural honey; edible products of animal origin, not specified or included elsewhere 162.289.980 5,18 08 – edible fruit and nuts; peel of citrus fruits or melons 22.379.303 0,71 15 – fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; animal or vegetable waxes 11.089.399 0,35 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates 68.653.577 2,19 17 – sugars and sugar products 48.662.925 1,55 18 – cocoa and cocoa products 7.877.506 0,25 19 – cereal based products, flour, starch or milk; confectionery 4.675.498 0,15 21 – miscellaneous food products 6.236.323 0,20 24 – tobacco and manufactured tobacco substitutes 24.708.663 0,79 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 1.030.567.862 32,92 28 – inorganic chemicals; organic and inorganic compounds of precious metals, rare earth metals, radioactive elements and isotopes 109.636.474 3,50 29 – the organic chemical compounds 12 0,00 30 – pharmaceutical products 89.973.447 2,87 38 – miscellaneous chemical products 21 0,00 39 – plastic masses and plastic products 91.233.087 2,91 44 – wood and wood products; charcoal 242.553.756 7,75 48 – paper and paperboard; articles of paper pulp, paper or paperboard 97.956.486 3,13 49 – printed books, newspapers, pictures and other products of the printing industry, manuscripts, printed texts and maps 2.744 0,00 analysis of trade relations of bosnia and herzegovina within cefta 93 tariff total value (in bam) percent (%) 63 – other made-up textile products; sets; used clothing and used textile products; rags 5.645 0,00 64 – footwear, gaiters and the like; parts of such articles 8.826.673 0,28 66 – umbrellas, sun umbrellas, walking sticks, whips and their parts 1.626.751 0,05 72 – iron and steel 631.669.181 20,18 73 – products of iron and steel 141.967.499 4,54 76 – aluminium and aluminium products 102.993.446 3,29 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 153.336.188 4,90 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles 37.538.717 1,20 87 – vehicles, except rail vehicles and their parts and accessories 4.644 0,00 94 – furniture; mattress; products of bedding and similar products (mattresses, pillows, and similar stuffed furnishings); lamp and lighting fittings, not elsewhere specified or included elsewhere; illuminated signs, illuminated nameplates or the like; prefabricated buildings 16.003.179 0,51 96 – various products 4.038.278 0,13 98 – consignments 13.821.145 0,44 appendix 2 total import in bosnia and herzegovina from cefta countries in 2015, according to customs tariffs of b&h tariffs total value (in bam) percent (%) 01 – living animals 7.088.170 0,21 02 – meat and edible offal 9.071.924 0,26 03 – fish and crustaceans, molluscs and other aquatic invertebrates 551.025 0,02 07 – edible vegetables and certain roots and tubers 1.470.646 0,04 08 – edible fruit and nuts; peel of citrus fruits or melons 3.675.939 0,11 10 – cereals 489.480 0,01 12 – oil seeds and fruits; miscellaneous grains; seeds; industrial and medicinal plants; straw and fodder 334.744 0,01 15 – fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; animal or vegetable waxes 387.199.699 11,30 94 mirza kulenović tariffs total value (in bam) percent (%) 16 – preparations of meat, fish, crustaceans, molluscs or other aquatic invertebrates 869.239.125 25,38 17 – sugars and sugar products 847.793.776 24,75 18 – cocoa and cocoa products 213.068.517 6,22 19 – cereal based products, flour, starch or milk; confectionery 574.599.444 16,78 20 – vegetable products, fruit, nuts or other parts of plants 46.812.576 1,37 22 – beverages, spirits and vinegar 56.933.591 1,66 23 – residues and waste from the food industries; prepared animal fodder 1.492.436 0,04 24 – tobacco and manufactured tobacco substitutes 1.431.290 0,04 26 – ores, slag and ash 1.296.621 0,04 27 – mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes 52.891.855 1,54 30 – pharmaceutical products 5.747.470 0,17 32 – tanning or dyeing; tannins and their derivatives; dyes, pigments and other substances dyeing; paints and varnishes; putty and other mastics; printing, paint and ink 4.865.723 0,14 39 – plastic masses and plastic products 10.878.450 0,32 40 – rubber and rubber products 842.387 0,02 41 – raw hides and skins with the hair or no hair (except fur) and leather 1.630.645 0,05 44 – wood and wood products; charcoal 1.947.900 0,06 48 – paper and paperboard; articles of paper pulp, paper or paperboard 174.612 0,01 52 – cotton 151.888 0,00 62 – apparel and clothing accessories, not knitted or crocheted 2.966.036 0,09 64 – footwear, gaiters and the like; parts of such articles 75.583.156 2,21 70 – glass and glassware 55.936.489 1,63 72 – iron and steel 39.913.581 1,17 73 – products of iron and steel 88.537.428 2,58 76 – aluminium and aluminium products 49.625.030 1,45 79 – zinc and articles thereof 5.702.162 0,17 84 – nuclear reactors, boilers, machinery and mechanical appliances and devices; and parts thereof 4.608.893 0,13 analysis of trade relations of bosnia and herzegovina within cefta 95 tariffs total value (in bam) percent (%) 85 – electrical machinery and equipment and parts thereof; apparatus for recording or reproducing apparatus; television apparatus for recording or reproducing pictures and sound, and parts and accessories of such articles 529.619 0,02 87 – vehicles, except rail vehicles and their parts and accessories 19.517 0,00 94 – furniture; mattress; products of bedding and similar products (mattresses, pillows, and similar stuffed furnishings); lamp and lighting fittings, not elsewhere specified or included elsewhere; illuminated signs, illuminated nameplates or the like; prefabricated buildings 175 0,00 journal of international trade, logistics and law, vol. 8, num. 1, 2022, 121-132 121 impact of electricity consumption on ethiopian economic growth: an empirical analysis gelana damena development center, addis ababa, ethiopia leta sera jimma university, ethiopia negese tamirat malatu jimma university, ethiopia received: april 14, 2022 accepted: may 27, 2022 published: june 01, 2022 abstract: electricity consumption plays a vital role in achieving sustainable economic growth. this study attempts to investigate the impact of electricity consumption on ethiopian economic growth, time-series data was ranging from 1980 to 2018. the autoregressive distributed lag model (ardl) was developed for the data analysis. the results of ardl revealed that the economic growth was significantly affected by electricity consumption, energy consumption, foreign direct investment, and electricity price both in the long run and short run. while also affected by urbanization and government consumption in the long run. the speed of adjustment revealed that 60.12% of the short-run adjustment is made per year towards long-run equilibrium. water, mine, and energy office should give important attention to electricity wastage control and integrated monitoring strategies to electricity consumption which are crucial for improving ethiopian economic growth. the summary of electricity consumption by policymakers and plan designers could bring better improvement on economic growth. keywords: economic growth, electricity consumption, energy consumption, ethiopia, long-run equilibrium 1. introduction economic growth is a continuous rise in the real gross product over the years which are influenced by investment and urbanization. electricity is a key factor contributing an important role to economic stability. hence, inadequate supply of energy affects all aspects of economic and social development in less developed countries because growth and development in less developed countries have been focused on energy consumption. in ethiopia, unlike developed countries access to modern electricity services is an enormous challenge. particularly, the recent estimates suggest that above 60 million peoples is lack access to electricity. the production process requires a significant amount of energy which is expected to create a strong interaction between economic and energy policies to accelerate economic growth [1]. accelerate the economic growth of the country by thoroughly investing in the electricity sector as a pertinent option to achieve sustainable economic growth [2]. electricity plays a crucial role in the economic growth performance of the countries. ethiopian rapid economic growth demand for electricity has been steadily increasing. the main rationale behind the current investigation carried out in ethiopia is evidence of empirical analysis. hence, the existing empirical studies that have been highlighted and intensely discussed detail on the contribution of energy in economic growth [3]. the detail is on the very crucial role of energy consumption in accelerating economic development and redirected energy as a vital ingredient of sustainable economic growth. this indicated that the link between energy consumption and economic growth in ethiopia is still mixed in terms of causality and magnitude of the impact of electricity consumption on gelana damena & leta sera & negese tamirat malatu 122 economic growth. however, in ethiopia, there are some inconsistencies in the empirical result of energy consumption's impact on economic growth. time series analysis determining the order and fractional integration for the series carried out through particular unit root tests [4]. analysis of causal effect neglected to apply vigorous fmols estimation techniques to overcome the existence of estimation problem [5]. may previous empirical investigation with autoregressive distributed lag model subjected to the serious methodological problem [6]. their studies do not take into account for bias of omitted variables such as urbanization and foreign direct investment [7]. the study does not develop several potential factors behind energy consumption and economic growth technique. most of them were incompleteness of basic growth model and suffered from a short span of data 5 years on average which lowering power of the test. for certain sample sizes, the power is based on the period of the data and the power is greater when the span is large [8]. despite the great role of electricity consumption on economic growth has been ignored to some extent by most literature in ethiopia. still, a questionable issue that needs focus in ethiopia is how large the magnitude of the impact of electricity consumption is on economic growth. in lightening of this, the paper aims to test the impact of electricity consumption on the ethiopian economy and pinpointed co-integration between employed variables. therefore, the general objective of this study is to empirically investigate the impact of electricity consumption on ethiopian economic growth by employing time series data set for the periods ranging from 1980 to 2018. understanding the factors underlying electricity consumption is crucial in terms of achieving sustainable economic growth, alleviating poverty and food insecurity. there is a growing body of literature focusing on electricity consumption and its impact on economic growth [9 – 14]. as the studies conducted by [15 – 25], empirical outcomes evident electricity consumption has positive impacts on economic growth using a different variables like electricity consumption, cost of fuel or gas, foreign direct investment, urbanization, non–renewable energy, renewable and viable energy consumption, and oil energy. their findings advise that it is better to keep employment of new policies to progress of electricity consumption to attract more foreign investment and achieve rapid and sustainable economic growth. building on existing studies, we extend the analysis by considering a comprehensive set of gross domestic product growth. to this end, the current study was developed to investigate the effects of electricity consumption on ethiopia's economic growth. 2. materials and methods 2.1. types and sources of data time series data was developed for the study ranging from 1980/81 to 2018/19 time period. analysis of the study was depending on the availability and quality of secondary data. data like real growth domestic product, government consumption, and rate of inflation were collected from the national bank of ethiopia and the ministry of finance and economic cooperation. data on electricity consumption, energy consumption, electricity production, electricity customers, and electricity price were collected from ethiopian electricity sectors and the ministry of water resource, irrigation, and energy. foreign direct and domestic investment data was collected from the ethiopian investment commission and urbanization data from the ethiopian central statistical agency. the remaining data were collected from the international monetary fund, world development indicator, world bank group report, united nations conference for trade and development, international energy agency, and global economy websites. 2.2. model specification to achieve the objective of the study basic growth econometric model was developed. to examine the long-run and short-run relationship between electricity consumption and sustainable economic growth the multivariate framework was employed. among these multivariate frameworks, the cobb-douglas production function with constant returns to scale was the preferable one for this study. cobb-douglas production function can be expressed: y= aklβ..................................................................................................................................................... (1) where y is a real gdp, a is a factor of productivity technology, k is real capital and l is labor. the above-mentioned cobb-douglas production function (equation1) by including different determinant factors of electricity consumption such as technology, urbanization, foreign direct investment, domestic investment, aggregate impact of electricity consumption on ethiopian economic growth: an empirical analysis 123 energy consumption per capita, electricity production, government consumption, electricity customer, electricity price, rate of inflation and its impact on economic growth can be expressed: rgdp=aelconᵝ1urbaeᵝ2 fdiaeᵝ3diaeᵝ4encoᵝ5elproᵝ6 gconᵝ7 elcusᵝ8 elprᵝ9 infr ᵝ10 e......... (2) where rgdp is a real gross domestic product, a is technology, elcon is electricity consumption, urbae is urbanization, fdiae is foreign direct investment, diae is domestic investment, enco is aggregate energy consumption per capita, elpro is electricity production, gcon is government consumption, elcus is electricity customer, elpr is electricity price, infr is inflation and e is an error term assumed to normally and independently distributed as e ~ni (0, δ2) with zero mean and constant variance δ.2 finally, ᵝ1, ᵝ2, ᵝ3, ᵝ4, ᵝ5, ᵝ6, ᵝ47, ᵝ8, ᵝ9, ᵝ10 are returned to scale parameters of the econometrics model. to linearize the parameters cobb-douglas production function is transformed into log-linear form. the natural logarithm is important to study the association between real gross product and energy consumption to obtain efficient and consistent estimates. cobb-douglas production function in log-linear form is presented: lnrgdpt = lna+ᵝ1lnelcont+ᵝ2lnurbaet+ᵝ3lnfdiaet+ᵝ4lndiaet+ᵝ5lnencot +ᵝ6lnelprot+ ᵝ7lngcont +ᵝ8lnelcust+ᵝ9lnelprt+ᵝ10lninfrt + et.......................................................... (3) the above log linear function (equation 3) modified by including two indicator such as ptdumm and dtdumm can be expressed: lnrgdpt = βo + ᵝ1ln (elcon t) +ᵝ2(urbaet)+ᵝ3(grfdiaet)+ᵝ4(diaet)+ᵝ5(lnencot) +ᵝ6(lnelprot)+ ᵝ7(lngcont)+ᵝ8(lnelcust)+ᵝ9(lnelprt)+ᵝ10(infrt) +ᵝ11(dtdumm)+ ᵝ12(ptdumm) + et.........(4) where lnrgdpt is the natural logarithm of real gdp, lnelcon t is the natural logarithm of electricity consumption, lnurbaet is natural logarithm urbanization, grfdiaet is the growth rate of foreign direct investment, lndiaet is natural logarithm domestic investment, lnencot is the natural logarithm of energy consumption per capita, lnelprot is natural logarithm of electricity generation, lngcont is natural logarithm of government consumption, lnelcust is natural logarithm of electricity customer, lnelprt is natural logarithm of electricity price, lninfrt is natural logarithm of inflation, ptdumm is drought time indicator, dtdumm is a policy time indicator, βo – β12 is the coefficients as model parameters and et is an error term. drought time indicator (dtdumm) was negatively correlated with the economy, especially in developing countries. in ethiopia, drought affects economic growth, aggregate water resources, and electricity production. it contributes to diminishing electricity production capacity which is tangible in the current electricity utilization of the country. policy time indicator (ptdumm) was positively correlated with the economy. it is important to estimate short and long-run relationships between macro variables including time dummy of drastic policy change events. 2.3. method of data analysis time series data was developed for the study ranging from 1980/81 to 2018/19 time period. an econometric model such as the autoregressive distributive lags model was developed for the data analysis. autoregressive distributed lag (ardl) model is a dynamic distributed-lag model in which the effect of a regressor x on y occurs over some time rather than all at once and the model is developed for the means and variances are constant and not depending on time. the selected ardl (k) model long-run equation can be expressed: y𝑡 =∑ 𝛼 𝑘 𝑖=1 i x1t +∑ 𝛼 𝑘 𝑖=1 2x2t + ∑ 𝛼 𝑘 𝑖=1 3x3t +∑ 𝛼 𝑘 𝑖=1 4x4t +… ∑ 𝛼 𝑘 𝑖=1 nxnt+𝑣1𝑡; s (𝑋1𝑡, 𝑋2𝑡, 𝑋3𝑡…𝑋n𝑡) these are the explanatory variables is the number of optimum lag order. gelana damena & leta sera & negese tamirat malatu 124 unit root tests for sensitivity analysis, post model estimation diagnostic tests to check the stability of the parameters in the model, and structural tests for a known structural break and unknown point of the structural break were developed. data analysis was done with the latest version of gretl-2019c, r-studio of version 2019, and eviews-11. 3. results and discussion 3.1 descriptive analysis 3.1.1. modalities of electricity production and consumption in ethiopia figure 1 describes and represented the time series interaction for growth rate electricity consumption and electricity production over the study periods. hence there is a related trend seen between the two factors except at the starting years of the investigation there was 35.30% in the amount of consumed since 1980/81 with unmatched with power generated which recorded as 10.23% with the same year. the maximum rate of electricity production since 2012/13 was shown as maximum growth rate in generation capacity and with the same clarification, the power consumed was counted as 33.03% growth rate almost relatively with power produced which shown an increasing trend. from 2016/17 up to 2018/19, the amount of electricity consumption displayed a constant trend while the amount of production was raised from 9.93% to 19.84% growth rate the back declined to 9.95% to the end of the study periods with relatively declining trends as seen on the time series plot. country following the successful launch and rolling implementation of ethiopia’s first national electrification program in 2017, the government of ethiopia has achieved significant milestones in connecting 33% of its population with on-grid electrification and 11% with off-grid pre-electrification, with the combined achievement of 44% of electricity access. although substantial progress has been made in the sector, ethiopia’s electrification needs are still significant. more than half of ethiopia’s populations 56%-60% still do not have access to electricity. according to minister water resource and energy by 2025, ethiopia desires to attain middle-income country status, rural and urban electricity access is targeted to achieve 100%. achieving ethiopia’s development vision of transformative growth and widely shared prosperity requires the timely provision of adequate, affordable, and reliable electricity access to all. clean electricity access is an essential pillar of sustainable development, economic growth, and environmental development. figure 1: trends of electricity production and electricity consumption in ethiopia source: ethiopian electricity power production and power utility 2020 3.1.2. urbanization and economic growth in ethiopia ethiopia has one of the fastest-growing urban populations in the world with the number of people living in cities expected to nearly triple in the next two decades. this demographic dividend presents a real opportunity to change the structure and location of economic activity from rural agriculture to more diversified and much larger urban industrial and service sectors. for urbanization to contribute fully to economic growth and transformation it will have to be managed well. ethiopia already benefits from high rates of economic growth but among most other countries at similar levels of urbanization, it has the lowest gross national income. moreover, growth has been driven mainly by public investment and agriculture, and rapid urbanization has not been accompanied by the structural transformation of the economy. according to united nation development program (2018), ethiopia is still predominantly a rural country with only 20% of its population living in urban areas. but this is set to change dramatically in parallel with rapid urbanization. for example, addis ababa is ethiopia’s only city with municipal sewerage which serves only 10% of the population. solid waste management remains a challenge often dumped into -50 0 50 trends for electricty production and electrict consumption in ethiopia (1980-2019) elcongr elpro impact of electricity consumption on ethiopian economic growth: an empirical analysis 125 open areas, endangering public health. figure 2 based on the data obtained from the ethiopian central statistical agency indicated that the highest rate of urbanization was since 2004/05 was registered as 13.57% was followed the urbanization rate registered during 1996/97 was computed to be 13.53%. the lowest growth rate of urbanization during 1992/1993 was scored to be 21.00%. to sum up, the average total urbanization registered was 14.40 over the study period 1980/81 up 2018/19. the ethiopian context rate of urbanization is still said to be exhibited the constant trend exceptional for the previous years included in this study periods which was exhibited the declining. nd figure 2: trends economic growth a rate of urbanization in ethiopia 3.1.3. trends of inflation and economic growth in ethiopia according to classical theories, inflation occurs in an economy when the overall price level increases and the demand for goods and services increases. based on the keynesian theory’s inflation occurs when demand exceeds the potential output of the economy. currently, the word inflation is a major problem and the issue of more detention around the world. in the ethiopian context, from figure 3 the inflation was counted since the starting of this study period was 4.48% which is assumed to be related to the real gdp growth measured by $2010 later one year more since 1981/82 the inflation rate was increased to 6.13% reverse to real gdp growth which declined to 3.08% again after one year shown a decreasing trend up 1986/87 increasing rate. in general, when compared to the rises in inflation in ethiopia since 1991/92 and 2011/12 with the rate of 35.72% and 33.25% respectively the highest amount of inflation count during 2007/08 up to 2008/09 was 44.35% with the almost constant trend of gdp during the time which was 10.78 since 2010 usa dollar was counted for a growth rate of real gdp in ethiopia based on data obtained from an indicated institution in the above-reflected source. figure 3: trends for rate inflation and economic growth in ethiopia source: united nations conference trade and development 2020 -30 -20 -10 0 10 20 1 9 8 0 /8 1 1 9 8 1 /8 2 1 9 8 2 /8 3 1 9 8 3 /8 4 1 9 8 4 /8 5 1 9 8 5 /8 6 1 9 8 6 /8 7 1 9 8 7 /8 8 1 9 8 8 /8 9 1 9 8 9 /0 0 1 9 9 0 /9 1 1 9 9 1 /9 2 1 9 9 2 /9 3 1 9 9 3 /9 4 1 9 9 4 /9 5 1 9 9 5 /9 6 1 9 9 6 /9 7 1 9 9 7 /9 8 1 9 9 8 /9 9 1 9 9 9 /0 0 2 0 0 0 /0 1 2 0 0 1 /0 2 2 0 0 2 /0 3 2 0 0 3 /0 4 2 0 0 4 /0 5 2 0 0 5 /0 6 2 0 0 6 /0 7 2 0 0 7 /0 8 2 0 0 8 /0 9 2 0 0 9 /1 0 2 0 1 0 /1 1 2 0 1 1 /1 2 2 0 1 2 /1 3 2 0 1 3 /1 4 2 0 1 4 /1 5 2 0 1 5 /1 6 2 0 1 6 /1 7 2 0 1 7 /1 8 2 0 1 8 /1 9 trends in growth rate real gdp and urbanization in ethiopia (19802019) gdp growth rate urban gr -40 -20 0 20 40 60 1 9 8 0 /8 1 1 9 8 1 /8 2 1 9 8 2 /8 3 1 9 8 3 /8 4 1 9 8 4 /8 5 1 9 8 5 /8 6 1 9 8 6 /8 7 1 9 8 7 /8 8 1 9 8 8 /8 9 1 9 8 9 /0 0 1 9 9 0 /9 1 1 9 9 1 /9 2 1 9 9 2 /9 3 1 9 9 3 /9 4 1 9 9 4 /9 5 1 9 9 5 /9 6 1 9 9 6 /9 7 1 9 9 7 /9 8 1 9 9 8 /9 9 1 9 9 9 /0 0 2 0 0 0 /0 1 2 0 0 1 /0 2 2 0 0 2 /0 3 2 0 0 3 /0 4 2 0 0 4 /0 5 2 0 0 5 /0 6 2 0 0 6 /0 7 2 0 0 7 /0 8 2 0 0 8 /0 9 2 0 0 9 /1 0 2 0 1 0 /1 1 2 0 1 1 /1 2 2 0 1 2 /1 3 2 0 1 3 /1 4 2 0 1 4 /1 5 2 0 1 5 /1 6 2 0 1 6 /1 7 2 0 1 7 /1 8 2 0 1 8 /1 9 trend for rate of infilation and economic growth in ethiopia (19802019) gdp growth rate infr gelana damena & leta sera & negese tamirat malatu 126 table 1 in ethiopia the mean value of the electricity consumption period between 1980/81 2018/19 was 21.299 and the maximum and minimum values were 22.896 and 20.007 respectively. similarly, the mean value of lnrgdp is 5.4124 and minimum of 6.9228, and a maximum of -21.0030. the standard deviation of electricity consumption is 0.8438. these results revealed that there is a low variety of electricity consumption from time to time in ethiopia. the data of electricity consumption was positively skewed, which indicated that the mean of the data is greater than the median. table 1 summary statistics for variables, using the observations 1980 2018 variable mean std.dev. mini. max. median c.v. skewness kurtosis lnrgdp 5.4124 7.1560 21.0030 13.5740 6.9228 1.3221 -1.4905 2.9395 lnelcon 21.299 0.8438 20.007 22.896 21.042 0.0396 0.51706 -0.85224 urbae 14.803 2.8761 10.41 20.698 14.553 0.19429 0.33394 -0.86551 grfdiae 1.7088 1.9498 -0.0372 5.673 0.78548 1.1410 0.75951 -0.88858 lndiae 21.889 8.7866 10.591 39.422 20.221 0.40141 0.86633 -0.46329 ln enco 8.6312 0.02273 8.6073 8.6935 8.6205 0.0026 1.4112 1.0435 lnelpro 21.422 0.93664 20.000 23.3480 21.193 0.0437 0.51847 -0.69782 lngcon 7.881 0.78615 6.8430 9.4089 7.6331 0.0997 0.65115 -0.88636 lnelcus 13.4470 0.7128 12.4090 14.9620 13.2990 0.0530 0.26461 -1.1485 lnelpr 13.9650 2.9568 8.7010 18.9470 14.3400 0.2117 -0.28572 -0.92437 infr 8.8662 10.968 -9.8092 44.3570 7.8174 1.2371 1.2648 2.3577 source: own computation with gretl 2020a (2020) *total 39 observation 3.2 unit root test analysis test for stationarity is crucial to address unit root problems in the data series. unit root tests were carried out to determine the degree of fractional integrations for each series in a specified model. the tests were served as a way to account for the robustness of the result. conditions unit root tests were developed before any sort of action was taken. unit root test results revealed that urbae and lnelcus became stationary at a 5% significant level. the only variables became stationary after their first difference with a similar significant level while the rest all variables were stationary at their first difference which is said to be integrated of order one i (1) by both modified dickeyfuller gls and kwiatkowski-phillips-schmidt’s-shin at 1% significant level. table 2 revealed that the fractional integration unit root test was developed to test the hypothesis for an alternative to the null hypothesis. this states that there is no long-run dependency in the series of each variable included in the estimated model. all variables except, lngdp (0.396) and lnelcon (1.001) with an estimated degree of integration were much far from zero indicated that the presence of the long-range dependency. moreover, the significance of all variables in the estimated degree of integration is the likeness of a high degree of dependency in the series for the local whittle estimator (lwe) unit root tests. in detail for geweke-porter-hudak (gph) unit root test for all variables and estimated degree of integration are statistically significant with the presence of longrange dependency of series. this indicates that the rejection of the null hypothesis of no long-run dependency between series is said to be there is the highest degree of dependency between the series. impact of electricity consumption on ethiopian economic growth: an empirical analysis 127 table 2 test for unit root (fractional integration) variable local whittle estimator (lwe) geweke-porter-hudak (gph) estimated degree of integration the test statistic(z) estimated degree of integration the test statistic(t) lnrgdp 0.396 2.239** 0.250 0.638 lnelcon 1.001 5.661*** 1.030 21.276** urbae 0.939 5.313*** 0.966 32.961** grfdiae 0.776 4.392*** 0.031 2.493** lndiae 0.946 5.353*** 1.129 3.310** lnenco 0.914 5.171*** 0.937 11.992*** lnelpro 0.908 5.137*** 0.939 14.748*** lngcon 0.989 5.596*** 1.004 11.900*** lnelcus 0.928 5.247*** 0.958 13.221*** lnelpr 0.939 5.310*** 0.968 17.260*** infr 0.541 3.059*** 0.502 3.872*** source: own computation with gretl 2020a (2020); “***, **, *” signs indicate statistical level of significance at 1%,5% and 10% respectively 3.3. sensitivity analysis sensitivity analysis was developed by employing a selected fully modified form of augmented dicky fuller unit root test. sensitivity analysis with unit root tests was cheeked to determine which variable is trend stationary and difference stationery by applying the decision-based level of significance. the summarized results as real lngdp, infr, lngcon, lnelpro are found to be trend stationery for 2.5, 12.5 values of c, and x*o values for both adf and adf-gls tests. whereas, elcon, lndiae, lnelpr, and lnenco were found to be trend stationery for all c and x*o values for both unit root test applied grfdiae, lnelcus and became trend stationery at the value of c= 17.5, 12.5. finally, the variable that became different stationery was urbae and lnepr for adf values and became trend stationery at 12.5 c value for adf-gls unit root tests. 3.4. ardl bound test for cointegration analysis ho (null hypothesis) revealed that there is no long-run cointegration between electricity consumption and economic growth. ha (alt. hypothesis) indicated that there is long-run cointegration between electricity consumption and economic growth. the results showed that the computed value of the f-statistic is much higher than the upper-bound critical value (at the 1%, 2.5%, 5%, and 10% significant levels) when the real gdp is the dependent variable. therefore, these ensured the existence of cointegration relationships among electricity consumption and economic growth [13]. f-statistic exceeded the critical value at 1% (i.e., 6.7997 >3.61), this implied that rejection of h0 no cointegration or long-run relationship for the model tested. thus, indicated that there existed a cointegration between electricity consumption, urbanization, foreign direct investment, and domestic investment and real gdp. akaike’s information criterion (aic) is better model for this study with a smaller value of information criteria. 3.5. empirical results and discussions table 3 revealed that ardl bound testing for cointegration between electricity consumption, urbanization, foreign direct investment, and domestic investment as a result of electricity consumption, electricity production, energy consumption per capita, government consumption, electricity customer, electricity price, and inflation rate. table 3 revealed that electricity consumption was positively significant at the short-run (10%) and long-run (5%) significant level. it implied that with an increase in electricity consumption by 1%, the real gdp of a country will increase by 0.2839% in the long run. the finding is consistent with their studies of [12]. the coefficient of urbanization was positively significant at 1%. it revealed that an increase in urbanization by 1% will bring up about a 0.4813% increase in real gdp. foreign direct investment was positively correlated with real gdp at a 1% significant gelana damena & leta sera & negese tamirat malatu 128 level both in the short-run and long run. foreign direct investment increase by 1% in the long term leads to a 7.20e05 % increase in real gdp. this study is similar to their studies of [9]. table 3 long run coefficient analysis matching algorithm ardl cointegrating and long run form date: 04/30/2020 time: 11:36 dependent variable: lnrgdp sample: 1980 – 2018 selected model: ardl (1,0,2,0,0,1,1,2,1,2,0) included observations: 37 variables coefficients std. error t-statistic prob. lnelcon 0.283967 0.110777 2.563403 0.0216 urbae 0.481332 0.124422 3.868529 0.0015 grfdiae 0.000072 0.000020 3.559955 0.0029 lndiae -0.007914 0.006532 -1.211447 0.2445 lnenco 4.113616 1.514569 2.716030 0.0159 lnelpro -0.207395 0.161439 -1.284661 0.2184 lngcon 0.328101 0.111016 2.955427 0.0098 lnelcus 0.043416 0.184457 0.235371 0.8171 lnelpr -0.377928 0.080200 -4.712315 0.0003 infr -0.001230 0.001226 -1.002934 0.3318 ptdumm 0.340125 0.127281 2.672237 0.0174 dtdumm -0.076547 0.036966 -2.070741 0.0561 c -32.357370 13.427639 -2.409759 0.0293 source: own computation with eviews-11(2020) aggregate energy consumption per capita was positively significant at 1% and 5% in the short-run and long-run respectively. an increase in aggregate energy consumption per capita by 1% will lead to an increase in real gdp by 4.1136%. the long-term coefficient of aggregate energy usage per capita has a less deviation from that of the shortrun coefficient (4.50). the finding is in line with their studies of [10, 14, 26]. according to table 4, real government consumption negatively correlated with real gdp at a 1% significant level. gdp increased by 0.3281% as a 1% increase in government consumption. the short-term and long-term estimated coefficient of inflation rate displayed a negative insignificant effect on economic growth. electricity price and electricity customer were statistically significant at 1% in the short term and long term. the finding is consistent with the study of [26] finally, policy time indicator (ptdumm) and drought time indicator (dtdumm) were significant at 5% and 10% respectively. drought time indicators were negatively correlated with economic growth whereas policy time indicators positively correlated. particularly, the drought time indicator decreases the amount of aggregate electricity consumption directly. gdp decreased by 0.0765% as a 1% increase in drought. finally, the long run established model has be expressed: lnrgdp = -32.3573 +0.2839 (lnelcon) + 0.4813 (urbae) + 0.000072 (grfdiae) 0.0079 (lndiae) (0.1107) (0.1244) (0.000020) (0.0065) 4.1136 (lnenco) 0.2073 (lnelpro) + 0.3281 (lngcon)+ 0.0434 (lnelcus) (1.5145) (0.1614) (0.1110) (0.1844) 0.377928 (lnelpr) 0.0012 (infr) + 0.3401 (ptdumm) 0.0765 (dtdumm) (0.0802) (0.0012) (0.1272) (-0.076547) impact of electricity consumption on ethiopian economic growth: an empirical analysis 129 table 4 short run coefficient analysis ardl cointegrating and long run form date: 05/05/2020 time: 11:20 dependent variable: rgdp sample 1980 – 2018 selected model: ardl (1, 0, 2, 0, 0, 1, 0, 2, 1, 2, 0) included observations: 37 cointegrating form variables coefficients std. error t-statistic prob. d (lnrgdp (-1)) 0.398702 0.124803 3.194647 0.0060 d (lnelcon) 0.170749 0.056523 3.020874 0.0086 d (urbae) -0.074567 0.064543 -1.155303 0.2660 d (urbae (-1)) 0.191715 0.084815 2.260391 0.0391 d (urbae (-2)) 0.172276 0.082815 2.080251 0.0551 d (grfdiae) 0.000043 0.000014 3.049393 0.0081 d (lndiae) -0.004758 0.003751 -1.268740 0.2239 d (lnenco) 4.505704 0.927036 4.860333 0.0002 d (lnenco (-1)) -2.032193 0.995961 -2.040434 0.0593 d (lnelpro) -0.124706 0.094970 -1.313105 0.2089 d (lnelpro (-1)) 0.015317 0.058281 0.262813 0.1633 d (lngcon (-1)) 0.059269 0.042943 1.380193 0.1878 d (lngcon (-2)) -0.032118 0.027129 -1.183913 0.2549 d (lnelcus) -0.220850 0.101550 -2.174792 0.0461 d (lnelcus (-1)) 0.246956 0.093237 2.648691 0.0182 d (lnelpr)) -0.154700 0.038407 -4.027876 0.0011 d (lnelpr (-1)) 0.104399 0.044348 2.354070 0.0326 d (lnelpr (-2)) -0.176946 0.048500 -3.648331 0.0024 d (infr) -0.000739 0.000710 -1.041897 0.3140 d (ptdumm) 0.204517 0.086047 2.376813 0.0312 d (dtdumm) -0.046028 0.024718 -1.862082 0.0823 cointeq (-1) -0.601298 0.124803 -4.817981 0.0002 cointeq = lnrgdp(0.2840*lnelcon + 0.4813*urbae + 0.0001*grfdiae 0.0079*lndiae + 4.1136*lnenco -0.2074*lnelpro +0.3281*lngcon + 0.0434*lnelcus 0.3779*lnelpr -0.0012*infr +0.3401*ptdumm -0.0765*dtdumm -32.3574) r-squared 0.943781 mean dependent var 0.050248 adjusted r-squared 0.919044 s.d. dependent var 0.073870 s.e. of regression 0.021018 akaike info criterion -4.630256 sum squared reside 0.011044 schwarz criterion -4.107796 log-likelihood 97.65973 hannan-quinn criteria -4.446064 f-statistic 38.1535 durbin-watson stat 1.905882 prob(f-statistic) 0.000000 source: own computation with eviews-11(2020) for the study diagnostic checkups such as tests for serial correlation, normality, and alternative tests for heteroskedasticity were developed. to test the stability of long run cumulative sum of recursive residuals (cusum) and cumulative sum of squares residuals (cusumsq) were used. top qualified diagnostic tests chow test and zivot-andrews test were conducted to check the structural break model. gelana damena & leta sera & negese tamirat malatu 130 serial correlations computed value of f-statistics and obs*r-squared were above standard 5% significant level of the p-value. this is good to reject the null hypothesis. the p-value associated with to test statistic was greater than the standard significant (i.e., 0.8700>0.05 and 0.7865>0.7865). godfrey lm-testing for serial correlation is applied. jarque-bera and probability are applicable to check histogram-normality. this test is sufficient to reject the null hypothesis of residual in models that are not normally and independently distributed. the conclusion of residual terms was normally and independently distributed based on the determined value of jarque-bera and computed probability value (5.290 >0.05, 0.070 > 0.05) respectively. the diagnostic for heteroskedastic was carried out that the study could not obtain evidence of rejecting null hypotheses such as breusch-pagan-godfrey, harvey, glejser, arch, and white. this test was carefully checked up heteroskedasticity option tests to detect the problem. therefore, all p-value associated with each test statistics and chi-square were identified to be larger than the standard significance level (0.8936>0.05, 0.2205>0.05, 0.8673>0.05, 0.4610>0.05, and 0.9154>0.05) for each of godfrey, found harvey, glejser, arch, and white heteroskedasticity tests respectively. test for model stability was developed on instabilities problem to reject the null hypothesis. the result mentioned that the estimated ardl model and p-value were obtained from statistical tests and standardized ones (0.3140>0.05). the developed ardl model was a well and correctly specified functional form. ardl model was free from serious parameters instability, cusumsq of the corrected model with dummies and model is completely stable. for the developed chow test and structural break, the value of f-statistics was greater than the standardized p-value 0.05 for all series. the p-value for log-likelihood ratio and wald statistics became above standard p-value this leads to the same conclusion with f – statistics. therefore, all summary statistics failed to reject the null hypothesis of no breaks at specified breakpoints for each series. to test different structural breaks quadrant andrews test for the structural break was developed. andrew test was carried out to test a structural break for unknown structural breakpoints among all regressor in estimation. wald fstatistics (0.0975), lr f-statistics (0.2140) were greater than the p-value of 5% level of significance. these failed to reject the null hypothesis of no structural break at 30% and 35% within 15 and 11 possible numbers of a break compared respectively. 4. conclusions and policy implications 4.1 conclusion this study principally aimed to investigate the effect of electricity consumption on ethiopian economic growth. electricity consumption is pinpointed as one of the main motivators and being a pillar for modern economies. autoregressive distributed lag (ardl) model was developed to analyze short-run and long-run relationships. alternative unit root tests and fractional integration unit root tests were conducted to test the long memory of dependency series. urbanization and foreign direct investment were positively correlated with economic growth. the weak magnitude of foreign direct investment and domestic investment attract foreign direct investment inflow. aggregate energy consumption per capita was significant both in the short-run and long-run. coefficients aggregate energy consumption per capita was found to have a strong positive correlation with economic growth whereas the rate of inflation and drought time indicator were negatively correlated. the speed of adjustment indicated that 60.12% of the short-run adjustment is made per year towards long-run equilibrium. without a strong electricity supply by the concerned body, the electricity demand might not be decline by swiftly promoting urbanization and inviting more foreign investors. 4.2 policy implications given these findings, several implications could emerge from the analysis upon which important suggestions could be made as key recommendations. unstable and inadequate electricity supply leads the country to significant loss on a certain amount of gdp. the government of ethiopia and concerned bodies should formalize the spread out of electricity supply which is a key for income generation in an urban area. effective implementation and regulation of limited electric supply ensure sustainable economic growth in the long run. the ethiopian electricity sector better designed sustainable electricity wastage control and integrated monitoring in electricity generation, supply, and consumption to minimize power loss. it is better to attract foreign direct investment policymakers through impact of electricity consumption on ethiopian economic growth: an empirical analysis 131 considering more active measures such as low-cost availability of electricity by stabilizing the tariff in electricity price both in the short-run and long-run. ethiopian energy policymakers better reinforce and boost the existing energy policy by checking up on previous policy in terms of adequacy. lowering the inflow level of rivers and rainwater into the hydroelectric dams is a key to controlling electricity crisis such as shortage of power supply and raises in the demand which in turn diminishes electricity consumption and annual gdp. 5. acknowledgments the authors would like to extend their gratitude to the national bank of ethiopia, the ministry of 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energy sources, part b: economics, planning, and policy. 2017; 12(11): 1007 – 1014. sama m. the effect of energy consumption on economic growth in contribution / originality/. 2016; 6(9): 510 – 521. shahid a. impact of electricity consumption on economic growth: an application of vector error correction model and artificial neural networks. repec: jda. 202; 54(4): 89 – 104. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 59-68 59 the role of international trade in the development of the countries atilla demi̇rbi̇lek istanbul commerce university, turkey mustafa emre ci̇velek istanbul commerce university, turkey received: july 18, 2022 accepted: september 09, 2022 published: december 01, 2022 abstract: our study aims to investigate the impact of foreign trade on economic growth and welfare of a country, using foreign trade v olume and its coverage (i.e. export versus import) ratio representing foreign trade while gross domestic product per capita and purchasing power parity represent economic growth and welfare. knowing that foreign trade boosts the whole economy, gross domestic product (gdp) per capita is a good indicator of an economic output but does not reflect the differences in the cost of living of countries. the challenge in this study is to develop more complementary indicators that can help bridge the gap between gdp per capita and economic well-being. purchasing power parity (ppp) compares different countries’ economic output using a standardized metric based on a common basket of goods and services. using ppp exchange rates in addition to a country's gross domestic product (gdp) may help to provide a more detailed picture of a country's economic health. multiple regression analysis was utilised to test the hypotheses of this study. secondary data was used in this study. the analyses were performed with spss. as a result of the data analyses and tests of hypotheses conducted in this study, it has been empirically proven that foreign trade volume and export/import coverage ratio have positive impact on gross domestic product per capita which has a significant impact on purchasing power parity. keywords: foreign trade volume, export/import coverage ratio, gross domestic product per capita, purchasing power parity jel: f43 1. introduction the only way for countries to rise to the welfare and modern country class is defined as economic growth, and as a result of this, development. for this reason, identifying the sources of welfare-enhancing economic growth attracts the attention of researchers, and in case it is known, it becomes easy for governments that implement economic models to evaluate them in terms of economic policies. for this reason, to argue that the welfare of the country in question is good, it must have an economic performance that can be expressed as increased quality of life or real national income when compared to its competitors (karaaslan & tuncer, 2010). the comparison of international development levels is based on gross domestic product (gdp) per capita values in a common currency. the gdp values that are calculated with the exchange rate reflect the monetary value of goods and services, not their quantity or volume. for this reason, the “purchasing power parity (ppp)”, which is a more detailed exchange rate allowing the comparison of the “volume of goods and services” of countries, is employed instead of the exchange rate. purchasing power parity (ppp) is defined as the price level of a well-defined basket of goods and services in different countries. this figure also serves as the reference in terms of informing us how much money people can spend with their incomes. in this way, price level differences are eliminated among countries, and real price and volume comparisons can be made internationally. atilla demi̇rbi̇lek & mustafa emre ci̇velek 60 foreign trade and the factors complementing and developing a country are important in the growth of its economy. studies conducted on the relations between foreign trade and economic growth date back to the birth of international economics. a. smith, who advocated the idea that a nation’s welfare must be measured with the production and economic growth rather than its gold reserves, mentioned the importance of international trade (1937). similarly, david ricardo also said that the way to increase individual welfare is through international trade (2008). the level of welfare economic growth will provide will become more meaningful in our present day if it is reflected on all people living in the country. because as the economy grows, it is expected that the welfare of the country will also increase. foreign trade, which is also known as international trade, is the mutual purchase, i.e. “import”, or sale, i.e. “export” activity of goods and services between countries. in our present day, the main purpose of foreign trade is to liberalize and increase international trade on a global scale, and in this way, contribute to the development of countries. for this reason, the volume of foreign trade is an important criterion in terms of indicating to all of the trade a country performed with other countries (açiler, 2021). this value is the component of the income from exports and expenses paid for imports. policies that involve all state and government activities on imports and exports are called the foreign trade policies. in summary, foreign trade policy affects the distribution of production resources of countries, and it is shaped in agreement with various purposes. although the perspective of a country’s economy on foreign trade is evaluated with how much it adapts to world trade, the stable growth and development of that country are also related to how much it benefits from such a trade. when a foreign trade policy is created, one of the important targets is to improve the foreign trade balance in favor of the country while increasing the volume of foreign trade; in other words, to minimize imports and increase exports, since exports have an important place in the development of a country’s economy. an imbalance emerges if the import is more and the export is less, which is called the foreign trade deficit. the aim of this study is to investigate the role of foreign trade on economic growth in terms of gdp per capita and purchasing power parity. as a conclusion, in the present study, an economic model will be created by analyzing this correlation with related dimensions. 2. conceptual background in this part, the variables of foreign trade volume, export-import coverage ratio, gross domestic product per capita, and purchasing power parity, which constitute the model in question (figure 1), will be explained in conceptual terms. figure 1: research model 2.1. foreign trade volume the role of international trade in the development of the countries 61 there are many factors affecting the economy of a nation. production power, expertise areas, technological power, natural resources, competitiveness, and foreign trade volume, which enables that these are made use of, are important criteria determining the level of development of countries. the total income earned by a country from the export of goods and services to foreign countries and the number of expenses paid for the import of goods and services from foreign countries indicates the total foreign trade volume of that country. here, foreign trade volume is expressed as the sum of import and export figures. trade relations among countries are increasing with the development of global understanding in world trade thanks to the removal of borders and the advantages of technology. as the commercial connections accelerate, the traditional trade structure is shaped again, and international preferences change in this respect. it is today accepted that foreign trade among countries is one of the most important factors that affect development and welfare. in this context, increasing the foreign trade volume has been adopted as an important target in terms of both the vision of the country and its competitiveness. one of the outcomes in the process of economic globalization is increasing interdependence and similarity among countries because of intensified commercial activities. according to economic theory, foreign trade brings benefits for both parties in principle. the international division of labor improves the efficiency of resource distribution and the economic well-being of all countries, at least in the long run. although developing countries impose temporary restrictions on some strategic products and foodstuffs, they still prioritize increasing their exports in general. import, on the other hand, is a highly preferred channel for the transfer of raw material, products, and technology (arslan, 2013). in short, the extensive use of international trade relations, or foreign trade volume, enables a country to re-design its national economic policy. the foreign trade volume figures, which are the sum of the import and export figures of countries, were addressed in the present study. 2.2. export/import coverage ratio foreign trade developments are followed with care in open economies because of the information they provide on economic vitality and their importance in domestic and foreign economic balances. one of the indicators used for this purpose is the export/import coverage ratio (mikic & gilbert, 2009) . export is the sale of goods and services to foreign countries, in other words, the commercial sale of a domestically produced, assembled, or finished product abroad. import, on the other hand, is the purchase of products manufactured or prepared abroad by buyers within the country in exchange for foreign currency. this ratio, which shows how much of the import is covered by exports, can be employed in comparing the trade performance of countries and the same country at different times. as a measure of foreign trade, the characteristics of the coverage ratio are examined in the present study, and an answer is sought to the question of how sensitive this ratio is to the changes in gross domestic product (gdp) and, therefore, purchasing power parity (ppp). when trade deficit is measured in any currency or as a ratio of gdp, it may be difficult to compare values among different countries (or in the same country but at different times). the export/import coverage ratio, however, may be more appropriate to make comparisons among countries regarding different times. to illustrate, the exports and imports of two countries that have the same gross domestic product (gdp) can be investigated in x country, which is 30% and 40% of gdp, and y country, which is 15% and 25%, respectively. the foreign trade deficit of both countries was found to be 10% in this example. however, although the export/import coverage ratio in x country was 30/40 *100= 75%, this was 15/25*100=60% in y country. in short, although x country can close this deficit with a limited percentage decrease in imports or a limited percentage increase in exports, its closing by y country that has weak foreign trade relations will require a larger percentage change in its imports or exports. as seen in this example, the same ratio of gdp may have different meanings for different countries. the coverage ratio is extremely important because it is a measure that can reflect this difference (aydın, baskaya, & demiroglu, 2015). 2.3. gross domestic product (gdp) per capita income is the most important factor that affects the economic development level, development, and better conditions of the citizens of a country, and is characterized generally by per capita income. in the economics literature, economic growth is generally evaluated with the increase in income per capita of a country for a certain atilla demi̇rbi̇lek & mustafa emre ci̇velek 62 period. although this criterion expresses a numerical value, it is considered as the leading factor of growth in all economic hypotheses. because the growth of the economy of a country can be understood by evaluating these values for a certain period. gross domestic product (gdp) is the economic measure at the market value of all final products that are produced for a certain period. gdp is a critical factor to determine economic growth of a country because it takes into account its entire economic output. according to another definition, it is expressed as the monetary equivalent of all the goods and services that are not produced in the borders of a country for a certain period, in the economic unit of that country, or its foreign economic unit (fortuneturkey,2019). another definition considers it as the sum of the added values created in the borders of a country. gdp is usually considered for one year. final goods and servic es are the values that remain after deducting the intermediate goods used for production from the total goods and services produced. the following formula is applied to find gdp data. gdp = private consumption + investment + government spending + (exports imports). gdp per capita is the result of dividing this value by the total population in a country. gross domestic product (gdp) per capita is the key indicator of economic performance and is often employed to identify the average living standards of nations and measure their economic well-being status (oecd, 2009). it also describes the potential average income that citizens can benefit from their country's economy. gdp aims to measure certain economic activities of a country. the argument that reinforces the justification for using gdp as the measure of standard of living is that as the gdp of a country rises, so does its standard of living. the important point here is that gnp per capita does not reflect the differences in the cost of living and inflation rates of countries; it is more useful in comparing national economies in the international market (wikipedia, 2022). 2.4. purchasing power parity (ppp) exchange rates, which play important roles in the formation of economic policies and the direction of economic activities in a country, provide important data on the economic structures of countries. real exchange rates, which reflect the relative price of goods that are produced abroad in terms of goods that are produced domestically, are employed as an important tool to measure international competition. also, the changes that may occur in real exchange rates have significant effects on national economies. there are different approaches to determining the exchange rate. among these, there are “purchasing power parity (ppp)” has been the most favored approach. the ppp theory was first put forward by the swedish economist gustav cassel after the first world war (1921). the increased volatility caused the ppp analysis to become widespread after the exchange rates were left to float after the period of the bretton woods period and the adoption of the fixed exchange rate system in the countries that are members of the international monetary fund (imf). gross domestic product (gdp) per capita values in a common currency are the basis of the comparison of international development levels. these values reflect the monetary value of goods and services, not the common exchange rate, and for this reason, the “purchasing power parity” (ppp), which is an exchange rate allowing the comparison of the volume of goods and services by calculating over a common exchange rate, is used in this respect. this figure gives us information on how much money people can spend with their incomes. so it is one of the critical economic factors which enables a country to improve its quality of living standards by benchmarking with other contries. according to eğilmez (2012), purchasing power parity (ppp) refers to a rate of change equalizing the purchasing power of different currencies after eliminating price level differences among countries. according to wikipedia (2021), goods and services in the same basket can be purchased in all countries when a lump sum of money is converted into a different currency with a certain parity rate with purchasing power parity (ppp). in present study, purchasing power parity (per capita) is used to analyze not only price level variations between nations but also their standards of living. 3. hypothesis development the role of international trade in the development of the countries 63 in our research model, it is suggested that the dimensions of foreign trade are the antecedents of the economic growth. trade volume and its coverage ratio are two factors used for foreign trade and gdp per capita and purchasing power parity representing economic growth and welfare in relation with each other. 3.1. the relationship between export/import coverage ratio and gdp per capita there are many studies which aimed to check outcomes on the economic growth of export and import distinctively. sun and hesmati (2010) paid attention to export indicator to analyze its impact on economic growth. according to thirwall model (1979), economic growth can beexplained on the basis of export ratio versus import activities. also wagner (2007) emphasized that increase in exports stimulates economic growth by improving productivity. in another study, it was concluded that exports and imports are the main drivers of economic development in germany (bakari, 2017). civelek and özkan (2021) conducted a study covering 126 countries and found that there is significant relationship between gdp values and export-import coverage ratios. h1: export-import coverage ratio has a positive effect on gross domestic product (gdp) per capita 3.2. the relationship between foreign trade volume and gdp per capita in recent studies, it has been shown that foreign trade, enabling countries to be integrated into global economy, is one of the main drivers of nation’s economic improvement. the outcomes of this integration have been subjects to discuss, investigate and analyze for many researchers. maizels (1963) conducted a study for 7 developed countries and stressed the importance of the positive relationship between international trade and economic development. frankel and rommer study supports the positive effects of trade on national income (1999). according to paul krugman, foreign trade boosts economic growth by improving the optimal allocation of resources and technological progress (2009). also it was emphasized that foreign trade enhances economic growth by reaching goods and services through tecnology diffusion (rivera-batiz& romer, 1991). andersen and babula (2008) investigated the level of correlation between foreign trade and economic growth by analyzing whether trade itself is sufficient to ensure permanent improvements in living standards and found that there is a strong relationship between international trade and aggregate national income. by using panel model for 108 countries, busse and koniger confirmed that international trade had a significant effect on economic growth (2012). were (2015) analyzed trade impact on economic growth regarding 85 (mostly developing) countries and concluded that trade positively impacts economic growth. h2: foreign trade volume has a positive effect on gross domestic product (gdp) per capita 3.3. the relationship between gross domestic product (gdp) per capita and purchasing power parity (ppp) the main reason to use ppps is for spatial price comparisons among countries which provide also volume comparisons. although gdp per capita is not enough to explain economic well-being, it still has a high input to check and understand economic performance of individual countries. for oecd reports, comparisons of gdp per capita are typically based on ppps (oecd, 2002). the oecd results provide some telling examples for the differences between ppp-based and exchange rate based comparisons (see figure 2). seshaiah and tripathy (2018) in their study, found that real exchange rate, real interest rate, consumer price index (cpi), and money supply show strong evidence on gdp ppp per capita. h. niu and his friends (hua, chu, & ma, 2015) by using panel data model, analyzed 62 countries covering 2000-2013 and found that purchasing power parity changes are mainly related to changes in gdp per capita and exchanges rates. atilla demi̇rbi̇lek & mustafa emre ci̇velek 64 figure 2: two measures of gdp per capita 1999, oecd 30 = 100 source: oecd, purchasing power parities 1999 benchmark results, 2002 h3: gdp per capita has a positive effect on purchasing power parity (ppp) 4. research methods 4.1. research method and sampling multiple regression analysis was utilised to test the hypotheses of this study. secondary data was used in this study. the analyses were performed with spss. secondary data are collected by world bank database, whose credibility is tested and accepted as criteria by many nations and authorities. scope of the study is 93 world countries for the years from 2010 to 2018 and covers foreign trade volume, export/import coverage ratio, gdp per capita and global purchasing power parity datas to be analyzed. 4.2. test of the hypotheses in table 1 correlation values among the constructs of the reseach model are shown and the relationships among variables are statistically significant. table 1: correlation among the constructs variables 1 2 3 1. coverage ratio 2. foreign trade volume .108* 3. gdp per capita .345* .268* 4. purchasing power parity .508* .243* .909* *p<0.01 the analysis of the research consists of two stages; in the first stage, the impact of foreign trade volume (ftv) and export/import coverage ratio (cvr) on gross domestic product (gdp) per capita was analysed and significant relationship was found between them as mentioned in below tables: 0 20 40 60 80 100 120 140 160 180 mexico korea european union australia japan canada switzerland norway united states based on exchange rates based on ppp the role of international trade in the development of the countries 65 table 2: model summary of first stage model r r square adjusted r square std. error of the estimate 1 ,416a ,173 ,168 21342,88580 a. predictors: (constant), ftv, cvr table 3: anova table of the first stage model sum of squares df mean square f sig. 1 regression 35077046540,000 2 17538523270,000 38,502 ,000b residual 168086427700,000 369 455518774,400 total 203163474300,000 371 a. dependent variable: gdp per capita b. predictors: (constant), ftv, cvr as seen in table 3, the model is significant because sig. (pvalue) is less than alpha (.05). table 4: coefficients of the first stage model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 6567,595 2198,864 2,987 ,003 cvr 13466,901 2006,430 ,320 6,712 ,000 ftv ,008 ,002 ,233 4,896 ,000 a. dependent variable: gdp per capita according to table 4, cvr and ftv have positive impact on gdp per capita. in the second phase of the analysis, the impact of gross domestic product (gdp) per capita on purchasing power parity (ppp) was analysed and it was found greater significance between them as seen in below tables: table 5: model summary of the second stage model r r square adjusted r square std. error of the estimate 1 ,909a ,826 ,825 9504,11655 a. predictors: (constant), gdp per capita table 6: anova table of the second stage model sum of squares df mean square f sig. 1 regression 158343609000,000 1 158343609000,000 1752,980 ,000b residual 33421445590,000 370 90328231,320 total 191765054600,000 371 a. dependent variable: ppp b. predictors: (constant), gdp per capita as seen in table 6, the model is significant because sig. (pvalue) is less than alpha (.05). atilla demi̇rbi̇lek & mustafa emre ci̇velek 66 table 7: coefficients of the second stage model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 9056,964 677,230 13,374 ,000 gdp per cap ,883 ,021 ,909 41,869 ,000 a. dependent variable: ppp as seen in the table 7, gdp per capita and ppp relationship is significant. table 8: hypotheses test results relationships standardized coefficients unstandardized coefficients hypotheses hypotheses cvr → gdp per cap. 0.320 13466,901 h1 supported ftv → gdp per cap. 0,233 0.008 h2 supported gdp per cap. → ppp 0.909 0.883 h3 supported *p < 0.05 in table 8, the results of the research hypotheses are listed. all the hypotheses h1, h2, h3 hypotheses are supported. 5. conclusion in this study, a conceptual model has been created to determine the relationship criteria between international trade and economic growth related with economic welfare and to evaluate the relationship between them. foreign trade volume, export/import coverage ratio, per capita gdp and purchasing power parity (ppp) values of 93 countries covering time period of 2010-2018 were used. with the regression analyses performed in the study, it was found that there was a statistically significant and positive linear relationship. as it is already known in recent researches, foreign trade impact on gdp per capita was widely discussed and confirmed. in the first part of the present study, the results of multiple regression analysis confirm statistically the positive impact on economic growth of both foreign trade volume and export ratio, in line with previous studies. and also, integration into the global market supports a country to trade at international prices rather than domestic prices (heshmati & sun, 2010). so it enables domestic consumers to buy cheaper imported goods and for exporters to sell their goods at higher prices. one of the critical outcomes of this study is that whether economic growth of a country can be sufficient to ensure sustained improvements in living conditions of its citizens. however, as discussed in different platforms, the rise of trade volume and especially export ratio cannot be always sufficient for a country to access to welfare. due to high demand in foreign markets, some products can be more expensive in local markets as a result of supply shortages and this reduces citizens purchasing power. so the impact of international trade on economic growth and welfare may vary or can be limited. also, as discussed in most recent studies, gdp per capita is not a comprehensive measure of economic welfare, it underestimates real improvements regarding individual living standards and ignores substantial improvements in product quality and quality of life (dynan & sheiner, 2018). it has a critical role in indicating short term variations in economic avtivityessential to accurately measuring productivityrelated to economic well-being. our challenge in this study is to develop more complementary indicators that can help bridge the gap between gdp per capita and economic well-being. in order to eliminate the possible risk of reducing average economic growth and welfare, purchasing power parity (ppp) per capita was used as it is generally regarded as a better measure of overall well-being of a country. and in the second part of the study, it was found that there is a positive relationship between gdp per capita which represents economic growth and purchasing power parity (ppp) per capita which represents economic welfare. the role of international trade in the development of the countries 67 references açiler, s. 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(1991). economic integration and endogenous growth. the quarterly journal of economics, 531-555. schreyer, p., & koechin, f. (2002). purchasing power parities. oecd statistics brief, s. 1-8. seshaiah, v., & tripathy, t. (2018). gdp purchasing power parity per capita and its determinants. theoretical economics letters, 575-591. smith, a. (1937). the wealth of nations. new york: modern library. thirwall, a. (1979). the balance of payments constraint as an explanation of the international growth rate. psl quarterly review, 45-53. tuik. (2012). purchasing power parity and international comparisons. turkish statistical institute: retrieved from https://data.tuik.gov.tr/bulten/downloadfile vikipedi.(2021).wikipedia: https://tr.wikipedia.org/wiki/sat%c4%b1n_alma_g%c3%bcc%c3%bc_paritesi adresinden alındı wagner, j. (2007). exports and productivity: a survey of the evidence from firm level data. the world, 60–82. atilla demi̇rbi̇lek & mustafa emre ci̇velek 68 were, m. 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(2022). gayri safi yurt içi hasıla: retrieved from https://tr.wikipedia.org/wiki/gayri_safi_ yurt_i%c3%a7i_has%c4%b1la journal of international trade, logistics and law, vol. 7, num. 1, 2021, 113-117 113 cross border e-commerce in china gulnigar askar istanbul commerce university, turkey received: april 05, 2021 accepted: june 03, 2021 published: june 15, 2021 abstract: the internet has built an economical and efficient communication "bridge" between buyers and sellers all around the world. with the rise of supporting technologies such as secure payment, order tracking, and customer service, the global e-commerce market has grown exponentially. as the leader of this growth trend, the scale of china's cross-border e-commerce market has shown an exponential growth trend. this is mainly due to two points: 1) the sudden release of cross-border consumer demand; 2) the relatively loose market regulatory environment. the development of online websites, social media and logistics technology has also played a key role in promoting the development of crossborder e-commerce. subsequently, the chinese government further encouraged the development of cross-border e-commerce through measures such as building free trade zones and promoting the “the belt and road initiative”. companies such as amazon and tmall made f ull use of relevant policies to gradually gain a space in the free trade zone. the express delivery companies and third-party logistics companies occupying a strategically dominant position in the region have also started gearing up and trying to benefit from the growing trade activities along the “the belt and road initiative”. keywords: cross-border e-commerce, trade, the belt and road initiative 1. introduction the spread of epidemic in 2020 will continue to promote the transformation of online consumption habits, the penetration rate of e-commerce has further increased, and the digitalization of the internet has accelerated. global cross-border e-commerce transactions are expected to grow from 400 billion usd in 2016 to 1.25 trillion usd in 2021. under the tone of the dual-cycle development of the domestic economy, the scale of china's cross-border ecommerce market will continue to maintain a rapid growth trend. according to customs statistics, in 2020, the customs cross-border e-commerce management platform passed the inspection and release of 2.45 billion import and export invoices, an increase of 63.3% year-on-year. the import and export of cross-border e-commerce was 1.69 trillion yuan, an increase of 31.1%. driven by china, cross-border trade will inject new impetus into the future of e-commerce. with the gradual blurring of geographical boundaries, truly valuable companies are able to cross national borders and accept the cruel test of global market. the companies that make good moves will be able to take advantage and rewrite the rules. 2. about electronic commerce the essence of commerce is the place where shopping is made, the place where shopping is made in electronic commerce has changed to the internet environment. for this reason, it is easier and faster to connect the buyer and seller than the traditional market, and even overseas transactions can be made very easily (zhangyong, 2017). 2.1. what is electronic commerce electronic commerce refers to the use of electronic tools and technologies to carry out commerce; includes sales, purchases, product exchange, service and information (manzoor, 2010). gulnigar askar 114 2.2. general information about electronic commerce in the eighties there has been a tremendous growth in managing large amounts of data storage and retrieval techniques, following the development of a transparent mechanism for interconnection. improved data transfer speeds and the emergence of global connectivity have provided the opportunity to manipulate and disseminate information fields over a wide geographic area. the development of the communication infrastructure in the late eighties and early nineties, in different ways such as the internet, information and related developments and broadcast technologies, pushed us towards a new economic era. this new economy driven by the internet and web technology is called the digital economy (bhasker, 2013). thirty years ago electronic commerce was an unfamiliar concept for everyone, today it is a concept that everyone has heard and known. people who used to shop in shopping malls in the past have started to benefit from the convenience of electronic commerce. it has also provided new experiences for those in the position of vendors. those who used to sell in stores can now reach consumers on the internet. those who have never had a business with trade before are now realizing new experiences with the tools produced by this new technology (da, 2014). 2.3. types of electronic commerce by studying the types of e-commerce, we can deepen our understanding of e-commerce from different angles. according to the subject of participation in the transaction, it can be divided into the following five types (deng shunguo 2005, p. 6). business to business ( b2b ), it refers to the negotiation, ordering, signing, receipt of invoices and payment and claim processing, product delivery management and transportation tracking between purchasing agents and suppliers on the internet. business to consumer ( b2c ), b2c e-commerce uses computer networks to enable consumers to directly participate in advanced forms of emergency activities. this is the most familiar type of e-commerce (deng shunguo 2005, p. 7). consumer to consumer ( c2c ), c2c e-commerce is a transaction between consumers. business to government ( b2g ), b2g e-commerce covers various affairs between enterprises and government organizations. in b2g e-commerce mainly government is purchasing. customer to government ( c2g )，c2g e-commerce includes the government's extension of e-commerce to the issuance of welfare fees, self-assessment and personal tax collection. 3. cross border electronic commerce compared with the traditional international trade model, cross-border e-commerce is a new type of international trade format. it is a relatively advanced form of combining e-commerce and international trade. it refers to buyers and suppliers from different country, through the e-commerce platform to complete the transaction, make payment and settlement, and deliver the goods through cross-border logistics, complete the transaction of international business activities. from the perspective of business flow, it can be divided into import cross-border e-commerce and export cross-border e-commerce (school, 2019, p. 25). 3.1. general information about cross border electronic commerce as it involves different borders and the long industrial chain and trade chain from enterprises in one country to consumers in another country, coupled with the characteristics of commodity fragmentation and main body fragmentation in cross-border e-commerce, its business models are various (school, 2019, p. 26). 3.2. characteristics of cross-border e-commerce global forum, the network is an intermediary without boundaries, with the characteristics of globalization and decentralization. cross-border e-commerce that is dependent on the internet also has the characteristics of globalization and decentralization (xu yuhua, 2020, p. 3). intangible, the development of the network makes the transmission of digital products and services flourish. however, digital transmission is concentrated in a globalized network environment through different types of media, such as data, sound, and images. these media appear in the form of computer data codes on the network and are therefore intangible. cross border e-commerce in china 115 anonymous, due to the decentralized and global nature of cross-border e-commerce, it is difficult to identify the identity of e-commerce users and their geographic location. consumers of online transactions often do not reveal their true identity and their geographic location. what is important is that this does not affect the transaction at all, and the anonymity of the internet allows consumers to do so (xu yuhua, 2020, p. 4). instantaneously, for the network, the speed of transmission has nothing to do with geographic distance. in the traditional transaction model, information exchange methods such as letters, telegrams, faxes, etc., in the process of sending and receiving information, there is a time difference. in the information exchange of e-commerce, regardless of the actual time and space distance, one party sends information and the other party receives information almost simultaneously. paperless, e-commerce mainly adopts paperless operation, which is the main feature of e-commerce. in e-commerce, electronic computer communication records replace a series of paper transaction conditions. users send or receive electronic messages. because electronic information exists and is transmitted in the form of bits, the entire information sending and receiving process has been paperless (xu yuhua, 2020, p. 5). rapidly evolving, the internet is a new thing, and it will continue to evolve at an unprecedented speed and in an unpredictable way. 4. cross-border e-commerce in china as a new type of international trade, cross-border e-commerce has become a hot spot in china's society as a whole, and has become a new power for foreign trade and even the overall economic development. the development of china's cross-border e-commerce can be said to be the general trend. on june 20, 2015, orchard issued the "guiding opinions on promoting the healthy and rapid development of cross-border e-commerce", emphasizing the promotion of the healthy and rapid development of cross-border ecommerce, using "internet + foreign trade" to achieve superior import and export, which is conducive to expansion consumption, promote open-type emergency development and upgrade, and create new economic growth points. it clarified the main development goals of cross-border e-commerce, especially proposed to cultivate a group of public platforms, foreign trade comprehensive service enterprises and self-built platforms, and encourage domestic enterprises to cooperate with overseas e-commerce enterprises. cross-border e-commerce is a combination of the two concepts of "steady growth" and "internet +". it promotes the development of cross-border e-commerce and will directly drive china's modern service industries such as logistics and distribution, e-payment, e-certification, and information content services and related services. the development of the manufacturing industry has accelerated the pace of transformation and upgrading of china's industrial structure. 4.1. the development history of cross-border e-commerce i̇nitial period; 1999-2003, online display, offline transaction; based on the foreign trade information service model of online display and offline transactions, the main function of the third-party platform is to provide a network display platform for corporate information and products. representative companies at this stage include alibaba and others. growth period; 2004-2012, electronic tranaction process; the offline transaction, payment, logistics and other processes are electronically realized, and online transactions are gradually realized. the whole process of crossborder e-commerce is realized electronically. the b2b platform model is the mainstream mode of cross-border ecommerce at this stage. at this stage, representative companies include aliexpress and so on. development period; 2013-2017, the whole industry chain is online; the service is fully upgraded, the platform carrying capacity is stronger, and the whole industry chain service is online. large-scale platforms continue to emerge, the proportion of b2c platforms has increased, and the mobile terminal has developed rapidly. representative companies at this stage include tmall international, etc. maturity period; 2018now; large-scale cross-border e-commerce companies have begun to integrate their supply chains. at the same time, all links in the cross-border e-commerce supply chain are becoming more integrated, refined operations have become the mainstream, and innovative models such as new retail and live marketing continue to penetrate. representative companies at this stage include kaola haigou and so on (institute, 2020). gulnigar askar 116 4.2. development status of china’s cross-border e-commerce in recent years, with the increase in global purchasing power per capita, the increase in internet penetration, the further maturity of third-party payment software, and the improvement of logistics and other supporting facilities, online shopping has become a consumer habit all around the world. cross-border e-commerce has established a free, open, and universal global trade platform, and has achieved global connections through the internet. in the future, as cross-border e-commerce continues to replace the traditional trade market, it is expected to become the main form of global trade. 1) huge room for cross-border e-commerce development; as a new form of foreign trade, cross-border e-commerce is booming. cross-border e-commerce imports and exports are 1.69 trillion yuan, an increase of 31.1%. with the accelerated formation of a new development pattern with the domestic as the main body and the mutual promotion of the domestic and international, the scale of china's cross-border e-commerce market will continue to maintain a rapid growth trend in 2021 (institute, 2020). figure 1. cross-border e-commerce market size source: (institute, 2020) export cross-border e-commerce is the main body of china's current cross-border e-commerce, and the proportion of imported e-commerce is constantly increasing. as china's manufacturing industry has greater advantages in cost and scale, china's current cross-border e-commerce is mainly export-oriented. figure 2. proportion of china's cross-border e-commerce import and export transactions source: (xu yuhua, 2020, p. 13) 5,4 6,7 8,06 9 10,5 0 2 4 6 8 10 12 2015 2016 2017 2018 2019 cross-border e-commerce market size (trillion yuan) cross-border e-commerce market size 88,90% 88,00% 83,10% 82,10% 75,00% 11,10% 12,00% 16,90% 17,90% 25,00% 0,00% 20,00% 40,00% 60,00% 80,00% 100,00% 120,00% 2013 2014 2015 2016 2020 proportion of china's cross-border e-commerce import and export transactions proportion of import e-commerce proportion of export e-commerce cross border e-commerce in china 117 2) b2c enters a golden period of rapid development, due to the early emergence of b2b e-commerce in china, the current market is still dominated by b2b. however, with the fragmentation of orders and the gradual establishment of cross-border e-commerce brands in overseas consumer markets, the proportion of b2c market transactions has gradually increased rapidly. 3) overseas warehouses improve cross-border efficiency. logistics is the most important part of the cross-border ecommerce process. as global buyers gradually improve the quality of cross-border e-commerce shopping experience, the overseas warehouse model has gradually become the core of corporate growth. 5. conclusions as an important part of the digital economy, e-commerce uses its unique advantages to help china's foreign trade go against the trend and achieve steady growth in volume and steady improvement in quality. as the scale of ecommerce continues to expand, china's e-commerce has entered a period of relatively stable development from a period of ultra-high-speed growth in 2016, but china's cross-border e-commerce continues to maintain a growth trend of high-quality development. china's cross-border e-commerce industry currently exhibits three characteristics: the scale of cross-border ecommerce transactions is expanding, and its proportion in china's import and export trade is increasing: crossborder e-commerce is mainly export, and export cross-border e-commerce is expected to continue rapid development trend: cross-border e-commerce is dominated by b2b business, and the b2c cross-border e-commerce model is gradually emerging and has a trend of expansion. at the same time, national policies have greatly increased the support for cross-border e-commerce, reflecting its important role as a development catalyst, which provides the necessary endogenous motivation for the future development of cross-border e-commerce. references bhasker, b. (2013). electronic commerce framewok, teknologies and applications. new delhi: mcgraw hill education (india) private limited. da, w. (2014). sifirdan elektronik ticareti öğrenmek. pekin: çin huaqiao yayınevi. deng shunguo, yao ruohui, lu chuan, zheng hui. (2005). introduction to electronic commerce. beijing : beijing university press. institute, s. x.-b.-c. (2020). china's cross-border e-commerce market development report. shenzhen: shenzhen xingyun cross-border e-commerce research institute. manzoor, a. (2010). e-commerce. berlin: lambert academic publishing. school, a. b. (2019). cross-border e-commerce operation practice: cross-border marketing, logistics and multiplatform practice. beijing: electronic industry press. xu yuhua, he yan. (2020). cross-border e-commerce: policies and practices. chengdu: southwestern university of finance and economics press. zhangyong. (2017). fresh food e-commerce supply chain system research under internet of goods. chengdu: electronic science and technology university press. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 291-305 291 the relationship between credit interest, credit volume and net profit in the turkish banking sector salim salimli istanbul ticaret university, turkey okşan kibritci artar istanbul ticaret university, turkey received: may 08, 2023 accepted: may 26, 2023 published: june 01, 2023 abstract: in the last two decades, foreign capital investments in the financial sector of emerging markets have increased tremendously. foreign direct investment is now important for every country. with the development of globalization, foreign capital investments have started to take place more in the financial sector. turkey, which is among the developing countries, is among the preferred countries for foreign direct investments. the regulations that took place after the crises in the banking sector in 2000 and 2001 and the growth trend in the world economies made the banking sector attractive. it cannot be denied that foreign investments have positive contributions to the current account deficit, employment, gross domestic product, and raising quality standards with competition rules. in addition, the indirect effect of foreign capital is a larger increase in the deposit and loan volume of the banking system due to the increase in production, and an increase in trade volume and profit. the secondary effects of foreign capital investments on the sector are that it creates a multiplier effect on service standards, product variety and profit margin together with developing market conditions. this study describes the tests and analyzes on the effect of loan interest net profit and volume of the turkish banking sector on the net profit of public and private banks. the main purpose of this study is to evaluate the effect of non-performing loans on banks' profits. since profitability is a very broad concept, models covering the return on assets ratio and return on equity ratio, which are widely used in studies in the literature, have been established. unlike other studies, the effect of non-performing loans on the net profit margin is also examined. the study is carried out on banks with at least 100 branches operating in turkey. in practice, the relationship between the net profit margin of non-performing loans, return on assets and return on equity is analyzed using the data for the period 2012-2021. keywords: banking sector, loan interest, loan volume, net profit, turkey 1. introduction throughout history, people have measured the value of scarce resources in nature with money to meet their basic needs. in line with the world banking system, economy structure and needs, the role of state authorities has changed over time and from country to country, with economic power, political and sometimes ideological effects. this situation is compatible with economic activities. economic activities are the activities that people have to do in order to continue their lives. money is used to meet the basic needs of all people. the use of money under the roof of participation banks should be evaluated under the umbrella of islamic economics. the qur'an is the main source for islamic rulings. other sources of judgment have emerged with the interpretation of the qur'an, and as a result, they gain meaning in the integrity of the system on which the qur'an is based. “islamic economics is to form a mind, a vision about human, society, things and the universe with a purpose from the window of truth, and to reconstruct life materially and spiritually on a moral basis through this mind” (hazıroğlu, 2015, s. 122). money has been in constant change with the rapidly flowing time and developing technology. the history of money, which started with metal money, has reached to virtual crypto money. with the developing money types and the increasing demand for money, banks; in the current century, it is considered among the important financial institutions that bring the actors in the supply of funds and demanding funds to the same place. along with the salim salimli & okşan kibritci artar 292 globalization process, developing countries have faced difficulties in making their economic stability situation sustainable. in this context, the structure of banks, which contribute positively to the productive capacity of countries and have important functions in the process of economic growth and development, has been tried to be strengthened with the reforms carried out. in addition to these reforms, another issue that needs to be addressed is the concept of banking risk and management. when the economic instabilities occurring in the developing economies in the world are examined in the direction of unlimited capital mobility, it has clearly revealed the necessity of risk management. as a result of this, conventions accepted by the whole world in the international arena have emerged. these agreements, which established common arrangements and minimized risk, also played an active role in the formation of the basel committee. 2. theoretical framework ekinci and poyraz, (2019) study consists of 26 commercial banks operating in turkey between 2005 and 2017 to analyze the effect of credit risk on bank performance. in the comparison of the banks according to their ownership structures, the data of the three panels were evaluated as state banks, private banks and foreign banks, respectively. return on assets (roa) and return on equity (roe) are used as credit risk indicators as proxies of financial performance indicators. the results of the analysis showed that there is a negative relationship between credit risk and roe and roa. this result reveals that there is a relationship between credit risk management and profitability of turkish deposit banks from 2005 to 2017. i̇ncekara and çetinkaya, (2019) in their study analyzed quarterly financial data of islamic and conventional banks thst were used to test the panel data regression analysis of factors affecting liquidity risk management, as islamic and traditional banking continue to operate in turkey. within the scope of the analysis, a total of 6 banks, 3 participation and 3 traditional, operating between 2014-2018 were included. as a result of the analysis, it has been found that there is a negative and statistically significant relationship at 99% confidence level for islamic banks between liquid assets (roi), gross domestic product (gdp) and inflation (inf) variables and liquidity risk. kirikkaleli and gokmenoglu, (2019) in their study investigested the causal relationship or correlation between national credit risk and economic risk in turkey's emerging market, using quarterly time series data covering the period 1991-2016, toda-yamamoto causality, gradual change causality and wavelet consistency tests were applied. it confirms that in turkey, changes in credit risk lead to a significant change in economic risk, which demonstrates the importance of sovereign credit risk in predicting economic risk. psaila, spiteri, and grima (2019) study examined the effect of nonperforming loans on the profitability of commercial banks traded in the stock market. in the study, the relationship between the variables was examined by panel data analysis using the data of 35 commercial banks in the euro-mediterranean region between 2013 and 2017. as a result of the study in which bank-specific variables were used, it was seen that bad loans negatively affect the profitability of commercial banks traded in the stock market. a negative relationship was found between return on assets and non-performing loans. anggriani and muniarty (2020) investigated the effect of capital adequacy ratio and non-performing loans on return on assets in their study. in the study, which was carried out using the data of bank central asia 2010-2018, multiple regression analysis was carried out with the data obtained by using classical assumptions. according to the results of the research, it has been determined that non-performing loans have no effect on the return on assets. it has been determined that the capital adequacy ratio has a significant effect on the return on assets. do et al. (2020) examined the effect of non-performing loans on the performance of commercial banks. in the research, the data of 15 commercial banks in vietnam for the period of 2008-2017 were used, and panel data analysis was used as the research method. in the study where the dependent variable was selected as return on assets, the independent variables were; non-performing loans and loan-to-deposit ratio. according to the results of the research, non-performing loans, loan deposit ratio have a statistically significant relationship on return on assets. it has an impact on the profitability of the bank's total assets. however, it was determined that the effect on the return on assets was not statistically significant. as non-performing loans increase, asset profitability decreases and bank profitability decreases. alshebmi et al. (2020) researched to determine the effect of non-performing loans and bank profitability. using the data of 12 commercial banks in saudi arabia for the period 2008-2018, the relationship between in-bank and nonbank variables was examined using panel data analysis, correlation, and regression analysis. according to the results the relationship between credit interest, credit volume and net profit in the turkish banking sector 293 of the research, it has been determined that there is a negative relationship between non-performing loans and return on assets, bank liquidity gdp, total loans, total assets, and inflation. a positive relationship was found between nonperforming loans and capital adequacy. banks are the most important actors in monetary markets. banks play an important intermediary role in ensuring the balance of money supply and demand in financial markets. banks are the most important financial institutions for the stable operation of the money market. banks provide intermediary services for the exchange of funds by making the savings collected from the savers who want to make use of their savings available to their customers in need of funds. as a result of the intermediary service, banks make a profit equal to the difference between their interest expense and income. the more banks lend, the more profit they can make. therefore, the increase in the net profit for the period ensures the increase in own resources. however, banks bear many risks when extending loans. banks add the risk premium to their profit margins while giving loans, taking into account the risks they bear. thus, banks can extend loans to risky customers at high rates while extending loans. the risk premium applied by the banks according to the customers' ability to pay is not given to earn high profits, but to cover the cost of the risks they are exposed to. banks take into account the possibility of non-repayment of some loans when extending loans. however, it is also possible that even customers who never fail to pay their bills may experience financial difficulties and have difficulty paying their debts. therefore, lending by banks is risky. in particular, it is considered important to examine non-performing loans with low collectability. for this purpose, it is necessary to examine the effect of banks' non-performing loans on their profits. although similar studies have been found in the literature, the number of studies on non-performing loans is quite low. it is expected that the examination of the effect of non-performing loans on banks' profits will contribute to the scientific literature. 3. the relationship between credit interest, credit volume and net profit in the turkish banking sector the banking sector is an important engine of financial markets. banks are one of the most important intermediary institutions in the money market. banks need to work within certain legal rules in order for money markets to work properly. in this regard, the banking regulation and supervision agency supervises the effective and efficient operation of banks. legal arrangements are made regarding loan disbursement. it is aimed to ensure stability in the money market by ensuring that banks avoid arbitrary practices and that they become a financial authority that customers can easily trust with deposit guarantees. banks, as an important actor in the money market, receive and use money. the supply and demand for money is possible with the interest rate of money. central banks determine the cost of borrowing and lending in the market by determining the interest rates. banks pay interest on their deposit accounts in line with their monetary policies and provide loans to their customers who want loans. while the increase in loan interest rates decreases the use of loans, the decrease in loan interest rates increases the amou nt of loan use. banks take into account the possibility of non-repayment of some loans while extending loans in line with interest rates. when some of the loans are not returned, the profits of the banks from the other loans they make decrease. for this reason, the fact that the loans are problematic affects the profits of the banks negatively. the decrease in bad loans increases profits. the fact that non-performing loans are important for the profit and profitability of banks constitutes the starting point of the study. for this purpose, the effect of non-performing loans on banks' profits is investigated. 4. methodology and data the sample of the study is banks operating in turkey. there are 54 banks with domestic and foreign capital in turkey. since some banks have several branches, it is thought that the use of data from all banks will adversely affect the success of the analysis. in addition, since the working principles of participation banks are different, they are not included in the analysis. for this reason, considering that banks with more than 100 branches operating in turkey appeal to more customers, banks with more than 100 branches in turkey are included in the application. since the data of şekerbank t.a.ş. differs from other banks, it is not included in the analysis as it may adversely affect the analysis. thus, the sample of the study consists of 12 banks. of the banks with more than 100 branches, 3 are state-owned, 9 have domestic capital and 21 have foreign capital. all public banks were included in the sample; republic of türkiye ziraat bankası a.ş. number of domestic branches is 1728, türkiye halk bankası a.ş. the number of domestic branches is 1008 and türkiye vakıflar bankası t.a.o. salim salimli & okşan kibritci artar 294 the number of domestic branches is 934. there are 5 banks from domestic capital banks; akbank t.a.ş. number of domestic branches is 713, anadolubank a.ş. the number of domestic branches is 114, türk ekonomi bankası a.ş. number of domestic branches is 451, yapı ve kredi a.ş. the number of domestic branches is 835, türkiye i̇ş bankası a.ş. the number of domestic branches is 1192. among the foreign capital banks, 4 banks were included; denizbank a.ş. the number of domestic branches is 693, ing bank a.ş. number of domestic branches is 191, qnb finansbank a.ş. the number of domestic branches is 466 and türkiye garanti bankası a.ş. the number of domestic branches is 884 (tbb, 2022). as of 2021, the bank with the highest assets is the republic of turkey ziraat bankası a.ş.; anadolubank a.ş. is the bank with the lowest assets. according to the table, the three biggest banks of turkey are republic of turkey ziraat bankası a.ş, türkiye i̇ş bankası a.ş and türkiye halk bankası a.ş. appears to be. as of 2021, when the ratio of non-performing loans to total loans of banks is analyzed, it is determined that the ratio varies between 3.02% and 9.25%. anadolubank a.ş. the ratio of non-performing loans to total loans is 9.25%, and it is the bank with the highest non-performing loans in the sample. republic of türkiye ziraat bankası a.ş. on the other hand, it is the bank with the lowest ratio of non-performing loans to total loans with a rate of 3.02%. when the data for 2021 are analyzed, the ratio of banks' loan provisions to total loans varies between 1.91% and 5.21%. anadolubank a.ş., the bank with the highest loan reserve ratio of 5.21%; the bank that allocates the lowest loan provision is türkiye ziraat bankası a.ş with a rate of 1.91%. it is an expected result that high provisioning is made for banks with non-performing loans in high amounts. however, some banks may increase the loan provision for non-performing loans at a higher rate than other banks due to prudence. it is observed that banks differ in their prudence policies in credit management. 5.empirical findings 5.1. correlation test results in practice, 3 different models have been developed and since the variables used are the same, correlation test should be done on dependent and independent variables. the correlation test is performed to examine the dependency relationship between two variables (yurdakul and i̇ç, 2009: 404). since the independent variables used in the 3 models are the same, only the dependent variables change. the correlation test results of dependent and independent variables are given in table 5.1. tablo 5.1: correlation test results roa roe nkm npl ka ma km fgg kfo roa 1.0000 roe 0,9014 1.0000 nkm 0,8862 0.8302 1.0000 npl -0.1652 -0.1962 -0.3524 1.0000 ka -0.5195 -0.5280 -0.6085 0.1902 1.0000 ma 0.1696 0.2701 0.1204 0.0891 -0.1375 1.0000 km -0.4397 -0.4948 -0.4500 -0.0118 0.6537 -0.8125 1.0000 fgg 0.1683 0.0703 0.1611 -0.1744 0.0614 -0.2883 0.2697 1.0000 kfo -0.1687 -0.1533 -0.3430 0.5080 0.2265 0.0571 0.0738 -0.5630 1.0000 p<0.05 when the correlation test results are analyzed, it is seen that the return on assets ratio (roa), return on equity ratio (roe) and net profit margin (ncm) variables calculated from the net profit account have a high correlation relationship. it has been determined that there is a negative relationship between the return on assets ratio and ka and km variables. it has been determined that there is a negative relationship between the return on equity and the variables of pa and pf. it has been determined that there is a negative relationship between net profit margin and na and pf. when the analysis results are evaluated together, there is a high correlation between the dependent variables. since each of the dependent variables will be used individually in each model, the correlation relationship between the dependent variables does not pose any problem. it was determined that there was no correlation between the independent variables or that they were at a low level. the relationship between credit interest, credit volume and net profit in the turkish banking sector 295 5.2. multicollinearity testing in case of the possibility of establishing a spurious regression relationship between the variables, multicollinearity test should be performed. what is meant by the absence of multicollinearity problem is that the correlation coefficient between the dependent variables takes zero or close to zero values (karabulut and şeker, 2018: 1059). multicollinearity can lead to the establishment of a spurious regression relationship. a vif test is required to test if there is a multicollinearity problem. the independent variables are the same in all 3 models in the application of the study, and the results of the multicollinearity vif test are given in table 5.2. tablo 5.2: vif test results variables vif 1/vif km 25.82 0.036726 ma 14.68 0.068109 npl 9.00 0.111101 ka 2.17 0.461561 kfo 1.77 0.563499 fgg 1.45 0.6912 meanvif 9.15 p<0.05 when the vif values are examined, it is seen that the vif values of the km, ma and npl variables are higher than 5. when the variables with high vif values are removed from the model, there is not much change in the analysis result. it is expected that the subtraction of the ma variable, which logically shows the ratio of deposits to total assets, will positively affect the results of the analysis. when the ma variable is removed, the mean vif value decreases. the results of the multicollinearity test performed by removing the ma variable are given in table 5.3. tablo 5.3: vif test results variables vif 1/vif kfo 2.16 0.463160 km 2.00 0.499262 ka 1.89 0.528304 fgg 1.77 0.565162 npl 1.43 0.700587 mean vif 1.85 p<0.05 when the vif test results are examined, it is seen that the variables do not have a multicollinearity problem since the vif values of the variables are below 5. 5.3.hausman test results the hausman test should be performed to decide whether the panel data test will be performed with random effects if there are no fixed effects (torres-reyna, 2007). in the study, hausman test is performed separately for each of the three models in order to decide whether to use the fixed effects or random effects method. the hausman test result for the model in which the return on assets ratio (roa) is the dependent variable is given in table 5.4. salim salimli & okşan kibritci artar 296 tablo 5.4: hausman test results for the roa variable coefficients (b) fe (b) re (b-b) difference npl -0.1018418 -0.0699510 -0.0311891 ka -0.0070321 -0.0246504 0.0176183 km -0.0192228 -0.0128679 -0.0063548 fgg 0.0115288 0.0104873 0.0010415 kfo 0.0004229 0.0003630 0.0000598 chi2(5) = 4.06 prob > chi2 = 0.3981 p<0.05 since the probe value is greater than 0.05, panel data analysis should be performed using the random effects method. the hausman test result for the model in which the return on equity (roe) is the dependent variable is given in table 5.5. tablo 5.5: hausman test results for the roe variable coefficients (b) fe (b) re (b-b) difference npl -1.1285790 -0.6609428 -0.4676364 ka -0.1790056 -0.2164320 0.0372376 km -0.1174686 -0.0995733 -0.0178940 fgg 0.0737556 0.0585612 0.0151944 kfo 0.0039267 0.0025570 0.0013697 chi2(5) = 5.46 prob > chi2 = 0.3628 p<0.05 since the probe value is greater than 0.05, panel data analysis should be performed using the random effects method. the hausman test result for the model in which the net profit margin (ncm) is the dependent variable is given in table 5.6. tablo 5.6: hausman test results for the nkm variable coefficients (b) fe (b) re (b-b) difference npl -1.0589680 -0.9837950 -0.0751725 ka -0.1710305 -0.2995698 0.1285393 km -0.1155793 -0.0890196 -0.0265597 fgg 0.0834430 0.0709990 0.0124440 kfo 0.0009231 0.0007125 0.0002105 chi2(5) = 6.90 prob > chi2 = 0.228 p<0.05 since the probe value is greater than 0.05, panel data analysis should be performed using the random effects method. the relationship between credit interest, credit volume and net profit in the turkish banking sector 297 5.4. autocorrelation test results the spurious regression seen between the variables may cause the model to have high explanatory power. vif test was performed to avoid multicollinearity problem. the fact that the banks in the sample and especially the time series consist of only 10 years of data makes unit root tests difficult. in the case of a time series with a long frequency, it is possible to investigate the existence of a cointegration relationship between the variables. since unit root tests are not performed due to the fact that panel cointegration tests will not be performed, another factor to be done in practice is the presence of autocorrelation. the autocorrelation test is about whether the variables are arranged in any order, in other words, whether they take consecutive values. the existence of a relationship between error terms may negatively affect the significance of the model (gujurati, 2004). thus, the hypotheses were developed regarding the existence of autocorrelation in the models of the study are given below. h0: there is no autocorrelation in the error term (white noise). h1: there is autocorrelation in the error term. durbin-watson and baltagi-wu lbi autocorrelation test results for the three models within the scope of the application are given in table 5.7. table 5.7: autocorrelation test results roa roe nkm durbin-watson = 0.933655 durbin-watson = 1.050428 durbin-watson = 0.92462064 baltagi-wu lbi: 1.219574 baltagi-wu lbi: 1.3192655 baltagi-wu lbi: 1.252718 prob> chi2 = 41.53 prob> chi2 = 43.50 prob> chi2 = 63.42 wald chi2(7)= 0.0000 wald chi2(7)= 0.0000 wald chi2(7)= 0.0000 p<0.05 when the autocorrelation test results of the models developed for the dependent variables roa, roe and nkm were examined, it was determined that there was no autocorrelation according to the results of durbin watson and baltagi-wu lbi tests. 5.5. varying variance analysis one of the most used methods in statistical and econometric studies is regression analysis. after deciding which fixed effects or random effects methods to use in panel data models, it is necessary to examine whether there is varying variance. it is the assumption that the variances of the error terms in the panel data model, expressed with varying variance, do not change. in case of changing variance, in order to keep the coefficients consistent and to prevent the deviation of the standard errors, it is necessary to perform panel data analysis by performing tests that predict robust standard errors, which are expressed as robust (ün, 2018: 75). in cases where panel data random effects model is used, it is seen that heteroscedasticity is tested with levene brown and forsythe test for varying variance test (tatoğlu, 2018: 235-236). the hypotheses created for the 3 models of the study regarding the existence of varying variance are given below. h0: there is varying variance in the model. h1: there is no varying variance in the model. the results of the levene, brown and forsythe test, which were conducted to test the developed hypotheses in the roa model, are given in table 5.8. table 5.8: varying variance test results no mean standard deviation frequency 1 0.0004295 0.0055126 10 2 0.0016828 0.0079682 10 3 -0.0011565 0.0036426 10 4 0.0001118 0.0023884 10 salim salimli & okşan kibritci artar 298 5 0.0003480 0.0035880 10 6 -0.0001549 0.0020987 10 7 -0.0003187 0.0065438 10 8 0.0005578 0.0041794 10 9 -0.0011935 0.0021646 10 10 0.0000263 0.0024062 10 11 0.0003052 0.0041789 10 12 -0.0008747 0.0047850 10 total 2.23e-11 0.0043425 120 w0= 6.4712042 df(11, 108) w50= 2.9853173 df(11, 108) w10= 5.8632258 df(11, 108) p<0.05 when the results of levene, brown and forsythe test w0, w10 and w50 were examined, the ho hypothesis was accepted that the p value was lower than 0.05. it has been determined that there is varying variance in the model. the results of levene, brown and forsythe tests, which were conducted to test the developed hypotheses in the roe model, are given in table 5.9. tablo 5.9: varying variance test results on roe model no mean standard deviation frequency 1 -0.0099849 0.0358534 10 2 0.0075183 0.0575625 10 3 0.0007663 0.0321547 10 4 -0.0022813 0.0171526 10 5 0.0136358 0.0404744 10 6 -0.0089415 0.0172728 10 7 -0.0037598 0.0543148 10 8 -0.0081184 0.0312562 10 9 -0.0131513 0.0219333 10 10 0.0094993 0.0287404 10 11 0.0029721 0.0346406 10 12 -0.0043914 0.0378756 10 total 1.671e-10 0.03545414 120 w0= 4.1839485 df(11, 108) pr > f = 0.00003762 w50= 2.4393056 df(11, 108) pr > f = 0.00931602 w10= 3.8117925 df(11, 108) pr > f = 0.00012212 p<0.05 when the results of levene, brown and forsythe test w0, w10 and w50 were examined, the ho hypothesis was accepted that the p value was lower than 0.05. it has been determined that there is varying variance in the model. the results of the levene, brown and forsythe test, which were conducted to test the developed hypotheses in the nkm model, are given in table 5.10. tablo 5.10: varying variance test results on nkm model no mean standard deviation frequency 1 0.0007089 0.0399556 10 2 0.0124967 0.0633452 10 3 -0.0100939 0.0186671 10 the relationship between credit interest, credit volume and net profit in the turkish banking sector 299 4 0.0041334 0.0201402 10 5 0.0061868 0.0349323 10 6 -0.0020515 0.0192891 10 7 -0.0061610 0.0602720 10 8 0.0010213 0.0293033 10 9 -0.0116404 0.0168372 10 10 0.0027036 0.0219598 10 11 0.0070343 0.0475709 10 12 -0.0043382 0.0537525 10 total -8.93e-11 0.0379038 120 w0 = 4.2833614 df(11, 108) pr > f = 0.00002751 w50= 2.6014710 df(11, 108) pr > f = 0.00563384 w10= 3.8647465 df(11, 108) pr > f = 0.00010324 p<0.05 when the results of levene, brown and forsythe test w0, w10 and w50 were examined, the ho hypothesis was accepted that the p value was lower than 0.05. it has been determined that there is varying variance in the model. 5.6.panel regression test results according to the hausman test results, it was determined that the random effects method should be used in all three models. considering the existence of autocorrelation with varying variance, it is stated that the tests given in table 5.11 below should be performed (torres-reyna, 2007). tablo 5.11: panel data analysis model roa roe nkm autocorrelation not present not present not present varying variance present present present tests huber, eicker and white estimator huber, eicker and white estimator huber, eicker and white estimator p<0.05 all models are analyzed using the panel data random effects method. since there is a problem of varying variance in 3 different models, it should be analyzed by removing this effect. therefore, methods that include resistant standard errors in the analysis are used. since there is varying variance in roa, roe and nkm models, analysis is made with the random effects method using the huber, eicker and white estimator (ün, 2018: 95-98). the panel data analysis results of the model in which the return on assets ratio (roa) is the dependent variable are given in table 5.12. tablo 5.12: roa panel data analysis results r2 = 0.3685 no. observations = 120 wald chi2(5)= 105.64 size = 12 prob > chi2 = 0.0000 roa coefficeint robust standard eror z p > | z | npl -0.069951 0.049482 -1.41 0.157 ka -0.024650 0.018789 -1.31 0.190 salim salimli & okşan kibritci artar 300 km -0.012868 0.004085 -3.15 0.002 fgg 0.010487 0.001876 5.59 0.000 kfo 0.000363 0.000090 4.02 0.000 continuous 0.021222 0.013769 1.54 0.123 sigma_u 0.001928 sigma_e 0.004562 rho 0.151466 the explanatory power of the model was 36.85%, and the model was statistically significant. when the p values of the independent variables are examined, it is seen that the km, fgg and kfo variables are significant. npl and ka variables were insignificant. the return on assets ratio is very important in terms of evaluating the effective use of the assets of the banks. the return on assets ratio shows how much profit the bank makes for one lira of assets. as assets are used effectively and efficiently, the return on assets ratio also increases. return on assets ratio is an important indicator in evaluating the performance of banks. it is thought that banks' non-performing loans may have an effect on profitability. however, as a result of the analysis, a statistically significant relationship was not found between npl, that is, the ratio of nonperforming loans to total loans and return on assets. the increase in the share of total loans in assets is expected to increase the return on assets ratio. however, as a result of the analysis, no statistical significance was found between the ka variable, which shows the ratio of total loans to total assets, and the return on assets. there is a 1.2% negative relationship between the pf variable, which expresses the ratio of total loans to total deposits, and the return on assets ratio. when the ratio of loans to deposits decreases by 1%, the return on assets ratio increases by 1.2%, or when the ratio of loans to deposits increases by 1%, the roa is expected to decrease by 1.2%. there is a 1% positive relationship between the fgg variable, which expresses the ratio of interest income to interest expenses, and the return on assets. as the ratio of interest incomes to interest expenses increases, the asset profitability ratio increases, and as the ratio of interest income to interest expenses decreases, the asset profitability ratio decreases. the fact that interest income is higher than interest income is thought to be due to the more efficient use of assets. statistically, there is a very small significant relationship between the return on assets ratio and the loan interest rate in the same direction. the increase in the loan interest rate has a positive effect on the return on assets of the bank. otherwise, if the loan interest rate decreases, there may be a decrease in the return on assets ratio. as a result of the analysis, no statistically significant relationship was found between non-performing loans and return on assets ratio. anggriani and muniarty (2020) found that non-performing loans do not have a partially significant effect on return on assets. it is possible to come across in the study of ahmad and bashir (2013) that there is a positive relationship between non-performing loans and return on assets in the literature. fofack (2005), kırui (2013), islam (2018), kılınç et al. (2018), kingu (2018), panta (2018), psaila, spiteri and grima (2019), alshebmi et al. (2020), saritas et al. (2016), gülhan and uzunlar (2011) and bapat (2018) found a negative relationship between non-performing loans and return on assets in their studies. the panel data analysis results of the model in which the return on equity ratio is the dependent variable are given in table 5.13. tablo 5.13: roe panel data analysis results r2 = 0.3709 no. observations = 120 wald chi2(5)= 55.22 size = 12 prob > chi2 = 0.0000 roa coefficeint robust standard error z p > | z | npl -0.660943 0.327116 -2.02 0.043 ka -0.216243 0.098790 -2.19 0.029 km -0.099573 0.037082 -2.69 0.007 fgg 0.058561 0.020135 2.91 0.004 kfo 0.002557 0.000928 2.76 0.006 continuous 0.255379 0.068034 3.75 0.000 sigma_u 0.010314 the relationship between credit interest, credit volume and net profit in the turkish banking sector 301 sigma_e 0.036767 rho 0.072954 the explanatory power of the model was 37.09%, and the model was statistically significant. when the p values of the independent variables were examined, it was determined that all variables were significant. the return on equity ratio shows how efficiently the equity capital of banks is used. in addition to the deposits they collect, banks also extend their own resources as loans. it can increase the efficiency of the banks by converting the previous years' profits in their own resources into investments again. therefore, net profit is of great importance in the increase of own resources. the most important source of income for banks is interest income. collected deposits, syndicated loans and banks' equity are provided as loans to those who request funds. the higher the collection of loans, the higher the profit and profitability of the bank. it has been determined that there is a 66% negative significant relationship between npl, which expresses the ratio of non-performing loans to total loans, and return on equity. with the increase in non-performing loans, the profitability of equity capital will decrease; it is seen that the profitability of equity capital will increase with the decrease in non-performing loans. a negative significant relationship of 21% was found between the ka variable, which expresses the ratio of total loans to total assets, and the return on equity ratio. it is expected that the increase in the share of total loans in assets will decrease the return on equity, or the decrease in the share of total loans in assets will increase the return on equity. it has been determined that there is a 9.9% negative relationship between the pf variable, which expresses the ratio of total loans to total deposits, and the return on equity. the increase in the share of total loans in deposits decreases the return on equity capital, while the decrease in the share of total loans in deposits is expected to decrease the rate of return on equity. it has been determined that there is a positive relationship of 2 per thousand between the loan interest rate and the return on equity capital. an increase in the loan interest rate is expected to increase the return on equity ratio or a decrease in the loan interest rate is expected to decrease the return on equity ratio. the relationship between them is in the same direction and it is a very low rate. in the studies conducted, ahmad and bashir (2013), nyarko-baasi (2018) and bapat (2018) found a negative relationship between non-performing loans and roe; bhattarai (2017), on the other hand, found a positive relationship between non-performing loans and roe. the panel data analysis results of the model in which the net profit margin is the dependent variable are given in table 5.14. tablo 5.14: nkm panel data analysis results r2 = 0.4657 number of observations = 120 wald chi2(5)= 68.19 number of companies = 12 prob > chi2 = 0.0000 nkm katsayı robust std. hata z p > | z | npl -0.983795 0.357827 -2.75 0.006 ka -0.299570 0.193466 -1.55 0.122 km -0.089020 0.038503 -2.31 0.021 fgg 0.070990 0.021024 3.38 0.001 kfo 0.000713 0.000822 0.87 0.386 sürekli 0.319762 0.149942 2.13 0.033 sigma_u 0.192544 sigma_e 0.039806 rho 0.189605 p<0.05 salim salimli & okşan kibritci artar 302 the explanatory power of the model was 46.57%, and the model was statistically significant. when the p values of the independent variables are examined, it is seen that the npl, km and fgg variables are significant. ka and kfo variables were insignificant. net profit margin is a frequently used performance indicator in commercial enterprises. for example, it shows how much net profit is obtained in exchange for sales of 100 liras. considering that it would be beneficial to find the variables affecting the net profit margin by developing a different model, which is not seen in the literature, among non-commercial financial institutions, it is determined that neither profit margin has a significant relationship with only three variables. when the analysis results are examined, it is seen that the npl variable, which shows the ratio of non-performing loans to total loans, affects the net profit margin negatively by 98%. therefore, it is determined that non-performing loans have a significant effect on the net profit margin. according to the analysis findings, the increase in npl decreases the net profit margin; the decrease in npl increases the net profit margin. it has been determined that there is a significant 8.9% negative relationship between the pf variable, which shows the ratio of total loans to total deposits, and the net profit margin. increasing the ratio of total loans to total deposits, decreasing the bank's net profit margin; the decrease in the ratio of loans to total deposits is expected to increase the net profit margin of the bank. it has been determined that there is a positive 7% significant relationship between the ratio of interest income to expenses, which is another significant variable in the model, and the net profit margin. it is expected that the net profit margin of the bank will increase as the ratio of the bank's interest income to its expenses increases. because the increase in interest income, which is the main income source of the bank, higher than its expenses directly increases the net profit. it is recommended that the bank follow policies that increase interest income and decrease interest expenses in order to increase its net profit. there was no statistically significant relationship between the ka variable, which is the ratio of total loans to total assets, and the net profit margin. it is expected that the increase in the total of loans within the bank's assets will increase the net profit margin. there was no statistically significant relationship between loan interest rate and net profit margin. although the amount of loans used decreases with the increase in the loan interest rate, it is possible for banks to make more net profits. loan interest rates directly affect the loan amount used. although there are not many studies in the literature that analyze the relationship between non-performing loans and net profit margin, akter and roy (2017) found a negative relationship between non-performing loans and net profit. 6. conclusion banks, one of the important actors of the money market, are very important institutions in ensuring and maintaining financial stability. banks provide the necessary financing to individuals, businesses and governments to finance consumption and investment expenditures. this service, which banks provide by lending, is important for the growth, development and development of the economy. loan interest rates are one of the important factors that affect banks' deposit collection and lending. the rise in interest rates causes an increase in the interest that banks will give to depositors. thus, banks pay high interest rates on deposits. it has to pay the principal borrowed from its customers to its customers in due time. customers will not want to use loans because banks with high deposit interest will keep the interest rates higher while extending loans. the decrease in credit use also causes a decrease in consumption and investment. in addition, the rate of return on loans extended by banks with high interest rates may decrease. when banks cannot collect the loans they have made, they turn into losses. as non-performing loans increase, the profit and profitability of banks may be adversely affected. when considered as accounting records, a provision is made for uncollectible receivables, the process is started for the collection of receivables and when the process is completed, the provision for the receivables is canceled. however, when it is not possible to collect the receivables, the provision for the receivables is recognized as an expense and deducted from the profit. especially in periods when the economy is stagnant, the low rate of return on loans may reduce the total profits of banks. this situation reduces the profit of the entire banking sector throughout the country, and even causes some banks to lose their own resources as a result of high deposit interest rates. therefore, banks need to establish an effective credit management system. it is very important to examine the effect of banks' non-performing loans on their profitability. non-performing loans are the non-performing loans of banks. the increase in the share of non-performing loans in total loans indicates that non-performing loans have increased. the average of 12 banks' non-performing loans for the period of the relationship between credit interest, credit volume and net profit in the turkish banking sector 303 2012-2021 is 3.71%. approximately 4 lira of the average 100 lira loans of the banks in the sample constitutes nonperforming loans. the high level of non-performing loans may reduce the probability of collection of loans. the return on assets ratio is very important in terms of evaluating the effective use of the assets of the banks. the return on assets ratio shows how much profit the bank makes for one lira of assets. as assets are used effectively and efficiently, the return on assets ratio also increases. return on assets ratio is an important indicator in evaluating the performance of banks. the average return on assets of the 12 banks in the sample over a 10-year period varies between 10 per thousand and 22 per thousand. it is determined that the return on assets ratio of banks has followed a decreasing trend since 2012 and has been realized as 13 per thousand in the last four years. it is thought that banks' non-performing loans may have an impact on profitability. as a result of the analysis, no statistically significant relationship was found between npl, that is, the ratio of non-performing loans to total loans and return on assets. there is a 1.2% negative relationship between the pf variable, which expresses the ratio of total loans to total deposits, and the return on assets ratio. when the ratio of loans to deposits decreases, the return on assets ratio increases. there is a 1% positive relationship between the fgg variable, which expresses the ratio of interest income to interest expenses, and the return on assets. as the ratio of interest incomes to interest expenses increases, the return on assets increases. the return on equity ratio shows how efficiently the equity capital of banks is used. the average return on equity of the 12 banks in the sample over a 10-year period varies between 9% and 18%. just like the return on assets ratio of banks, the decline that started from 2012 continued until 2017 and increased in 2018. in the 2018-2022 period, it varies between 12% and 15%. the increase in the amount of own resources or the decrease in the amount of net profit may be effective in the decrease of the ratio. therefore, net profit is very important in the increase of own resources, and the interest income, which constitutes the net profit, should also increase. because the most important source of income for banks is interest income. collected deposits, syndicated loans and banks' equity are provided as loans to those who request funds. the higher the collection of loans, the higher the profit and profitability of the bank. in the study, a significant negative correlation of 66% was found between the ratio of non-performing loans to total loans and the return on equity. it is thought that the profitability of equity capital will decrease with the increase in non-performing loans. a negative significant relationship of 21% was found between the ka variable, which expresses the ratio of total loans to total assets, and the return on equity ratio. the decrease in the share of total loans in assets is expected to increase the return on equity. it has been determined that there is a 9.9% negative relationship between the pf variable, which expresses the ratio of total loans to total deposits, and the return on equity. with the decrease in the share of total loans in deposits, the return on equity is expected to increase. net profit margin is a performance indicator that is frequently used in commercial enterprises and has been used in this study to evaluate the financial performance of banks. the average of the net profit margin of the 12 banks in the sample over a 10-year period varies between 9% and 20%. the net profit margin of the banks started to decrease as of 2012, just like the return on equity and return on assets ratios, and the decrease continued until 2017. although it increased slightly in 2018 and 2019 from 2017, it was around 10% in 2020 and 2021. in order to increase the net profit margin of the banks, it is thought that it would be beneficial to take improvement measures to increase the interest income. it is observed that the ratio of non-performing loans to total loans affects the net profit margin negatively by 98%. therefore, it is determined that non-performing loans have a significant effect on the net profit margin. the increase in non-performing loans reduces the net profit margin. it has been determined that there is a positive 7% significant relationship between the ratio of interest incomes to interest expenses, which is another significant variable in the model, and the net profit margin. it is expected that the net profit margin of the bank will increase as the ratio of the bank's interest income to its expenses increases. because the increase in interest income, which is the main income source of the bank, higher than its expenses directly increases the net profit. it has been determined that there is a significant 8.9% negative relationship between the pf variable, which shows the ratio of total loans to total deposits, and the net profit margin. the increase in the ratio of total loans to total deposits is expected to decrease the net profit margin of the bank. when the profitability ratios of the banks are examined, it has the highest profitability ratio since 2012, while the ratios started to decrease as of 2013 and continued until 2017. although it has started to rise since 2017, they have not reached the high rates as in 2012. it is necessary to examine the factors that reduce the income of banks in the period of 2012-2021. the reasons for the decrease in interest incomes and the increase in interest expenses should be investigated. it is recommended to examine the relationship between the increase in the assets and equity of the salim salimli & okşan kibritci artar 304 banks and the total deposit volume and the total loan given. in the model where loan interest rates are meaningless, the effect of macroeconomic indicators on the profitability of the bank can be investigated. non-performing loans should be monitored, as loans and real sector investments will decrease if npls increase. in times of economic recession, banks may choose to follow appropriate credit policies for the country's economy instead of pursuing profit. in order to reduce their non-performing loans, banks can determine strong strategies and establish long-term prudent systems and policies within the bank. in addition, one of the most effective ways to get rid of the negative effects of non-performing loans on bank balance sheets; the way of transferring non-performing loans to amcs can be followed. the fact that companies take precautions against exchange rate risk and banks with low interest income are more selective towards their loan customers can be among the measures that can be taken for problem loans. banks that cannot collect their loan payments may encounter liquidity problems, causing depositors to not be able to collect their money whenever they want, leading to loss of reputation and distrust in the banking sector. since the study emphasizes the importance of non-performing loans on bank profitability, it is expected to contribute to the literature. references ahmad, f. & bashir, t. 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(2011). bankalarda takipteki krediler: türk bankacılık sektöründe takipteki kredilerin tahminine yönelik bir model uygulaması. finansal araştırmalar ve çalışmalar dergisi, 3(5), 43-56. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 261-277 261 the effect of intercultural interaction on the glocalization of döner kebab arzan di̇lek bozkurt istanbul ticaret university, turkey i̇smet kahraman arslan istanbul ticaret university, turkey received: may 01, 2023 accepted: may 30, 2023 published: june 01, 2023 abstract: intercultural communication has grown in significance as a result of globalization. by influencing the cultural diversity of goods and services globally, this process has helped to recognize and spread local cultures on a global scale. in this context, glocalization is an example of cross-cultural interaction involving a global product like döner kebab. the döner kebab is a well-known fast-food item that is consumed in various local adaptations in every country, reflecting the rich diversity of cultural traditions and culinary preferences. in addition to emphasizing the subjective experiences, such as taste, smell, and tactile sensations that shape our worldviews from a phenomenological perspective, this article highlights the entry of döner kebab into the process of glocalization through cross-cultural interaction. therefore, we can better comprehend the intricate interaction between global and local cultures by looking at the sensor y experiences of döner kebab during the glocalization process. the case analysis method demonstrates how döner kebab consumpti on varies by nation and how adaptation affects local culture. the success of döner kebab's glocalization through cross-cultural interaction exemplifies how cultural differences and new culinary traditions are created. an essential framework for comprehending sensory experiences during the consumption and adaptation of döner kebab is provided by phenomenology and case analysis. by highlighting the significance of considering consumers' subjective experiences and the sensory aspects of food in forming global food culture, this approach is helpful in understanding the complex interactions of globalization in the food industry. keywords: glocalization, globalization, local food, döner kebab, fast food, marketing, intercultural interaction jel codes: m14, m31, n8, z10 1. introduction the term "glocalization," which refers to the simultaneous occurrence of both universalizing and particularizing tendencies in modern social, political, and economic systems, has gained significant currency in the twenty-first century. since the 1990s, the idea has been theorized by a number of sociologists and other social scientists, emphasizing how the concerns of localism and the forces of globalization combine to produce a local adaptation and interpretation of those forces. the döner kebab, which originated in turkey and spread throughout the world with local adaptations, is a prime example of glocalization. the glocalization of the döner kebab and its development into a fast-food phenomenon are explored in ryan broderick's article "what does a "doner kebab" look like in 17 cities around the world" published on buzzfeed in 2015. the author looks at how the regional variations of the traditional turkish dish, which is made with thinly sliced meat and vegetables, have been made to suit the preferences of various nations and cultures. the article explores how the döner has become a global food, with each region adding its own distinctive twist to the dish through interviews with kebab shop owners and experts. the döner kebab is a well-known fast-food item around the world, though local variations exist in each nation. in germany, it is frequently larger than the turkish original and includes extra toppings like cheese or bacon. it is arzan di̇lek bozkurt & i̇smet kahraman arslan 262 frequently served with a bread roll, salad, and a variety of sauces, such as garlic or chilli sauce. the döner kebab is a staple of late-night food culture in the uk. it is frequently served with fries and covered in chilli or garlic sauce, but there has been a recent trend toward healthier options that include grilled meat and whole-wheat pita bread. the döner kebab has been modified for american tastes in the country, frequently with larger portions and extra toppings like avocado or hummus, and it is frequently served with a side of fries. the döner kebab is referred to as shawarma in the middle east and is frequently served with pickles, tomatoes, and garlic sauce in a wrap or pita bread. in asia, local flavors and ingredients have been incorporated into the döner kebab, such as teriyaki sauce in japan and kimchi and sesame oil in south korea. unique fusions of international and regional cuisine have been produced as a result of döner kebab glocalization. due to this process, a wide variety of modifications and variations have been produced to suit regional tastes and preferences. additionally, it has made it possible for people from all walks of life and cultural backgrounds to enjoy döner kebabs on a global scale. the glocalization of turkish cuisine, best exemplified by the döner kebab, reveals the potency of cultural adaptation and exchange, where local and global ideas converge to produce something fresh and original. it is evidence of how adaptable food is and how local cultures can be in a globalized world. 2. literature review glocalization, a global phenomenon, has altered local cultures in many ways, including food. the well-known turkish dish döner kebab, which is now a globalized food item in many nations, is one unusual example. researchers are now interested in learning how the traditional turkish döner kebab has been adapted to regional cuisines and how these adaptations represent the glocalization process. the glocalization of döner kebab in different nations is examined in this review, along with its history, cultural significance, and the ways in which it has been modified to suit local preferences and tastes. 2.1. glocalization theory glocalization can be seen as a hybridization process whereby international and local cultures, goods, and practices converge. consumer demand for products that are both internationally recognizable and locally adapted frequently drives this industry. as a result, "glocal products" that appeal to both local and global markets have begun to appear (britannica, 2023). glocalization affects a wide range of social, political, and cultural phenomena in addition to business strategies, including food, fashion, music, and language. it casts doubt on the idea of a single, predominant global culture and emphasizes the value of cultural diversity and local context (oxford, 2023). glocalization detractors claim that it can result in cultural homogenization and the disappearance of regional customs and identities. additionally, they note that glocal products frequently cost more than purely local ones, which can lead to access and affordability disparities. the ongoing conflicts between local and global forces in modern society are reflected in the complex and dynamic process known as glocalization. it draws attention to the necessity of a complex view of globalization that acknowledges the significance of local context and cultural diversity (caves, 2004). the term "glocalization" is derived from the japanese word "dochakuka," which became well-known in the 1980s as japanese companies used it to expand internationally (khondker, 2004). manfred lange, the director of the german national global change secretariat, first used the phrase at an international science and policy conference in reference to heiner banking's exhibit, blackbox nature: rubik's cube of ecology. sociologist roland robertson introduced the phrase to the english-speaking world in the 1990s, and several social scientists have since theorized it (wellman & hampton, 1999; evans, marsh & stoker, 2013). the process of fusing local concerns with global forces to produce a local adaptation and interpretation of those forces is known as glocalization. the term is consistent with many postcolonial theory concerns, and its effects are especially apparent in the digitisation of music and other forms of cultural heritage (go, 2016; hebert & rykowski, 2018). the idea is common in business studies, particularly when marketing products and services to a diverse group of consumers (cameron & kenderdine, 2007; robertson et all, 2014). it has also been used in the fields of geography, sociology, and anthropology. as a theoretical framework, glocalization recognizes the simultaneous occurrence of both universalizing and particularizing tendencies in contemporary social, political, and economic systems. it challenges simplistic conceptions of globalization processes as linear expansions of territorial scales, indicating that the growing the effect of intercultural interaction on the glocalization of döner kebab 263 importance of continental and global levels is occurring together with the increasing salience of local and regional levels. thus, glocalization reflects or is characterized by both local and global considerations (cameron & kenderdine, 2007). many companies that have become global brands employ various strategies to create customer loyalty, and one such strategy is glocalization. glocalization involves customizing products or services for global markets to suit local cultures, and it has gained popularity since the 1980s. in markets where global competition is dominant, businesses strive to create customer loyalty through their global marketing strategies, and glocalization is a key tool in achieving this goal (koçoğlu & aydoğan, 2017). this strategy is a formula for businesses to increase their market share by offering global products that are tailored to local cultures. however, this process is not easy, and businesses need to determine their strategies by considering all factors. local impulses can be utilized not only to create new "trends" according to the needs of the region but also to the desires and preferences of the global market (arslan, 2016). glocalization is frequently used in the business management world as a strategy to "think globally, act locally." it entails customizing goods and services for regional markets while preserving a strong global brand identity (caves, 2004). for japanese businesses looking to grow their operations abroad, glocalization has proven particularly effective. local and global marketing are intertwined in the process of global marketing. koçolğu and aydoğan's study in turkey looked at how glocal marketing affects consumer brand loyalty. six facets of glocal marketing were identified: the product, social awareness, promotion, price, environment, and distribution. according to the study, brand loyalty was positively impacted by product, price, and promotion. the study looked at how consumers' perceptions of brand loyalty were affected by demographic factors like age, gender, income, and education level, but it found no discernible differences (koçoğlu & aydoğan, 2017). numerous studies, besides those by koçoğlu and aydoğan, have discovered a connection between glocalization and cultural hybridity. glocalization is a process that results from cultural interactions between people from different parts of the world. through this process, new cultural forms are developed that are distinct from their locale while also being influenced by the larger context in which they are present. on the other hand, the term "cultural hybridity" describes the blending of various cultural traditions to produce something fresh. migration, globalization, or other forms of cultural exchange may be to blame for this blending. because they both involve the development of novel cultural forms as a result of cultural interaction and adaptation, glocalization and cultural hybridity are closely related to one another (sirkeci, 2014). therefore, additional studies on glocalization and cultural hybridity may shed light on how cultures interact and transform in response to global processes. 2.2. history of döner kebab döner, a type of kebab created by piling spiced meat in the form of an inverted cone on a vertical rotisserie, has a long history that dates back to the ottoman empire of the 18th century. the ottoman empire's döner kebab tradition dates back to the 17th century when spicy meat slices were arranged in a horizontal bottle, much like cag kebabs are today. the earliest known mention of döner kebab in writing can be found in evliya elebi's seyahatname. evliya noticed a horizontally skewered kebab prepared by the crimean tatars in 1666, and it is clear from his thorough description that this kebab was actually a döner kebab. after the 1850s, döner kebabs were first prepared on a vertical skewer (işın, 2018). the photograph taken by james robertson in 1855 is considered to be the first rotary photograph in the world (wikipedia, 2023). in the photograph, pieces of lamb meat can be seen on a wooden table to the left of the square, while doner kebabs are arranged on an expanding hook and cooked over a charcoal fire at the other end of the table. (figure 1.) arzan di̇lek bozkurt & i̇smet kahraman arslan 264 figure 1: döner photo was taken in the 19th century ottoman empire source: wikipedia, 2023 the history of döner kebab has been a subject of debate among scholars and food enthusiasts. w.j. childs, an english spy who lived in istanbul between 1909 and 1913 and travelled through anatolia, describes a döner kebab he ate in amasya. according to childs, in turkey, unlike the way it is done in england, large pieces of meat are not roasted. instead, thin slices of meat are cut for the kebab, and hundreds of them are threaded onto a metal skewer, creating an inverted cone shape that is 66 cm high and 23-25 cm wide at the top. the skewer is continuously rotated over a charcoal fire, and when it's time to eat, long, thin slices are cut off the outer surface with a sharp knife and deftly caught on a plate. the meat cone, which looked so large in the morning, is almost gone by evening. (childs, 1916). today, döner is one of the most popular dishes in turkish cuisine and has become a beloved food item around the world. the influence of the ottoman empire on global cuisine is far-reaching and continues to be felt to this day. the migration of lebanese and syrian immigrants to mexico brought with it the culinary tradition of shawarma, which eventually evolved into the taco dorado. it is believed that döner kebab first arrived in greece during the population exchange of the 1920s and was eventually sold under the name gyros. additionally, shawarma has been prepared on different continents since the 1930s and has been sold in mexico by lebanese immigrants. as a result of globalization and the spread of turkish and arab cultures, döner kebab and shawarma have become a staple in the diets of people from various cultural backgrounds. the cooking method of slowly turning the meat on the rotisserie and slicing thin shavings from the outer layer as it cooks has influenced the creation of similar dishes in other cultures, such as the arab shawarma, greek gyros, canadian donair, and mexican al pastor (marks, 2010; prichep & estrin, 2015; kremezi, 2009; pri.org, 2015). in the 1970s, turkish immigrants in west berlin introduced the modern sandwich variant of döner kebab, which has since become a popular fast-food dish sold by kebab shops around the world. the sandwich typically contains various accompaniments such as salad or vegetables and may be served in a pita, wrap, or other types of bread. the success of the sandwich form is evident in the fact that there are now döner kebab shops in berlin than in istanbul. overall, döner kebab's cultural and culinary significance continues to thrive globally (the berlin spectator, 2022; cichanowicz, 2016; bbc news, 2013). the döner kebab is a well-liked dish that has spread across the globe in addition to its native turkey (kilic, 2009). the dish has undergone a number of adaptations and modifications over time in various nations, a process known as glocalization. glocalization is the process of tailoring internationally available goods and services to the demands and tastes of regional markets. this phenomenon is evident in the case of the döner kebab, which has undergone modifications to fit the preferences and cultural norms of various nations, giving rise to a number of regional variants (sirkeci, 2014). the paper aims to investigate the döner kebab's glocalization process, its effects on the dish's appeal, and the various cultural elements that have influenced this phenomenon. the effect of intercultural interaction on the glocalization of döner kebab 265 2.3. turkish style döner kebab variations döner kebab has begun to spread outside of turkey's borders. different parts of turkey consume döner kebab, and the shape can change depending on the kind of restaurant. the variety of döner kebab consumption reflects the country's regional diversity as well as turkey's long culinary tradition. döner kebab is prepared and served in a variety of ways, which highlights the distinctive cultural identities and preferences of various regions in turkey. this regional variation in döner kebab consumption also emphasizes how crucial food culture is to the formation of regional and societal identities (cebirbay & aktaş, 2008). döner kebab has many well-known serving types in turkey, which are “porsiyon, pilavüstü, i̇skender, dürüm, tombik, and ekmekarası”. porsiyon is served on a heated plate with peppers or tomatoes, while pilavüstü is served on a bed of pilaf rice. i̇skender is a specialty of bursa, served on pide bread with pepper or tomato sauce and fresh butter. dürüm is wrapped in a thin lavash and can be served with sauce, onion, and cheese in ankara, or with melted cheese in istanbul. tombik is served in a bun-shaped pita with a crispy crust, while ekmekarası is a filling sandwich made with döner and regular turkish white bread (culinary backstreets, 2023). figure 2: turkish menu with pictures for different types of döner source: şimarix döner (2023). restaurant menu the cultural diversity in different regions of turkey has influenced the glocalization of döner kebab. therefore, the recipes and presentations of döner kebab in different regions vary to suit cultural differences. ankara döneri is a traditional and authentic dish of turkish cuisine that has been granted geographical indication status by the turkish patent and trademark office. made with specific cuts of beef and a unique blend of herbs and spices, this type of döner kebab is particularly associated with the city of ankara. the meat is marinated and then stacked on a vertical spit to be slowly roasted over a charcoal fire. the use of a special spice blend including cumin, red pepper flakes, and sumac gives ankara döneri a distinctive and delicious flavour. served with lavash bread, fresh herbs, tomatoes, and onions, it has become a beloved food item not only in ankara but also in many other cities throughout turkey (kültür portalı, 2021; ankara ticaret odası, 2017) erzurum cağ kebabı is a traditional dish that originates from the oltu district of erzurum, turkey. it is made by marinating lamb or goat meat with onions, salt, and black pepper, and then skewering and grilling it over hot coals. the unique feature of cağ kebabı is the use of horizontal skewers, known as cağ, for grilling the meat. the cağ skewers are what give the dish its name. cağ kebabı has been sold commercially since the 1930s, and it has become a arzan di̇lek bozkurt & i̇smet kahraman arslan 266 staple dish of erzurum's cuisine. it is also registered as a geographical indication by the turkish patent and trademark office, protecting its unique identity and heritage (turkish patent and trademark office, 2010; otlu kaymakalmlığı, n.d.; babadostu, n.d.). figure 3: otlu cag kebabı source: otlu kaymakamlığı (n.d.). oltu cağ kebabı the diverse regional variations of döner kebab in turkey are shaped by the cultural influences of each region and offered to döner enthusiasts. the incorporation of locally sourced ingredients and traditional cooking techniques into döner preparation reflects the unique culinary identities of each region. as a result, the variations in taste, texture, and presentation of döner kebab across turkey offer a rich gastronomic experience for both locals and tourists. some examples are: sebzeli bodrum döneri: a type of döner made in the bodrum district of muğla, turkey, containing various vegetables. ulaş yaprak döneri: a type of döner made in the ulaş district of sivas, turkey, which received a trademark and geographical indication in 2020. i̇zmir kebabı: a type of kebab originating from the city of i̇zmir, turkey. bursa döner kebabı: a type of döner originating from the city of bursa, turkey, which received a trademark and geographical indication in 2022. antakya döner kebabı: a type of döner originating from the city of antakya in hatay, turkey, with a distinctive thin bread and a sauce made of tomato. ağrı yaprak döneri: a type of döner made in ağrı, turkey, which received a trademark and geographical indication in 2022. (wikipedia, 2023) the döner kebab, which is a traditional food of turkish cuisine, has become a part of mass culture. originally served in turkish restaurants, döner kebab has since spread to many other countries and has gained popularity as a fast and convenient food option. 2.4. döner kebab variations worldwide the sandwich form of döner kebab and its variations gained worldwide popularity in the mid to late 20th century. the first döner kebab shop opened in london in 1966 (akkoc, 2015) and became common in provincial cities by the late 1970s. in 1971, gyros were already a popular dish in greece and new york city, while a greek canadian version called donair was introduced in 1972 and became the official food of halifax before spreading across canada. the taco al pastor in mexico had also evolved from shawarma by the 1960s. in germany, turkish guest workers popularized the döner kebab in berlin in the early 1970s, developing its distinctive sandwich style with abundant salad, vegetables, and sauces sold at affordable prices (sirkeci, 2014). this dish soon became one of the top-selling fast food and street food dishes in germany and much of europe and gained popularity worldwide. 2.4.1. arabian peninsula & west asia shawarma is a well-known dish originating from the middle east and the ottoman empire. it is prepared by stacking thin slices of meat, traditionally lamb or mutton, onto a vertical rotisserie or spit and roasting it slowly. the cooked surface of the meat is continuously shaved off in thin slices as it rotates, resulting in a delicious and tender the effect of intercultural interaction on the glocalization of döner kebab 267 dish. although lamb or mutton is the traditional meat used, chicken, turkey, beef, or veal may also be used to prepare shawarma. the dish is particularly popular as street food in the greater middle east, including lebanon, egypt, kuwait, iraq, and the levant, and is also widely served in saudi arabia (marks, 2010; prichep & estrin, 2015; salloum & lim 2010; mattar, 2004; albala (ed.), 2011; davidson, 2014). across west asia and the arabian peninsula, the dish shawarma has become increasingly popular. shawarma is a type of kebab that originated in the ottoman empire and is cooked on a vertical rotisserie, similar to a döner kebab. but what makes shawarma special are its special seasonings, which are different from the ones frequently found in doner kebab. despite these variations, shawarma has developed its own identity and is well-known as a preferred street food in nations like egypt and those in the eastern mediterranean and arabian peninsula (marks, 2010). figure 4: shawarma dish alternatives source: wikipedia, 2023. an illustration of the cultural exchange and adaptation that take place during the process of glocalization, in which local cuisines adopt and transform foreign dishes to suit their own cultural and culinary preferences, is the rise and popularity of shawarma. the cultural and culinary effects of shawarma, including how it has affected regional cuisines and to what extent it has come to represent cross-cultural interaction and culinary innovation, could be studied in more detail. 2.4.2. austria the article examines the dürüm döner, a turkish dish that typically consists of meat and vegetables wrapped in lavash and was released in 2014 in the austrian newspaper der standard. the article includes recommendations and personal insights as well as an overview of the various vienna businesses that sell durum, drawing on reader feedback. the article highlights the complex interplay of factors that contribute to the overall quality of the dish, including the quality of the meat, the texture of the flatbread, and the use of condiments like yoghurt dip, by highlighting the subjective nature of taste and individual preferences. the article's thesis suggests that in order to fully appreciate the culinary value of durum, one must have a nuanced understanding of a variety of factors that influence the enjoyment of the dish and may differ from person to person (fidler, 2012). figure 5: austrian döner kebab source: fidler, h. (2014). bist du großer döner. arzan di̇lek bozkurt & i̇smet kahraman arslan 268 2.4.3. australia a shining example of glocalization in the food industry is the popularity of turkish kebab vendors in australia. glocalization draws attention to the dynamic interactions between local and global cultures as well as to how easily food can be adapted to suit regional tastes and preferences. the popularity of kebabs in australia demonstrates how glocalization can combine international and local culinary practices to create distinctive and delectable fusion cuisines. the glocalization of food will continue to be important in defining culinary experiences and cultural identities as we navigate a more globally connected world (hurriyet daily news, 2018). muray dereli, an investor from turkey, launched a brand-new döner restaurant in australia that offers a contemporary twist on age-old recipes. he uses a specially designed meat döner machine and high-quality ingredients and combines turkish and australian cultures in the restaurant's decor. his aim is to introduce traditional döner to australian customers and offer them a unique experience (dünya, 2020). the sbs television channel in australia is presenting a new three-part documentary series, "kebab kings," which focuses on the beloved turkish cuisine of döner and its contribution to australia's multicultural society, as well as the experiences of muslim families living the australian dream. the series follows the stories of different kebab vendors from turkish and syrian backgrounds as well as indian entrepreneurs, who operate their businesses 24/7 to cater to a diverse range of customers, from drunken revellers to hipsters. premiering on november 25th at 8:30 pm aest, the series highlights the glocalization of traditional turkish cuisine in australia (öncel, 2015). kebab or doner kebab, a popular fast food in australia, is typically associated with turkish or lebanese cuisine. in australia, it is often consumed in the early hours of the morning and considered "drunk food." a typical kebab consists of meat, lettuce, tomato, tabbouleh, hummus, onion, and sometimes cheese, all wrapped in toasted bread. a variety of condiments, such as chili sauce, garlic sauce, and barbecue sauce, are usually available to customize the flavour. the popularity of kebabs in australia reflects the trend of glocalization, as a foreign food item has been adapted and integrated into the local culture (broderick, 2015). figure 6: australian döner kebab kaynak: broderick, r. (2015). shawarmarma, buzzfeed 2.4.4. brazil a fascinating illustration of the glocalization process is the spread of cultural culinary traditions. one such instance is the brazilian dish known as churrasco grego, which is a brazilianized version of the turkish döner kebab. this local dish, prepared by brazilians, is frequently eaten day or night, including during soccer matches, and has a sweet and tangy vinaigrette addition. the emergence of churrasco grego emphasizes the döner kebab's global appeal as well as the glocalization process, in which local cultures and tastes influence and modify imported culinary traditions to produce something fresh and original (broderick, 2015). the effect of intercultural interaction on the glocalization of döner kebab 269 figure 7: brasilian döner kebab (churrasco) kaynak: freepix, 2023 döner kebabs prepared in brazilian style have also gained enormous popularity as street food in istanbul. when making döner kebabs in the brazilian style, chicken or beef is marinated in a blend of spices and then grilled on a vertical spit. the meat is then provided with vegetables, a selection of sauces, and a pita. the brazilian style döner kebab has won praise from many patrons for its distinctive flavor, and some have even dubbed it their favorite street food in istanbul. the continued popularity of fusion cuisine and the impact of world food cultures on regional cuisine are highlighted by this phenomenon (hurriyet, 2017; milor, 2009). istanbul's craze for brazilian style döner kebabs is a prime example of how global food cultures have influenced local cuisine, resulting in novel dishes that broaden people's tastes and foster a greater understanding of various cultures. this dish's cultural fusion highlights the potential for experimentation to produce delicious and long-lasting effects on regional cuisine, highlighting the culinary world's diversity and richness and the cultural exchange's ability to bring people together through food. 2.4.5. france kebab has a long history in france, where a sizable portion of the population is descended from regions where the dish is popular, including north africa and the middle east. the kebab was brought to france by north african immigrants in the 1960s and 1970s, and it quickly gained popularity as a fast food item in french cities. the first kebab shop opened in paris in the 1980s, but it wasn't until then that the kebab started to gain more popularity in french society (the guardian, 2014). the common kebab has arrived on the streets of paris, where it is referred to as "grec," which implies a greek origin. however, north african communities typically prepare this well-known street food, adding their own unique twist. it is frequently thought of as a go-to for people leaving bars and clubs since it is typically consumed at night, making it the prototypical drunk food. the kebab is typically served with french fries and is made up of shredded meat on a pita with a white sauce on top. the kebab's glocalization, which is occurring as it becomes more and more ingrained in french street food culture, shows how immigrant communities have an impact on regional culinary customs (broderick, 2015). arzan di̇lek bozkurt & i̇smet kahraman arslan 270 the number of kebab shops in france has surpassed that of the world's largest fast food chain, mcdonald's, in recent years (the local, 2018). the low cost of kebabs in comparison to other fast-food options, its accessibility in areas with a high concentration of youth and students, and the rising demand for halal food are just a few of the reasons for its increase in popularity. kebabs are becoming more and more well-liked, and the french government has even acknowledged this by declaring them to be a part of french culture. the kebab was proclaimed to be "the king of street food" and to have "entered the culinary heritage of france" in a french parliamentary report from 2011 (the telegraph, 2011). the kebab, however, has come under fire and generated debate in france as some politicians and media outlets have linked it to immigration and islamic culture. in 2012, a mock newspaper ran a front-page cartoon with the caption "the muslim taco" that featured a kebab. many people criticized this because they believed it to be encouraging racial and islamophobic stereotypes (bbc news, 2012). despite the controversies, the kebab has firmly established itself as a popular and important part of french cuisine and culture, with many french people enjoying it as a quick and tasty meal. 2.4.6. germany the döner kebab was brought to germany by kadir nurman and mehmet aygun, two men who were part of the gastarbeiter wave of guest workers brought in from southern and eastern europe to boost west germany’s postwar economy. there is some speculation about who first invented the snack, but the association of turkish döner producers in europe (atdid) has given the credit to nurman, who sold germany’s first döner kebab from his little stall across from bahnhof zoo in west berlin back in 1972. the snack was originally made with beef and served with rice, salad, and pita, but it was transformed into a sandwich for hard-working and busy germans to eat on the go. today, the döner kebab is a €4bn trade in germany, with around 40,000 kebab shops across the country. the popularity of the döner kebab in germany is evident by the existence of over 1,000 outlets in berlin alone and the consumption of an average of 400,000 kebabs daily. this local adaptation of the kebab has become synonymous with the city of berlin, even drawing the attention of former chancellor angela merkel. the association of turkish kebab manufacturers in europe (atdid) regulates the production standard of döner kebab throughout germany and fosters connections between german and turkish businesses. notably, the versatility of the kebab extends to vegetarian and vegan options, making it suitable for consumption throughout the day. the döner kebab's unique cultural significance in germany's culinary landscape highlights the impact of cross-cultural interaction on global food culture. (borg, 2023; congar, 2020; khalil, 2017) figure 8: mustafa's gemuse, queue for döner at berlin kaynak: fabio s., (2018). tripadvisor the effect of intercultural interaction on the glocalization of döner kebab 271 the döner kebab, with approximately 18,000 shops selling 550 tonnes of meat daily. it is mainly sold by small, family-run restaurants, and the döner has become an export item worldwide. however, inflation in 2022 caused the price of kebabs to increase, leading to outcry and even political campaigns for a döner price cap. the döner is seen as a symbol of turkish-german integration and an equalizer, enjoyed by people from all walks of life. however, its low price is a result of self-exploitation and intense competition within the industry. as the german economy and labour market change, so too will the fortunes of the döner (casey, 2023, grieshaber, 2010). glocalization is the process by which global influences are modified and made to fit local preferences and requirements. the history of the döner kebab in germany is a prime example of this. (karimzadeh et al., 2013) the turkish gastarbeiter who brought the snack to germany transformed it into a sandwich so that germans would find it more appetizing. the döner kebab has established itself as a mainstay of german fast-food culture and has a special place in the country's culinary history. it is not just food; it is also a representation of the fusion of german and turkish cultures and is relished by people from all walks of life. however, the recent price increase of the döner kebab highlights the challenges faced by the industry, which has been built on self-exploitation and intense competition. as the german economy and labour market continue to evolve, it remains to be seen how the fortunes of the döner kebab will be impacted (grieshaber, 2010). nonetheless, the story of the döner kebab in germany serves as a reminder of the power of cultural exchange and adaptation, and how global influences can shape local cultures in unique ways. 2.4.7. greece gyros is a greek dish consisting of meat cooked on a vertical rotisserie, sliced, and served in pita bread with other ingredients such as tomato, onion, fried potatoes, and tzatziki. pork is the traditional meat used in greece, though chicken is also used. (wikipedia, 2023) the origin of the gyro has been debated, but it's believed to have arrived in greece in the 1920s with refugees from asia minor. they opened small shops in athens, increasing the food's popularity, and it eventually spread throughout greece and to other countries, including the united states and canada. americans love the greek gyro so much that they celebrate "gyro day" on september 1st. (greek boston, n.d.) the method of cooking and slicing a pile of meat with a vertical skewer was developed in the city of bursa in the ottoman empire in the 19th century and was called döner kebab. this method spread thanks to immigrants from anatolia and the middle east, ii. döner kebab made from the lamb was discovered after world war ii. a different greek variation, normally using pork, was later called gyros (or souvlaki) with cacik sauce. by the 1970s, gyros wraps had already become a popular fast-food dish in chicago, new york city, and athens. gyros inc. of chicago began mass production of vertical steakhouses pioneered, but piles of meat are still handmade. some sources claim that they introduced the first mass-produced gyros to the united states. (segal, 2009) figure 9: picture of gyros kaynak: freepix, 2023 souvlaki and gyros are popular greek street foods that are enjoyed at any time of the day, particularly as late-night snacks. typically made by local greeks, souvlaki is made by skewering meat with tomatoes and onions, while gyros consist of sliced meat and french fries wrapped in greek pita with tzatziki sauce. both are considered drunk food, making them a perfect late-night snack after a night out (broderick, 2015). arzan di̇lek bozkurt & i̇smet kahraman arslan 272 research conducted on greeks' fast-food preferences reveals that fast food has become an integral part of their dietary habits. while taste and safety are the two most important criteria for selecting fast food, the frequency of fastfood consumption is relatively low. however, the observation that most greeks perceive fast food as unhealthy implies that there is a need for healthier options that retain the same taste and convenience as traditional fast food. the study also highlights that mood and family habits are factors that affect greek consumers' buying behavior. to cater to this market, fast food businesses need to create well-designed outlets that provide customers with a relaxing environment that stimulates their appetite. (andrikopoulos et al., 2019) the globalization of fast food has made it a ubiquitous feature of the modern world, and the research on greek fastfood preferences provides useful insights into how the fast-food industry can evolve to meet the needs of its consumers. 2.4.8. japan döner kebab has gained popularity in japan as well, demonstrating that the food's globalization is not just confined to europe and the middle east. döner kebab was initially introduced to japan in the 1990s, but it wasn't until the 2000s that it really started to catch on (deutche welle, 2018). today, there are many döner kebab shops and food trucks serving the dish, making it a well-liked street food in tokyo and other major cities. growing interest in foreign cuisine, especially among young people, is one factor that has boosted the appeal of döner kebab in japan (japan forward, 2019). the popularity of social media has also contributed to the dish's increased awareness, as many food bloggers and influencers have shared pictures and reviews of their favorite places to eat döner kebab (nippon.com, 2018). additionally, the fact that döner kebab is a quick and inexpensive meal has made it popular with customers who are on a tight budget, such as students. despite being widely consumed, döner kebab has undergone some changes in japan to accommodate local preferences. as an illustration, some stores sell a "teriyaki döner" that combines traditional japanese flavors like soy sauce and ginger (savvy tokyo, 2019). to appeal to japanese customers who might not be accustomed to eating lamb or beef, other shops have experimented with different types of meat, such as chicken or fish (spoon & tamgo, 2018). although the döner kebab has undoubtedly had an impact on japanese cuisine, it is uncertain whether it will stick around in the long run. there are always concerns about cultural appropriation and authenticity with any globalized dish. however, the popularity of döner kebab among japanese consumers is evidence of the food's adaptability and versatility. 2.4.9. mexico the spanish colonizers who brought the taco to mexico were probably exposed to ottoman-style cuisine during their travels, which is the historical link between the ottoman empire and mexico. tacos, a widely consumed mexican dish, also have links to the ottoman empire. tacos were first eaten in mexico and were typically stuffed with a variety of meats and vegetables. it wasn't until the 19th century, when the addition of the hard, u-shaped shell caused the dish to take on more of its current appearance. mexican tacos are distinguished from their turkish counterpart, the dürüm, which is a wrap filled with meat, vegetables, and sauces, by this shell, or taco dorado (pri.org, 2015) . the spanish colonizers who brought the taco to mexico were probably exposed to ottoman-style cuisine during their travels, claims pri.org (2015), explaining the historical relationship between the ottoman empire and mexico. mexicans invented tacos, which were typically stuffed with a variety of meats and vegetables. the addition of the tough, u-shaped shell, however, did not cause the dish to resemble its modern form until the 19th century. mexican tacos are distinguished from their turkish counterpart, the dürüm, which is a wrap filled with meat, vegetables, and sauces, by this shell, known as the taco dorado. döner kebab has become more well-liked in recent years, particularly in mexico city. this development can be attributed to the country's rising immigrant population of turks, who have brought their native cuisine with them. additionally, döner kebab, which is used in a variety of dishes like tacos, quesadillas, and burritos, is popular among mexican consumers due to its distinct flavors and textures. the effect of intercultural interaction on the glocalization of döner kebab 273 according to food and wine (2018), mexico city now has several döner kebab restaurants, which serve döner kebab tacos with a selection of fillings, such as beef, chicken, and lamb. el tizoncito is another well-known restaurant that has been around since the 1960s and serves tacos al pastor, a style of taco influenced by shawarma and döner kebab. a prime example of glocalization, where a global food item has been customized to fit the tastes and preferences of a particular local culture, is the rising popularity of döner kebab in mexico. 2.4.10. uk kebab shops, which serve a variety of different kinds of kebabs, are widely represented in london's diverse food scene. the best kebab shops in the city have reportedly been identified based on customer reviews; some of the establishments offer traditional turkish-style kebabs, while others offer inventive and distinctive variations. in addition to highlighting the significance of using high-quality ingredients and talented chefs to create the ideal kebab, the article also mentions how many of these kebab shops have grown to be well-liked hangouts for late-night dining and socializing. this article clarifies the significance of kebab culture in london's culinary landscape, illuminating the city's multiculturalism and its varied culinary traditions. (british kebab awards, 2023; kolade, 2023) the döner kebab, also known simply as the kebab, is a popular late-night food in london. this savory dish, which is typically prepared by turks or pakistanis and eaten after 9 p.m. and frequently closer to 2 a.m., is a favorite among partygoers. it is well known for being a favorite drunk food because of how flavorful and greasy it is—the ideal accompaniment to a night of drinking. the dish is made up of thinly sliced lamb, chicken, or beef that is placed inside a pita and topped with a number of different vegetables, including tomatoes, cucumbers, pickles, chilies, and cabbage. the dish's already robust and satisfying flavors are often enhanced by the addition of garlic and chili sauce. despite its turkish roots, the döner kebab has spread throughout the world and is a staple of london's late-night food scene (broderick, 2015). 3. conclusion the döner kebab has truly become a global food craze. the dish changed and spread over time, appearing in various forms across the middle east and europe. döner kebab is now consumed throughout the world, and each location has developed its own distinct version of the dish (kilic, 2009). this dish of tender grilled meat, fresh vegetables, and hot sauces wrapped in a warm pita was originally from turkey (ottoman empire), and it has since spread to cities all over the world. people from all backgrounds and cultures have embraced this delicious and filling meal everywhere from london to berlin, sydney to so paulo. the adaptability of döner kebabs is one factor in their appeal on a global scale. (sirkeci, 2014). although the dish's basic components and methods of preparation don't change, various regions and cultures have added their own distinctive touches. for instance, the döner kebab is frequently referred to as "grec" in paris and is typically served with french fries, while it is referred to as "churrasco grego" in so paulo and is typically served with a sweet and sour vinaigrette sauce. döner kebab has been modified in london to include chicken and vegetarian options, and it's frequently served with classic british side dishes like gravy and mint sauce. despite its global reach, döner kebab remains a food with deep cultural roots. in turkey, it is often associated with street vendors and local markets, where it is enjoyed by people from all walks of life. in germany, which has a large turkish population, döner kebab has become an iconic part of the national culinary landscape, with many cities boasting dozens of döner shops and restaurants. and in many parts of the world, döner kebab is seen as a symbol of multiculturalism and integration, a food that brings together different cultures and communities in a shared love of good food and good times. despite being consumed all over the world, döner kebab has a long history in turkish culture. it is frequently connected to street vendors and neighborhood markets in turkey, where people from all spheres of life take pleasure in it. with many cities having dozens of döner shops and restaurants, döner kebab has become an iconic part of the national culinary landscape in germany, which has a sizable turkish population. additionally, döner kebab is regarded as a symbol of multiculturalism and integration in many parts of the world. it unites various cultures and communities through a shared appreciation for delectable cuisine and enjoyable times. the idea of glocalization, a significant example of intercultural exchange and adaptation, and döner kebab have a lot in common. the interaction of local and global cultures results in the process known as glocalization. döner kebab's cultural roots and recipe have their origins in turkey, but due to global exchange and adaptation, there are many arzan di̇lek bozkurt & i̇smet kahraman arslan 274 regional variations that have different flavors and presentations (sirkeci, 2014). these variations have been created using various ingredients and cooking methods that are appropriate for various cultural, religious, and material contexts. döner kebab's cultural significance and richness in glocalization make them crucial for research in cultural anthropology, nutrition science, and other fields. the global popularity of döner kebab presents an exciting opportunity for academic research and practical application. one area that researchers could explore is the cultural adaptation and exchange of the dish. by examining how different cultures modify and adapt their versions of döner kebab to suit local tastes and preferences, researchers could gain insight into how cultural exchange leads to the development of new food cultures. the nutritional value of döner kebab is another important study area. there have been concerns about the dish's high fat and calorie content, so future studies could explore ways to make the dish healthier for consumers. this could involve analyzing the nutritional value of the ingredients and identifying ways to reduce the fat and calorie content of the meal. this would promote healthier food choices and improve the overall health and well-being of consumers. the supply chain and sustainability of the döner kebab industry is another critical area of research. with the constant demand for ingredients to meet the needs of the industry, researchers could investigate how the ingredients are sourced and transported and the environmental impact of the industry. identifying areas for improvement could make the industry more sustainable and environmentally friendly. the success of the döner kebab industry largely depends on branding and marketing strategies. therefore, further studies on branding and marketing in the food industry could explore how döner kebab businesses have built their brands and expanded their reach. examining how businesses use social media and other marketing channels to target specific audiences and create a unique brand image could provide insights into effective marketing strategies. the glocalization of döner kebab presents numerous opportunities for research and practical application. by exploring cultural exchange, nutritional analysis, supply chain and sustainability, and branding and marketing, researchers and professionals in the food industry can gain a deeper understanding of the industry and identify ways to improve it for the benefit of consumers and the environment. references akkoc, r. 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(1999). living networked on and offline, contemporary sociology, 28,6: 648-54. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 23-27 23 protection of personal data in the care application mays amelia universitas 17 agustus 1945 surabaya, indonesia tomy michael universitas 17 agustus 1945 surabaya, indonesia received: jan 14, 2022 accepted: march 22, 2022 published: june 01, 2022 abstract: the porpose of this study is to solve public doubts about the security of personal data in the pedulilindungi application. this study uses a normative research method that is oriented to the rule of law and a case approach. the law in indonesia has not regulated the violation of personal data leakage, so there are no strict sanctions against the perpetrators who leak personal data. because there is no legal certainty in the protection of personal data, there are many crimes and result in the misuse of personal data. currently the guarantee of personal data protection is only based on the ite law but there are no criminal provisions against perpetrators of spreading personal data. because there is a legal vacuum, a draft law on the protection of personal data has been made, rules that can protect citizens’ personal data have been made, but these regulations have not been ratified. the government should provide provisions so that legal certainty is achieved. in this era of technological development 4.0, the government is required to be firm in establishing regulations related to cyber crime. another way is to add the ktp function to replace the pedulilindungi application to track the spread of the corona virus because the ktp has guaranteed the security of one’s personal data. keyword: pedulilindungi, personal data, covid-19 1. introduction covid-19 is a contagious and deadly virus. the spread of this virus is widespread and more and more people are dying from this virus. there were 222,051,739 positive cases of people infected with the corona virus, with a total death of 4,590,290 people and 198,668,020 recoveries worldwide.(dadax, 2020) this virus begins to attack animals, such as camels and bats. there are six types of coronavirus that grow in the human respiratory tract. there are 229e, nl63 of the genus polygonum, oc43, and hpu of the genus beta, middle east respiratory syndrome-associated corona virus (merscov).(wang, qiang and ke, 2020) indonesia is now entering the 4.0 era or the 4th industrial revolution by following technological developments, humans are greatly helped by technological developments that are connected to the internet network. just like what humans do, most of them have used digital-based technology for their daily life.(syaifudin, 2020) through a survey of e-marketer research instutions 2015, 70% of the indonesian population uses smart phones, and the rest don’t use smartphones.(laksana and pramira harja, 2020) the government is assisted by the ministry of communication and information, the ministry of health, and the ministry of state-owned enterprises in collaboration with pt. telekomunikasi indonesia stopped the spread of the covid-19 virus, by creating an application called pedulilindungi. the way this application works is by downloading the pedulilindungi on the appstore, then registering by filling in personal data and the application can be used. the system will ask the user to enable location data. so users of this application can provide information regarding the crowds and zoning status of the spread of covid-19 in the area the user is currently occupying.(olivia, rosadi and permata, 2020) even though it is in the form of an application, personal data information must still be protected. like names, e-mails, mobile phone numbers. this application is to help government agencies track the extent to wich vaccination programs are spread.(ri, 2020) in the case of the leak of personal data of the president of the republic mays amelia & tomy michaele 24 of joko widodo, data that should be protected can easily be leaked. personal data is data in the form of specific personal identity, symbols, letters or numbers as a masker of a person’s personal self.(smits, 2012) the electronic information and transactions law (ite) is often used as a source of law when there is a violation of the protection of personal data. article 26 paragraph 1 and paragraph 2 of law number 19 of 2016 concerning amendments to law number 11 of 2008 concerning information and electronic transactions regulates the use of any information through a gadget or electronic media related to a person’s personal data must be carried out with approval the person concerned because this is a human right wich, if violated, the owner of personal data can file a lawsuit for the losses incurred under this law. if there is a leak of personal data, it is feared that it will result in misuse and even have a negative impact on the account owner. as explained in article 1 of law number 24 of 2013 concerning population administration, hereinafter referred to as the adminduk law, point 22: personal data is certain individual data that is stored, maintained, and kept the truth and confidentiality. with this background, the authors found the problem formulation of how the pedulilindung application maintains the security of personal data on users? and who is responsible for the security of the pedulilindung application's personal data? personal data is a sensitive thing owned by everyone person. personal data is a person's privacy right that must be protected from various aspects life.(kusnadi, 2021) previous research related to the material is fanny priscyllia's research, entitled personal data privacy protection from comparative legal perspectives, 2019. the conclusion from the journal is, personal data privacy protection is a person's personal foundation principle. privacy of personal data is a constitutional right of every citizen so that the regulation is a form of respect and protection for that right. privacy protection arrangements for personal data can have a positive impact, one of which is increasing indonesia's economic value in the world marketplace. the protection of personal data privacy in the perspective of comparative law, places the right to privacy as one of the constitutional rights of citizens so that the form of respect and protection of constitutional rights is specifically regulated and establishes or appoints a special supervisory agency to be able to guarantee the implementation of the data privacy protection law. the personal.(priscyllia, 2019) the second research is the research of nurhidayati, sugiyah, and kartika yuliantari. journal with the title personal data protection settings in pedulilindung application users, 2021. the conclusion of the journal is, the use of digital technology today is a necessity to carry out an activity in various fields of life. especially with the covid-19 pandemic, which requires social restrictions. the rapid and massive spread of covid-19 requires the government to make various efforts to reduce the spread. one of them is by launching the cares protect application. protection of personal data of pedulilindung application users is based on regulations in the field of information and communication technology, health and the implementation of population administration because there is no law that specifically regulates personal data protection.(nurhidayati, sugiyah and yuliantari, 2021) in this study using normative legal research.(michael and sudini, 2021) 2. research results and discussion 2.1 human rights theory the government is trying to break the chain of spread of the covid-19 virus by limiting community activities by distributing covid-19 vaccinations. at the beginning of the covid-19 vaccine was carried out by all medical personnel. then continued giving to the elderly, essential sector workers and teachers. until now, the overall percentage of vaccines has reached 44.5% of the government's target. with the stipulation of the government that requires vaccination as a condition for activities with the aim of establishing herd immunity, the body's immunity is formed for associations of people with a wide scope against disease transmission so as to provide protection against a virus. this method is believed to be able to suppress the spread of the covid-19 virus, if many people are immune to a disease, the more difficult it is for the virus to spread.(kencana, 2020) this violates a person's human rights. human rights are different from human rights. it is explained in a book entitled human rights: a basic handbook for un staff, united nations, that human rights are inherent in humans.(united nations, 2010) this means that these human rights exist because humans exist, and since humans are born, humans have human rights. this right is not owned by creatures other than humans, and this right is not granted from any party. the basic rights that are the subject of human rights are called human rights. as in article 28a of the 1945 constitution of the republic of indonesia which stipulates the rights of citizens and residents to live, the right to form a family, to have a decent life, to be protected from discrimination and violence, to get justice before the law, the right to express opinions, and other rights. protection of personal data in the care application 25 human rights in this study, namely, the community is required to vaccinate against covid-19 to suppress the spread of the virus. choosing to accept or reject this vaccination is a human right, because humans have the right to choose and are responsible for health services for themselves. in accordance with article 5 paragraph (3) concerning health, law no. 36 of 2009. people who are not vaccinated can still live and have the possibility of being free from the corona virus. humans can choose to be vaccinated or reject it because humans have reason, we can find out in advance whether the vaccine is suitable and feasible for our bodies. as stated in article 8 of law no. 36 of 2009 concerning health "everyone has the right to obtain information about their own health data including actions and treatments that have been or will be received from health workers." privacy was first defined by warren and brandheis which was written in an article in a scientific journal with the title "the right to privacy" or the right not to be disturbed. according to warren and brandheis, everyone has the right to enjoy life with the times and technological advances, humans are expected to understand the privacy rights of each individual more and more.(benuf, 2019) 2.2. personal data protection before the pandemic, people were free to choose the health services they needed for themselves. in accordance with article 5 of law number 36 of 2009 concerning health item 3: "every person has the right to independently and responsibly determine the health services needed for himself". however, since a global pandemic occurred, article 14 paragraph (1) of law no. 4 of 1984 concerning infectious disease outbreaks applies, that anyone who deliberately hinders the implementation of epidemic control as regulated in this law, is threatened with imprisonment for a maximum of 1 year. or a maximum fine of 1 million. the government's effort to suppress the spread of the virus is by vaccinating against covid-19. in accordance with article 9 of law no. 6 of 2018 concerning health quarantine, everyone is obliged to comply with and participate in the implementation of health quarantine. and applies article 93 of law no. 6 of 2018 that anyone who does not comply with the implementation of health quarantine as referred to in article 9 paragraph 1 and or hinders the implementation of health quarantine so as to cause a public health emergency shall be punished with a maximum of 1 year and or a maximum fine of one hundred million rupiah. in this case, vaccination is mandatory. the principle of lex specialis derogat legi generali applies. law no. 4 of 1984 and law no. 6 of 2018 abolished law no. 36 of 2009 on the grounds of a health emergency and in the public interest overriding personal interests. in relation to the pedulilindung application which contains personal data that must be protected, several regulations discuss the meaning of personal data according to article 1 number 29 of the government regulation (pp) concerning the implementation of electronic systems and transactions number 71 of 2019 concerning personal data is any data about a person, who is identified or which can be identified separately or combined with others, either directly or indirectly, through electronic or non-electronic systems. according to philip m. hadjon, the theory of legal protection is the protection of dignity and worth, as well as the recognition of human rights to the subject of law.(hadjon, 2007) therefore, the protection of personal data includes individual rights that must be protected, stored, and kept confidential so that the security must be guaranteed by the state .(benuf, mahmudah and priyono, 2019) legal protection comes from the word "protect" which means an act that can protect, defend, prevent something. meanwhile, law is a rule that exists in a country to regulate people's behavior. consumers have the right to share their personal data or not. pedulilindung contains a secret population identification number and in the nik there is information on province, city code, sub-district code, date of birth, month of birth, year of birth, and computerized numbers that are vulnerable to being misused by others if leaked. electronic ktp, hereinafter referred to as ktp-el according to article 1 of the administrative law point 14: e-ktp is a resident identity card equipped with a chip which is the official identity of the population as proof of self issued by the implementing agency. the chip is guaranteed security so that people don't worry about personal data on their id cards. meanwhile, pedulilindung is an application that, when compared to data security on an id card, is much more secure and guaranteed. the possibility of data leakage on the ktp is less because the ktp is a card that is only owned by 1 resident. it is different with pedulilindung because it is an application that can be accessed freely by anyone and uses any gadget. mays amelia & tomy michaele 26 in the provisions regarding pedulilindung's data confidentiality policy, it is stated that the data stored in the data storage includes the mobile number, user id and location and time of data exchange. written data is stored securely and not shared with the public. however, the information in the pedulilindung application does not explain who can access and process the relevant data. although the government and pt. telkom has stated that the data in the pedulilindung application is safe, but as secure as an electronic system is, nothing is truly 100% secure.(nurhidayati, sugiyah and yuliantari, 2021) 3. conclusion pedulilindung is an application made by pt. telekom indonesia with the aim of helping the government carry out contact tracking, contact tracing, which actually does not require the collection of users' personal data. the author supports the use of the pedulilindung application because its goal is to create better conditions during the covid-19 pandemic. however, in its implementation there is a great risk of the user being harmed if pedulilindung uses the user's personal data in its operation. because there is no certainty about the protection of users' personal data and there is no definite and clear information regarding the person in charge of the pedulilindung application. this is a violation of the theory of legal protection and the theory of human rights, because the government requires the use of the pedulilindung application but does not provide clear legal protection for users' personal data, so that people's human rights are not ignored. although the government and pt. telkom has stated that the data in the pedulilindung application is safe, but as secure as an electronic system is, nothing is truly 100% secure. references benuf, k. (2019) ‘jurnal gema keadilan jurnal gema keadilan’, jurnal gema keadilan, 6(ii). benuf, k., mahmudah, s. and priyono, e. a. (2019) ‘perlindungan hukum terhadap keamanan data konsumen financial technology di indonesia’, refleksi hukum: jurnal ilmu hukum, 3(2). doi: 10.24246/jrh.2019.v3.i2.p145-160. dadax (2020) https://www.worldometers.info/coronavirus/, covid-19 coronavirus pandemic. hadjon, p. m. (2007) perlindungan hukum bagi rakyat di indonesia edisi khusus, jogjakarta: peadaban. kencana, w. h. (2020) ‘peran dan manfaat komunikasi pembangunan pada aplikasi pelacak covid-19 sebagai media komunikasi kesehatan’, commed : jurnal komunikasi dan media; vol 5 no 1 (2020): commed : jurnal komunikasi dan mediado 10.33884/commed.v5i1.2495 . kusnadi, s. a. (2021) ‘perlindungan hukum data pribadi sebagai hak privasi’, al wasath jurnal ilmu hukum, 2(1). doi: 10.47776/alwasath.v2i1.127. laksana, a. p. and pramira harja, r. (2020) ‘perbandingan regulasi financial technology terkait perlindungan data nasabah di indonesia dengan negara lainnya’, rechtidee, 15(2). doi: 10.21107/ri.v15i2.5411. michael, t. and sudini, l. p. (2021) ‘omnibus law legal certainty in the perspective of legislation’, proceedings of the 2nd international conference on business law and local wisdom in tourism (icblt 2021), pp. 509–512. doi: 10.2991/assehr.k.211203.109. nurhidayati, n., sugiyah, s. and yuliantari, k. (2021) ‘pengaturan perlindungan data pribadi dalam penggunaan aplikasi pedulilindungi’, widya cipta: jurnal sekretari dan manajemen, 5(1). doi: 10.31294/widyacipta.v5i1.9447. olivia, d., rosadi, s. d. and permata, r. r. (2020) ‘perlindungan data pribadi dalam penyelenggaraan aplikasi surveilans kesehatan pedulilindungi dan covidsafe di indonesia dan australia’, datin law jurnal, 1(2). doi: 10.36355/dlj.v1i2.453. priscyllia, f. (2019) ‘perlindungan privasi data pribadi dalam perspektif perbandingan hukum’, jatiswara, 34(3), pp. 239–249. doi: 10.29303/jatiswara.v34i3.218. ri, k. (2020) official business account covid19.go.id, whatsapp. smits, j. m. (2012) the mind and method of the legal academic, the mind and method of the legal academic. doi: 10.4337/9780857936554. protection of personal data in the care application 27 syaifudin, a. (2020) ‘perlindungan hukum terhadap para pihak di dalam layanan financial technology berbasis peer to peer (p2p) lending (studi kasus di pt. pasar dana pinjaman jakarta)’, jurnal ilmiah ilmu hukum, 26. united nations (2010) ‘human rights. a basic handbook for un staff’, international journal on minority and group rights, (may). wang, z., qiang, w. and ke, h. (2020) ‘a handbook of 2019-ncov pneumonia control and prevention’, hubei science and technology press. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 158-163 158 the role of fear on the entrepreneurial mindset murat çemberci̇ yıldız technical university, turkey ercan karakeçe istanbul medipol university, turkey received: may 01, 2020 accepted: june 02, 2020 published: june 02, 2020 abstract: the demand for entrepreneurship is growing in the world. it reminds readers of triumph. however, achievement elements in ente rprises are associated with many factors. to fully understand entrepreneurship, besides technical issues, it should be focused on some soft issues. for this purpose, this article was conducted on fear emotion that affects entrepreneurial actions. the study used a qualitative method using primary data from questionnaires. the analysis provides an overall view that in entrepreneurship, intangible factors are accepted as meaningful as tangible ones. the research aims to uncover the effects the fear factors implement the entrepreneurial mindset. the issues consist of an introduction, theoretical framework, and hypothesis study about entrepreneurship, and fear. lastly, conclusions and recommendations are submitted to help enable the advancement of entrepreneurial activities. keywords: entrepreneurship, entrepreneurial mindset, fear 1. introduction the attention paid to the concept of an entrepreneur, which is one of the production factors, is rising (anderson et al., 2019). entrepreneurship is a more common theme with the change in perceptions and the contribution of environmental factors (drucker, 2017). the increasing popularity of entrepreneurship is embraced by both the business community and the academic environment. many new initiatives are being established all over the world, and many academicians are studying this issue. however, considering entrepreneurship as an only technical issue raises problems on the way to advance. the study focused on the entrepreneurial mindset required for a deeper view of entrepreneurship. the entrepreneurial mentality is at least as valuable as environmental factors that will ensure the emergence of the enterprise. therefore, it is essential to discuss the entrepreneurial mentality that will activate the businessperson. what causes the entrepreneurial thought to arise is that environmental requirements meet entrepreneurial behavior (akgün et al, 2019). for this purpose, in the research, the concept of fear will be examined and its effects on entrepreneurial mentality will be investigated. it is enough to look at the developments after covid19, to understand how effective the feeling of fear is in human being's actions (xiarewana & civelek, 2020). 2. literature review although entrepreneurship is accepted as a trending notion, it is seen that the origin of the concept dates back to the 1700s. the entrepreneurial adventure that commenced with cantillon has been contributed and handled by many intellectuals (özmen, 2016). although it has been written for almost 250 years, there has been no common concept of entrepreneurship that everyone agrees on (bygrave & hofer, 1992). drucker (2017) mentions that there is a complete "confusion" regarding this issue. even if this is perceived as a negative aspect, the entrepreneurship can be interpreted as it is continuing to develop with the contribution of different disciplines. table 1 presents some of the thinkers who have contributed to the field of entrepreneurship and the parts they highlight. the role of fear on the entrepreneurial mindset 159 table 1. key elements of entrepreneurship key element writer innovation schumpeter (1947); cochran (1968); drucker (1985); julien (1989; 1998) risk cantillon (1755); knight (1921); palmer (1971); reuters (1982); (rosenberg (1983) resource coordination, organization ely&hess (1893); cole (1942); aitken (1965); belshaw (1955); chandler (1962); leibstein (1968); wilken (1979); pearce (1981); casson (1982) value added say (1815); bruyat&julien (2001); fayolle (2008) project and visionary thought longenecker&schoen (1975); filion (1991; 2004) action oriented baty (1981) leadership hornaday&aboud (1971) dynamo of the economic system weber (1947); baumol (1968); storey (1982); moffat (1983) venture developer collins, moore&unwalla (1964); smith (1967); brereton (1974); komives (1974); mancuso (1979); schwartz (1982); carland, hoy, boulton (1984); vesper (1990) recognizing opportunities smith (1967); meredith, nelson&neck (1982); kirzner (1983); stevenson&gumpert (1985); timmons (1985); dana (1995); shane&venkatamaran (2000); bygrave&zacharakis (2004); timmons&spinelli (2004) productive zaleznik&kets de vries (1976); pinchot (1985) preoccupation lynn (1969), kets de vries (1977; 1985) control mc clelland (1961) change oriented mintzberg (1973); shapiro (1975) rebellious / guilt hagen (1960) source: demirtaş et. al. 2017; özmen, 2016 on the other hand, in order to understand entrepreneur and entrepreneurship, it is necessary to see the entrepreneur who will reveal them as well as economic opportunities. for this reason, the concept of entrepreneurial mentality should also be focused on. it is quite natural to see the effects of the world of the social, political, administrative, judicial, military, religious, commercial environment, and time that affects the entrepreneur's mind (aktaş, 2007). in this respect, it is not accurate to think of the entrepreneur independently from his environment. as a matter of fact, schumpeter also suggested entrepreneurship as a mentality and states that the view that is the basis of innovation comes with this way of thinking. the pursuit of innovation is among the most fundamental cornerstones of entrepreneurship. it creates new combinations by blending within the existing possibilities. it changes the balances, ends the stagnations; it creates bounces and breaks with the innovations both in its own market and in other markets (marangoz, 2017). one of the key factors in sensing / discovering and evaluating opportunities is this mentality structure (mathisen & arnulf, 2014). the brief difference between the entrepreneur and the non-entrepreneur is emphasized by the entrepreneurial mentality (gartner, 1988). emotional differentiation in entrepreneurship can also affect business. the feeling of fear can also be shown among these differences. fear, which is one of the most hesitant feelings of human beings, occurs in the event of personally encountering a threat or danger (yörükoğlu, 2002). it would be wrong to attribute the existence of something to be feared only to a physical cause. fear can also be associated with psychological factors. changes not expected in the person or the environment can also lead to the emergence of fear. fears that may arise in connection with murat çemberci̇ & ercan karakeçe 160 experiences may differ from individual to individual. actions, objects, and thoughts that may raise threats or anxiety may emerge as the source of fear. in the face of fear, the person tries to protect himself by “escaping, hiding, or fighting when he is in trouble” (yörükoğlu, 2002). understanding the fear of the entrepreneur is actually important in terms of displaying the effort he made in the struggle for existence. in other words, when faced with fear, it suggests that “something in the environment poses a danger and one should act quickly to protect himself” (smith et al., 2012). with this aspect, it can be claimed that some essential concepts for entrepreneurship take action. the first is the concept of market awareness. the entrepreneur, who is not aware of his environment, will be left behind by his competitors, which causes financial and emotional losses to the entrepreneur. second, both the observation and intuition ability of the entrepreneur who is sensitive to the market should be improved. in schumpeter's entrepreneur, it was tried to emphasize that the entrepreneur should be different by seeing the invisible. all these points are mentioned about the behaviors that speed up the entrepreneur to take action (kirzner, 1999). for this reason, fear is thought to be important as one of the reasons behind being quick as well as exploring and acting. köknel (2013) talks about the success of turning fear into skill. 3. theoretical framework bird (1988) depicts that the entrepreneurial mindset by mentioning the elements that should be examined before the intent/orientation. the criticisms of the studies put forward to scale the entrepreneurship mentality also confirm this statement. because for the feature that is tried to be measured, some expressions are brought to the fore, and researches are carried out, personality traits, intention, etc. however, when the results are examined, the researchers state that this effort is inadequate (davis et al., 2016). although there are researchers who care about personality (rauch & frese, 2007) especially baron (1998), he talks about cognitive mechanisms and effects on this field. he also states that studies associated with a personality only cause frustration in seeing the whole of the entrepreneurial areas. it is also observed that studies addressing the fear of failure encountered in entrepreneurship have been carried out (cacciotti & hayton, 2015). in this study, the researchers revealed that fear has not only a freezing/braking effect but also an incentive aspect. in order for the existing situation not to worsen or be corrected, human beings take action in a solution against the negative situation they encounter. therefore, it is thought that since fear, positive contributions can be obtained through the control of factors perceived as negative. thus, the authors examined both positive and negative results of fear in their study. in this case, the important one is not fear, the reaction against fear is the determiner. h1: there is a relationship between fears and entrepreneurship mindset. (-) figure 1. research model in order to reach the scales used in the tests, a detailed literature review was carried out. in addition to demographic information, "entrepreneurship mindset scale" of gollwitzer (1990), which mathisen & arnulf used in his studies (2014), was used to shape the survey. within this scale, it was analyzed by reducing the entrepreneurial mentality to 3 sub-dimensions and consisting of 8 questions. in addition, deniz et al. compiled by farmilant (1995) belongs to burnham & gullone (1997) and wolpe & lang (1969), which they used in their studies (2011) "fear scale" was included in the questionnaire. under this dimension, a scale with 5 sub-dimensions was presented under the 5question sections. fear *fear of work stress/social stress * fear of criticism/failure * fear of the unknown * fear of death/danger *fear of not having enough entrepreneurial mindset *elaborating mindsets *implementing mindsets *compulsiveness the role of fear on the entrepreneurial mindset 161 table 2. question distributions on scales scales subdivisions item entrepreneurial mindset elaborating mindsets 8 24 implementing mindsets 8 compulsiveness 8 fear fear of work stress/social stress 5 25 fear of criticism/failure 5 fear of the unknown 5 fear of death/danger 5 fear of not having enough 5 descriptive information demographics 5 5 total 54 to obtain clear data, a private and public university were selected in i̇stanbul and 1100 questionnaires were distributed to the students. based on volunteering, some of the students returned the questionnaires blankly. 741 surveys were filled and 72 were not included in the data set since they were not completed. those who did not make any difference were removed and 562 samplings were included in the study. while ensuring that the questionnaires reach the students, it was tried to reach third and especially senior students in faculties and second-grade students concerning graduation in vocational high schools. the sample was aimed to be healthier by choosing a public and a private university in istanbul, that is easy to access for research. with the help of the collected data, fear and entrepreneurship mentality were subjected to regression analysis. 4. conclusion according to results, in the upper dimension, the model is meaningful, but there is no interaction. when we turn to the sub-dimensions, fear of unknown affects negatively entrepreneurial mindset (β:-0,097, (p<0,05). moreover, in sub-sclaes fear of work stress/social stress affects positively implementing mindsets (β:0,079, (p<0,05 ). fear of the unknown affects negatively compulsiveness (β:-0,126, (p<0,05). collins (2007) says that as fear increases, success in entrepreneurship decreases. according to the result of the entrepreneurship orientation and fear of failure survey conducted by martins et al., on university students in 2018, an inverse relationship was detected between the two factors. negative values were found in entrepreneurship-related requirements (such as creativity, proactivity, risktaking) among students with high fear value. it is stated that fear triggers negative judgments and reduces optimism (gupta, 2013). as boudreaux et al. (2019) stated in their studies, fear has a negative effect on evaluating interference opportunities. the results obtained match the results in the literature. in the literature, it is mentioned that there are factors to be looked at before the activity for the entrepreneurial performance that will emerge as a result of the entrepreneurship intention (zhao et al., 2010; mathisen & arnulf, 2014). in their study, boudreaux et al. (2019) mention that there are still areas to be investigated about how sociocognitive factors interact to reveal individual entrepreneurial action. this type of research shows that entrepreneurship is not just about numbers and encourages the research to be done (shepherd, 2015). since there is a time and opportunity constraint to study, only two universities (one state, one public) could be carried out. research can be done with more universities and students. in addition, ready-made scales were used in murat çemberci̇ & ercan karakeçe 162 the study. according to hosfstede and bond (1984), different cultures can have different results. for this reason, it may be more beneficial to develop scales according to the structure of the turkish society. references akgün, a. e., keskin, h., çemberci, m., karakeçe, e. (2019). korku ve önyargıların girişimcilik zihniyetine etkilerinin araştırılması: kavramsal model önerisi. ii. uluslararası sosyal bilimler&i̇novasyon kongresi, 370377 anderson, b. s., wennberg, k., & mcmullen, j. s. (2019). enhancing quantitative theory-testing entrepreneurship research. journal of business venturing, 34(5), 105928. baron, r. a. (1998). cognitive mechanisms in entrepreneurship: why and when enterpreneurs think differently than other people. journal of business venturing, 13(4), 275-294. bird, b. (1988). implementing entrepreneurial ideas: the case for intention. academy of management review, 13(3), 442-453. boudreaux, c. j., nikolaev, b. n., & klein, p. (2019). socio-cognitive traits and entrepreneurship: the moderating role of economic institutions. journal of business venturing, 34(1), 178-196. bygrave, w. d., & hofer, c. w. (1992). theorizing about entrepreneurship. entrepreneurship theory and practice, 16(2), 13-22. cacciotti, g., & hayton, j. c. (2015). fear and entrepreneurship: a review and research agenda. international journal of management reviews, 17(2), 165-190. collins, d. d. (2007). entrepreneurial success: the effect of fear on human performance (doctoral dissertation, capella university). davis, m. h., hall, j. a., & mayer, p. s. (2016). developing a new measure of entrepreneurial mindset: reliability, validity, and implications for practitioners. consulting psychology journal: practice and research, 68(1), 21. demirtaş, ö.; mehmet b.; mustafa k. 2017. başarılı girişimciliğin perde arkasındaki güçler. konya: eğitim yayınevi. deniz, n., boz, i̇. t., & ertosun, ö. g. (2011). the relationship between entrepreneur's level of perceived businessrelated fear and business performance. procedia-social and behavioral sciences, 24, 579-600. drucker, peter. 2017. i̇novasyon ve girişimcilik. çev. i̇lker gülfidan. i̇stanbul: optimist yayım dağıtım. gartner, w. b. 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(2012). atkinson ve hilgard, psikolojiye giriş.(14. ed.). çev. ö. öncül ve d. ferhatoğlu). ankara: arkadaş yayınevi. the role of fear on the entrepreneurial mindset 163 shepherd, d. a. (2015). party on! a call for entrepreneurship research that is more interactive, activity based, cognitively hot, compassionate, and prosocial. journal of business venturing, 30(4), 489-507. xiarewana, b., & civelek, m. e. (2020). effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem. journal of international trade, logistics and law, 6(1), 147-157. yörükoğlu, a. (2002). çocuk ruh sağlığı, i̇stanbul: özgür yayınları, 25. zhao, h., seibert, s. e., & lumpkin, g. t. (2010). the relationship of personality to entrepreneurial intentions and performance: a meta-analytic review. journal of management, 36(2), 381-404. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 13-22 13 marketing capability and financial performance: a moderated-mediation approach salih zeki i̇mamoğlu gebze technical university, turkey hüseyin i̇nce gebze technical university, turkey hülya türkcan gebze technical university, turkey received: jan 06, 2021 accepted: feb 18, 2021 published: june 15, 2021 abstract: the aim of this study is to examine the relationship between marketing capability and financial performance using a moderated mediation framework. in this context, the present study investigates the mediating effect of product innovation and whether technological turbulence moderates the mediator effect of product innovation. a sample of 196 mid-level and senior executives working in manufacturing firms in kocaeli participated in our survey. the results indicated that product innovation fully mediates the relationship between marketing capability and financial performance. it is also found that technological turbulence moderates the mediator effect of product innovation on the association between marketing capability and financial performance. keywords: marketing capability, product innovation, financial performance, technological turbulence 1. introduction the resource-based view suggests that organizational resources and capabilities are the key factors determining superior firm performance (bharadwaj, 2000). marketing capability is a firm's functional capability about carrying out market-related activities (chang, et al., 2010), and it enables the firm to perceive and react to changes in the environment, to easily understand customer needs and to anticipate customer expectations (afriyie et al., 2018). marketing capability has been examined in many studies as a determinant factor of high firm performance (kamboj and rahman, 2015) since it is important to better positioning in the market for all types of firms regardless of its industry, size, etc. although there is increasing evidence indicating that marketing capability is associated with superior financial performance, the nature of links between them remains unclear. marketing capability is one of the most important factors for successful product innovation as it provides firm information that can be a guide for its new product development decisions and processes (shim et al., 2016). as a matter of fact, product innovation is made by considering customer expectations and needs (bergfors and larsson, 2009). on the other hand, firms aim to rapidly respond to changes in dynamic environmental conditions by making innovations and thus increase their performance (damanpour et al., 2009). these arguments suggest that firms need to produce new products that meet customer needs, especially in order to increase their financial performance. however, the role of product innovation in the relationship between marketing capability and financial performance has not been adequately depicted. as firms have to constantly interact with the external environment, the results of their activities depend on the external environment (abidemi et al., 2017). also, contingency theory suggests that environmental factors can affect the impressiveness of the firm's activities (abbas and hassan, 2017). technological turbulence influences the competitive environment (song et al., 2005). because given the speed and magnitude of changes in technology in salih zeki i̇mamoğlu & hüseyin i̇nce & hülya türkcan 14 today's world, technological turbulence which cannot be ignored by firms, is an environmental factor. in environments with low technological turbulence, because time is not important, competitors can easily see and imitate the resources and outputs of the firm (song et al., 2005). in this context, it can be deduced that the mediator role of product innovation on financial performance may change under varying technological turbulence. to further the understanding of the relationships between marketing innovation, product innovation, and financial performance, it is crucial to investigate the moderator effect of technological turbulence. to fill the research gaps mentioned, this study aims to enlightened the association between marketing capability and financial performance with mechanisms that explain the nature of this relationship. for this reason, the mediating effect of product innovation on the relationship between marketing capability and financial performance is examined. also, the moderating effect of technological turbulence on the mediator role of product innovation on financial performance is investigated. to sum up, drawing on the integration of the rbv with contingency theory, this study aims to test and provide a clear framework of the relationship between marketing capability and financial performance by discussing moderated-mediation associations. 2. literature review 2.1. marketing capability the firm's capabilities enable the firm to face and overcome the challenges of the rapidly changing environment (sun et al. 2020). a firm's capability, which enables the firm to increase its knowledge, and resources in order to strengthen its competitive advantage in such an environment and acts as an important bridge with the environment, is the marketing capability (muis, 2020). marketing capability is a firm capability to gather market information and disseminate it, launch new products, and develop both customer and supplier relations (ripollés and blesa, 2012). it is also defined as the ability of the firm to understand the needs and expectations of customers and afford them on time, at the right place and at a reasonable price (inan and kop, 2018). furthermore, it is defined as the firm's pattern of actions that provide the firm to meet all the needs of firm about market-related (chang et al. 2010). marketing capability enables the firm to organize its resources to meet market needs and to add value to its products and services (potočan, 2013). thus, it plays an important role in increasing firm's place in the market and value of the firm's goods for customers. it also allows the firm to adjust its strategies to suit rapidly changing market conditions, as it is adaptive (day, 2011). 2.2. product innovation product innovation is the introduction of new or improved goods or services (aydin, 2020). improved goods or services can be explained as improvements in its technological features, being user-friendly, or adding various functional features (torres and augusto, 2020). damanpour and gopalakrishnan (2001) defined product innovation as "new products or services introduced to meet an external user or market need". changing needs of consumers, improvements in technology, shortening product life cycles, and competition in the market have made product innovation a necessity for firms. (setyanti and farida, 2016). because it is possible with product innovation to respond to market needs, to catch developments in technology and to have a market share in a competitive environment, and even to open new markets. as a matter of fact, product innovation is seen as a key to enable the firm to survive and also prosper (cooper and kleinschmidt, 1987). 2.3. financial performance financial performance refers to a measure of the financial success of a firm over time (nybakk, 2012). it is determined by the financial and market-based measures such as market share, annual sales, return on sales and return on assets (huo et al., 2008). these measures are also an indicator of how well firms could exploit their resources to generate more income (wani and dar, 2015). it is quantitative, thus gives objective results (mishra and suar, 2010). in this respect, it is a fundamental measure of firm's financial success (nybakk, 2012). determining financial performance is of great importance for firms. because in this way, it is possible to examine how the firm progresses, its efficiency and its effectiveness (onyuma, 2020). it also makes it possible to compare with other firms in the same sector, as it is an objective measure that shows the financial status of the firm in a given period (mutya and josephine, 2018). marketing capability and financial performance: a moderated-mediation approach 15 3. hypothesis development 3.1. mediating role of product innovation marketing capability is an essential capability for firms to have a competitive advantage and expand one's market share since marketing capability enables firm to identify customers' needs and expectations and take action accordingly (azizi et al., 2009). thus, it puts the firm ahead of its competitors, in the face of customers' requests that exceed only certain products and services and become value acquisition (morgan et al., 2009). in addition, the firm's products and services, which recognize customer needs and expectations and develop actions in line with them, are more preferred by customers, so its sales and profitability increases. marketing capability is important for product innovation since product innovation is made in line with market needs and expectations (bergfors and larsson, 2009). namely, product innovations target customers directly. therefore, firms need to understand and assimilate customer needs for product innovation (damanpour and gopalakrishnan, 2001). also, firms need to take into account the feedbacks of customers in both the designing and manufacturing of new products (utterback and abernathy, 1975). product innovations that focus on the customer are bound to be successful in the market. therefore, new products produced with high marketing capability are expected to provide the company with high profitability and a large market share. thus, it is hypothesized that: h1: product innovation mediates the association between marketing capability and financial performance. 3.2. moderating role of technological turbulence technological turbulence is the rate of change in technology (jaworski and kohli, 1993). instability in the technological environment affects firms’ activities and the results of these activities. therefore, this instability requires the firm to keep up with the changing technological environment by innovations to do not stay out of the market (martin et al., 2020). product innovations that serve and meet the market needs attract the customer's attention and firms whether they are innovators or followers gain profit (tung, 2012). however, the existence and degree of technological turbulence may affect product innovation and financial performance. for example, in low technological turbulence environments, the mediator role of product innovation on financial performance will be less, since change is slow, speed of making innovation is not so decisive and competitors can imitate the product innovations (song et al., 2005). but in a high technological turbulence environment, technology changes rapidly. therefore, firms need to launch new products by understanding customer needs and expectations fastly in order to gain a high amount of profit especially because of the first-in advantage. the firms which are followers only will have problems in generating income as they will be very slow against change. in other words, in a high technological turbulence environment, product innovation that meets market demands is more effective in increasing the profitability, market share and sales of the firms. thus, it is hypothesized that: h2: technological turbulence moderates the mediating effect of product innovation in the relationship between marketing capability and financial performance. to show the underlying mechanism between marketing capability and financial performance based on arguments above aforementioned, it is proposed a moderated mediation model, presented in figure 1. figure 1: research model salih zeki i̇mamoğlu & hüseyin i̇nce & hülya türkcan 16 4. research method and analysis 4.1. measures and sampling the questionnaire was developed from multi-item scales adopted from previous studies. to measure marketing capability, the scale was adopted from yam et al. (2004). product innovation was measured by the scale adopted from hung et al. (2011). the scale for financial performance was adopted from ellinger et al. (2002). finally, the scale to assess technological turbulence was adopted from lisboa et al. (2011). the scales range from 1 = strongly disagree to 5 = strongly agree. the data was gathered by survey method. to conduct the study, 150 firms were contacted and 196 mid-level and senior executives from 98 firms from the manufacturing sector in kocaeli completed our survey. most of the respondents (61.1%) are 35 years old and smaller. male participants make up 81.3% of the total participants. 67% of the firms have been operating for more than 20 years. 4.2. measure validity and reliability after data collection, exploratory factor analysis (efa) was conducted using principal components extraction with varimax rotation. since 1 item was not loaded in any factor, it was eliminated. the other items loaded onto their designated constructs with the significant factor loadings of .50 and above. the kaiser-meyer-olkin (kmo) index is .796, and bartlett's test of sphericity is at statistically significant level of 0.00. (x2= 1900.184, p=.00). efa results are shown in table 1. table 1. efa results variable item 1 2 3 4 marketing capability marketingcapability_9 .817 marketingcapability_8 .812 marketingcapability_2 .799 marketingcapability_1 .730 marketingcapability_4 .691 marketingcapability_7 .683 marketingcapability_3 .664 marketingcapability_5 .525 product innovation productinnovation_6 .768 productinnovation_4 .759 productinnovation_1 .724 productinnovation_5 .679 productinnovation_2 .651 productinnovation_3 .620 technological turbulence t_turbulence_3 .863 t_turbulence_4 .848 marketing capability and financial performance: a moderated-mediation approach 17 t_turbulence_2 .830 t_turbulence_1 .749 financial performance f_performance_2 .812 f_performance_3 .788 f_performance_1 .731 means, standard deviations, cronbach’s alphas and correlation coefficients are presented in table 2. as can be seen from table 2, the correlation coefficients are moderate. cronbach’s alphas are ranging from .785 to .878 which are higher than the minimum acceptable level .70 (nunnally, 1978). these results indicate that measures have adequate validity and reliability. table 2. means, standard deviations, correlation coefficients, and cronbach’s alphas variable means std. deviations 1 2 3 4 marketing capability 3.8776 .68850 α=.878 product innovation 3.5248 .74868 .336** α=.835 financial performance 3.4184 .81453 .250** .474** α=.785 technological turbulence 2.7054 .86505 .084 .061 -.045 α=.846 **p<0.01. 4.3. hypothesis testing the mediation analysis was performed using model 4 of the process macro (hayes, 2013). 95% bias-corrected confidence interval with 5,000 bootstrapping method was utilized. analysis results are presented in table 3. in model 1, it is found that marketing capability is positively related to financial performance (β = .3067, p < .01). it is also found that marketing capability is positively related to product innovation (β = .3514, p < .01) showed in model 2. as seen in model 3, it is found that product innovation is positively related to financial performance (β = .4767, p < .01), whereas there is no relationship between marketing capability and financial performance (β = .1392, p > .05). namely, when product innovation is included in the analysis, the direct relationship between marketing capability and financial performance disappears. these three regression models indicated that product innovation mediates the relationship between marketing capability and financial performance according to baron and kenny (1986) procedure. table 3. mediation analysis results model 1 (dv: financial performance) model 2 (dv: product innovation) model 3 (dv: financial performance) β t β t β t marketing capability .3067** 3.6432 .3514** 4,6435 .1392 1.7293 salih zeki i̇mamoğlu & hüseyin i̇nce & hülya türkcan 18 product innovation .4767** 6.5018 r2 .0656 .1024 .2372 f 13.2731 21.5621 29.2227 **p < 0.01. furthermore, since 95% ci is crossed 0 for a direct effect of x on y (-.0196, .2980), the relationship between marketing capability and financial performance was completely mediated by the product innovation as seen in table 4. namely, product innovation fully mediates the relationship between marketing capability and financial performance. therefore, h1 is supported. table 4. mediating effect of product innovation effect se t p 95% ci indirect effect .1675 .0560 (.0736, .2945) direct effect .1392 .0805 1.7293 .0854 (-.0196, .2980) total effect .3067 .0842 3.6432 .0003 (.1407, .4728) after analyzing the mediator role of product innovation, it was examined how the mediator role of product innovation is moderated by technological turbulence using model 14 of the process macro (hayes, 2013). again 95% bias-corrected confidence interval with 5,000 bootstrapping method was utilized. as presented in table 5, the effect of technological turbulence on the indirect effect of marketing capability on financial performance through product innovation is statistically significant. moreover, the index of moderated mediation is significant and positive with 95% confidence (.0259 to .1514). table 5. moderated-mediation analysis results model 1 (product innovation) model 2 (financial performance) β t β t marketing capability .3514** 4.6435 .1498 1.9040 product innovation .4627** 6.4529 technological turbulence -.1458* -2.3486 product innovation x technological turbulence .2299** 3.1960 r2 .1024 .2837 f 21.5621 18.4194 marketing capability and financial performance: a moderated-mediation approach 19 index of moderated mediation index .0808 se .0317 95% ci (.0259, .1514) **p < 0.01, *p<0.05. as shown in table 6, for all situations where technological turbulence is low, medium and high, the estimates of indirect effect were statistically significant. further, the association between product innovation and financial performance is plotted, when technological turbulence is one standard deviation below and above the mean (fig.2). findings imply that product innovation is more effective for increasing financial performance where technological turbulence is high. hence, h2 is supported. table 6. conditional indirect effects mediator moderator effect se 95% ci product innovation technological turbulence -1 sd .0924 .0534 (.0087, .2216) 0 .1626 .0539 (.0755, .2865) +1 sd .2328 .0669 (.1179, .3804) figure 2. the moderating effect of technological turbulence on the relationship between product innovation and financial performance 5. discussion and conclusion in this research, it was examined the underlying mechanisms between marketing capability and financial performance. in this respect, the mediating effect of product innovation on the relationship between marketing capability and financial performance was investigated. also, this research examined how the mediating effect of product innovation is moderated by technological turbulence. salih zeki i̇mamoğlu & hüseyin i̇nce & hülya türkcan 20 the results showed that product innovation fully mediates the relationship between marketing capability and financial performance. this relationship has not been examined before in the literature. but this finding is in line with the previous research related indirectly. yu et al. (2014), and jin et al. (2018) found an association between marketing capability and financial performance. rostami (2015) demonstrated the relationship between marketing capability and innovation. sok and o'cass (2015), tung (2012), and mitrega et al. (2017) found the relationship between product innovation and performance. it can be concluded that product innovation is a fundamental explanation of superior financial performance with also its role on the transmission of the effect of the marketing capability. firms with high marketing capability can understand market needs rapidly, make product innovations that meet these needs first in the market, and thus earn huge profits with the first-in advantage. it was also found that technological turbulence moderates the mediating effect of product innovation. environmental factors can affect the impressiveness of the firm's activities based on contingency theory (abbas and hassan, 2017). accordingly, technological turbulence has been examined in many research as a moderating variable. namely, this finding is in line with the contingency theory. this result suggests that in high technological turbulence environments, the mediating role of product innovation on financial performance is high. when the change in technology is rapidly, it is more important to a rapid understanding of the market and customers, and launch new products fastly. because by recognizing market needs and even anticipating their expectations, make product innovations will make the firm a leader for the customer and be able to convince them to pay high prices for the product in environments with high technological change. this study also offers some practical implications for practitioners. it is empirically provided that marketing capability enhances product innovation, which further increases the financial performance of firms. this suggests that managers should emphasize making product innovations by gathering market information, recognizing customer needs and expectations, promoting relations with customers in order to increase profitability. in this way, it can be possible to launch new products that meet the expectations and needs in the market in a short time and thus, the financial performance can be ahead of the competitors. second, it is found that the mediating effect of product innovation on financial performance is strengthened in an environmental of high technological turbulence. it implies that managers should pay more interested in product innovation in high technological turbulence. although technological turbulence is seen as disadvantageous because of uncertainty, it actually contains significant opportunities for firms that quickly grasp the change in the market and respond with innovative output. thus, managers should regard the high turbulence in technology as an opportunity, promote to develop of new products satisfying market demand at the right time by analyzing the market well. this study has some methodological limitations. first, generalizability is a limitation for this research which was conducted in kocaeli in turkey. second, common method variance may be a problem due to the self-reported nature of the data. finally, causal inferences cannot be made since a cross-sectional design was used in this research. but these limitations may be clues and guidelines for future studies. researchers can test this model in different regions. also, longitudinal studies are thought to be substantial to complement this study and contribute to the literature. future studies can examine the other factors which may mediate the relationship between marketing capability and financial performance. references abbas, m. w., & ul hassan, m. 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(2014), “the impacts of marketing and operations capabilities on financial performance in the uk retail sector: a resource-based perspective”, industrial marketing management, 43(1), 2531. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 32-40 32 relationship of corporate governance with organizational resilience in the changing world melike sercan sevi̇mli̇ yıldız technical university, turkey murat çemberci̇ yıldız technical university, turkey received: march 01, 2021 accepted: may 07, 2021 published: june 15, 2021 abstract: in addition to economical changes,technological improvemenets and crisis; occured company scandals like enron and worldcom has increased the interest in corporate governance concept. while corporate governance principles created by oecd in international context, in our country the principles created by spk based on anglo-saxon corporate governance model. to encourage firms about adopting corporate governance and measure adoption level of firms who enrolled to stock markets to the codes in question, xkury has been created by i̇stanbul stock market. when the effects of changes and developments in the fields of economy and technology on the management understanding and strategies of the enterprises considered, ability of the businesses that have adopted corporate governance principles to continue their activities in a healthy way, even if environmental factors become difficult or encounter any destructive events raises questions regarding to the relationahip between corporate governance and organizational resilience. this research has been made to understand if there is a correlation between corporate governance and organizational resilience. while data regarding to corporate governance point acquired as secondary sources via xkury, data regarding to organizational resilience has been acquired as primary source via a survey that made up of organizational resilience scale created by wicker et al. for dependent variable of the work, samples picked via snowball sampling method and collected data analyzed on the last word statistic softwares and excel 2016. analyze results showed that there is strong positive way correlation between corporate governance and organizational resilience. keywords: corporate, governance, organizational, resiliene, xkury 1. introduction during history in addition to economical crisis which occured because of many reasons such as company scandals, wars and pandemics; improvement in the area of technology and science and lastly covid-19 pandemic shown that how important organizational resilience for both smes and big firms by creating many positive and negative changes. to know which values that has been focused and applied management strategies by firms, who could survive and keep functioning in a healthy way, by adopting changes occured due to many reason like technological changes and crisis is very valuable information to make benchmarking for other firms. in this manner, there was a need occured to make a research about if there is a relationship bewteen coporate governance level and organizational resilience of the firms to conduce literature and help family business and smes to stay alive which are building stone of economy. one other goal of the research is conduce literature by examining resilience concept in organizational context which has mostly examined in personal context. when its model considered this reasearch is descrtiptive, correlational and quantitative research and its sample is made up of 23 firms which are registered in xkury and have data regarding to 2017,2018 and 2019 years. witin the scope of research 483 surveys has been collected by 21 white collar workers by every 23 company and needed analysis completed. relationship of corporate governance with organizational resilience in the changing world 33 2. literature rewiev even thought increased popularity of variables of this resaerch, there is not sufficient number of researchs regarding to both about concepts in literature. specially there are very few studies that examine the concepts of corporate governance and organizational resilience together. one of the most comprehensive study that examined corporate governance and organizational resilience together has been made by strateji co. and ernest & young (ey). in the result of the study, it was concluded that businesses that operate in compliance with corporate governance principles attach importance to their organizational resilience and carry out works to increase their resilience. (oktar, 2018) in addition, to study in question, within the scope of the corporate governance summit organized by tkyd, the statement of “if corporate governance principles are taken as a guide, the stones of corporate durability will come into place” was included in the presentations of the research. (institutional resilience and resilience preliminary study, 2018) one of the few studies that examine concepts used in this research together was conducted by palmi et al. in their study, the researchers examined relationship between environmental-social practices, corporate governance and the economic performance of the enterprise with organizational resilience as an attitude, and they concluded that there is a positive correlation between corporate governance and organizational resilience. (fusco et al., 2018) walls et al., in their study examining the relationship between environmental performance and corporate governance, argue that the corporate governance principles established by the oecd increase durability. in the emergence of this idea, corporate governance's positive effect on concepts that affect resilience like, long-term sustainability, social responsibility level and economic outcomes, takes an important role. (berrone et al., 2012: 2) unlike other researchers, schneider handled corporate governance with its legal dimension. the researcher measured the relationship of economic liberalization and corporate governance with organizational resilience in enterprises located in latin america and concluded that, established legal order and sanctions in developed countries have a positive effect on corporate governance. accordingly, he argued that the organizational resilience of enterprises in developed countries is higher, because they can react quickly to globalization. (schneider, 2008: 390) in their work regarding to management and organizational resilience, lampel et al., inspired by the fact that corporate governance is a mechanism where management and ownership are separated, and argued that corporate governance might increase organizational resilience by filling the gap between ownership and management. (bhalla et al., 2014: 67) kleinknecht who examined corporate management in the economic context, argued that, even though eblr (employee board level representation) strategy, which is based on corporate governance principles and based on the principle of employees selecting and assigning decision-making representatives to the business bodies by themselves; might decrease stock market value of the enterprise in good times but in long term it might increase organizational resilience under tought conditions. (kleinknecht, 2015: 69) 3. conceptual framework 3.1. corporate governance although it is not possible to give historical information about the first use of the concept of corporate governance due to the breadth of the subject, it is appropriate to say that the concept has settled into our lives by creating business forms and taking into account individual interests in the relationship between investors and managers. (wells, 2010) the conceptual emergence of concept in the usa was realized in the sixties during establishment of companies such as east india, hudson's bay and levant. the concept get more popular all over the world during late eighties-early nineties when cadbury report, which was proposed to be applied to the stock exchange companies all over the world as a result of scandals of companies like worldcom, enron, adelphia scandals and bankruptcy of large and successful companies such as maxwell communications, polly peck, coloroll, bcci. (farinha, 2010) the concept based on principal-agent relationship (eisenhardt, 1989), mainly because of desire to maximize their own interests on both sides; since it includes all factors that affect corporate processes such as the appointment of managers, regulators and the production and sale of goods/services, (turnbull, 1997) concept covers every institution, regardless of whether it is for-profit or not. the most famous definition of the concept was given by sir adrian cadbury, who pioneered publication of the cadbury report in 1992. in "the financial effects of corporate governance in england" raport, sir adrian defined the concept as a system that businesses are managed and controlled. (the committee on the financial aspects of corporate governance and gee and co. ltd., 1992) he also stated that corporate governance is about maintaining balance between social-economic goals and individualsocial goals, and it encourages efficient use of resources, while requiring accountability for the use of the mentioned melike sercan sevi̇mli̇ &murat çemberci̇ 34 resources by the representatives. by expressing this statement, he emphasized, the purpose of corporate governance should be harmonizing individuals, business and societys interest (mallin, 2013) so, cadbury especially focused on the principle of fairness in corporate governance. in this context, fairness means necesity of an institution to make regulations to create social equality that expected to provide equal rights and stop discrimination between its shareholders. (civelek et al., 2018: 56) when concept is defined broadly and comprehensively, it also means the process that firm uses financial, managerial systems as well as administrative bodies in order to improve both brand value and market velue by considering its internal and external environment to and increases efficiency and amount of investments while reducing investment time. (karpuzoğlu, 2010: 44) while focusing on the definition and the impact of corporate governance on businesses, examining the concept within the framework of family businesses and smes, which can be regarded as the building blocks of the economy; will be useful for ensuring the integrity of the concept and a clear understanding. in his article titled “evaluation of corporate governance principles, adaptation of turkish family businesses to the management principles”, çemberci states that corporate governance is about how and by whom the businesses will be managed, therefore, in the decision stages of business actions, it is necessary to regulate relations between different parties such as managers, shareholders and employees, as well as reach consensus. (çemberci, 2013) even though, aim of the concept is listed in most of the articles, it would be appropriate to say that the purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can ensure the long-term success of companies. when the fact that corporate governance is related to ensuring the return of investments from financial suppliers of enterprises considered, it might be suitable to say the concept can be be more important when shareholders, owners and investors transfer the business to different people rather than managing themselves. (shleifer and vishny, 2007, 737) when the concept which ownership and management separated is experienced in different countries, thanks to different regulations, laws and culture, created differences in context of application. in this context, corporate governance practices are classified into two groups as continental european and anglo saxon (anglo american) models. (doğan, 2007: 85-86) although generally divided into two groups, there are also publications in the literature that include the japanese corporate governance model. (ungureanu, 2012) 3.2. organizational resilience the concept of resilience, which is used in different disciplines, has been used in the literature first in the field of psychology and then in other fields such as ecology, engineering, biology and management. (i̇mamoğlu et al., 2020: 154) in organizational science, the concept means the ability of businesses to anticipate changes and potential threats, protect their current situation against unexpected events and at the same time learning from the occured events. (duchek, 2014: 144) organizational resilience depends on response of both individual and organization to disorder and discontinuity within the organization, concept also includes the ability to withstand disorder and adapt new risk environments, (delurey et al. 2003) it would be appropriate to define organizational resilience as, companys ability to maintain its current status by adapting to situations such as change, confusion and disorder which occured inside and outside the company. although the concept is considered reactive way in the literature, some researchers identified it with its proactive side. in this context, there are two approach related to organizational resilience in the literature, first approach is active one that compares organizational resilience to physical resilience, which is, ability of object to keep its shape when it hit. hamel and valikangas have interpreted the concept with active approach by defining it as a capacity for restructuring, as well as being adaptation ability. (hamel and valikangas, 2003). in proactive approach, to say that businesses are resilient, in case of they face negative situations, they should be able to encounter this situation and return their old state as well as they expected to turn such situations to advantage by creating new opportunities to turn into stronger after the destructive event. (beck et al., 2011: 244) 4. hypothesis development in the hypothesis development part of the study the literature reviews made were taken into consideration and the hypotheses were tried to be formed in a way to contribute to the literature at the maximum level. it was observed that the relationship between corporate governance and the dimensions of organizational resilience was not examined in the sources where the concepts of organizational resilience and corporate governance were examined together. relationship of corporate governance with organizational resilience in the changing world 35 for this reason, in addition to relationship between organizational resilience and corporate governance, relationship between corporate governance and the dimensions of organizational resilience, was tried to be examined with the model created. the dimensions in which the relationship with corporate governance will be examined in the study; are determined as robustness, redundancy, resourcefulness, and rapidity. the research model is as shown in (figure 1.) figure 1: research model the hypotheses formed are as follows; h1: there is a significant relationship between the corporate governance score of the enterprises and organizational resilience. h2: there is a significant relationship between the corporate governance score of the enterprises and their organizational robustness of the enterprises. h3: there is a significant relationship between the corporate governance score of the enterprises and organizational redundancy of the enterprises. h4: there is a significant relationship between the corporate governance score and organizational resourcefulness of the enterprises. h5: there is a significant relationship between the corporate governance score of the enterprises and their organizational rapidity of the enterprises. 5. aim and importance of the research in the emergence of the working model was inspired by the covid-19 pandemic, which negatively affects the activities of individuals and organizations all over the world, by causing disruption to their normal functioning and rituals. during such a crisis, the fact that while some businesses suffer losses while others can continue their activities without disrupting their activities or even make profits more than normal,so the issue of organizational resilience has been brought to mind. in this context, it is aimed to examine the relationship of corporate governance and organizational resilience. the research is important in terms of contributing to literature by examining the concept of organizational resilience, which has been found in a number of publications and understanding which ways businesses can increase their resilience in the face of abnormal situations that might occur in the future. 6. research sampling method and measurement while the corporate governance score, which is the independent variable of the research, was obtained as secondary data from the open sources of xkury, data regarding to resilience was obtained as primary data from the sample members with data survey method . while target population of the study covers all enterprises, its accessible population includes the enterprises that are currently included in the xkury. however, since every institutions in the accessible population do not have corporate governance scores for each year, a new corporate governance score was created for firms who have data regarding to 2017, 2018, 2019 by taking arithmetic average of three years and accesible population made up of 55 institutions. due to communication difficulties with businesses, 32 businesses in the accessible population could not be contacted and the sample of the research was made up of the employees of 23 corporate governance organizational resilience (resourcefulness) (redundancy) (robustness) (rapidity) h1 h2 h3 h5 h4(independent variable) (dependent variable) melike sercan sevi̇mli̇ &murat çemberci̇ 36 companies included in the xkury. during the data collection process, a total of 483 questionnaires were used in the study, with 21 responses obtained from each business becuase of low number of responses to the questionnaires sent to businesses through digital channels. owing to difficulty in communicating white-collar employees, data collection for the study was carried out by using snowball sampling method. in the study, organizational resilience was measured via 21-statement scale made up of 4 dimensions which are including durability, backup, skill and agility, and creasted by wicker et al. (wicker et al., 2013) the scale used in the study is a five -point likert-type scale containing the answers of 1 = strongly disagree, 2 = disagree, 3 = undecided, 4 = agree, 5 = strongly agree. the scale was translated by the researcher and a pilot test was conducted in a sample group of 15 people in order to determine the understandability of the statements and it was observed that the translation of the statements was clearly understood. the validity of the scale was questioned by the scale developers wicker et al in their article titled "organizational resilience of community sport clubs impacted by natural disasters" and it was concluded that it is reliable and valid. according to the results, the scale was accepted as valid with the value α = .944 in the whole, while α = .868 for robustness, α = .767 for redundancy, α = .803 for resourcefulness, and α = .860 for rapidity. (wicker et al., 2013) 7. data analysis 7.1. descriptive statistics after the operations regarding descriptive statistics were performed in the statistics program, descriptive statistics regarding variables of the study were obtained as seen in (table 1). accordingly, the company with the highest corporate governance score has 96.36 points, while the enterprise with the lowest score has 83.62 points. the business with minimum organizational resilience has a value of 63, while the business with maximum resilience has value of 102. while the average corporate governance score is x ̄ = 93.4861 ± 2.84024, it has been determined that the average organizational resilience value is x ̄ = 87.1615 ± 7.35318 table 1. descriptive statistics descriptive analyzes were carried out on each question of the organizational resilience scale as well as variables, and as a result, the expression with the lowest average answer on the scale was the statement "employees of our company can voluntarily maintain work on behalf of each other in difficult situations" with a value of x ̄ = 1.9322, while the expression with highest average was "our business can react quickly to events that may prevent it from continuing its activities." with the value of x ̄ = 4.8800. 7.2. hypothesis test results in order to analyze whether the data on the variables are normally distributed or not, normality test was applied in the current statistics program. as shown in (table 2), it was concluded that the data were not distributed normally, since the skewness and kurtosis values of the corporate governance score were not in the range of +1.5, -1.5 (tabachnick and fidell, 2007). in addition to considering skewness and kurtosis values, tests in the statistics program were also used by considering the number of samples (n = 483)to determine whether the data is normally distributed or not, as well as the skewness and kurtosis values. the shapiro-wilk test result was ignored after considering the size of sample. in the literature, there are different opinions about the sensitivity and sample size for the tests, in some publications, it is stated shapiro-wilk test should be used if the sample size is less than 30 and in the publications, while some of them states it should be use unless it is more than 50. however, both cases were not satisfied, only kolmogorow-smirnov test was taken into consideration (arslan, 2018). just like the consideration of, information about skewness and kurtosiss shown, kolmogorow-smirnov normality test indicated that p value is less than 0.05 for every one of variables , so minimum maximum mean standart deviation corporate governance score 83,62 96,36 93,4861 2,84024 organizational resilience 63 102. 87,1615 7,35318 relationship of corporate governance with organizational resilience in the changing world 37 ho: data are normally distributed. rejected and, h1: data aren’t normally distributed. accepted. table 2. normality test results although the data is not distributed normally, spearman's rank correlation, which is used when parametric assumptions are not provided and the data is not normally distributed, was used in correlation analysis in order to preserve the existing extreme values and to perform the analysis in a healthy way without causing any manipulation in the data set. (tarkun, 1996: 237) as a result of applying spearman's rank correlation, as shown in (table 3), the correlation coefficient is found, r = 0.606, which indicates that there is a high level positive relationship between the variables, and the p value is less than 0.05, which indicates the 95% confidence interval, with a value of 0.001 (mendeş, et al., 2005, 360) so, the null hypothesis h0= there is not significant relationship between corporate governance score and organizational resilience of enterprises. was rejected and h1: there is a significant relationship between corporate governance score and organizational resilience of enterprises. alternative hypothesis is accepted. table 3. correlation analysis for the h2, h3, h4, h5 hypotheses, normality tests included in the current statistical program were performed on the data for dimensions of organizational resilience and it was determined that the data on all dimensions except the robustness dimension were distributed normally. during the analysis of hypotheses, spearmans rank correlation, which is based on sequencing the data first and then using the pearson equation, was used since data is not normally distributed on the strength dimension and corporate governance score. (zar, 2005) as a result of the analysis, the p value between the corporate governance score and each dimension of organizational resilience took the value of 0.001, as shown in (table 4). accordingly, there is a positive and statistically significant relationship between corporate governance score and each dimension of organizational resilience. when correlation coefficients considered to interpret the relationship, it is seen that there is medium and positive direction relationship by r = 0.497 between robustness; medium and positive direction relationship by r = 0.458 between redundancy; high level positive direction relationship by r = 0.613 between resourcefullnes; and weak positive direction correlation by r = 0,244 between rapidity and corporate governance. accordingly, the resourcefulness dimension has the highest relationship with corporate governance level with value of r = 0.613. as a result of analyzes h2, h3, h4, h5 hypotheses were accepted. kolmogorov smirnov test statistics p shapiro-wilk test statistics p skewness kurtosis corporate governance score 0,177 0,059 0,807 0 -1,967 5,159 organizational resilience 0,184 0,042 0,902 0,028 -0,088 -1,57 correlation coefficient 1 p . correlation coefficient 0,606 p 0,001 corporate governance score organizational resilience correlation (spearman's rho) melike sercan sevi̇mli̇ &murat çemberci̇ 38 table 4. correlation analysis 8. conclusion, discussion and recommendations in the normal course of life, it is very difficult, and in some cases almost impossible, to anticipate the difficulties that may be encountered in both individual and institutional dimensions. for this reason, it would be appropriate to sa y that the place of the concept of resilience in our lives in both individual and organizational dimensions cannot be underestimated. in this context, it has great importance to define such an important concept. in terms of contributing the literature, based on the resilience definitions used in this study, organizational resilience can be defined as having the skill of quickly managing the difficult situation encountered, after accepting the possibility of worsening of situations where entreprise encounter difficulties. of course, like many skills in life, resilience skill is also dynamic and can be developed thanks to experience, work and time. (mcmanus et al., 2008). during the covid-19 pandemic, which has entered our lives especially recently and is categorized as a great challenge in some publishing; some businesses were damaged, while others were able to continue their activities in a healthy way as in the usual process without being affected by the crisis in question. this situation has been an inspiration for the emergence of this study. as a result, considering other studies on the subject in the literature, it can be said, the result of the study was in accordance with other publications. in this context, it would be appropriate to say that the possibility of emerging more severe and deadly pandemic than the covid-19 (kasapoğlu, 2020) and natural disasters, economic fluctuations and technological changes occured all over the world, has increased the importance of the study that created with recent data on organizational resilience. since there is no corporate governance scale that can be used academically, study sample was made up of included enterprises that have date for 2017,2018 and 2019 years in the xkury and organizational resilience of the enterprises measured via scale developed by wicker et al. (wicker et al., 2013) as a result, it was concluded that there is a highly significant positive correlation between corporate governance and organizational resilience with the value of r = 0.606. considering that, besides the quantitative data obtained, most of the expressions in scale are related to the internal and external environment of the enterprise, which has a large place in corporate governance, the idea that corporate governance is related to organizational resilience. in this direction, remembering the system approach of organizational resilience will be useful in reinforcing the study result. in the research, among all the expressions in the scale, the lowest average statement of the participants was “employees of our company can voluntarily carry out the works for each other in difficult situations.”. at this point, it would be appropriate to say that the level of organizational resilience will increase significantly if business owners and managers encourage their employees to help each other and carry out tasks on behalf of each other in crisis situations and extraordinary situations. the statement with the second lowest average in the scale "our business reaches its targets on time." while the third statement with the lowest average has been "our business can get support from other organizations in case it needs it.". so it might be said, if businesses correlation coefficient 1,000 0,497 0,458 0,613 0,244 p ,001 ,001 ,001 ,001 correlation coefficient 0,497 1,000 0,565 0,544 0,397 p ,001 ,001 ,001 ,001 correlation coefficient 0,458 0,565 1,000 0,6 0,362 p ,001 ,001 ,001 ,001 correlation coefficient 0,613 0,544 0,6 1,000 0,47 p ,001 ,001 ,001 ,001 correlation coefficient 0,244 0,397 0,362 0,47 1,000 p ,001 ,001 ,001 ,001 corporate governance score robustness redundancy resourcefulness rapidity correlation (spearman's rho) corporate governance score robustness redundancy resourcefulness rapidity relationship of corporate governance with organizational resilience in the changing world 39 operating in similar sectors support each other in a crisis situation, this might increase their organizational resilience and thus make the whole economy stronger and more resilient. in case of researchers who will study on any variable(s) of this study in the future and use the scale used in this study, they can make inferences about the leve l of participation to statements mentioned, by considering the data presented in this study. in the study, it is possible that the majority of the questionnaires were distributed to the participants through digital channels and the participants were not objective in the answers due to concerns about obtaining their personal information. for this reason, in future studies, researchers should be carefull about make the participants feel comfortable so that they can give objective answers. in line with the results obtained from the study, the final suggestion to be submitted will be for the business owners. as shown in this study, the data obtained and result of examined researches show that increasing the corporate governance level of the enterprise might positively affects the organizational resilience level. in line with the results of this study, which examines the relationship between corporate governance and organizational resilience, businesses should aim to increase the level of corporate governance and focus on communication with their external stakeholders, as well as with their internal stakeholders, who greatly affect the resilience of the enterprise with their attitudes and behaviors. references arslan k,(2018) spss'de bağımsız örneklem t-testi (independent sample t-test), available at: https://www.galloglu.com/blog/bagimsiz-orneklem-t-test-spss-independent-sample-t-test (accesed 25 dec 2021). civelek, m. e., çemberci, m., & günel, d. 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(2005),“spearman rank correlation.” encyclopedia of biostatistics, 7. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 97-104 97 omni-channel trends in covid-19 pandemic beyza zeynep avşar i̇stanbul commerce university, turkey received: april 05, 2021 accepted: may 30, 2021 published: june 15, 2021 abstract: beginning with the realization of an exigency and finishing with a post-journey review, a customer's experience is divided into many stages. this experience is largely defined by consumers shifting between platforms (e.g., store, retailer website, price comparison app) across and inside platforms in today's omni-channel context. it is even typical for them to utilize many platforms at the same time (e.g., checking online prices inside a real-world store). the evolving characteristics of the consumer experience has become a prominent theme in marketing research especially, the covid-19 pandemic has escalated to changes from retailer's sides. during this period, retailers went for changes to provide the best services for the customers to survive. the aim of this article to find out the latest omni-channel trends to how retailers adopting themselves in this new era. keywords: omni-channel, e-commerce, covid-19 1. introduction the covid-19 pandemic has changed the existence of individuals worldwide. lockdowns and social distancing standards have had a significant impact over the manner in which individuals shop. buyers are searching for an advantageous and more secure spot to do their shopping. the footfalls at the shopping centers have likewise decreased post-lockdown and this can be because of the aversion among the buyers to shop in these areas. thus, online shopping is acquiring further importance in the time of pandemic (dinesh & muniraju, 2021). perhaps the main lesson for retailers from the covid-19 pandemic is that advancements in technologies, services, and science are all the more direly needed to separate and without a doubt, to survive. customers' increasing demands for more digital, contactless, individual, helpful, and more secure shopping encounters are compelling heavier investments in empowering technologies. the tipping point that has been arrived at is that the present time requires more proficient solutions for ‘digital transformation’ to the shopping survival experience (e-commerce, mobile applications, cashier-less) as well as concerning store operations (efficiencies, labor savings, robotics, wellbeing) (ciancio, 2021). simultaneously, an increasing amount of operations management researchers are analyzing product flow across the entire supply chain to the final client (marchet, melacini, perotti, rasini, & tappia, 2018). the omni-channel environment has become a major driver for changes in procurement and inventory policy as well as innovativeness in distribution and returns management. hence, numerous product flow phases have become more integrated and resulted in a highly valued, cost-effective and flexible service (bijmolt, ve diğerleri, 2021). an omni-channel environment has become the norm in most markets. omni-channel retailing has been defined as a business model in which different channels are fully integrated to provide a seamless experience throughout a customer’s journey (brynjolfsson, hu, & rahman, 2013). the term "omni-channel retailing" refers to a business concept in which several platforms are completely integrated to provide consistency to consumers throughout their experience (verhoef, kannan, & inman, 2015). optimizing performance in one platform is usually inefficient as individuals prefer their own mix of platforms, want to shift between them and desire persistent, flawless a nd dependable service throughout their experience (sousa, amorim, pinto, & magalhães, 2016). customers also consider the variety of products, ordering, shipping, and refund policies while conducting searches and placing orders. so, synchronization between platforms, various customer journeys and product flow stages is critical to provide a completely integrated experience. in today's omni-channel markets, success demands an integrated beyza zeynep avşar 98 marketing–operations approach to addresss the main decisions that lead to interdependencies between customer journey and product flow (rooderkerk & kök, , 2019). regardless of this, researchers have typically studied the elements of integrated product flow management, channel management and customer journey management based on their own area of expertise (nguyen, leeuw, & dullaer, 2018).the objective of this study is to understand the successful journey of popular omni-channel strategies in the covid-19 pandemic. 2. literature review 2.1 covid-19 and the impacts on online retailers novel corona virus disease 2019 (covid-19) is turning into a pandemic on the planet as expressed by world health organization (who) since march 2020. interestingly, the virus was discovered in china and it is turning into an episode in various countries within a brief timeframe. subsequently, this pandemic is affecting the human existence, including the business exercises and worldwide monetary circumstance (craven, liu, & wilson, 2020). the worldwide covid-19 pandemic all through 2020 has affected purchasing behavior. social separation during the covid-19 pandemic constrained numerous individuals to go to digital media. in general, customers will utilize advanced data to discover product information prior to purchasing. alluding to online retail sales information in several countries in the world, including the united states, united kingdom, germany, france, canada and latin america, shows that online retail sales are exceptionally small when contrasted with offline retail sales. worldwide online retail sales are less than 30% of total retail sales. as such, retail sales in actual stores are enormous, which is over 70% of total retail sales. the covid-19 pandemic is affecting online retail sales; however, it is minuscule. the expansion in worldwide online retail sales was under 10% of total retail sales or 10% to 15% of online retail sales prior to the covid-19 pandemic. the most noteworthy expansion in online retail sales during the pandemic happened in the second quarter of 2020 and diminished again in the third quarter of 2020.the pinnacle of online retail sales during the pandemic is more than 35% of the total retail sales. the expansion in online retail sales in the second quarter of 2020 was brought about by surprising purchasing behavior as customers dreaded market interruptions due to the worldwide covid-19 pandemic (sayyida, 2021). 2.2 e-commerce and covid-19 the improvement of the business world today cannot be isolated from the advancement of information and communication technology. how companies and firms are run from all parts of the world just with the sophistication of technology, the creation and advancement of communication means and methods make information exceptionally simple to acquire; we can easily get all the information about whatever occurs in various parts of the world. the development of e-business models cannot be halted, different e-commerce resemble mushrooms in the stormy season. enormous companies appear virtually, the improvement of artificial intelligence makes various businesses so efficient that companies can undoubtedly move with office automation due to the help of the web and cloud networks. different market place applications have jumped up working together online and offline sales models. advertising strategies started to be created on a digital basis. this development occurred so rapidly; how the single channel strategy was changed into an omni-channel which is well known in retail business today. a few studies have shown that businesses can build their yearly sales by launching an omni-channel procedure. this is affected by customer purchasing interest, a decent product combined with the role of technology causes the product to have more value that can attract more buyers to purchase (maisyura & ameliany, 2020). the current technology is a pivotal factor in acquiring upper hand and achievement in this aggressive period of globalization. it helps in quicker production and decision making. therefore, businesses are looking for imaginative solutions to upgrade their business performances, to acquire relative benefits, to slice costs, as well as to improve the nature of their services and products by embracing cutting technological developments. during this covid-19 outbreak, businesses may profit by the worldwide conditions that urge the purchasers to embrace their online business channels. to inspire purchasers to utilize e-commerce, it is important to comprehend the key factors that impact the selection of e-commerce by consumers (salem & nor, 2020). web based retailing has developed monstrously over the years and there is sufficient headroom for additional development. covid-19 has caused the online business market to penetrate further, as a result of customer delay to shop from offline stores. anxieties with respect to shopping from actual stores and limitations on movement have constrained customers to purchase online during the pandemic. for customers, online retail offers access to a huge omni-channel trends in covid-19 pandemic 99 collection of products and for venders it offers a chance to arrive at an enormous geographical region with limited resources. the sales of e-commerce platforms have essentially developed similarly to the pre-lockdown order volumes. the outcomes show that more customers are purchasing kitchen essentials, personal care products and groceries online. the demand for essentials and hygiene products is expanding and the online platforms need to guarantee that the customer request is met successfully so that satisfied customers are retained. the finding that customers are progressively moving their purchases online underlines that online platforms need to focus on improving customer experience. this is because increasing sales is not sufficient to guarantee growth over the long haul. the online retailers in india should invest more in infrastructure and search for productive tie-ups with nearby retail stores. the significant players in the online business market in the country might actually accomplish this all without any difficulty. however, more modest ones would need to concentrate their energy and endeavors in fulfilling the expanding shopper need. offline retail stores also would need to rehash themselves to drive customers in the 'new normal’ scenario. in countries like india, it is impossible that online stores could totally supplant offline stores. accordingly, the offline retailers should get more brilliant with the adoption of smart technologies. online retailers also would require steady advancements and coming up with programs to build customer commitment. furthermore, the platforms need to guarantee the wellbeing and security of individual and financial details of customers shopping on their websites by adopting appropriate monitoring measures. this would support the certainty of both existing customers as well as first time customers to make purchases on the web and thus would improve customer trust (dinesh & muniraju, 2021). 2.2.1 examples from the coffee sector consumers stuck at home drinking coffee powered nestle sa to its best quarterly sales growth in almost a decade. the world's biggest packaged-food company reported a 7.7% rise in first-quarter organic sales in 2021, which strip out currency fluctuations, acquisitions and divestitures, driven by strong demand for nespresso pods, nescafé instant coffee and starbucks-branded products. that performance handily beat analyst expectations of 3.3% sales growth. nestle said coffee was the largest contributor to growth, with gains in north america and europe. nespresso products were particularly popular, with sales rising 17.1%, fueled by market-share gains in north america and demand for its vertuo coffee machines (kostov, 2021). when the pandemic hit last year, consumers bought whatever coffee they could find as offices closed around the world and they faced shortages at supermarkets. but after months of restrictions, coffee drinkers have invested in espresso machines, french presses and pour-over brewers as they look to upgrade their coffee experience and replicate what they were getting in cafes at home. e-commerce was another bright spot, with sales, fueled by nespresso products, rising 40% to reach one-sixth of group sales.nestle also flagged signs of recovery in its out-ofhome business, selling to places like restaurants and hotels, as pandemic restrictions ease in some parts of the world. china was its best selling region in the quarter. the company's first-quarter sales were also boosted by higher selling prices, up 1.2%, to cover rising commodity costs. other consumer products companies have also flagged price rises, including procter & gamble co (kostov, 2021). not only giant companies as like nestle but also some sma companies in the coffee sector have increased their profit during lock downtimes in turkey. to given an example; horeka ltd. is an espresso coffee machine manufacturing and coffee and tea filter paper producing company in turkey. especially, in the filter paper product line, the company with their' brand of caffeo coffee filter paper, has a leading power in the market. according to their sales, they reached to more households through grocery stores and online shopping. the company increased 247% of the unit online sales the brand of caffeo in 2020. beyza zeynep avşar 100 figure 1. annual growth rate of online sales of caffeo 2.3 omni-channel solutions for the retailers omni-channel strategy assumes a critical part during covid-19 time, which lessens long lines in fundamental goods shops; subsequently, it has helped control the pandemic's spread. the strategy guaranteed that customers noticed social distancing protocol during the order and delivery time of the products. the companies and retailers should use suitable omni-channel capabilities, for example, order management system, inventory management system, enterprise data interface, and warehouse management system as the key supply chain strategies. the failure of utilizing a multichannel system has prompted the change of the key supply chain to an omni-channel strategy, which is the most proficient and resilient. the vital gateway to proficient omni-channel strategy is a strong ims (inventory management system) and oms (order management software), making stock areas effectively open in offline and online customers and figuring out which stock areas where an order ought to be fulfilled. nonetheless, retailers have not been completely successful in onboarding new clients effectively because of a lacking realization of the ims and oms prerequisites; consequently, they have executed edi and wms (warehouse management systems) as the omnichannel strategies to improve the supply chain serving clients. an omni-channel supply chain strategy pursues to furnish the customers with a consistent shopping experience for the individuals who are buying their items available or on the web. the omni-channel strategy has been completely coordinated and empowered with fully integrated and enabled with advanced technology and the most efficient microservice architecture framework. the retailers for in store-based, brick and mortar, and online supplies are incorporated. thus, the great development in the omnichannel retail strategy, which is joined with an alarming effort to mitigate delivery times, has prompted a basic uplift in demand for customers' products. at last, oms, edi, and wms have developed colossally because of the fast progression in technology and rise in the internet. in this manner, consolidating these system capabilities frameworks into a solitary durable system has profound advantages across the disturbing adoption of omni-channel supply chain strategy. the flexible system abilities are significant in managing and establishing omni-channel supply chains since the customer demands an omni-channel arrangement with consolidated supply chain that will warrants an integrated system. subsequently, supply chain systems should share information to build up a consistent customer experience and loyalty. they should have the ability to deal with potential issues that may emerge during the order fulfillment process (venkatasubramanian, 2021). 2.4 major omni-channel trends in 2021 2.4.1 accelerated digital transformations the covid-19 pandemic focused on digital transformation across ventures, including retail. businesses have distinguished and put resources into apparatuses and systems to react to sky-rising online business action with new products, services, and shopping encounters. digital payment choices incorporate technologies like mobile wallets omni-channel trends in covid-19 pandemic 101 (think apple's wallet app), p2p payment platforms (think venmo), time payments, and even cryptocurrencies (holmes, 2021). the worldwide digital payments industry has seen numerous advancements recently, including mobile wallets, p2p mobile payments, real-time payments and cryptocurrencies. this new, easy to-utilize, cashless payment techniques have attracted many customers. large players like amazon, paypal, apple, and facebook are constantly investing large amounts of cash into on the web and mobile payment solutions. the progressing improvement from independent online shops towards coordinated internet shopping environments has made space for new business models for and opportunities for digital payment techniques (kranjec , 2021). in 2017, the whole digital payments sector was worth more than $3trn, as the statista study showed. before the end of 2019, this figure bounced by 55% to more than $4.7trn and kept developing. statistics show the global digital payments industry hit $5.4trn value in 2020, just about a 16% increment year-on-year. the whole sector is relied upon to proceed with its great development in 2021, with transaction value jumping by 22% to more than $6.6trn. in the following four years, the digital payments market is set to reach a value of $10.5trn. with a worldwide transaction value of about $4.2trn in 2021, the digital commerce sector is set to make up by a wide margin the greatest portion of the whole digital payments market. the high transaction value in digital commerce is driven by an enormous number of products and services bought on the web. it incorporates all e-commerce, e-services, and digital media transactions or bookings in e-travel. the whole sector is conjecture to develop by practically 40% and hit a $5.8trn by 2025.there are expectations that mobile pos payments will contribute 37% or nearly $2.5trn to the the digital payments value in 2021, but the next years will witness great development in the the mobile payments segment, with transaction value increasing by 90% to $4.6trn by 2025 (kranjec , 2021). 2.4.2 shoppable social media social media accounts and influencers can get your items before shoppers historically. be that as it may, in the event that you need to divert this commitment from simply interest into genuine deals, you need to simplify it to get from the post to a finished request. with shoppable media, customers can navigate a post to your site or e ven place an order without leaving the application, just like facebook shops. adding an incentive (like a discount code or offer free of charge shipping) further urges customers to act (holmes, 2021). if social distancing implies retail brands will not have the live interaction with their customers they previously relied upon, shoppable video may be the most suitable advanced substitution (moore, 2020). in the event that there's one thing that is plentiful in 2020, it's video content. the streaming wars are seething, with services producing sufficient programming for a lifetime. meanwhile, social media platforms continue growing and commanding a greater number of individuals' finite attention. yet, while consumers have no deficiency of content, what's missing is an encounter that catches their eye by offering something other than just viewing (tsou, 2020). figure 2. percentage of businesses that use video as a marketing tool source: (wyzowl, 2021) the future of trade has a place with brands and makers who bring commerce and content closer together in a consistent, drawing in, and intuitive viewing environment. these shoppable video encounters meet the watchers beyza zeynep avşar 102 where they are, can possibly open important customer information, and enable brands to associate with customers through more significant collaborations. retailers worldwide are joining shopping and etertainment to attract younger generations who are anticipating additional engaging experiences. while this "shoppertainment" pattern at first rose as a reaction to online shopping, the e-commerce world can likewise observe and apply some of these techniques to the digital scene. major media organizations are as of now driving the charge by utilizing interactive video, especially inside the ad space. for instance, walmart's real time feature vudu has been investing in shoppable ads to up level their platform’s e-commerce abilities. this sort of interactive content permits viewers to buy an ad’s highlighted products in a split second through a spring up window instead of leaving the video to go through the transaction (tsou, 2020). these new abilities are something beyond gleaming fancy odds and ends. they embody "shoppertainment" at their center, giving engaging experiences that are incorporated into entertainment, yet modernized and prepared for the online customer. the emergence of mobile additionally assumes a part in this new flood of retailentertainment. shopping was fastest-growing mobile segment in 2017(up 54% year-over-year), trailed by entertainment (43%), making cell phones an ideal tool for keeping buyers engaged and putting the interactive ecommerce in their grasp. numerous brands are perceiving this potential and putting a particular spotlight on mobile. nbcuniversal, for instance, is bringing "shoppertainment" to cell phones through shoppable adds fueled by mobile-friendly qr codes that permit clients to make purchases easily. these new capacities are something other than glossy fancy odds and ends. they embody "shoppertainment" at its center, giving engaging experiences that are incorporated into amusement, however modernized and prepared for the online customer (tsou, 2020). 2.4.3 merging online and offline experiences in stores both digital and physical experiences have one-of-a-kind benefits. shopping on the web allows customers to explore alternatives, read reviews, and make comparisons on their own timetable. shopping in stores allows customers to see and feel merchandise prior to purchasing, and they can get back their buys right away. businesses that effectively connect the two can improve client retention and deals completion (holmes, 2021). emerging technologies like virtual reality (vr) and augmented reality (ar) are assisting with filling the gaps among on the web and in-person shopping by giving a scope of expanded experiences. for instance, zennia optical permits customers to "try on" glasses virtually, and with ikea place application customers can try 3d models of furniture and accessories in their own rooms. supermarkets are making 360º vivid experiences that allow customers to shop by browsing shelves. keeping in mind that these digital shopping alternatives are energizing, marketers should remember that they should be consistent with and associate with different sales channels, so they are really essential for a consistent brand experience (holmes, 2021). 2.4.4 driving traffic into stores with “on-the-go” promotions via mobile devices mobile devices are as of now a significant piece of the in-store shopping experience. customers research things prior to making purchases, examination shop in the store, and use applications to manage coupons and receive the advantages of rewards programs. studies show digital interactions influence 56 cents of every dolar spent in physical stores (skrovan, 2017). by utilizing browsing history and location data, brands can customize promoting, which has demonstrated to be massively compelling. makeup retailer sephora recently their application to take into account this way of shopping. presently clients can check reviews and information in the store, see what's available, and even virtually try on products. by following how customers handle their purchases, sephora can adjust promotions accordingly. they understood their clients consistently search for products online prior to visiting stores, so they started vigorously promoting in-store sales on their mobile website. this straightforward strategy has brought about a transformation rate that is three times higher than regular digital ads (holmes, 2021). 3. conclusion the competitive landscape and society are anticipated to be profoundly transformed by digital technology innovations and business methods. how digital technologies are redefining the routine of marketing, which is in turn redefining the nature of markets internationally, is at the heart of changing business procedures. currently, the essence of digital media such as more reliable statistics paired with interaction has created entirely new marketing omni-channel trends in covid-19 pandemic 103 options. anticipating the changing consumer preferences and demands is a major challenge for marketers, technology suppliers, investors and those who develop policies in government. the risks are really high. companies that were unsuccessful in adapting to the changes in desires, conditions caused by new technologies and business formats taint the landscape. the acceptance of digitization will be hastened by the quick transformation of marketing with digital instruments, products and tactics. it will affect the workforce markets, well-being of consumers, businesses and competitivity of the nation. consumers, corporations, and governments are predicted to reap varying gains and expenses as a result of the digitization of marketing. in a world revolutionized by digital markets, traditional marketing strategies for understanding consumer attitudes have proved to be less effective. consumer shopping and purchasing behaviors are fast changing, with rising inclinations for shared consumption over possession. the usage of mobile technology, consumer co-creation of value, internet shopping and a desire for experiences above material goods are among the many alterations in priorities (narayanpura & kothanur , 2021). notwithstanding the quantity of platforms accessible to consumers, omni-channel retailing actually depends vigorously on good quality personal interaction. the attitudes and behaviors of service providers directly affect customers satisfaction and loyalty. with the additional utilization of technological channels while interacting with consumers, certain aspects emerge with farthest significance in terms of virtual service quality, including efficiency, aesthetic design, privacy/security, and personalization of the virtual channel (civelek & avşar, 2021). at last, on-ichannel retailers should be and keep mindful of the strong allure of physical store environments. notwithstanding the expanding utilization of online channels, this base idea still holds as the essential of all buying experiences and accordingly should give customized experience and cutting-edge applications and applications with regards to omni-channel retailing (civelek & avşar, 2021). references bijmolt, t., broekhuis, m., leeuw, s., hirche, c., rooderkerk, r., sousa, r., & zhu, s. 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(2020). omnichannel strategy an innovation of marketing in new normal era. advances in social science, education and humanities research, 495, 364-367. marchet, g., melacini, m., perotti, s., rasini, m., & tappia, e. (2018). business logistics models in omni-channel: a classification framework and empirical analysis. international journal of physical distribution & logistics management, 48(4), 439-464. doi:https://doi.org/10.1108/ijpdlm-09-2016-0273 moore, k. (2020, november 4). 6 omnichannel trends to look for in 2021: predictions for the future of retail. shopify.com: https://www.shopify.com/retail/omnichannel-trends adresinden alındı beyza zeynep avşar 104 narayanpura, k., & kothanur , p. (2021). the digital transformation of marketing: impact on marketing practice & markets. international journal of research in engineering technology, 6(2), 1-10. nguyen, d., leeuw, s., & dullaer, w. 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(2015). from multi-channel retailing to omni-channel retailing: introduction to the special issue on multi-channel retailing. journal of retailing, 91(2), 174-181. doi:https://doi.org/10.1016/j.jretai.2015.02.005 wyzowl. (2021). the state of video marketing 2021. wyzowl. https://www.wyzowl.com/state-of-video-marketing2021-report/ adresinden alındı journal of international trade, logistics and law, vol. 6, num. 2, 2020, 1-12 1 digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage debebe alemu kebede jimma university, ethiopia received: 25 may, 2020 accepted: july 27, 2020 published: 10 dec, 2020 abstract: this study is undertaken to identify the hindrances of digital financial products and services adoption and usage in ethiopia n banking industry with specific refence to some selected commercial banks in ethiopia, jimma town. to achieve the aim of the study the primary data was collected from managers of some selected commercial banks through un-structured interview as well as from customers by using convenience method through standard questionnaires. while, secondary data was collected from documents of banks and journals to triangulate with response obtained from primary data sources. the collected data was analyzed in descriptive and inferential analysis. the findings depicted as the economic factors like unemployment, inflation, source of customers income and saving habits affecting the adoption of digital financial products and services by banks. further, the obsoletion of technological environment, inflexibility of government policies, educational background of the customers and diverse cultures of the societies are the other factors that affecting adoption of financial products. in addition, the digital financial products and services are not properly used by the customers as the result of their low level of awareness, the perceived relative advantage, perceived compatibility and perceived complexity of the products and services. based on the result it is recommended as the banks should properly adopt the digital financial products and services with taking into account of the external factors. further, the banks should participate on aggressive promotion to aware the customers about their products and services, the government should formulate policies and regulations that minimizing bureaucracy of adopting technology by banks. keywords: digital, financial products and services, adoption, use, ethiopia 1. introduction banking system is one of the most important economic sectors and strongest financial intermediaries in the economy that plays a key role in economic development in societies through receiving the deposits of depositors and instead pay loans and facilities to applicants and give interest (iravani, ghazali and ghazali, 2012). so, it is difficult to conceptualize how an economy would operate and survive without the crucial services offered by banks . business organizations and especially the banking sector are operating in an environment characterized by a complex and competitive climate (agbolade, 2011). in today’s competitive world, banks are starving to endure survival, in spite of their vital role playing in the economy. therefore, the banks need to consider several criteria such as bank’s image and performance, speed of transaction, channel of delivery system, banking convenience and product diversity to attract customers to continuously do banking business with them and also changing banking product and service they provided. in a study in germany, singh (2006) and im, bayus and mason (2003) posit that innovation has become one of the most attention-grabbing subjects, drawing the interest of business and economic researchers due to its ability to give firms a competitive advantage. innovation is important for the survival of every business sector, and financial services are no different. indeed, research confirms that innovation affects a firm’s performance positively (damanpour, walker and avellaneda, 2009). the extent to which the financial sector can make contributions to the economy depends, to a large extent, on the quality and quantity of the products and services it offers customers. business entities wishing to restore customer confidence need to focus on innovative products that meet their customers’ needs (reinartz et al., 2011). in addition, to achieve their mission and objectives, they will have to understand their customers’ perceptions (dusuki and abdullah, 2007). such scenario had also led to the changes in the customer’s taste and demand for debebe alemu kebede 2 betterand high-quality banking services. so, banks are indebted to apply the financial innovation to respond to such customers’ needs because innovation is very important to allocate scarce resources for sustainable growth of any industry. to collect significant deposits banks, have to attract customers. but to attract customers it is crucial to know what selection criteria customers are adopting in selecting the banks product and services. young african are more likely to have a mobile phone, try out new things and be aware of digital channels. however, gaps persist in youth accessing financial services. digital financial services offers great potential for youth, as they are generally more inclined towards digital trends and are starting to use mobile money services for basic transactions (international finance corporation,2017). moreover, banks in ethiopia launched new products and services for the customers which is new that requires a lot of effort and resources to be easily adopted by customers. as the document of some commercial banks in ethiopia indicated there are diverse digital financial products and services outdated without even compensated the costs of its adoption. hence, in order to help banks, improve financial product and services adoption by their customers, it is necessary to identify factors that influence customers’ perceptions toward product and service they launched. because understanding and adapting to customer motivation and behavior is not an option but an absolute necessity for competitive survival (owusu‐frimpong, 1999). accordingly, this study aims to identify the hindrances of digital financial products and services adoption and usage in ethiopian banking industry with specific refence to some selected commercial banks in ethiopia, jimma town. the specific objectives of the study: to identify the current status of digital financial products and services in ethiopian banking industry to identify the factors that affecting the commercial banks in ethiopia to adopt digital financial products and services to identify the factors that affecting the customers of commercial banks in ethiopia to use digital financial products and services 2. research hypotheses hypotheses related to adoption digital financial products and services: h1: the existing economic situation of the country has significant influence on adoption of digital financial products and services in ethiopian banking industry h2: existing technological change has significant influence on adoption of digital financial products and services in ethiopian banking industry h3: the country government policies have significant influence on adoption of digital financial products and services in ethiopian banking industry h4: the societal cultures have significant influence on adoption of digital financial products and services in ethiopian banking industry hypotheses related to usage of digital financial products and services: h5: the position of the banks on customers awareness have significant influence on using of digital financial products and services in ethiopian banking industry h6: the customers’ perceived relative advantage has significant influence on using of digital financial products and services in ethiopian banking industry h7: the customers’ perceived compatibility has significant influence on using of digital financial products and services in ethiopian banking industry h8: the customers’ perceived complexity has significant influence on using of digital financial products and services in ethiopian banking industry h9: the customers perceived trust towards banks has significant influence on using of digital financial products and services in ethiopian banking industry digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage 3 3. research methods 3.1. research design the purpose of this study is to identify the factors that hinders the use and adoption of digital financial products and services in ethiopian banking industry through illustrating it from some selected commercial banks in jimma town, and mixed research approach is well suited. case studies are in which the researcher explores in depth a program, and event, and activity, a process, or one or more individuals(creswell, 2013). hence, to achieve the objective of the study, the case study method was applied with explanatory research design as the result of explaining the state of affairs. 3.2. target population, sample size and sampling techniques the target population consists of the managers and customers of awash bank, dashen bank, oromia international banks, commercial banks of ethiopia and united banks. all of managers of the selected banks branches that consists 42 are considered as a sample. there are large number of customers consisted by those banks hence, according to hair et al. (1998) a sample size between 200 and 400 is usually acceptable as critical sample size. 270 customers from each selected commercial bank are considered as sample size by using convenience sampling techniques. 3.2.1. data collection instruments the study primary data was collected through unstructured interview and close-ended structured questionnaire items with managers and customers of the selected commercial banks. the questionnaires are developed through the adaptation and modification of instruments from previous studies in the area of adoption studies and usage of innovations with customers of the banks. for measuring this information, the likert scale method was used to range of responses: strongly disagree, disagree, neutral, agree, and strongly agree, with a numeric value of 1-5, respectively. as neuman and kreuger (2003) explained, likert-scale is used to ask many people the same questions and examining their answers research questions. so that the researcher would use cross sectional survey in which independent and dependent variables are measured at the same point in time using a single questionnaire (anol, 2012). the secondary data was collected by extracting relevant and supportive data and information from the secondary data sources. 3.2.2. data presentation and analysis the collected data was presented in tabulation and both descriptive and inferential analysis was applied. the descriptive analysis was used to achieve the first specific objectives, primary data that were collected through interviews, demographic characterized of respondents and mean of variables. the inferential analysis was used to determine the relationship of variables by using correlation analysis and used to determine the potential connection between independent variables of this study and the dependent variable of study. regression analysis was used to identify impacts of variables. accordingly, these multiple tests would be able to identify potential factors that have a significant impact on adoption and use of digital financial product and services. 3.2.3. factor analysis factor analysis is a statistical tool/technique which is used to verify the factor structure of a set of observed variables/constructs. it is also used to tests whether a specified set of constructs is influencing responses in a predicted way (brown, 2015). factor analysis will allow us to test that there exists a good relationship between observed variables and their underlying latent constructs. so, to evaluate the construct validity of the factors, factor analysis has been performed. the first pre-test has been done by filling & checking the questionnaire by five commercial bank of ethiopia managers, to improve the questions and replace any confusing & difficult terms. the purpose of first pretest was also to see, if we have overlooked some important dimensions/elements. factor analysis is used as a pre-test after collecting empirical data through pre-test questionnaires (full version), to test whether there is significant relationship between the factors to measure and choosing the right variable/questions for measuring an underlying factor. a large sample size has been recommended by different researchers (decoster, 1998) to perform factor analysis, where the minimum sample size required is 150 (hair et al., 1998). therefore, a total of 150 responses have been collected for performing the factor analysis and it done debebe alemu kebede 4 with the help of spss 20.0 software, as a second pre-test to verify the conceptualization of the selected constructs/indicators for each factor. after performing factor analysis, unimportant and irrelevant questions have been excluded from the full version questionnaire to get a final version of questionnaire. results from factor analysis have provided factor loadings for each variable (question) where factor loading above 0.70 and kmo above 0.50 is termed as acceptable so that each factor is explained more by its constructed variable (question) than by, (voorhees et al., 2016). several variables have factor loading above than 0.70 and kmo above 0.50 that prove as best measure of the corresponding factor. following this, variables/questions with factor loading above 0.70 are kept for final questionnaire. 3.2.4. validity and reliability validity is the degree to which a measure accurately represents what it is supposed to. according to george and malley (2003), “cronbach’s alpha is used as only one criterion for judging instruments or scales. as the current study uses multiple items in all variables, internal consistency analysis was carried out through cronbach’s alpha reliability tests. based on the results of the reliability analysis, one can conclude that the items are internal consistent. validity also refers to the degree to which an instrument measures what it purports to measure (bryman, 2012). internal validity refers to correct mapping of the phenomenon with findings. this is through triangulation which is make use of multiple and different sources, methods, investigators, and theories to provide corroborating evidence. here the result of factor loading of all variables are above significant value of 0.3. external validity refers to generalizability of findings. to assure the generalizability of the study the researcher was collect the information from target population which is interdependent group systematically as it describes the detail of the participants or setting under study using strong action verbs, and quotes. therefore, the groups will be satisfied to the improvement that will occurred as the result of the studies finding and recommendation. further, the proposal was demonstrated to university research committees and community to question the researcher critically about his method, practices and processes. dröst (2011) states that reliability is the extent to which a given measuring instrument produces the same result each time it is used. the researcher used the internal consistency method to determine the reliability of the questionnaires. reliability was ensured by use of cronbach alpha test of being not less than 0.7 and hence all variables were retained in the study except perceived trust. 4. results and discussions this section presents the analysis, discussion and inferences made on the basis of the responses obtained. all the data were coded and entered in to spss version 20.0 and inferences were made based on the statistical results. the research instrument used in the study was survey questionnaire. the location of the study was addis ababa city. the study population comprised the commercial banks’ managers, employees and customers. data was collected from all selected commercial banks managers and from 223 customers which comprises 83% of target population. table 3 respondents’ demographic variables background distribution frequency percentage membership years less than 5 year 105 47 5-10 years 78 35 above 10 years 40 18 types of account holders saving 134 60 investment 16 7 borrowing & sending 28 13 digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage 5 all 45 20 educational level illiterate 22 10 grade 10 complete 38 17 diploma 45 20 bachelor degree 85 38 masters and above 33 15 nature of income family income 38 17 self-employed/merchant 76 34 government/ngo 87 39 irregular income 22 10 source: from survey 2020 as the table 3 indicates that majority of respondents (47%) has been found less than 5 years customer of the bank. which also supported by interview undertaken with respective managers of the banks. further, the results indicated as most of the respondents are associated with saving account indicating 60%. the managers of commercial banks response indicated as majorly served customers are those associated with saving account. since there are few customers with investment accounts the deposits accumulation is high that makes money circulation low. the majority of respondents (38%) are first degree holders as well as the majority customers source of income is government/ngo. the interview results indicated as our country majority of population is farmers and low saving habits in the country the account holders are civil servants. the study further explored if the respondents’ different background had an impact on the end user behavioral intention. so, respondents were also asked to indicate for how long they been the customer of bank and the study further explored if respondents different affiliation years had an impact on their behavioral intention about the use of digital financial products and services and the result by anova test shows, f (3,220) = 1.178, p<.05, it is observed that there is statistically significant differences in behavioral intention score between respondents due to different years of relationship. this show as period of relationship has impact on customers’ behavioral intention to use digital financial products and services. the study also investigated reason of association of respondent with bank to determine the extent to which their reason of association has an impact on their behavioral intention score regarding their understanding about the nature and operations of financial products and services. the result of anova test indicates as the behavioral intention mean score is varies with reason of association. this show as reason of customers’ association with bank has influence on customers’ behavioral intention toward use of digital financial products and services. the study also investigated with educational levels of the respondents associated to determine the extent to which their educational levels has influence on their behavioral intention score regarding their understanding about the nature and operations of digital financial products and services. the results of anova test show as there is statistically significant difference impact among customers with educational level on behavioral intention to use digital financial products and services with the value of f (3,220) = 3.618, p<.001. respondents also asked a question regarding their source of income to determine whether possibility of needing for different digital financial products and services are based on source of income. the results of anova show that as there is a variation among account holders to use digital financial products and services as the result of their source of income with the value of f (3,220) = 16.402, p<.001. debebe alemu kebede 6 4.1. correlation analysis table 4 correlation matrix between adoption and its predictors adp eco tech gov cul adp pearson correlation 1 sig. (2-tailed) eco pearson correlation .659** 1 sig. (2-tailed) .000 tech pearson correlation .567** .109* 1 sig. (2-tailed) .000 .032 gov pearson correlation .521** .013 .703** 1 sig. (2-tailed) .000 .416 .000 cul pearson correlation .454* .429* .711** .712** 1 sig. (2-tailed) .012 .014 .000 .000 n 42 42 42 42 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). table 4 shows the correlation results which indicate that there was a positive and significant relationship between independent variables and digital financial products and services adoption by commercial banks in ethiopia. this was evidenced by the p value of 0.012 obtained which is less than that of critical value of 0.05. the positive association between independent variables and digital financial products and services adoption complexity implies that as the variables can affect positive adoption. table 5 correlation matrix between intention and its predictors int aw relad comp clex int pearson correlation 1 sig. (2-tailed) aw pearson correlation .509** 1 sig. (2-tailed) .000 relad pearson correlation .476** .109* 1 sig. (2-tailed) .000 .032 comp pearson correlation .642** .013 .703** 1 digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage 7 sig. (2-tailed) .000 .416 .000 clex pearson correlation -.354* -.129* -.711** -.712** 1 sig. (2-tailed) .023 .014 .000 .000 n 223 223 223 223 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). table 5 shows the correlation results which indicate that there was a positive and significant relationship between independent variables and intention to use digital financial products and services except perceived complexity. this was evidenced by the p value of 0.000 obtained which is less than that of critical value of 0.05. the positive association between independent variables and intention to use digital financial products and services except perceived complexity implies that as the variables can affect positive intention to use. binary logistic regression estimates the probability that a characteristic is present given the values of explanatory variables. binary logistic regression was used to model relationship between independent variables and intention to use. table 5: logistic regression for independent variables table 5 shows that aw, relad, comp and clex are statistically associated with customers intention to use (p < 0.02). the result shows that an improvement in customers awareness creation activity increases the probability of having high customers intention to use by 6.476 times, an increase of the digital financial products and services relative advantage increases the probability of having high customers intention to use by 9.409 times, an increase of the digital financial products and services compatibility with customers need increases the probability of having high customers intention to use by 3.496 times and an increase of the digital financial products and services complexity of operation for the customers increases the probability of having high customers intention to use by 3.061 times 4.2. regression analysis the regression analysis was conducted to know by how much the independent variable explains the dependent variable. before we go to in detail of multiple regression assumption of multivariate normal distribution, independence of errors, and equality of variance were first tested. this study involves a relatively large sample of 270 variable beta s.e wald df sig. exp (b) 95% c.i for exp (b) lower upper aw 1.868 0.607 9.478 1 0.002 6.476 1.971 21.27 constant -6.414 2.273 7.962 1 0.005 0.002 relad 2.242 0.731 9.399 1 0.002 9.409 2.245 39.435 constant -7.419 2.573 8.312 1 0.004 0.001 comp 1.252 0.527 5.645 1 0.018 3.496 1.245 9.817 constant -3.771 1.804 4.368 1 0.037 0.023 clex 1.119 0.48 5.423 1 0.02 3.061 1.194 7.846 constant -3.331 1.652 4.066 1 0.044 0.036 debebe alemu kebede 8 customers and all selected commercial banks managers 42) and therefore, the central limit theorem could be applied and hence there is no question on normality of the data. two major methods were utilized in order to determine the presence of multicollinearity among independent variables in this study. these methodologies involved calculation of both a tolerance test and variance inflation factor (vif) (kleinbaum & klein, 2002). the results of these analyzes are shows as all predictors vif is below 10 and none of the tolerance levels is < or equal to .01. multicollinearity was not a concern with this data set as confirmed by the main effect regression models. according to field (2009) the acceptable durbin – watson range is between 1.5 and 2.5. in this analysis durbin – watson values are ranges from 1.823 to 2.133, which are between the acceptable ranges, show that there was no auto correlation problems in the data used in this research. thus, the measures selected for assessing independent variables in this study do not reach levels indicate of multicollinearity. therefore, regression analysis of predictors and dependent variables was conducted and the results of the regression analysis are presented as following section. 4.2.1. regression analysis of all predictors and intention to use here it regressed to know the impact of economic situation, technological change, government policies and cultures have on adoption of digital financial products and services. it presented as below: table 6: model summary model r r square adjusted r square std. error of the estimate 1 0.898a 0.807 0.802 0.317 a. predictors:(constant), eco, tech, gov, cul b. dependent variable: adp table 7: anova model sum of squares df mean square f sig. regression 56.448 3 18.816 186.297 0.000 residual 3.838 38 0.101 total 60.286 41 a. dependent variable: adp b. predictors: (constant), eco, tech, gov, cul table 8: regression model result for beta coefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -0.624 0.110 -5.671 0.000 eco 0.678 0.106 0.477 6.368 0.000 digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage 9 tech 0.217 0.073 0.189 2.974 0.003 gov 0.192 0.058 0.181 3.323 0.001 cul 0.179 0.068 0.140 2.643 0.009 a. dependent variable: adp as the model summary result of regression analysis on table 6 shows the economic situation of the country, the change of technological environment, the existing government policies and societal culture explain adoption of digital financial products and services in commercial banks in ethiopia by the value of r2 is .807 and the remining .193 by others variables. 4.2.2. regression analysis of all predictors and intention to use here it regressed to know the variation of awareness, relative advantage; compatibility and complexity have on intention to use. it presented as below: table 9 model summary mod el r r square adjusted r square std. error of the estimate change statistics durbinwatson f change df1 df2 sig. f change 1 .738a 0.544 .540 .74993 13.436 4 218 .000 1.66 a. predictors:(constant), aw, relad, comp, clex, b. dependent variable: int table 10 anova model sum of squares df mean square f sig. 1 regression 43.5 4 10.875 14.179 .000b residual 167.206 218 .767 total 210.706 222 a. dependent variable: int b. predictors: (constant), aw, relad, comp, clex, table 11 coefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 2.388 .585 2.187 4.083 .000 aw .511 .155 .498 3.294 .001 debebe alemu kebede 10 relad .608 .176 .591 3.465 .000 comp .429 .014 .399 3.052 .004 clex -.424 .154 -.419 -2.688 .011 a. dependent variable: int as the model summary result of regression analysis on table 9 shows of customers awareness, perceived advantage, perceived compatibility and perceived complexity on intention to use digital financial products and services indicates as the value of r2 is .544, which means that all predictors accounts for 54.4% of the variation in intention to use digital financial products and services. 5. summary of hypotheses testing in this study linear regression was used to test the research hypotheses. the table below shows the summarized results of the hypotheses tested. 5.1. test hypothesis regarding adoption of financial products here it regressed to know the impact of economic situation, technological change, government policies and cultures dimensions hypothesis test is done to know which hypothesis is accepted and rejected. table 12 regression coefficients result from spss (adoption is the dependent variable) factors hypothesis beta t-values p-values mean std.dev eco h1 0.678 6.368 0.000* 4.292 .62882 tech h2 0.217 2.974 0.003* 2.287 1.4613 gov h3 0.192 3.323 0.001 3.285 1.1800 cul h4 0.179 2.643 0.009* 3.864 .91762 constant 0.624 3.351 1.72842 *. statistically significant at the 0.01 level number of observations = 42, p=0.0000, r-squared= 0.807 the above table presents the results from the multiple regressions carried out using the three variables: technological advancement, legal and regulatory barriers, economic factors and societal cultures as the independent variables and adoption as the dependent variable. based on the table above, we can know the goodness-of-fit of the model in general. the p-value of the model is 0.000. this means the probability of variation in the dependent variable to occur by chance (not to be affected by the explained independent variables) is 0.000. this will result in the following null hypotheses. h0: β1>0, β2> 0, β3> 0, β4> 0 ha: β1<0, β2<0, β3< 0, β4< 0 therefore, the null hypothesis of 1,2,3 and 4 are accepted. 5.2. test hypothesis regarding intention dimension here the intention dimensions hypothesis test is done to know which hypothesis is accepted and rejected. digital financial products and services in ethiopian banking industry: an enquiry on its hindrances of adoption and usage 11 table 13: regression coefficients result from spss (intention is the dependent variable) factors hypothesis beta t-values sig. mean std. dev aw h5 .511 3.294 .001** 2.323 .94819 relad h6 .608 3.465 .000** 4.821 .34093 comp h7 .429 3.052 .004** 4.799 .42746 clex h8 -.424 -2.688 .011** 4.821 .34093 constant 2.388 4.0596 .98819 *. statistically significant at the 0.01 level number of observations = 223, p=0.0000, r-squared= 0. 544 the above table presents the results from the multiple regressions carried out using the five variables: awareness, perceived relative advantage, perceived compatibility; perceived complexity; and perceived trust as the independent variables and intention as the dependent variable. based on the table above, we can know the goodness-of-fit of the model in general. the p-value of the model is 0.000. this means the probability of variation in the dependent variable to occur by chance (not to be affected by the explained independent variables) is 0.000. this will result in the following null hypotheses. h0: β1>0, β2>0, β3>0, β4<0, β5>0 ha: β1<0, β2<0, β3<0, β4>0, β5<0 this shows that the beta coefficients of the independent variables are greater than zero. hence, the model can be used to predict attitude based on the explanatory variables. 6. conclusions there are diverse digital financial products and services provided and launched by commercial banks in ethiopia. based on the study results those products are not properly used by the customers as the result of less perceived relative advantage of owing it by the customers, low level of customers awareness towards the existence of the those digital financial products and services, the complexity looking of digital financial products and services to the customers and considering as using different digital financial products and services is not compatible for them. in addition to this the study results from banks adoption of digital financial products and services perspectives demonstrated as dynamics technology in the business environment affects the banks to adopt digital financial products and services, the existing legal and regulatory barriers also prevents banks to adopt, the economic factors like lack of income, irregularity of income, unemployment affect the activity rate of society engaging in any type of financial service that prevents banks to adopt. furthermore, majority of people keeping their money at home as the result of lack of education, trust and religions that signifying low saving cultures in the country. 7. implications of the study 7.1. managerial implication of the study this study gives hindsight for promoters to aware as the banks should properly adopt the digital financial products and services with taking into account of the external factors. further, the banks should participate on aggressive promotion to aware the customers about their products and services, the government should formulate policies and regulations that minimizing bureaucracy of adopting technology by banks. furthermore, the promoters should identify the prospective hindrance on the existing and newly launched digital financial products and services; customer’s level of perception of the product, which should subsequently allow them to formulate and develop policies and regulations, to make an adjustment to the existing banking industry in ethiopia and to establish the necessary strategies to attract individual customers and retain the existing, technology needed must be available and government support on financing structure. debebe alemu kebede 12 7.2. theoretical implications the findings of the current study have significant contributions to the body of knowledge in that the study add value to the banking industry on testing the digital financial products and services in banking industry in context of ethiopia that is lack in the literatures. furthermore, the study extends and tests the decomposed theory of planned behavior in another context and another area i.e. digital financial products and services adoption and usage. references agbolade, o. k. 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(2016) ‘discriminant validity testing in marketing: an analysis, causes for concern, and proposed remedies’, journal of the academy of marketing science. springer, 44(1), pp. 119–134. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 236-240 236 the growing role of digital media in international trade ahmad alzubi university utara, malaysia received: april 30, 2023 accepted: may 25, 2023 published: june 01, 2023 abstract: businesses that are involved in international commerce are beginning to recognize the growing importance of digital media as a tool. utilizing digital media in international commerce may result in a number of positive outcomes, including higher productivity, decreased expenses, and enhanced levels of communication. however, digital media also presents important obstacles, such as risks associated with cybersecurity, the existence of a digital divide, and the need for new rules at the international level. in this study, we i nvestigate the expanding importance of digital media in international commerce and talk about the advantages, disadvantages, and future possibilities of this phenomenon. in addition to this, the paper offers suggestions for both governments and enterprises for how to make the most of digital media in international commerce. keywords: digital media, international trade, benefits, challenges, cybersecurity, digital divide, regulations, future prospects, policymakers, businesses 1. introduction digital media has emerged as an integral part of global commerce in recent years. as e-commerce, social media, and other online environments continue to grow in popularity, more and more companies are turning to these mediums to communicate with their global network of consumers, vendors, and partners. more efficiency, reduced prices, and clearer communication are just a few of the many advantages of using digital media in commerce worldwide. however, the purpose of this research was to ascertain whether new digital media has had a significant impact on more conventional means of media and visual communication. the proliferation of digital media has drastically revolutionized the production, dissemination, and consumption of information, having a profound effect on more traditional forms of media such as print newspapers, magazines, and television. one of the most notable ways in which new forms of digital media have affected traditional forms of media is via the explosion of online platforms and social media. these networks have eliminated the need for traditional gatekeepers like editors and broadcasters, allowing anybody to produce and distribute content with an international audience. since anybody with an internet connection has the opportunity to reach a massive audience, this has led to the democratization of the media. the explosion of digital media has also given rise to new forms of visual communication, such as computer-generated imagery (cgi), video, and animation. the popularity of these forms of media is on the rise because they encourage audience participation and provide a more immersive experience. additionally, the emergence of digital media has substantially impacted the financial structures of traditional media corporations. many people have found it challenging to adapt to the shift toward online marketing and payments, which has resulted in a loss of income and the removal of employment in certain cases (alzubi, 2022). it's plausible that the impact of new digital media on older forms of media and storytelling has been substantial and far-reaching, and that it will continue to alter the media landscape for years to come. there has been a dramatic change in the media landscape as a direct result of the proliferation of digital media in the past decade. the effects of this modification have been dramatic. this study examines the impact that the proliferation of digital media has had on more traditional means of communication including media such as newspapers, television, and commercials (alzubi, 2023). the author delves deeply into the ways in which the proliferation of electronic mediums has affected traditional media forms. trade and international commerce have increased dramatically as a result of globalization, the process by which individual national economies have become part of a massive interconnected global economic system. since 2008, the growing role of digital media in international trade 237 international commerce has expanded together with global gdp, both by 26% during that time (wto, 2019). while nominal global gdp was estimated at $84 trillion in 2018, $88 trillion in 2019, and was projected to slow to about $90 trillion in 2020 (world bank, 2019), international trade was estimated at about $25.3 trillion in 2018, with $19.67 trillion (78%) coming from merchandise trade and $5.63 trillion (22%) coming from commercial services. the only significant risk for the global economy seems to be the likelihood of an increase in trade hostilities between these two giants (wto, 2019) since both the chinese and american economies developed faster than other manufacturing economies as 2019 came to a close. 2. benefits of digital media in international trade: the use of digital media in the conduct of international commercial transactions comes with a number of distinct benefits. to begin, there is the possibility that it will aid businesses in accessing a more widespread audience. (berman, 2012). by using digital platforms such as social media and websites that support online purchasing, businesses are able to communicate with customers all over the world, even in remote locations. this is made possible by the convenience of online shopping. this has the potential to aid businesses in expanding their customer base, which in turn might help them increase their sales. second, chen and chen (2018) discovered that companies may find it simpler to interact with their business partners if they make use of digital media. this was one of their findings. video conferencing and instant messaging, for instance, are two means that businesses may deploy to interact in real time with their business partners and suppliers. other options include phone calls and face-to-face meetings. this may aid businesses in reacting to movements in the market in a more timely way, which in turn may boost the efficiency of the supply chains that those businesses use. according to shang and seddon (2018), digital media may be able to aid businesses in reducing their expenses, which is a positive development. through the use of digital platforms, businesses are able to reduce their dependency on face-to-face meetings and travel, both of which are time-consuming and expensive. they are also able to automate many of their processes, such as order processing and customer service, which may contribute to a reduction in their total costs associated with labor. 3. challenges of digital media in international trade companies who are engaged in international business face a number of significant challenges as a result of the proliferation of digital media, despite the fact that this medium offers a multitude of benefits. the issue of online safety and security is one of the most challenging to resolve. companies are increasingly reliant on digital platforms to conduct their business on a global scale, which makes it more probable that a successful cyberattack will be launched against that company. (itu, 2019). it's possible that this might lead to data breaches, financial losses, and damage to one's reputation. the digital divide is just another barrier that must be surmounted. companies in nations with high levels of income typically have access to high-speed internet as well as other forms of digital technology, while companies in nations with low levels of wealth frequently do not have these tools at their disposal. (annual report of the world economic forum for 2019). this may constitute an obstacle for businesses in developing countries seeking to access international markets and limit the potential of such businesses to compete with other businesses worldwide. in addition to this, it might make it more difficult for them to compete in the home market. to summarize, the utilization of digital media in worldwide business has brought to light the need for the formulation of brand-new international regulations. the regulations that are currently in place are often incapable of appropriately addressing the one-of-a-kind issues that are brought about by digital media. (clifford, 2019) for instance, in this day and age of digital technology, there is an urgent need for legislation concerning the privacy of data, the movement of data over international boundaries, and the protection of intellectual property rights. 4. the effects of emerging digital technologies on the organization of global value chains more and more everyday items are being outfitted with sensors that can collect, analyze, and transmit data to humans and other devices. many people are interested in consumer applications, such as internet-enabled home appliances3. however, the possibilities for business-to-business applications are much broader, as sensors can provide real-time data for things like assessing product usage and functionality, monitoring inventory levels to improve capacity planning, and detecting equipment wear and tear for preventative maintenance (bughin et al., 2015a). to do this, businesses, suppliers, and consumers will need to share more information with one another while relying less on ahmad alzubi 238 middlemen (porter & heppelmann, 2014). the iot will also significantly alter how geographically distributed value chains are managed. most businesses nowadays keep tabs not just on the movement of actual goods but also on the movement of data. however, with iot, goods will each be given a unique identification that is inextricably tied to data about the product's origin, use, and final resting place. products and information flows will no longer need simultaneous coordination. significant gains in production and distribution efficiency may result from this merging of concepts, especially when international trade movements within global value chains are taken into account. as a result, the internet of things (iot)'s arrival is predicted to lessen the financial burden of cross-border manufacturing and pave the way for a more extensive global division of labor in the workplace (buckley & strange, 2015). recalling ronald coase's observation from 80 years ago (in 1937: 397) that "changes like the telephone and the telegraph which tend to reduce the cost of organising spatially will tend to increase the size of the firm," we can say that this is a trend that has persisted. any shift toward better management practices is likely to result in the expansion of the business. 5. future prospects of digital media in international trade in spite of the fact that there is a probability that new challenges could appear in the not too distant future, it is expected that the utilization of digital media in international business will continue to expand over the course of the next few years (lee, 2019). enterprises will be able to benefit from newly created digital tools as a direct consequence of continued improvements in technology, which will enable these enterprises to do so. these technologies will aid these companies in better optimizing their operations in regard to international commerce, which will ultimately lead to increased profitability. as long as advancements in technology continue to go in the right direction, achieving this goal won't be impossible. for instance, the use of artificial intelligence and blockchain technology could be able to facilitate the automation of business procedures and the reduction of their complexity (meng, 2020). however, in order to fully use the potential of digital media in international business, there is a need for a higher degree of international cooperation and collaboration. this is necessary in order to completely utilize the potential of digital media. this is essential in order to use the capabilities of digital media to its fullest extent. this is very necessary in order to use the capacities of digital media to their utmost potential. this is one of the obstacles that has to be overcome, and it is presented here for your consideration. according to the world trade organization 2021, governments and the owners of enterprises need to collaborate in order to produce new norms and standards that are capable of handling the one-of-a-kind challenges that are brought about by digital media. these new norms and standards will be able to manage these problems because of the fact that they are able to adapt to new technologies. there is a wide range of possible approaches to addressing these concerns that might be taken into consideration. because of this innovation, there will be a fairer playing field for companies of all various sizes and from all over the globe. this applies to both domestic and international companies. 6. recommendations for policymakers and businesses according to baldwin (2019), in order to make the most of the potential advantages that may be drawn from the use of digital media in international business, a number of actions need to be taken on the part of both national governments and private firms. these actions need to be taken in order to maximize the benefits that can be gained from the utilization of digital media. to get things started, those in authoritative positions need to come up with completely new norms and standards that are adaptable enough to deal with the one-of-a-kind problems posed by digital media. these guidelines and expectations ought to be able to address the problems that have been raised. this encompasses a broad variety of topics, some of which include the protection of sensitive personal information, the movement of data over international borders, and the defense of intellectual property rights. the second thing that has to be done is for enterprises to begin making investments in the digital infrastructure and capabilities that they already possess (itu, 2020). this includes the building of their very own e-commerce platforms, the usage of social media in order to engage with clients, as well as the exploitation of new technologies such as blockchain and artificial intelligence. in the end, but most importantly, government leaders and corporate executives need to work together in order to create better levels of international cooperation and collaboration (world economic forum, 2021). exchange of best practices, adoption of common standards, and promotion of wider access to digital technology for enterprises in poor nations are all included as part of this initiative. also included is the exchange of best practices among developed countries. the growing role of digital media in international trade 239 7. conclusion over the course of the last few years, the use of digital media has evolved into a crucial resource for companies who are involved in international commerce. even while there are a lot of advantages that may be gained from technology, such as higher productivity, decreased expenses, and enhanced communication, there are also a number of big disadvantages associated with it that should not be neglected. one of these disadvantages is the danger that it poses to cybersecurity, another is the growing of the digital gap, and still another is the need for new international standards. it is necessary for there to be an increase in the amount of international cooperation and coordination that existing between enterprises and governing agencies if the potential of digital media in international commerce is going to be completely realized. this is especially true when one considers the situation from a worldwide vantage point. we will not only be able to overcome the one-of-a-kind challenges that are posed by digital media, but we will also be able to ensure that businesses of all sizes and in all parts of the world will be able to benefit from it if we work together to establish new guidelines and benchmarks for the industry. this will be possible if we work together to establish new guidelines and benchmarks for the industry. nevertheless, the increasing prevalence of digital media in international commerce not only presents substantial obstacles for companies, but it also creates a broad range of possibilities for the businesses themselves to pursue. while technological improvements are being made, governments and companies need to collaborate in order to produce new rules and standards that are capable of tackling the specific issues provided by digital media. these new regulations and guidelines must be able to solve these challenges in a way that is compliant with current technology. these guidelines and standards have to be able to account for the unique characteristics of the challenges that are being encountered. by acting in this manner, not only will we be able to foster a better level of international cooperation and collaboration, but we will also be able to ensure that companies of any size and hailing from any country will be able to benefit from the possibilities presented by digital media in the context of international commerce. references alzubi, m. a. (2022) “impact of new digital media on conventional media and visual communication in jordan”, journal of engineering, technology, and applied science (jetas), 4(3), pp. 105-113. doi: 10.36079/lamintang.jetas-0403.383. alzubi, m. a. (2023) “navigating the disruption of digital and conventional media in changing media consumption landscape in digital era”, journal of engineering, technology, and applied science (jetas), 5(1), pp. 38-48. doi: 10.36079/lamintang.jetas-0501.517. baldwin, r. (2019). the future of international trade governance. global policy, 10(1), 129-136. berman, b. (2012). social media and the new rules of engagement. mit sloan management review, 54(1), 9-12. bughin, j., lund, s. and manyika, j., 2015. harnessing the power of shifting global flows. mckinsey quarterly, 7(1), pp.1-13. chen, j., & chen, y. (2018). an empirical analysis of the impact of social media on international trade. journal of international trade & economic development, 27(1), 1-18. clifford, m. (2019). cybersecurity risks and challenges in the digital age. international journal of management reviews, 21(2), 175-191. international telecommunication union. (2019). measuring digital development: facts and figures 2019. geneva, switzerland: international telecommunication union. itu news magazine. (2020). how to connect the unconnected: addressing the global digital divide. retrieved from https://www.itu.int/en/itu-d/regional-presence/asiapacific/siteassets/pages/events/2020/2020-12-09webinar-on-how-to-connect-the-unconnected/2020-12-09_itu-news_magazine_how-to-connect-theunconnected.pdf lee, j. (2019). the future of international trade in the digital era. journal of international trade and economic development, 28(6), 677-697. meng, l. (2020). the impact of artificial intelligence on international trade. journal of international commerce and economics, 2(1), 31-47. porter, m.e. and heppelmann, j.e., 2014. how smart, connected products are transforming competition. harvard business review, 92(11), pp.64-88. ahmad alzubi 240 saari, m., haapanen, l. and hurmelinna-laukkanen, p., 2022. social media and international business: views and conceptual framing. international marketing review, 39(7), pp.25-45. shang, j., & seddon, p. (2018). the impact of social media on international trade. information systems journal, 28(6), 1119-1137. world bank . (2019). world bank national accounts data, and oecd national accounts data files. world economic forum. (2019). the future of international trade: a roadmap for policymakers and business leaders. geneva, switzerland: world economic forum. world economic forum. (2021). the future of international trade and investment: a roadmap for policymakers and business leaders. geneva, switzerland: world economic forum. world trade organization. (2021). world trade report 2021: making trade work for people. geneva, switzerland: world trade organization. wto (2019). world trade statistical review 2019, world trade organization, geneva, switzerland. https://www.wto.org/english/res_e/statis_e/wts2019_e/wts2019_e.pdf. note 3 for instance, l’oreal unveiled a smart hairbrush at the 2017 consumer electronics show in las vegas. the brush has sensors that detect hair quality and breakage, and can then communicate this data to an app and recommend treatments. see the report at http://www.bbc.co.uk/news/technology-38503932 (accessed 10 may 2017) journal of international trade, logistics and law, vol. 8, num. 2, 2022, 21-25 21 assessment of visum et repertum evidence on victims of women violence in household conflict idris martini muhammadiyah palembang university received: june 04, 2022 accepted: august 02, 2022 published: december 01, 2022 abstract: the type of research used in this research is normative legal research. by using primary and secondary legal materials, along with tertiary legal materials as supporting materials. this is by looking at the strength and position of the visum et repertum evidence in a criminal act. visum et repertum has a fairly strong evidentiary power, because visum et repertum is one of the documents of evidence as regulated in article 184 paragraph (1) letter c jo. article 187 letter c of the criminal procedure code. the public prosecutor's indictment was made with great attention to the evidence for the role of visum et repertum. the consequence that arises if the visum et repertum given by the defendant is a different statement is that the statement can be revoked if the defendant is given a false confession that is indeed proven. regarding the visum et repertum itself, it can be re-examined from a legal advisor or a statement of objection raised clearly given by the defendant can be proven, this is regulated in article 180 paragraphs (2), (3) and (4) of the criminal procedure code. based on the experience, it was carried out and from the judge himself it was known. keywords: assessment; evidence; visum 1. introduction family life is inseparable from economic life which runs with certainty and uncertainty, because domestic life cannot be separated from personal and external conflicts. therefore, usually the household life which is the main factor is the economic factor and has an impact on the actions of family household conflicts. in addition, when the family household is filled with the presence of offspring (children), it becomes an important factor, so that it can be said as a challenge and can be an obstacle in domestic life. on another level, offspring is a gift because on the one hand, children are a blessing for all parents in domestic relations, but also if there is a form of marriage outside of marriage and not having a legal marriage, it will cause psychological problems for both parents who give birth to children and a burden for children when they grow up. on the one hand, it is also a dilemma, because offspring caused by marital relations outside of marriage is one of the factors in the failure of a marriage. when referring to the marriage law that juridically, notion of "child" in the eyes of positive indonesian law is commonly defined as a person who is not yet an adult (minderjarigeid / inferiority) or is often referred to as a child under the supervision of a guardian (minderjarige ondervoordij). starting from the aspects mentioned above, it turns out that indonesian positive law (ius constitutum and ius operatum) doesn't regulate the existence of a standard and universally applicable legal unification to determine the age limit criteria for a child.(mulyadi, 2005) jurisprudence of supreme court of republic of indonesia, in indonesian customary law, the age limit for being called a child is pluralist. bond marriage is not enough only physically or mentally, but requires both. the inner and outer bond is seen as a formal element as evidence of a legal relationship between a man and a woman to live together as husband and wife. the inner bond is an informal relationship, an invisible bond that can only be felt by the parties concerned. this inner bond can be used as the basis for forming a happy family. the purpose of marriage according to islamic law is to obey allah's command to obtain legal offspring in society, by establishing a peaceful and orderly household.(hukum perkawinan beda agama dalam teori dan praktiknya di indonesia / sirman dahwal | perpustakaan uin sultan syarif kasim riau, no date) marriage can be used as a idris martini 22 measure when there are household conflicts that lead to conflict and violence against households. in the end, this results in a form and behavior that leads to elements of violence and violations of human rights, especially girls as victims of domestic violence. it becomes important when an issue such as human rights (ham) is a big issue, where the issue is often discussed by countries around the world. there are many human rights issues discussed by countries around the world, one of the main issues that are often discussed is acts of violence against women which are the modus operandi of crimes. violence against individuals, especially against women, is a form of action that is very contrary to human norms. that is why acts of violence are acts of human rights violations, so that a national legal instrument is needed that can regulate the elimination of violence against women, especially violence that often occurs in indonesia.(perlindungan hukum terhadap perempuan korban kekerasan dalam rumah tangga (kdrt) pada tingkat penyidikan berdasarkan undang-undang no. 23 tahun 2004 tentang penghapusan kekerasan dalam rumah tangga (uupkdrt), no date) criminal law is one of national legal instruments that can regulate and protect victims from all forms of crime. criminal law is the whole of the regulations that determine what actions are prohibited and are included in criminal acts, and determine what penalties can be imposed on those who commit them. the formation of law as an instrument that can protect the rights of individuals and communities is very relevant and related to programs to protect women from violence. victims of crime from violence often occur against women, especially violence against women in the household. violence against women, especially in household, ranges in light and severe forms. according to article 1 of law no. 23 of 2004 concerning the elimination of domestic violence (uu-pkdrt), the definition of domestic violence is any act against a person, especially a woman, which results in physical, sexual, psychological misery or suffering, and/or neglect of the household, including threats to commit violence acts, coercion, or deprivation of liberty against the law within the scope of the household.(p moeljatno, no date) the enforcement of the provisions in the pkdrt law is an obligation for law enforcement officers to provide legal certainty to provide legal certainty for protection for victims of domestic violence as obtained at the investigation and investigation stage. all rights of victims must be given, especially the right to recover from physical and mental violence. some of the victims' rights are guaranteed by the pkdrt law as a form of legal protection for victims of domestic violence. this protection is given as a form of legal respect for women that has been adapted to global developments regarding the protection of women's violence and legal discrimination against it. from the explanation above, according to decision number 121/pid.sus/2020/pn.mnd the form of protection received by the victim is from medical personnel as evidenced by visum et repertum no.b/287/viii//2019/rs. bhay which was made and signed by doctor jeane agu on august 5, 2019 which resulted in bruises. the police are conducting investigations and investigations to obtain preliminary evidence that they are not criminal and make arrests and detentions of suspects. the court judge who provides protection in the form of conducting a case trial and adjudicating that the defendant has been legally and convincingly proven guilty of committing non-criminal “physical domestic violence.” departing from the foregoing, it would be interesting to examine it by looking at the 2 (two) aspects that underlie the above, namely: first, the position of evidence for visum et repertum in a crime of violence against girls; and second, the assessment of the results of the visum et repertum evidence in a crime of violence against girls in domestic conflicts. 2. research methods the type of research used in this research is normative legal research.(michael, 2022) by using primary and secondary legal materials, along with tertiary legal materials as supporting materials. this is by looking at the strength and position of the visum et repertum evidence in a criminal act. 3. discussion 3.1. the position of evidence for visum et repertum in a crime of violence against girls visum et repertum is a written statement made by a doctor in forensic medicine regarding medical examination of humans, made based on his knowledge and under oath for the benefit of justice. there are still many people who need to know about the nature of the role of visum et repertume that happens occasionally, so that being rejected assessment of visum et repertum evidence on victims of women violence in household conflict 23 from the family of the victim who is sent for post-mortem as if it will cause trauma, both psychologically and spiritually. visum et repertum as evidence is usually contradicted by the information given by the defendant. although visum et repertum is an official letter issued by experts, the possibility is not closed if there is a distinction between what happened and what happened is considered taboo by them. position of visum et repertum article 184 paragraph (1) letter b and letter c of law number 8 of 1981 concerning the criminal procedure code. visum et repertum is also a substitute for evidence (corpus delicti) which explains the event when it occurred and can help investigators to determine whether or not a crime exists and can provide instructions to investigators in conducting an investigation, and visum et repertum can provide instructions in determining what accusations are made which will be submitted to the judge against the defendant and can form a judge's conviction in the trial. the position of visum et repertum serves to improve investigations as material to strengthen indictments and allegations of acts committed by suspects and as evidence of detention of suspects, at the prosecution level, namely as a tool to determine the severity of article suspected of the accused or perpetrator, at the court level, which is one of the substitutes physical evidence and as a judge's consideration in making a decision on the defendant. the legal position of visum et repertum is absolute or perfect in certain cases such as cases of criminal acts of persecution, immorality, or murder.(kusmira, 2016) in this case, there was a woman who came alone to the integrated service center of rsud dr. h. abdul moeloek lampung with a letter of request for a visa to the head of the kedaton sector police, with his letter number: r/35/i/2015/kdt sector, the letter is addressed to rsud dr. h. abdul moeloek for a physical examination and a visum et repertum (ver) made. in chronological outline, the legal facts include: when the victim returned from work from palembang and upon arrival at home, the victim was accused of having an affair with her superior. then an argument broke out, but the victim tried to avoid a commotion by staying in the room. the perpetrator grew angry by strangling the neck of the victim who was lying on the bed, then the victim's legs were pulled and dragged by the perpetrator, so that the victim fell on the floor. then the perpetrator stepped on the victim's left foot with the perpetrator's foot and was cornered by the wall by the perpetrator. then the victim tried to fight back by using a mosquito racket towards the perpetrator while shouting. then the victim and the perpetrator were separated by the victim's child, causing the victim's child to have abrasions on the face with several bruises on the face and hit the wall. 3.2. assessment of the results of the visum et repertum evidence in a crime of violence against girls in domestic conflict in order to have a deeper understanding the validity of visum et repertum, the judge may be summoned by a judicial medicine expert who has not made a visum et repertum to be assessed for a visum et repertum made by another doctor. so, to convince the judge of visum et repertum in question. waluyadi stated that, if the existence of visum et repertum is accompanied by other evidence, the visum et repertum is an objective report and may be engineered to be very small. the consequence is that the decision to be objective in relation to cases involving injury, impaired health or a person due to the death penalty must be the basis for the judge's consideration of visum et repertum.(kekerasan dalam rumah tangga: laporan kasus | utama | juke unila, no date) to prevent, protect victims and take action against perpetrators of domestic violence, the state and society are obliged to provide protection to victims of domestic violence as later regulated in law no. 23 of 2004 concerning the elimination of domestic violence. the proof of the case of domestic violence in law number 23 of 2004 concerning the elimination of domestic violence can be done by only listening to the testimony of the victim's witness, or it can also be supplemented with other evidence. one way to prove this crime of domestic violence is to use visum et repertum (ver). case, a woman, 44 years old, came to the regional general hospital (rsud) dr. h. abdul moeloek, lampung province for a physical examination and a ver for the domestic violence he experienced. ver is one of the evidences regulated in article 184 of the criminal procedure code (kuhap), although this ver is not specifically regulated in the criminal procedure code, it is included in the category of documentary evidence and expert testimony evidence.(visum et repertum sebagai alat bukti dalam tindak pidana penganiayaan | jurnal analogi hukum, no date) if the visum et repertum arises regarding the consequences with other evidence, it turns out to be different, the judge can order an order to be re-examined and the contents of visum et repertum amended. in criminal idris martini 24 procedure code, the matter of being re-examined or re-examined can be ordered and required by an expert witness if defendant is serious about it or legal advisor has reasoned regarding the results is expert testimony. this objection is submitted if it is accepted and the defendant objected by judge. this is with information linked by defendant given, given if statement by defendant to the judge is accepted and truth of tools is proven by other evidence, then visum et repertum can be examined by the judge again and if judge feels that information given by the defendant is wrong, judge of defendant will admit that it is revoked.(keterangan ahli visum & visum et repertum dalam aspek hukum acara pidana, no date) regarding the previous matter, it was clear that even though evidence had to be wrong, the defendant was presented which was something. only the judge, and also the prosecutor's office, the evidence should have been given to defendant for assistance. the object of being examined by the judge must always be material, and every time, on basis of this, the defendant puts forward what circumstances can be considered as evidence, that he was challenged by the fact that his guilt has previously been rightly acknowledged, should be investigated.(arifiyanto and pribadi, 2019) it is necessary to note that only a reasons that defendant has been withdrawn do not need to be legally proven, because from the things proven, the evidence of presumed disclaimer is that evidence previously weakened has been presented by defendant and evidence for the denial is known as anything can constitute, as long as only the judge can be certain about it. the judge is regarding acceptance a reasons for the authority being admitted to be withdrawn without evidence, rightly being considered are original reasons. on receipt of a reasons put forward by the defendant, judge is obliged, according to his thoughts, rules and experience in his decision. 4. conclusion visum et repertum has a fairly strong evidentiary power, because visum et repertum is one of the documents of evidence as regulated in article 184 paragraph (1) letter c jo. article 187 letter c of the criminal procedure code. the public prosecutor's indictment was made with great attention to the evidence for the role of visum et repertum. the consequence that arises if the visum et repertum given by the defendant is a different statement is that the statement can be revoked if the defendant is given a false confession that is indeed proven. regarding the visum et repertum itself, it can be re-examined from a legal advisor or a statement of objection raised clearly given by the defendant can be proven, this is regulated in article 180 paragraphs (2), (3) and (4) of the criminal procedure code. based on the experience, it was carried out and from the judge himself it was known. although there is no kuhap for victims of visum et repertum to be submitted for proof in a criminal case, important cases will be examined and the case will be made clearer, if there is a visum et repertum as far as possible request a visum et repertum which is submitted to an expert doctor, so that the judge can be strengthened in confidence in the decision is taken.the need for socialization so that it is carried out by the government and law enforcers regarding the function and position of visum et repertum in criminal cases to the community because many people have refused for an autopsy to be carried out on a victim whose crime was experienced for various reasons. in order for visum et repertum to have strong evidence, standardization of the model is necessary and the form and arrangement of visum et repertum is in a statutory regulation. at the level of domestic violence, violent conflict against girls is one of the solutions for perpetrators of violent crimes. frustration and other psychological factors as well as the impact of economic deprivation are the main reasons for carrying out criminal legal acts, thus causing the visum et repertum, the result of which can be physical and psychological violence on girls and even minors. in the end it violates women's rights. references arifiyanto, m.n. and pribadi, e.j. (2019) “implementasi penegakan hukum tindak pidana ringan (suatu diskursus tindak pidana miras di polres jombang),” perspektif hukum, 18(1), p. 23. doi:10.30649/phj.v1i1.132. hukum perkawinan beda agama dalam teori dan praktiknya di indonesia / sirman dahwal | perpustakaan uin sultan syarif kasim riau (no date). available at: http://inlislite.uin-suska.ac.id/opac/detail-opac?id=22641 (accessed: june 4, 2022). assessment of visum et repertum evidence on victims of women violence in household conflict 25 kekerasan dalam rumah tangga: laporan kasus | utama | juke unila (no date). available at: https://juke.kedokteran.unila.ac.id/index.php/juke/article/view/635 (accessed: june 4, 2022). keterangan ahli visum & visum et repertum dalam aspek hukum acara pidana (no date). available at: http://mandarmaju.com/main/detail/17/keterangan-ahli-visum-visum-et-repertum-dalam-aspek-hukumacara-pidana (accessed: june 4, 2022). kusmira, n.p. (2016) “kekuatan pembuktian dan penilaian alat bukti visum et repertum dalam tindak pidana persetubuhan terhadap anak,” verstek, 4(3). doi:10.20961/jv.v4i3.38772. michael, t. (2022) “unraveling the importance of democracy in formation legislation,” international journal of social science research and review, 5(4), pp. 20–24. doi:10.47814/ijssrr.v5i4.254. mulyadi, l. (2005) “pengadilan anak di indonesia : teori, praktik, dan permasalahannya,” p. 388. p moeljatno (no date) asas-asas hukum pidana. available at: http://perpustakaanjdih.batangkab.go.id//index.php?p=show_detail&id=7853 (accessed: june 4, 2022). perlindungan hukum terhadap perempuan korban kekerasan dalam rumah tangga (kdrt) pada tingkat penyidikan berdasarkan undang-undang no. 23 tahun 2004 tentang penghapusan kekerasan dalam rumah tangga (uupkdrt) (no date). available at: https://www.semanticscholar.org/paper/perlindungan-hukumterhadap-perempuan-korban-dalam-wardhani/380126a6ac8e09d428d35759b5150d24da9d1c5d (accessed: june 4, 2022). visum et repertum sebagai alat bukti dalam tindak pidana penganiayaan | jurnal analogi hukum (no date). available at: https://www.ejournal.warmadewa.ac.id/index.php/analogihukum/article/view/3035 (accessed: june 4, 2022). journal of international trade, logistics and law, vol. 2, num. 1, 2016, 1-8 the role of air transport in the development of international tourism grzegorz zajac, (phd) university of information technology and management in rzeszow, poland abstract: there are close links between air transport and international tourism. the latter, in a significant way has an impact on the development and stimulation of changes in aviation and, in particular, this applies to establishing new routes or increasing competition by the emergence of new air carriers. the essence of aviation is manifested in the aviation business travel and learning about the new states. therefore, a change that has been made in aviation in the second half of the 20th century is a breakthrough. it is about a liberalization of this sector, which has enabled the development of international tourism. there are plenty of benefits for the development of tourism coming from the liberalization of aviation sector. thanks to competitive prices and continually increasing offer of air connections to various places in the world, demand for tourism is growing trend. among the factors hampering the development of aviation tourism, the following should be included: maintaining the visa requirement for many countries, the threat of terrorist attacks, a set of factors in the structure of tourism and safety issue. when it comes to europe, along with the implementation of the common policy of the european union, the sect or of the tourism industry started to develop. eliminating internal barriers and the gradual implementation of the freedom of movement of persons, services and capital has led to an increase in the demand for tourism in the eu. europe is an attractive tourist destination in the world. keywords: aviation, tourism, air transport, international tourism, air travel 1. introduction there are close links between air transport and international tourism. the latter, in a significant way impacts on to the development and stimulation of changes in aviation and, in particular, this applies to start new routes or increasing competition by the emergence of new carriers. on the other hand, air transport is an important element of the present globalization processes and due to the growing internationalization dependencies within the global economy is open to new challenges and adapts to the needs of its users. a large role in the effects on the growth potential of international touring play the individual states, whose task is to promote the development of air transport, and hence boosting the national economy and many of its areas. member states must have appropriate macroeconomic data on the demand of its citizens, to determine the degree of activity in bilateral and multilateral relations, or take into account the other factors so as to effectively contribute to the development of international tourism. it is therefore necessary to indicate on the evolution of global trends in air transport and its impact on the development of international tourism. it is worth to point out that more than half of all tourists in the world uses air transport as the main means of transport . the question is whether the development of the tourism industry is due to the development of civil aviation? what are the factors affecting the interrelation of these two sectors of the economy. 2. air transport links with international tourism we have to do deal with international tourism, when a person intends to travel to a country other than habitual residence. there are plenty of definitions of tourism in the literature. generally it is about the phenomenon of voluntary movements of population to learn about the new environment, life-style, culture. tourism is in close 2 grzegorz zajac connection with the transport operations and as such develops thanks to various measures of transport. in the case of trips outside the borders of a state, we have to deal with international tourism. owing to the nature of the operations, transport may be national or international. the bulk of the performed air transport flights takes place between states, and national services are usually only a complement for the carrier. although some carriers specialize in only domestic flights. this is profitable only when we consider a large domestic market, like china or usa. in other cases, especially when we take into account small states, the quantity of only domestic flights is unprofitable and slender, unless it is done due to the public service obligation (flights are performed under national law and thus financed by the government or local self-government). although there are companies specializing and performing domestic operations exclusively, their market share is usually negligible (e.g. brazilian air carrier passaredo linhas aereas performing such domestic operations had 0,59% of shares in the brazil aviation market in 2010)1. the essence of aviation is manifested in the business travel or/and learning about new states. therefore, a change that has been made in aviation in the second half of the 20th century is a breakthrough. it is about the liberalization of this sector, which has enabled the development of international tourism. liberalization processes in the aviation sector in certain regions of the world are far moved forward. liberalization implies the elimination of barriers in the development of civil aviation between states by reducing the role of the state in the activities of the various actors. for long decades, air transport was the domain of the individual governments of states, which decided on all its aspects: the number of connections, routes, fares. there was a common practice for many states, that unprofitable routes were very often maintained whereas flights with high demand were not developed or even performed. therefore, international tourism was a branch of the low growth potential. expensive tickets and rare operations meant that the plane was the elite means of transportation, a luxury that few could afford to travel to another state. whereas liberalization processes started in the usa in 1978, and then in the european union since the mid-1980s. of the last century have highlighted the great demand for air services, and hence the emergence of many new carriers, who started the expansion of the market on low-cost system. they have contributed to an increase in international travel, which keeps these trends from the beginning of the 1990s. last century until the presence. international tourism has increased in 2010 in the world of 6.7%. the largest rate of increase was recorded by the asia-pacific region (12.6%) and the middle east region (13,9%)2. according to the calculations of the world tourism organization, the number of tourists in 2010 thus amounted to 935 million. as expected, the next years still continued gradual increase in tourism. moreover, air travel also maintain an upward trend of about 4-5% per year. strongly affected the growth of air transport, should be noted in the asian region (8%) and the middle east (13%)3. from the above statistics it should be noticed a strong air transport link with tourism. there is also a following dependency resulting in the decline in demand for air travel to drop interest in tourism. it is particularly evident on an example of tourism to egypt. street riots and demonstrations that rocked egypt at the beginning of 2011 (january-february) caused a temporary exodus of tourists and the suspension of air services by a number of carriers to famous tourist resorts in this country (sharm-el-sheikh, hurghada). however, at the beginning of march 2011 the political situation began to slowly stabilize, and the carriers began a slow process of starting flights to the tourist destinations. late events of shooting down an airplane belonging to a russian air carrier metrojet, of 31.10.2015, leave no doubt, that the peace in this region is not yet reached. of course, the last attack is caused by different situation arising of different reasons, however, it undermines the good repute of tourist flights to egypt. 1 on the basis of statistical data of national civil aviation agency in brazil (anac), http://www2.anac.gov.br/dadoscomparativos/dadoscomparativos.asp, (access: 10.02.2014). 2data from the world tourism organization, 2010 international tourism. results and prospects for 2011, unwto conference in madrid, 17.01.2011. 3 data coming from oag, aviation growth hits all time high, press release 2007. http://hk2.prnasia.com/xprn/storycenter.do?method=loadwebpr&code=07176811&langid=1 (access: 11.02.2016). the role of air transport in the development of international tourism 3 in addition, tourism had plunged airspace closure in april 2010, caused by the presence of volcanic ash cloud after the eruption of eyjafjallajokull in iceland. by a week time the ash cloud remained over europe, effectively crippling air traffic and tourism. it is estimated that the unexpected closure of the european sky for a week (15-21 april) resulted in the loss of more than 3.3 billion for carriers and the whole aviation environment4.it is difficult, however, for the exact measurement of damage to the tourism sector, although according to some estimates more than 2 million visitors from all over the world had given up of the arrival to europe, as for the organizers of the tour operators means a direct loss of nearly a billion euros. in this regard, it should be also taken into account the depletion of income of hotels and other tourism-related sectors, which have not leveled up additional income from other services such as car hire or taxi services5. the contemporary unstable political situation and war conflict in syria which intensified in 2015 as well as terrorist attacks made by some terrorist organizations acting in syria and neighbouring countries make it very difficult to alleviate tourist disturbances. when we take into account the north africa region, it can be noticed that there is no single state with stable political situation and lack of danger for tourists. we are living in times, where the threat of terrorist attacks remains high. despite the economic turmoil, as it did in 2008 and 2009 due to the economic crisis in the world, or the meteorological turbulence (example of april 2010 – ash cloud cramping almost all europę), or other political unstable situation since the arab spring of 2011 and onwards (massive protests by civilians against the kind of power tunisia, egypt, or libya), the need for tourism among people from all corners of the world is still the issue. only air transport plays a crucial role in tourism to the above mentioned countries. 3. the factors hampering the development of air tourism the development of tourism in some states is dependent on exclusively on the possibilities and the availability of air services. for example, 98% of all tourists coming to the philippines are travelling by air . thus, restriction, or the closure of the air connections with that country would result in the same dependency in relation to tourism. however, there are factors that cause that tourism can develop, and thus air transport and vice versa. first, maintaining the visa requirement by several states. the elimination of this barrier will certainly contribute to the growth in demand for tourism. if we take into consideration two states which are far away each other, so the only possibility would be practically a journey by air. maintaining the visa requirement seems to be in the modern world an economic barrier. it usually occurs in a relationship: rich state – poor state. the more developed states protect their market and work places for their nationals against the influx of nationals from other states. the absence of this requirement could disrupt the normal functioning of the economy and contribute to a reduction in the standard of living in the country. second, the threat of terrorist attacks. this element still constitutes a source of concern in most member states as for the unfettered development of tourism and aviation. no country in the world is not able to completely eliminate this threat . the authorities responsible for the protection of aviation must be in continuous vigilance and respond to any reports of a potential assassination attempt. the basic principle is, in fact, vigilance. after the terrorist attack on the world trade center and the pentagon in the united states in september 2001 increased personal checks and baggage and security checks were tightened as well as safety procedures modernized and implemented at the airports all around the world. aviation, and airports especially, will always be in the mindset of the terrorists a great place and the purpose of the attack. it is reasonable and necessary to maintain high safety standards throughout the aviation sector. however, it must be taken into account the development of international tourism when traveling by air. with the terrorist threat there is the collection by the authorities of a state any information about those tourists travelling by air. this is a particularly sensitive area, because it concerns the basic information about the traveller, namely, about his previous travels, goals of that visits, dates. in this case, the agreement between the eu and the us in 2004 4 more: g. zajac, wnioski powulkaniczne, „skrzydlata polska”, vol. 1/2011, pp.44-46. 5communication from the european commission, europe, the world's no 1 tourist destination – a new political framework for tourism in europe, com 352 (2010), 30.06.2010, p.5. 4 grzegorz zajac on the processing and transfer of personal data has been cancelled by the court of justice of european union in may 2006. subsequent negotiations between the two interested parties led to a new agreement adopted in july 2007. third, a set of tourism organization factors. peripheral situation of a state or a specific location is not a problem, as far as the tourist has the opportunity to arrive there by air. connection airport with the region is beneficial for both of them and for the development of local economy. the creation of high standards in the field of air services also stimulates tourism. unfortunately, there is still a restriction resulting from a small number of relatively open and accessible airports which causes that the potential of the development of international tourism is not fully used. 4. the factors stimulating the development of aviation tourism benefits for the airline industry resulting from the elimination of these barriers will be significant. this will expand the whole aviation sector, and as a result of these activities the effects shall be the following: a) development of the entire sector, and as a result of these activities there will be more and more air carriers offering services between states concerned, b) improvement services quality, c) the increase of the general level of security, d) the modernization and expansion of the airports to adapt to handle increased demand, thanks to increased demand for travel by air, e) at the same time there will be a decline in the unemployment rate caused by the increase in employment in various companies of the aviation sector. we can find a lot of benefits for the development of tourism coming from liberalization. thanks to competitive prices and continually increasing offer of air connections to various places in the world, demand for tourism is growing trend. at the same time it should be pointed out that the elimination of the barriers mentioned above may have positive effect on the development of tourism. it should be noted the example of the member states of the european union, which have abolished the visa requirement between themselves, and the institution of internal border controls was abolished on the prevailing area. thanks to this facilitation, the tourism is being developed between member states, i.e. the schengen area. more and more tourists are travelling by air, as it has become easier and without cumbersome control procedure. tourist activities include benefits for many hotel companies, catering, transport,. many countries in the world is bent on the development of tourism, as it is an important factor consisting in the gross domestic product (gdp) of each state. for example, the gdp of seychelles in 2006-2007 grew by 7-8% per year on average, mainly due to tourism and tourism-related industries . tourism in many countries can grow almost exclusively on the basis of the air transport sector, as it is almost the only means of transport for tourists who are visiting the country. another factor stimulating the development of aviation tourism is the safety of this mode of transport. air transport is one of the most secure means of communication. accidents, though sometimes very spectacular and causing the death of all or many of the passengers, are extremely rare, taking into account the degree of intensity of the number of journeys. this is due to at least two main reasons. first, the technological quality of manufactured aircrafts is becoming more perfect. the aerospace industry uses all the latest technical solutions in order to increase the safety of passengers and crew. secondly, a large degree of aviation safety is due to the existence of modern forms of satellite navigation. with this technology it is possible to more secure control and air traffic management. the most important satellite navigation systems include: the american system gps (global positioning system), russian glonass and european galileo, which is currently being implemented. galileo should be available for all civil users nit until 2020, after all 30 navigation satellites are put on geostationary orbit. this will be the breakthrough of navigation system for the world, as it will cut monopoly of the present american gps system. europe will have its own independent navigation system with more benefits for users, including tourism. the role of air transport in the development of international tourism 5 despite the rapid and steady growth in air traffic, the scale of fatal air accidents every year is reduced. currently, according to figures from 2009 this is one fatal accident on 6, 5mln of air passengers . air transport safety is an indicator of the development of tourism, because tourists choosing to travel must have in mind this factor as the primary objective of their trip. for example, there has been a significant increase in passenger traffic, both national and international, in nigeria in 2009. it is respectively 16.3% and 12.1% in relation to 2008 . such an increase in demand for air travel would certainly help to improve the economy of the whole country. however, for many it is not surprising the upward trend in domestic transport. increasing air traffic market is just because tourists are afraid to travel by car or by bus (there are no railways in nigeria), since this involves huge risk. during the journey by land it is not infrequent kidnapping, murder, and the poor state of road infrastructure. it can be avoided only by travelling by plane. 5. the development of air transport in the european union and the impact on tourism despite many common features and interactions, the difference in the approach to tourism and air transport in eu legislation is significant. airline policy is the sphere of the exclusive competence of the union, in view of the fact that it is in the framework of the common transport policy. in this context, member states are required to use in the first place, eu legislation in this area. although article 4 of the tfeu states that the transport policy falls within the shared competence with member states, but in the section on transport (title vi of the treaty) it is clearly specified that this sphere is implemented in the framework of the common transport policy .member states may implement only such provisions, which are not reserved for the bodies of the union and are not subject to their jurisdiction, or they have to implement eu recommendations issued in the form of directives. while tourism has been in the current legislation clearly separated to those actions which are of european nature. in accordance with the provisions of article 6 of tfeu, union has only the power to promote, coordinate and complement the tourism policy carried out by individual member states. in accordance with article 195 of tfeu, the european union can complement the actions of member states in the tourism sector through: a) encouraging the creation of a favourable environment for the development of undertakings in this sector, b) promoting cooperation between the member states, particularly by the exchange of good practice, c) the development of an integrated approach to tourism and ensuring to include this sector in other areas of eu policy. on the other hand, aviation policy of the european union, even though it was enshrined in the treaty of 1957 was not implemented for nearly 30 years. the main reason was lack of interest of the community bodies and the member states to regulate this sector at community level (currently: european union). also, the liberalization policy of air transport in the united states has become a major impetus for the start of the implementation of the common aviation policy in the eu. the first step was the judgment of the european court of the eu of 1974 concerning the application of the general competition rules contained in the ec treaty also to air transport, which has been later confirmed in the next judgement of european court of the eu released in 1986 under the name nouvelles frontieres . the court also held that the treaty rules concerning protection of competition in the aviation sector still apply. in 1978, parliament strongly demanded to fulfil the provisions of the treaty of rome with regard to air transport, in particular the extension of competition in this sector. the lack of this competition between air carriers caused the existence of very high prices for passenger flights. the result of this was the fact that this means of transport has become extremely elite, for rich people only or for business trips. travelling by air was used mainly by businessmen, officials with free airline tickets or going on business trips and tourists who accepted such a high level of prices. in addition, many of the routes were merely unprofitable, bringing hude financial loses. airlines under the actual control of the governments were guaranteed of the funding to maintain unprofitable routes. in such cases, airlines didn’t have to worry about this problem, which under normal economic conditions would be unacceptable. 6 grzegorz zajac in the absence of a reaction of the council on the conclusions of the parliament, the latter in 1983, made a complaint to the court of justice of inaction of the council to implement the provisions of the treaty in this sector. the turning point for speeding up the introduction of legal solutions on a common aviation policy was the 1985 judgment aggravating fault for inaction in this regard the council and ordering its immediate accession to work on air transport liberalization. the european council summit in milan in june 1985, also called for more decisive action. the result of these events was to propose liberalization of aviation sector in 1987, in the form of acts, grouped in the so-called "the first package”. since then, the policy of harmonization of the aviation rules across the european union started gaining momentum. along with the implementation of a common eu policy the sector of the tourism industry began to develop. eliminating internal barriers and the gradual implementation of the freedom of movement of persons, services and capital has led to an increase in the demand for tourism in the eu. europe is an attractive tourist destination in the world. there are a lot of places that attract tourists from all over the world. as a means of transport they choose usually air transport. 6. rules for the organization of aviation tourism today the market of aviation tourism organizers in the world is a network of many enterprises, institutions and organizations who are interrelated. organizers of air travel must provide attractive services at a suitable level of quality. both national and international organization of trips by air, requires formal qualifications of personnel and expertise (specialization) in this area. thanks to this mutual connections of the tourism industry and air transport also increases employment in these sectors. the proper functioning of the system of air tourism organization is indispensable, to minimize or exclude the hazard of human factor in the preparation of the tourism trip. the main tasks of air tourism providers include: a) to provide tourists with a comprehensive offer of events (the creation, promotion and sale), b) attention to the relationship with the consumer when concluding contracts for the supply of tourist services based on air transport at a proper level, c) consumer rights’ protection arising out of contracts for the supply of tourist services, d) responsibility for the implementation and organization of services (air packages), e) taking into account any additional services and benefits that make up the comprehensive tourist event related to air transport. in recent years the market for tour operators and air events in the european union has stabilized in relation to consumer rights and care for services rendered. this is a result of the implementation of council directive no 90/314 of 13 june 1990 r. on package travel, package holidays and package tours (o.j. ec, l 158, 23.06.1990). in accordance with article 2 (2) the organizer is defined as „ person who, other than occasionally, organizes packages and sells or offers them for sale, whether directly or through a retailer”. in this regard, “a package” is meant as a pre-arranged combination of not fewer than two of the following elements: transport, accommodation, or other tourist services not ancillary to transport or accommodation, which are a very important part of the package, when sold or offered for sale at an inclusive price and when the service covers a period of more than twenty-four hours or includes overnight accommodation. the system of tourist events organization related to air transport has already been harmonized, so that the consumer in each state has been granted equal treatment. the organizer of the tourist trips or point of sale (agent) is fully responsible for the proper performance of the obligations arising from the contract concluded with the customer-consumer as well as for non-performance or improper performance of the service in accordance with international agreements, in particular the 1999 montreal convention for the unification of certain rules relating to international carriage by air. before each trip, if this is part of the tour (a package), the organizer of such event shall be obliged to provide all the information necessary for this the role of air transport in the development of international tourism 7 purpose. the identity of the air carrier actually performing the flight, passengers ' rights, issues related to safety, healt h and other. in addition, tourists travelling by air very are very broadly protected an extensive system of air passengers’ rights, due to the adoption of a regulation no 261/2004 of the european parliament and of the council of 11 february 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing regulation (eec) no 295/ (o.j. eu, l 48, 17.02.2004). in this regard it must be stressed that when it is about the cancellation of package tour, as mentioned above, for reasons other than the flight being cancelled, the regulation 261/2004 will be not applied, in accordance with article 3 (6). it is known that air traffic increases mainly during the holiday season. more and more tourists want to visit different states. this involves the need to provide additional aircraft to handle the passengers. huge demand for air services by tourists generates potential negative factors such as congestion at airports, resulting in delays of flights or their revocation. these elements cause frustration and annoyance for traveling tourists, especially if these phenomena nullify holiday plans and cancellation or postponement of the entire tourist tours. often the continuation of the journey that requires change is pointless due to the long delay. before regulation no 261/2004 came into force travelers had to take care of themselves whether to continue the journey or return home at their own expense. the provisions laid down in this document relate to the situation of denied boarding, flight cancellation or significant delay. if one of these situations occurs, and there is no fault on the side of a passenger, so he has the right to assert claim regardless of whether he travels by scheduled flight (regular) or charter flight (non-regular) . currently, every person travelling in europe, regardless of whether it is an eu citizen or a third country citizen, uniform standards to ensure effective protection of his rights as an air passenger are applied. the practice shows that tour operators related to air transport shall endeavour take care of services and reliability in informing customers of their rights as an air passenger. before a tourist chooses to travel by plane, he should carefully read and become familiar with the provisions protecting him as a passenger during air travel. 7. the future of tourism in connection with the development of air transport air carriers on a regular basis carry out air traffic analysis. as it may be noticed, this movement has a generally upward trend, which means that there is a solid demand for air services. due to the constantly increasing demand for air travel, manufacturers of aircrafts began to produce more and bigger planes with larger available seat capacity, and the carriers are more likely to bring them into service. thanks to such solutions, the number of operations is being reduced as one plane can accommodate twice or even three times more passengers than the existing machines. however, this can happen only on long-distance routes, because only such big aircrafts can be used effectively and efficiently on long-haul routes. in 2005, there have been two new aircrafts constructed, currently the biggest passenger aircrafts, by the competing companies – airbus 330 and boeing 787. when it comes to a model of the airbus a380, is a european group airbus which began to work on it in the early 1990s. the first presentation of this machine was held in 2005, the aircraft is the largest of all of the existing aircrafts, with double-deck and four engines power. depending on the configuration, it can consists of from 471 (in three classes) up to 853 passenger seats (only in economic class). the first of this type of aircraft was delivered to the singapore air carrier in 2007. this machine is gaining popularity, as it can take on board about a half thousands of people. on the other hand, american boeing 787 dreamliner was unveiled in 2005, but his first flight took place only in 2009. although it is not the largest, it can hold, depending on the configuration, from 210 to 330 passenger it is also worth mentioning, that its accessories and furnishings is impressive. tourists can choose different offers from different tourist offices and they can travel in a class and standard they choose freely. many air carriers, who have bought such big aircrafts, already prepared its tourist offer in the light of the above aircraft models. the emergence of low-cost air carriers (so called cheap airlines) causes, that ticket prices are cheaper, and apart from that the number of airports increases (some of them are being modernized and enlarged) serving aviation tourists. moreover, new routes are being established and their range is expanded to new destinations all over the world. 8 grzegorz zajac tourists can visit places that are far away from their home and they can move there within just a few hours or one day when taking into account destinations located few thousands of kilometers away. an important factor in stimulating an increasing share of low-cost-carriers in aviation market is the increase in the number of tourists who are less rich, for whom air carriers introduced special travel packages with attractive prices. today it's hard to find an air carrier that does not take into account the importance of air transport for tourism. the more carriers will raise the quality of their machines, while offering not a very inflated prices, the more the demand for tourism will grow faster. the appropriate standard of air travel determines the attractiveness of tourist excursions prepared. it is all about what the air carrier offers a passenger on board the aircraft as part of the "standard”. the tour operator has the ability to affect the class on the plane (economic – the most popular and cheapest, business – more expensive, the first class – is the most expensive). such a division is among different aircrafts belonging to different air carriers. only low-cost carriers due to their price structure, offer only standard class for their passengers. attractive tourist offer including an appropriate level of flight will provide an incentive for the development and future of aviation tourism. 8. conclusions air transport link with tourism have always been noticeable. there is no doubt that the future development of the tourism industry depends on a gradual increase in air services. disruption in the world in recent years, both economic and political, negatively affected the tourism and aviation, though this phenomenon was not quite severe. soon, however, there has been an recovery in these sectors in 2011 and since then it can be noticed a gradual increase. the world's aviation market is growing dynamically in asia and the middle east. certainly it has an impact of tourist attractiveness of these regions and the route map is getting bigger. a tourist shall be considering safety when looking for new destinations and places – both aircraft travel and a region, which is a destination point. guaranteeing a high level of service quality on both sides will contribute to the further development of the tourism industry and air service operators. references g. zajac, wnioski powulkaniczne, „skrzydlata polska”, vol. 1/2011, pp.44-46. european commission, europe, the world's no 1 tourist destination – a new political framework for tourism in europe, com 352 (2010), 30.06.2010, p.5. national civil aviation agency in brazil (anac), http://www2.anac.gov.br/dadoscomparativos/dadoscomparativos.asp, (access: 10.02.2014). world tourism organization, 2010 international tourism. results and prospects for 2011, unwto conference in madrid, 17.01.2011. oag, aviation growth hits all time high, press release 2007. http://hk2.prnasia.com/xprn/storycenter.do?method=loadwebpr&code=07176811&langid=1 (access: 11.02.2016). journal of international trade, logistics and law, vol. 8, num. 1, 2022, 48-61 48 regulating oil and gas resources between mainland tanzania and tanzania zanzibar: is it a legal challenge? liberatus cosmas gabagambi1 college of business education, tanzania, united republic of received: april 01, 2022 accepted: may 27, 2022 published: june 01, 2022 abstract: this study analyses legal challenges of the system of laws regulating oil and gas resources between mainland tanzania and zanzibar. the article reviewed existing laws regulating oil and gas resources and identified that the law provides a different system for regulating oil and gas resources between mainland tanzania and zanzibar. it further examines whether regulating laws are adequate to regulate oil and gas resources without resulting in new challenges. the findings show that, the duo system of laws regulating oil and gas resources between mainland tanzania and zanzibar suffers from practical and operational challenges such as: ownership and control of oil and gas resources, differences in regulatory institutions, powers to issuance of exploration licenses, challenges relating to legislative authority over oil and gas, challenges relating to exploitation of offshore oil and gas resources, and challenges relating to oil and gas revenue sharing between mainland tanzania and zanzibar. the data for this study, were sourced from legal documents such as: statutes, legal text, court decisions, government bills and policies and from government ministries, officials from regulatory institutions, members of the parliament, legal practitioners (advocates), investors in the oil and gas sector, and ngos from both parts of the union. documentary reviews and field interviews were used as data collection methods. based on the findings from data analysis, the researcher proposes potential mechanisms to enable the united republic of tanzania (mainland tanzania and zanzibar) to explore and exploit oil and gas resources without resulting in resource conflict. therefore, the study recommends for laws regulating oil and gas resources to be amended, to provide a coordinating committee among institutions, harmonization of laws governing oil and gas resources, to establish an oil and gas revenues sharing system, and for oil and gas to remain a union resource. keywords: regulating, oil, gas, resources, challenge, tanzania 1. introduction in tanzania, oil and gas have become the most interesting resources in relation to sharing resources between zanzibar and mainland tanzania. oil and gas are sharable resources between mainland tanzania and zanzibar because they are part of the list of union matters2 and have been regulated by union laws for many years. however, in the long run zanzibaris expressed their dissatisfaction with the system regulating oil and gas resources believing that the system favors mainland tanzania (pedersen & bofin, 2015). this resulted in the reforms of the zanzibar constitution of 1984, the petroleum act, no. 21 of 2015 the zanzibar oil and gas (upstream) act, no. 6 of 2016 which has introduced a separate system of regulating oil and gas resources in tanzania.3 based on such reforms, each part (tanzania zanzibar and mainland tanzania) have sovereign power over oil and gas. however, these reforms are not reflected in the constitution of the united republic of tanzania, which is the main document thus posing regulatory challenges. therefore, the present study analyzes challenges caused by the mentioned existing contradiction. 1 assistant lecturer at the college of business education (cbe) and phd candidate at the university of dodoma). can be reached through muginalibelatus@gmail.com or l.gabagambi@cbe.ac.tz 2 see first schedule of the constitution of the united republic of tanzania of 1977 3 see section 2 (2) (a) (b) the petroleum act, no. 21 of 2015 also section 4 of the oil and gas (upstream) act, no. 6 of 2016 regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 49 2. the methods of the study this study was guided by doctrinal legal research and supported by empirical research. the researcher used a doctrinal research approach to collect information from documents such as: statutes, legal books, court decisions, policies and government reports. literal and purposive interpretation of legal documents were used in relation to study objectives. the aim was to see if the law regulating oil and gas resources between mainland tanzania and zanzibar is consistent and meets the intended objectives of the legislature. the researcher used data collected from interviews to complement documentary information. thus, the researcher collected data using documentary review and interviews the participants in this study were selected through the use of purposive sampling technique. purposive sampling allows the researcher to use informants who have sufficient knowledge on the studied subject. the criteria for involvement in the study included experience, knowledge and skills in the oil and gas sub sector in particular to laws regulating oil and gas resources between mainland tanzania and zanzibar. the rationale for using purposive sampling technique was to ensure data are collected from the most informed people. the selection of the sample was by picking respondents from identified institutions and getting informants who possess relevant knowledge and skill to the study topic (denscombe, 2010). data collected from documentary review and those from field interviews were narratively presented using heading and sub heading showing legal challenges relating to oil and gas resources between mainland tanzania and tanzania zanzibar. thus, content analysis used to present data both from documentary review and interview and inductive content analysis was employed. 2.1 the system governing ownership and control of oil and gas resources in tanzania tanzania is a union state between mainland tanzania and zanzibar, the constitution of the united republic of tanzania provides the list of union matters among which is oil and gas resources.4 the constitution of the united republic of tanzania has set a foundation relating to ownership of natural resources including oil and gas and the territorial sovereignty between mainland tanzania and zanzibar.5 the constitution provides that natural resources are the property of the state and used to benefit the people of the united republic. the state ownership has been construed as a solution to resource conflict but the main issues have been on regulating, controlling and sharing of revenue (anderson, 2013). natural resource ownership differs in unitary states and in federal states. in unitary state natural resources ownership deals much with national development and how individuals benefit from natural resource exploitation. while in federal states the constitutional provisions deal with how natural resources are shared among heterogeneous communities and the central government.6 literature reveals that, in many federal systems, autonomous ownership and control over natural resources has been a point of legal concern as regard to competing interest over natural resources between the national governments and state governments (haysom & kane, 2009). this is because the constitutions provide for state ownership over natural resources without showing how provinces, local authorities or hosting communities are involved in the development and sharing of benefits from those resources. therefore, tanzania, like other states, its legal framework, mainly the constitution, provides for the protection and ownership of natural resources by providing that natural resources as the property of the state authority and used for the benefit of the people of the united republic.7 based on this, the united republic as a sovereign state has the duty to manage, protect and regulate oil and gas resources within the united republic. the sovereignty of the united republic of tanzania is provided under article 1 and 2 (1) of the constitution which provides that, tanzania is one state and is a sovereign united republic. the constitution further declares the territory of the united republic to be the whole of the area of mainland tanzania and the whole of the area of tanzania zanzibar, and includes the territorial waters.8 the sovereign and territorial sovereignty of the united republic of tanzania is the result of the article of the union of 1964 which sets the foundation of the united republic and the union between the former republic of tanganyika and 4 see item 15 of the first schedule of the constitution of the united republic of tanzania of 1977 5 see article 1, 2(1) and 27(1) of the united republic constitution of 1977 6 good example is nigeria particularly in niger delta 7 see article 27 (1) of the constitution of the united republic of tanzania 1977 8 see article 2(1) of the constitution of the united republic of tanzania 1977 liberatus cosmas gabagambi 50 the people’s republic of zanzibar. the articles of union of 1964 and the constitution of the united republic of 1977 list some issues to be regulated by the government of the united republic (majamba, 2016). these issues are referred to as a list of union matters as provided under the first schedule of the constitution of the united republic of tanzania of 1977. under the framework of union matters, zanzibar surrendered its autonomy on all those matters as provided for in the first schedule to the constitution. item 15 to the list of union matters provides for mineral resources, including crude oil and other categories of oil and natural gas to be among the resources surrendered to the union government. the analysis of the list of union matters reveals that the sovereignty of the government of the united republic over oil and gas resources has roots from the constitution. the constitution of the united republic determines where sovereignty over oil and gas resources lies between the union government and the revolutionary government of zanzibar. this is by providing oil and gas in the list of union matters and placed in the authority of the government of the united republic.9 the sovereignty of tanzania zanzibar was also discussed in the case of smz versus machano khamis ali & 18 others10 where the court stated that the international persons called tanganyika and zanzibar ceased to exist as from 26th april, 1964 because of the articles of union. the two states merged to form a new international person called the united republic of tanzania. when resolving the question as to where the sovereign relies, the court concluded that both tanganyika and zanzibar, and not zanzibar alone, surrendered their treaty-making powers to the united republic of tanzania. the nation cannot surrender the treaty power to another, at the same time claim to exist as a sovereign state. therefore, oil and gas being part of the list of union matters, zanzibar just like its sister tanganyika, has no sovereign right over oil and gas resources. the state with the sovereignty right over oil and gas resources is the united republic of tanzania (union government). further, the constitution obliges the government of the united republic to ensure that the natural resources and heritage are harnessed and applied for the common good of all tanzanians.11 the same position is maintained by the natural gas policy 2013 which provides that; natural gas resources found in tanzania belong to the people of the united republic of tanzania and must be managed in a way that benefits the entire tanzanian society. however, article 2(1) of the zanzibar constitution provides the territorial boundary of zanzibar that: the area of zanzibar consists of the whole area of the islands of unguja and pemba and all small islands surrounding them and includes the territorial waters that before the union formed the then people's republic of zanzibar. the provision of the article means that oil and gas resources found in the territorial waters of tanzania zanzibar are governed by the constitution of zanzibar. further article 23(2) of the constitution of zanzibar vest natural resources in the authority of the state. this article states that, “that every person has the duty to protect the natural resources of zanzibar, the property of the state authority.” according to the above article, natural resources within the territory of zanzibar are owned by the government of zanzibar on behalf of the people of zanzibar. complimenting to the above position, in 2016 the government of zanzibar passed the oil and gas (upstream) act, to regulate oil and gas existing in the territorial land, the islets, internal water, territorial sea, contiguous zone, exclusive economic zone and any other area as provided under the constitution.12 in addition, the act provides that the entire property, and the control of petroleum in its natural condition, and any land or territorial waters in zanzibar is vested in the government on behalf of the people of zanzibar.13 and that petroleum resource is the public property of the people of zanzibar and the government shall hold petroleum rights for the benefit of the people of zanzibar.14 therefore, despite oil and gas being in the list of 9 see article 34 of the united republic of tanzania 1977 10 criminal application no. 8 of (2000) court of appeal of tanzania at zanzibar 11 see article 9 (c), (j), and (i), and article 27 of the constitution of the united republic of tanzania 1977. 12 section 2 of act no. 6 of 2016 13 see section 4 (1) of the oil and gas (upstream) act, no. 6 of 2016 14 see section 4(2) of the oil and gas (upstream) act, no. 6 of 2016 regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 51 union matters the laws regulating oil and gas in tanzania zanzibar guarantee the revolutionary government of zanzibar ownership and control over oil and gas resources within zanzibar. by providing tanzania zanzibar powers over oil and gas resources in zanzibar is contrary to the constitution of the united republic of tanzania which provides oil and gas resources in the list of union matters and in the authority of the government of the united republic. it is a clear interpretation that all mineral resources within the territory of the united republic belong to the sovereign of the united republic. that any operation relating to oil and gas resources whether carried out by mainland tanzania or tanzania zanzibar has to be on behalf of the united republic. the differences in the systems regulating oil and gas resources between mainland tanzania and zanzibar have resulted into challenges on state sovereignty over natural resources, the ownership and control over oil and gas resources among the parties to the union. furthermore, data from literature and interview show that the petroleum act, 2015 and the zanzibar oil and gas (upstream) act, 2016 which have separated the ownership, control and use of oil and gas resources are contrasted from the constitution of the united republic of tanzania which provides for common use and management of oil and gas resources.15 thus, these laws are ultra vires to the constitution of the united republic of tanzania and likely to be challenged and declared unconstitutional by a competent court of law.16 for example, the law provides for oil and gas found within tanzania zanzibar to be governed according to the law passed by the house of representatives and for mainland tanzania according to the law passed by the parliament.17 this position of the laws makes each side consider itself sovereign and autonomous over oil and gas resources while the list of union matters which places the resources in the authority of the government of the united republic has not been amended. also, under the present regulatory framework, it is possible for the two governments each to develop its own policy without considering the needs of the other part of the union. consequently, in the absence of the union policy making institution which could provide common principles and standards to govern oil and gas resources, different policies may result in conflicting standards in managing shared union resources. addressing this challenge one of the interviewees noted that, the union government has to work hard to make sure that it has in place agreed policies, laws and regulations regulating oil and gas resources in the united republic of tanzania. by having an agreed comprehensive framework, it will facilitate the harmonization of laws and will make it easy to manage the resources even where there are different managing institutions.18 explaining how to resolve the existing differences, one officer working with the oil and gas regulatory authority recommended the establishment of a union policy making central committee due to internal and external transboundary nature of oil and gas resources. that one of the functions of this committee should be advising the decision makers on how to deal with oil and gas resources without affecting the interest of each party of the union and the union itself. the government of the united republic and the revolutionary government of zanzibar has to cooperate and coordinate in policy marking in order to bring the harmonized oil and gas policy, accepted by both parties to the union. and thus, in absence of consensus policy framework management and administration of oil and gas resources between mainland tanzania and zanzibar will be facing challenges. the policy challenges will have automatic impact in the regulatory framework hence resulting in oil and gas conflict between mainland tanzania and zanzibar. the oil and gas resources found in the territorial jurisdiction of the united republic of tanzania have to be managed and regulated by the laws of the united republic and be shared by all parties to the union. the contrary will be in violation of the constitution of urt and against the sovereign rights of the union government over oil and gas resources. 3. challenges arising from institutions regulating oil and gas resources in tanzania the governing laws establish institutions governing oil and gas resources, where each part of the union has its own institutions regulating oil and gas resources.19 for example mainland tanzania have tpdc operating as national oil 15 see article 9 (c,) (i), (j), and article 27 of the constitution of the united republic of tanzania 1977 16 see article 64(3) of the constitution of the united republic of tanzania 1977 17 see section 2(2)(a), (b), (4)(b) and section 4 of the petroleum act. no 21 of 2015 18 interview response from the one member of parliament held at dodoma on 18th may, 2020. 19 see section 2 (2) (a), b), section 4(2), (3) of the act, no. 21 of 2015, also section 2 and 4 of the zanzibar oil and gas (upstream) act, 2016 liberatus cosmas gabagambi 52 company, pura responsible for regulating upstream oil and gas resources and ewura responsible for regulating midstream and downstream operations while in tanzania zanzibar there are zanzibar petroleum development company (zpdc) a state owned company, zanzibar petroleum regulatory authority (zpra) and zanzibar utility regulatory authority (zura) all operating in zanzibar. the main objective for the establishment of separate institutions was for effective control and regulation of oil and gas resources as between the two governments. however, these institutions are not coordinated although regulating shared resources. institutions established in zanzibar have been operating according to oil and gas law of tanzania zanzibar and for those in mainland tanzania, have been following the laws governing oil and gas resources in mainland tanzania.20 during a field interview one of the legal experts working with oil and gas regulatory authorities said, the law has not made it clear on which union institution bearing in mind that tanzania is a union state therefore supposed to have a union institution to oversee union interest. as a result, each institution is seen to be superior according to the law to which it is subject and thus leaving the gap on what might be a union institution responsible for regulating oil and gas resources. therefore, it is in the perception of legal experts that despite establishment of separate institutions regulating oil and gas resources between mainland tanzania and tanzania zanzibar, union institutions are necessary for the harmonization of internal and external interest of the union. although the system of using separate institutions in regulating oil and gas resources is said to be better in countries which have developed strong legal framework and institutional quality rather than in countries with low institutional quality and political stability (doric & dimovski, 2018). but for tanzania it was very early to establish a dual system and separated institutions while still suffering from legal challenges between mainland tanzania and tanzania zanzibar. 3.1 coordination and cooperation among oil and gas regulatory institutions the findings suggest that exploration and exploitation of oil and gas requires coordination and cooperation within the state, among companies and with neighboring countries sharing exploration boundaries and blocks (cecile, 2015). countries can cooperate and coordinate to carry out joint exploration through joint venture development agreement (jvda) or may enter a unitization agreement with the aim of sharing exploration expenses and revenues at the agreed terms (kashif, 2018). the cooperation and coordination between mainland tanzania and tanzania zanzibar, is very limited only to overlapping blocks and the governing laws have not managed to identify main areas which require coordination and cooperation between the two governments even before taking any investment decision.21 when held an interview with one lawyer and policy experts he identified areas which require coordination and cooperation which include, policy development, licensing and award of exploration blocks, offshore oil and gas exploration, oil and gas disputes settlement, oil and gas revenue management, and observance of oil and gas exploration international standards.22 thus, parties to the union are advised to coordinate and cooperate especially on the above identified areas and to work very closely in order to avoid future oil and gas related conflicts. commenting on the powers of tanzania zanzibar to coordinate with other states respondents advised that, powers be exercised with precaution because zanzibar external supremacy is not yet determined thus, its right to cooperation and coordination with other states is not absolute but subject to laws of the united republic.23 this study further found that because of lack of external territorial sovereignty over oil and gas resources it is neither mainland tanzania nor tanzania zanzibar meets international standards which require state cooperation and coordination where exploration blocks have extended beyond the jurisdiction of the united republic. that section 78(5) of the petroleum act provides only for the government of the united republic to look for strategies which promote cooperation with the foreign country in which the petroleum deposits extend with a view to ensure the most efficient coordination of petroleum operations. 20 see section 2 and 4 of the oil and gas (upstream) act, 2016 and section 4(1), (2) and (3) of the petroleum act, no. 21 of 2015 21 information obtained from one of the informants working in legal firm in dar es salaam conducted on 6th february, 2020 22 the argument given by legal and policy experts from the university of dodoma held on 27th and 28th january, 2020 23 response form advocate bendera during field interview conducted in dar es salaam on 8th january, 2020. regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 53 therefore, the law regulating oil and gas resources has to declare coordination and cooperation mandatory to institutions regulating oil and gas between mainland tanzania and tanzania zanzibar. also, considering that oil and gas are union resources and the two governments share the offshore exploration boundaries, cooperation and coordination is of most importance in the development of the oil and gas sector in tanzania. 3.2 challenges relating to exploration licenses between mainland tanzania and zanzibar since oil and gas have been considered union resources were regulated by union laws. licensing and exploration permits have been issued by the government of the united republic of tanzania. the exploration license issued by the government of the united republic (union government) was valid and enforceable to mainland tanzania and tanzania zanzibar. through this system, tanzania entered a concession contract with bp to undertake exploration along the coast of tanzania which included the islands of mafia, pemba, and unguja (mmari. et al; 2019). however, there was no discovery made until 1974 when the first psa was signed with agip on the shell/bp concession area which was followed by the discovery of natural gas in mnazi bay in 1982.24 the matter started changing from the second licensing round in 2005 where seven blocks were offered, all allocated in zanzibar. in this round license were awarded to shell exploration which managed to meet the set evaluation criteria and awarded blocks 9-12 as against global resources which did not meet the criteria. however, shell did not commence exploration due to discontent from the government of zanzibar against the union government on the question of the mandate to offer exploration licence for blocks in zanzibar. it was from the second licensing round zanzibar disclosed its dissatisfaction with tpdc and the union government on offshore oil and gas resources, zanzibar claimed that offshore blocks located in zanzibar are within the mandate of the government of zanzibar (nyika, 2018). further noted that for the third and fourth licensing round tpdc and the union government launched blocks which were allocated in the territorial waters of mainland tanzania. the licensing process excluded blocks in tanzania zanzibar pending negotiation on the constitutional and political contentions around oil and gas exploitation between mainland tanzania and zanzibar. following the increase of discovery of natural gas in the offshore and existing licensing challenges, the union government decided to initiate legislative reforms on oil and gas laws to accommodate zanzibaris interests. thus, the government through parliament amended and repealed oil and gas laws including the petroleum act 2008 by introducing the petroleum act, no. 21 of 2015 which provides for separate licensing authority between the government of the united republic and the revolutionary government of zanzibar. the process for awarding exploration license and development permit for mainland tanzania assigned to petroleum upstream regulatory authority (pura), as provided under section 4 of the petroleum act, 2015 for pura to regulate and monitor upstream oil and gas resources for mainland tanzania; it also prepares and negotiates the production sharing agreement (psa). also, section 11(1) of the petroleum act 2015 requires pura to advise the minister of energy on the grant of exploration license and development permit. however, the process ends with the cabinet which is considered to be the main organ in the process of awarding development permits as there is no oil and gas development project that can take place without approval of the cabinet.25 for that reason, for the exploration license and production permit to be valid for mainland tanzania, it has to pass through pura, the minister of energy, and the cabinet for approval. for tanzania zanzibar section 5(1) (b) of the oil and gas (upstream) act, 2016 provides that licensing authority is vested to zanzibar petroleum (upstream) regulatory authority (zpra) and is responsible for the upstream operation. while section 32(1) and (5) of the oil and gas (upstream) act, 2016 provides that zanzibar petroleum development company (zpdc) acts on behalf of the government and protects the government commercial interest in petroleum operation. and zanzibar utility regulatory authority (zura) responsible for midstream and downstream operation. this is due to the reasons that section 4(3) of the petroleum act 2015 separated oil and gas operations by vesting all strategic operations for mainland tanzania to be controlled by the cabinet and for tanzania zanzibar to be controlled by the revolutionary council. 24 exploration history available at http://tpdc.co.tz/upstream.php .accessed on 14th july,2020 25 see section 47(2), (3) and (4) of the petroleum act, no. 21 of 2015 http://tpdc.co.tz/upstream.php%20.accessed liberatus cosmas gabagambi 54 it is through these dual systems of laws that each side of the union has powers over its own resources and discretion to enter exploration and exploitation contracts and it is free to choose the country to cooperate and coordinate with.26 thus, the sovereignty of the government of the united republic over oil and gas resources as provided under the constitution of the united republic of tanzania has been ousted by the two principal legislations regulating oil and resources between mainland tanzania and tanzania zanzibar.27 the issuance of exploration license and awarding of oil and gas development permit are no longer dealt with by the union government, rather the united republic and revolutionary government of zanzibar each has its own means of regulating, licensing and awarding of development permit. however, challenges arise on the licensing boundaries in the offshore areas including the deep sea, determination of exclusive economic zones between the government of the united republic and the revolutionary government of zanzibar and how zanzibar to cooperate internationally independent from the united republic. it was advised during the field interview that looking at the oil and gas regulatory framework and the territorial boundaries of the united republic it is better for oil and gas fields to be operated jointly between the government of the united republic and the revolutionary government of zanzibar. thus, for each government operating its own oil and gas resources is more likely to result in conflict than operating jointly. by accepting to operate as a joint partner with equal share it will reduce conflicting interest and maintain the sovereignty of the united republic over oil and gas resources. this is due to the fact that, for a country like tanzania whose offshore area is shared between the government of the united republic and the revolutionary government of zanzibar, joint development agreement is important for operating overlapping blocks and shared deposits. it was further noted that joint venture agreement has been important to countries where national oil companies cannot manage to invest and operate in the oil and gas sector independent of international oil companies which have technology, capital and skills. 3.3. legislative authority the constitutions set the foundation and provide bodies with authority to make and administer laws regulating exploration and exploitation of natural resources (haysom & kane, 2009). the legislative systems differ from federal states to unitary states. the legislative authority is what sets the system for regulating, controlling, management and determines the right to natural resource ownership (haysom & kane, 2009). legislative authority and regulatory institutions are duty bound to set and implement rules regulating oil and gas resources in tanzania. the legislative framework of the united republic of tanzania appears to be of a two-tier system. article 2(4) of the constitution of the united republic of tanzania provides for two legislative organs (i) the parliament of the united republic of tanzania and, (ii) the house of representatives. according to article 64(1) and (2) of the same constitution, the parliament of the united republic of tanzania has legislative sovereignty over all union matters and non-union matters for mainland tanzania, and the house of representatives has legislative sovereignty over non union matters for tanzania zanzibar. also, the constitution provides oil and gas in the list of union matters which evidences that it is the parliament of the united republic of tanzania which has the sovereign right to legislate over oil and gas resources. clarifying on the legislative authority between the two legislative organs the constitution of the united republic of tanzania provides: any law enacted by the house of representatives concerns any matter in tanzania zanzibar which is within the legislative jurisdiction of parliament, that law shall be null and void, and likewise if any law enacted by parliament concerns any matter which is within the legislative jurisdiction of the house of representatives that law shall be null and void28 the interpretation of this article is clear that it is the parliament which has legislative authority over oil and gas resources as they are forming the list of union matters. the house of representative has no mandate to legislate on matters which are within the legislative jurisdiction of the parliament and if it does so the whole process is nullity. provided that oil and gas are still in the list of union matters the two governments have to respect the constitution 26 interview conducted with officers in the attorney general’s office in dodoma, held on 17th december, 2019 27 reported one of the respondents working with ministry of energy during the field interview conducted on 18th february, 2020, at dodoma government city 28 see article 64(3) of the constitution of the united republic of tanzania, 1977 regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 55 and powers bestowed in the parliament. the contrary will be the violation of the constitution of the united republic of tanzania. the constitution provides further that: the constitution of zanzibar shall apply to all matters pertaining to tanzania zanzibar which are not union matters, and the constitution of the united republic shall have the force of law in the whole of the united republic, and if any law conflicts with the constitution, the constitution shall prevail and that other law, shall be void.29 however, contrary to the constitution of the united republic of tanzania, and without any amendment to the constitution, the parliament of the united republic of tanzania has passed a law that provides for each part of the union to use its laws to govern exploration and exploitation of oil and gas resources. for example, the petroleum act provides that: the regulation of petroleum resources from upstream, midstream, and downstream activities… where such operations or activities are undertaken within tanzania zanzibar, shall be governed and administered by institutions following the laws of tanzania zanzibar.30 the above provisions permit the house of representatives to legislate on oil and gas resources which under the united republic constitution are union matters, and to that effect, the house of representatives has passed the oil and gas (upstream) act, 2016 as specific law regulating oil and gas resources in tanzania zanzibar. the contradiction between the constitution of the united republic of tanzania, the petroleum act, 2015 and the oil and gas (upstream) act, 2016 have three effects: first, these laws can be declared unconstitutional as they are violating the provisions of the constitution of the united republic of tanzania. second, no union institution regulates oil and gas resources and third, the parliament of the united republic has no legislative power and the union government has no authority over oil and gas resources found in the territory of tanzania zanzibar. this is because the existing regulatory framework authorizes zanzibar to regulate oil and gas resources following laws and institutions of tanzania zanzibar. thus, despite the constitutional provision which declares oil and gas as union resources, the legislative powers of the parliament and powers of the union government to over oil and gas resources is limited only to oil and gas resources within mainland tanzania. the analysis of statutory provision and interview with field respondents also reveals that the regulatory framework did not consider that oil and gas are shared resources between mainland tanzania and tanzania zanzibar and whether the two governments share exploration boundaries. also, it wa revealed that by introducing a dual system of law regulating oil and gas resources, the legislative process was becoming more complex because it is not well known as to whether oil and gas resources belong to the legislative mandate of the parliament of the united republic, or each part has the mandate to legislate over oil and gas resources. as a result, each government uses its laws and institutions to regulate oil and gas resources. for example, the revolutionary government of zanzibar uses house of representative to legislate and uses the zanzibar upstream regulatory authority (zpra), zanzibar national oil company (zpdc), and the ministry of water, energy, and minerals to manage, regulate and exploit oil and gas resources within tanzania zanzibar. the government of the united republic uses the parliament of the united republic to legislate and uses the petroleum upstream regulatory authority (pura), ewura, ministry of energy and tpdc as institutions dealing with oil and gas in mainland tanzania. therefore, the practical challenge is on how to manage oil and gas as shared union resources in absence of common union laws and institutions regulating these resources. also, laws passed by the parliament to governing oil and gas resources are supposed to comply with the provisions of article 132(2) of the zanzibar constitution of 1984 amended 2010 which provides that; the law enacted by the union parliament to apply in zanzibar first shall be submitted to the house of representatives by the responsible minister. it means that no union law can operate in zanzibar unless submitted to the house of representatives. therefore, even laws regulating oil and gas resources are required to comply with the requirement of sub article 2 before applying in tanzania zanzibar. the constitution requirement to submit laws enacted by the parliament to the house of representatives poses a constitutional challenge as to which legislative organ has final mandates over union matters including oil and gas resources 29 see article64(5) of the constitution of the united republic of tanzania, 1977 30 see section 2(2)(b) of the petroleum act, no. 21 of 2015 liberatus cosmas gabagambi 56 however, one of the respondents aired that if the above article was made for the protection of zanzibaris interest it should be understood that the parliament (union parliament) includes members from zanzibar whose presence in the parliament is for representing the interest of zanzibaris in relation to union matters. and it is a constitutional requirement that any constitutional amendment provided under the second schedule be supported by the votes of not less than two-thirds of all members of parliament from mainland tanzania and not less than two-thirds of all members of parliament from tanzania zanzibar31. the requirement of two-third was to make sure that members from mainland tanzania and tanzania zanzibar are effectively involved before any alteration of union matters. thus, for the house of representatives to inquire into the law passed by the parliament is questioning the supremacy of the parliament to legislate on union matters. the divergent of the laws calls for harmonization of union laws as the same was recommended by the court in the case of seif shariff hamad v. serikali ya mapinduzi ya zanzibar where the court said that “relevant authorities on both sides of the union, to take necessary steps to harmonize these conflicting sections and other sections of the two constitutions which are potentially irreconcilable”. without harmonization of laws governing oil and gas resources it will be very difficult to enforce the laws enacted by parliament for union matters within the jurisdiction of the government of zanzibar. responding to the existing inconsistency of the laws one of the respondents was of the view that, the parliament misdirected itself by passing the law which alters the constitution of the united republic of tanzania without first amending the constitution itself. the divergences are happening because of the constitutional provision which still maintains oil and gas resources in the list of union matters. the solution is to amend the petroleum act and not the constitution; amending the constitution will have an effect on the system of laws governing the union. it was further discovered from the documentary review that the enactment of the petroleum act, 2015 and the zanzibar oil and gas (upstream)act, 2016 which separated the regulatory framework was a result of the proposed constitution 2014 which removed oil and gas from the list of union matters.32 however, it is not known when the proposed constitution will come into effect as it is still a proposal and depends on the interest of the political regime in power. it was further noted that, legislative process was faced with political challenges because politicians use oil and gas as a political agenda to win the election and also enact laws which favored their political interest. as ragnar argued for countries to establish strong and independent legal institutions responsible for regulating oil and gas resources. the author has cited countries like chad, angola and nigeria where petroleum funds were misused due to political decisions rather than using them for long-term public economic investment projects (ragnar,2016). 3.4. the territorial jurisdiction between mainland tanzania and tanzania zanzibar the territory of the state is determined by internal supremacy of the government institutions and external supremacy of the state (shaw, 2003). zanzibar has internal supremacy for non-union matters and its institutions are autonomous in regulating non-union resources. however, it lacks external supremacy of the state which determines the international sovereignty of the state. the sovereignty and jurisdiction are determined by territorial integrity upon which the state can exercise its exclusive powers.33 the exclusive powers of the state include; powers to decide on its natural resources, the powers which zanzibar does not have for many years34 (added one respondent). however, the present powers given to zanzibar over oil and gas resources are not exclusive and autonomous because the law provides zanzibar with the right to use and not ownership.35 for example, section 4 (1) of petroleum act 2015 provides that: the entire property in and control over petroleum in any land to which this act apply are vested in the united republic and… but without prejudice to any right to explore, develop or produce petroleum granted, conferred, acquired or served under this act or the relevant law tanzania zanzibar. on the other hand, by providing zanzibar with powers to grant exploration licenses over union natural resources in the absence of union institutions and without involving the government of the united republic is the violation of 31 see article 98(1)(b) of the constitution of united republic, 1977 32 see article 74(3), also see the first schedule of the proposed constitution, 2014 33 ibid. 34 anonymous respondent working with haki rasilimali a non-governmental organization in dar es salaam interviewed on 9thmarch, 2020. 35 interview with legal and policy experts, working with zanzibar petroleum regulatory authority, conducted on 14th february, 2020. regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 57 territorial integrity of the state as defined under the international system which provides for respect of territorial integrity of the state (shaw, 2003). territorial sovereignty is what determines the ownership and possession of property including natural resources as it was determined by roman law. territorial sovereignty grants property rights, therefore, the state authority is provided with ownership and possession of natural resources forming part of the land which also belongs to the state. for the case of mainland tanzania and tanzania zanzibar the territorial sovereignty of zanzibar and tanganyika were surrendered to the united republic of tanzania by constitutional means, that is by agreement through the article of the union of 1964. it is from this agreement the territorial sovereignty passed from the previous sovereign to the newly established united republic of tanzania (union government). the process involved the transfer of oil and gas resources to the control of the union government as provided under the first schedule of the constitution of the united republic of tanzania. 3.4.1. the offshore oil and gas regulatory challenges in tanzania the territorial sea and exclusive economic zone act and the united nations convention on the law of the sea, shows that the offshore area belongs to the united republic of tanzania. by providing that the territorial sea of the united republic of tanzania is measured along the coast of the united republic including the coast of all islands…officially recognized by the government of the united republic. it provides further that the sea bed and internal waters of the territorial sea of the united republic shall be deemed to be and always to have been vested in the government of the united republic. also, it is the government of the united republic provided with the sovereign right to explore, exploit and manage offshore oil and gas resources. in addition, the offshore resources are mostly regulated by international laws, and zanzibar international status to regulate and control offshore oil and gas resources independent of the government of the united republic is not yet determined. separating the laws governing oil and gas resources have resulted into the conflict between national laws and international laws because the united nations convention on the law of the sea does not recognize zanzibar's territorial waters independent from the united republic. separating regulatory framework is more challenging for the government of zanzibar on how to enforce bilateral and multilateral agreements which tanzania has entered with other nations on protection of natural resources.36 this is because under the existing regulatory framework oil and gas resources on part of tanzania zanzibar are not regulated by laws of the government of the united republic and the government of zanzibar is not bound by union laws governing oil and gas resources as it was before the 2015 and 2017 amendments. thus, regulating oil and gas using different laws not only causes challenges to the domestic system but also the international legal framework. the change of laws governing oil and gas resources necessitates the changes of other laws including the territorial sea and exclusive economic zone act, which provides regulation of offshore resources. information obtained from the ministry of energy shows that separating management and administration of oil and gas resources between the government of the united republic and the revolutionary government of zanzibar raises the question of territorial boundaries between the two governments. this is because by forming the united republic of tanzania, the former states surrendered their territorial boundaries and came up with the single sovereign republic of tanzania whose territorial jurisdiction includes the whole area of zanzibar and of the former tanganyika. therefore, by providing each government with autonomous powers to regulate offshore oil and gas resources without providing boundaries, it gives the interpretation that each should use boundaries which were used before the union. the process which is contrary to the articles of the union of 1964 which resulted in the formation of the united republic of tanzania and replaced the territorial boundary of the republic of zanzibar and tanganyika. also, to date there is no specific law that provides for the offshore area for tanganyika and zanzibar. further findings obtained from government officials from mainland tanzania and tanzania zanzibar suggest that despite the nature of our union where we have two heads of governments, two legislative authorities, and judiciaries, and two constitutions each autonomous in itself; the territorial boundary of the united republic is recognized as one internationally. second, the exclusive economic zone for the united republic covers the area for both parts of the union. third, separate control of offshore oil and gas resources requires each part of the union to determine its eez. fourth, zanzibar is not internationally recognized as a sovereign state and subject of international law hence it cannot 36 the response from one of the government officials from the revolutionary government of zanzibar held on 21st january, 2020. liberatus cosmas gabagambi 58 have absolute ownership and control of the offshore. responding to international recognition of tanzania zanzibar, one of the interviewees argued that, internationally, it is very difficult for zanzibar to stand as a sovereign state apart from the united republic of tanzania. he advised the government of zanzibar when dealing with exploration and exploitation of oil and gas resources with international oil companies to appear in the name of the united republic of tanzania. he said further that, all contracts which zanzibar has to sign should appear in the name of the united republic of tanzania even if it is using its laws and institutions. thus, there is a need for close coordination between the revolutionary government of zanzibar and the union government before zanzibar signs an oil exploration and exploitation contract with iocs. it was also explained that depending on the nature of the resource which is migrant, it has been difficult even for non-union countries to explore without cooperating with other states. the exploration and exploitation of oil and gas resources have been more successful in countries whose legal framework provides for cooperation, coordination, and sometimes operating oil and gas projects through unitization and joint development agreements. therefore, for a country like tanzania, separating the ownership, control, exploration, and management of oil and gas resources is not only a legal challenge but also economically expensive to operate different oil and gas exploration projects in one sovereign united republic. it was further stated by one of the interviewees from the attorney general’s office in zanzibar who advised that the inconsistency in the legal framework is likely to cause the effect to the union and be used as a political agenda which may affect the long-term relationship and cooperation among parties to the union. the differences in the regulating laws may result in resource conflict which will not benefit mainland tanzania or zanzibar rather resulting in the breakage of the union. he continued advising that the existing inconsistency in the legal framework needs to be harmonized to make it compatible with the constitution of the united republic of tanzania. also, the union government has to establish the union institution to operate as an intersecting body responsible for checks and balances of the other operating institutions. 3.5. oil and gas revenue sharing between mainland tanzania and zanzibar oil and gas resources are very important to the national economy of any country. in many countries, oil and gas resources form a major part of the national political, and economic policy, although managing oil and gas resources presents challenges that if not properly managed may make oil and gas resources a curse rather than a blessing (anderson, 2013). the system of revenue sharing has been fundamental in most resource-rich countries. countries which have managed to develop from natural resources their legal system provides resource revenue sharing. for many years tanzania has not been able to accept the philosophy of resource revenue sharing between the two governments, local government, and host communities. it was because of socialism philosophy which provided that natural resources belong to the public for the benefit of the people of tanzania. thus, under socialism ideology the government has no need for each level of the government to have a specific share of resource revenue. the view obtained from one of the respondents working with one ngo dealing with natural resources revealed that: different parts of the country especially those endowed with natural resources have started claiming their shares from natural resources. for example, mines in the lake zone regions, oil and gas from lindi and mtwara now zanzibar are looking for their share from oil and gas resources. the natural resource regulatory framework has centralized everything starting from ownership, management, control, and resource use. the communities and regions which suffer the most are not getting their shares or are not legally privileged, hence they demand revenue sharing. although interviewees acknowledge that oil and gas are union resources, mainly the challenges were on how revenue generated from union mineral resources were being shared between the government of the united republic and the revolutionary government of zanzibar. this is because the previous and present laws did not provide anything on revenue sharing and the union government is silent on what zanzibar deserves. for example, tariffs and royalty paid from ongoing exploitation of natural gas have not been clearly shown how they have been shared between the government of the united republic and the revolutionary government of zanzibar.37 the statutory analysis and interview with field respondents also revealed that article 135 of the constitution of the united republic of tanzania provides for the collection of revenues derived from various sources of the government of the united republic and the constitution establishes the consolidated fund of the government of the united 37 responses from legal practitioner from mainland tanzania and tanzania zanzibar held on 18th and 24th march 2020 respectively regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 59 republic. however, the operation of the fund has not been practically open and its management and use seem to be for mainland tanzania and not for the government of zanzibar. also, it was claimed that the constitution of the united republic of tanzania does not explicitly provide how the government of zanzibar is involved in the authorization of expenditure from the union consolidated fund.38 despite information obtained from the ministry responsible for union affairs that the union government in collaboration with the government of zanzibar has been taking measures to resolve different burning issues including oil and gas resources. it was further noted from the literature that during the signing of a memorandum on five union challenges, the representatives of the government of zanzibar argued on how to share revenue from oil and gas resources. however, it was revealed that the two governments have already engaged the british aupec consultant to provide technical advice on the distribution of the resources revenue and that the consultant has submitted the proposal to the governments.39 the information obtained from one of government officer in the responsible ministry showed that consultant recommended that oil and gas remain union matters besides the above position, section 2(4) (a), (b) of the petroleum act, 2015 provides separate regulation and management of revenues derived from oil and gas resources where it provides that; revenues derived from oil and gas operations or activities within mainland tanzania shall be used by the government of mainland tanzania and those derived from oil and gas operations or activities within tanzania zanzibar shall be used by the revolutionary government of zanzibar. the provision can be interpreted that oil and gas revenues are no longer a shared resource between the government of the united republic and the revolutionary government of zanzibar except where there are operations or activities jointly carried out and following the agreement entered between the two governments. on the other hand, respondents from zanzibar supported equal sharing of revenues between governments. and added that revenue sharing should be based on a formula which would be in percentage and stated in the constitution of the united republic of tanzania and laws governing oil and gas revenue.40 it was by referring to the nigeria constitution which provides for the national assembly to determine the formula for the distribution of funds into the federation account. section 162 (2) of the nigeria constitution provides that: the president, upon the receipt of advice from the revenue mobilization allocation and fiscal commission, shall table before the national assembly proposals for revenue allocation from the federation account, and in determining the formula, the national assembly shall consider, the allocation principles especially those of population, equality of states, internal revenue generation, landmass, terrain as well as population density. the proviso to section 162 (2) of the 1999 constitution requires that any approved formula for revenue allocation from the federation account shall reflect the fact that not less than 13% of the revenue accruing to the said federation account from any natural resources is allocated to the government of the state or territory where such resources are located. by referring to the constitution of nigeria; we can come up with the agreed percent of the revenue sharing which will accommodate the interest of the government of the united republic and the revolutionary government of zanzibar. given that fact, it recommended for the constitution of the united republic of tanzania to state clearly how oil and gas resources should be shared between the two governments. that by having the constitutional provision on oil and gas revenue sharing, it will end the current contradiction on whether oil and gas remain in the list of union matters. furthermore, where the constitution of the united republic of tanzania does not provide for any formula or percentage regarding the distribution of oil and gas revenue, the union government has to form a joint development committee which will make sure that there is equal profit sharing between mainland tanzania and tanzania zanzibar. the main reason for having the provision on revenue sharing is to avoid future disputes. also, recommended for the establishment of a union institution responsible for advising decision-making authority on oil and gas revenue sharing. because oil and gas are union resources, if one party of the union misses the resources on its side can claim its share under the constitution of the united republic of tanzania in addition, the statutory analysis revealed the continued contradiction of laws governing oil and gas resources because the petroleum act, 2015 provides its application to both mainland tanzania and tanzania zanzibar while in the real 38 response from anonymous officer in the office of attorney general in zanzibar held on 21st january,2020 39 https://www.africa-press.com/tanzania/policy/govt-resolves-5-union-vexes. accessed on 18 october, 2020 40 response from anonymous officer in the office of attorney general in zanzibar held on 21st january,2020 liberatus cosmas gabagambi 60 sense, it applies to mainland tanzania because under its section 2(2) (b) and (4) (b) provides for zanzibar and the government of zanzibar to establish and govern oil and gas resources according to the laws and institutions of tanzania zanzibar. the same applies to the oil and gas revenues management act; 2015 which provides its applicability to mainland tanzania as well as zanzibar in relation to the management of oil and gas revenue derived from exploration and production activities. despite the comprehensiveness of the act, it does not provide or mention how the government of zanzibar is involved in the management of oil and gas revenue nor its share. for example, one interviewee said: by not providing zanzibaris share from oil and gas resources it signifies the zanzibaris position that oil and gas are not union resources and it becomes difficult for the oil and gas revenue laws to apply in tanzania zanzibar. as a result, mainland tanzania will continue using oil and gas revenues only for mainland tanzania the same way for tanzania zanzibar, and the government of the united republic (union government) will remain with no power over oil and gas revenue in zanzibar. the identified challenges emanate from the petroleum act 2015 and oil and gas revenues management act, 2015 which provide the basis for managing oil and gas revenue between mainland tanzania and zanzibar. for instance, the petroleum act provides for tanzania zanzibar to manage and regulate oil and gas revenues according to the laws of zanzibar and revenue derived from oil and gas operation within tanzania zanzibar to be used by the revolutionary government of zanzibar. talking about this issue an interviewee said: that instead of separating institutions for revenue management it should include in its constitution the provision on revenue sharing among states forming the union. therefore, for oil and gas resources to be considered as union resources, it is better for laws regulating oil and gas revenue to provide for equal access and equal sharing of revenues derived from exploration, development, and production of oil and gas operations. added one of the interviewees that, there must be an equal ratio in the selection of leaders to lead and manage institutions responsible for managing oil and gas revenue. that mainland tanzania should not consider itself the most privileged party to take all oil and gas revenue management posts. otherwise separating ownership and management of oil and gas revenues is ousting the constitutional powers of the union government over oil and gas resources. as a result, the union government remains with no voice on how oil and gas revenue is collected, managed, used, and shared between mainland tanzania and zanzibar. 4. conclusion the information obtained from documentary reviews and field interviews reveals that there are legal and institutional challenges relating to exploration of oil and gas resources in tanzania. the identified challenges were as follows; the dual system of laws regulating oil and gas resources between the two governments disputes the principle of state sovereignty over natural resources and the autonomous control over oil and gas resources by the government of the united republic. the provisions of the laws are ultra vires the constitution of the united republic of tanzania and likely to be challenged and declared unconstitutional by the competent court of law. the sovereignty of the government of zanzibar is only for non-union matters, thus denying the government of zanzibar absolute rights to enter international treaties and contracts on the exploration and exploitation of oil and gas resources. it was noted that by introducing a dual system of laws regulating oil and gas resources, the legislative process is becoming more complex because it is not well known whether the legislative mandate belongs to the parliament of the united republic or the house of representative has a mandate to legislate over oil and gas resources without considering union matters. by introducing different institutions, there is a need for close coordination and cooperation between the revolutionary government of zanzibar and the government of the united republic before zanzibar signs exploration and exploitation contracts with iocs. also, the system of laws regulating oil and gas resources raise challenges as to the applicability of international instruments ratified by the government of the united republic, because under the present system tanzania zanzibar is not bound by oil and gas laws passed by the parliament of the united republic. the study revealed that oil and gas revenue is becoming the main challenge because there is no clear revenue sharing between the government of the united republic and the revolutionary government of zanzibar from natural gas and other minerals extracted by the government of the united republic. also, regulating laws are designed in such a way that the government of the united republic being at the center and the revolutionary government of zanzibar becomes the latter in the governance of natural resources of the united republic. regulating oil and gas resources between mainland tanzania and zanzibar: is it a legal challenge? 61 references ahmad kashif wan siti adibah wan dahalan. the need for a universal model agreement under the international law commission (ilc) for development of shared oil and gas resources. 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(denmark: aarchus university, 2015), 3,6,12 and 23. https://www.halshs.archivesouvertes.fr/halshs-01217805 (accessed on 8th july,2018) donald mmari, james andilile and odd-helge fjeldstad. “the evolution and current status of the petroleum sector in tanzania.” in odd-helge fjeldstad etal (eds), governing petroleum resources: prospects and challenges for tanzania, repoa, dar es salaam, 2019. erasto nyika. “stabilization of petroleum fiscal regime in relation to production sharing agreements in tanzania: challenges and prospects” the thesis for doctor of philosophy of the university of aberdeen (2018) pp 46-47. available at https://ethos.bl.uk/orderdetails.do?uin=uk.bl.ethos.742382.acessed 3 march, 2020 festo maro, “mainland tanzania and zanzibar island socio-economic and environment study” economic and social research foundation (esrf), 2008 george anderson, oil and gas in federal countries, oxford university press (2013). international monetary fund (2005), guide on resource revenue transparency, june. available at https://www.imf.org/external/pubs/ft/grrt/eng/060705.pdf. accessed on 21 august 2020 james andilile, odd-helge fjeldstad and donald mmari “the legislative landscape of the petroleum sector in tanzania.” in odd-helge fjeldstad etal (eds), governing petroleum resources: prospects and challenges for tanzania, repoa, dar es salaam, 2019. japhace, p. “fifty years of the union: the relevance of religion in the union and zanzibar statehood debate” african review vol. 41, no. 1, 2014: 161-181 majamba, h.i. tanzania’s oil and gas industry: legal regime, management and access rights, recht in afrika – law in africa – droit en afrique 19 (2016). malcolm shaw. international law, fifth edition, cambridge university press 2003. nicholas haysom and sean kane. negotiating natural resources for peace: ownership, control and wealth-sharing, briefing paper october 2009, centre for humanitarian dialogue 10 years for mediation for peace 1999-2009. ragnar, t., “petroleum fund in tanzania? other alternatives may be better.” (tanzania: repoa vol.15 number repoa number 46, 2016),1-4. http://www.repoa.or.tz.(accessed on january 20, 2018) journal of international trade, logistics and law, vol. 2, issue 1, 2016, 35-47 necessity for having a medical assistant in the processes for the success of the hospital information systems harun dumantepe, (graduate student) department of management, social sciences institute of istanbul commerce university f. serab onursal (phd) istanbul commerce university abstract: in order to realize the objectives of the organization, first of all, they are required to have a healthy structure and proce ss. gaining competitive advantage by a health care facility should be managed with scientific methods in addition to providing good service. accurate, reliable and prompt data entry in the information systems is under the responsibility of the medical personnel in t he health institutions. this process causes heavy burden for doctors who work very busy and results in delays. it also ca uses completion time of works to increase and sometimes causes works not to be completed, economic losses, cause employee dissatisfaction and even losses of patients. this study will focus on the need of medical assistant in the success of hospita l information system. the conceptual framework was created in this context, literature search was made and process improvement example was presented for an ivf embryology laboratory process. keywords: hospital information system (his), process improvement, medic al assistance 1. introduction meeting the requests and expectations of the customers is the biggest purpose of the companies in order to accomplish in the world changing every day. with this purpose, catching the continuous change in the positive direction becomes mandatory for the organizations and has created a ruthless competition environment between them. applying the correct management systems, following up the technology and fast access to the information have substantial importance in the context of sustaining the success. the software programs which are developed in order to fast access to the information enable that millions of different data entry are made to different sectors and different databases. it is seen that the new software used in the healthcare sector and the requirements in the data entering related with this software prevent the doctors, nurses and medical employees from doing the healthcare service, which is their main task. the healthcare personnel who has to pay attention the responsibility of their main task at the forefront fiercely refuses to do data entry to the patient information systems which make that they waste time and which they cause delays and mistakes because they don’t pre sent the necessary concentration. in this study, it is investigated what kind of improvement should be made in the processes by taking the problems of the healthcare personnel into account; the necessity of the assistant healthcare personnel; the qualifications it is anticipated that the medical assistant, as auxiliary healthcare personnel, has to have are stated, the application for the embryology laboratory process of a test -tube baby center was performed in the findings part. 36 harun dumantepe, f. serab onursal 2. hospital information systems hospital information systems (his) mean the system which brings to the integrity of the information by collecting the information and reporting these data in order to meet the expectations of the internal and external customers of the hospital organizations (akbolat, 2014:110). the foundation stone of the process and information management system is the adequate, correct and accessible data. it is required that all information and medical records, descriptive of the patient, should be processes suit able and in a detailed way. together with the healthnet project, commissioned by the ministry of health, it was made mandatory that all health institutions and organizations, providing healthcare service, see the data, included in the scope of the national health data standards 2.0, in the healthnet system (yılmaz, 2014). it is seen that a lot of studies are included when the literature related with the hospital information software is scanned however even though the necessity of the auxiliary personnel i n data entering is mentioned, the articles and theses written related with the medical assistance can’t be seen. şenel, mentioning the necessity of the auxiliary personnel on the process improvement in the healthcare centers (şenel, 2004), has found that the doctors are closed to new systems and inadequate in the data entry in the findings based on the results of the tests he made; states that the doctors have hard time for making data entry because of dealing with the problems of the patients as the basis for this determination and points out that they are received a warning from the management of the hospital. narlı (narlı, 2009), in his thesis study, he made, on the patient satisfaction, states that the doctors can’t do data entering in due time to the hospital software systems because of the patient intensities. bektaş (bektaş, 2013), in his study related with the material management processes in the hospitals, states that the material requests and demands are not in due time in the medical departments and the necessary consumptions are not deduced from the stocks in timely in the hospital software. in order to use the data obtained from the health records, they should be adequate, timely and correct. the reliability of the results obtained is completely depend on this quality. it is required that all processes are defined and that the persons who know the work done and can understand the responsibility are assigned and that it is ensured that the works are done timely, correctly and understandably, instead of unqualified and unskilled personnel, for the works to be done become more efficient and produ ctive. karapinar (karapinar, 2006), performed a process improvement study in a hospital enterprise through workflow analysis. she dealt with the topics of process, process improvement and process mapping in his study for production of each product or service, offered to the customer, in line with demands and expectations of the customer and with a low cost for the enterprise. she dealt with the concept of process map and workflow scheme for easier performance of the works in a shorter period. 3. process improvement and control lack in order that everybody understands the same thing by the processes, it is required that the description activities are made, the process definition cards, process maps and work flows are established and therefore it is ensured that the process is sensed easily. preparing the process map: the process maps contain the stages of each one of the processes, the inputs and outputs of the stages, the decisions to be taken in each stage, the persons who will perform the processes, the duration required for each stage and the relations between the processes. necessity for having a medical assistant in the processes for the success of the hospital 37 work flow chart: flow chart means a quality tool used for establishing the formation histories of the product or service by adding the steps end to end, monitored in the process of formation of a product or service. it is used for determining how the material, required for producing the product/service, flows. the flow charts have importance with respect to decide for determining, observing and finally improving the problems which we will face in the process. it is required know the flow of the process primarily for keeping a process under control. by this way, work flows are mainly used for determining the problem. furthermore, the work flow chart, in cases where more than one person carry out a task, provides easiness with respect to make it visual with all details as well (şenel, 2004). the process improvement is the activity targeting meeting the expectations of internal and external customers at the top level while increasing the total quality, work performances and productivity and decreasing the costs in an organization. (eroğlu, 2006:43). what should be considered in the process improvement is being able to determine correctly the critical work process. 3.1. determining critical work processes. the process which is important but the level of which is low, i.e. which is required to be improved immediately is called critical process. having too many critical processes indicates that the organization is really in a very bad condition. the process showing one or several of these signs is a critical process and should be improved: • there are internal, external customer complaints, grievances, • high process costs, • completing the process takes too much time, • it is seen, known that there are better ways of conducting the process when looking at others, • new technologies emerged. when determining the critical processes, the customer satisfaction surveys, employee satisfaction surveys, competition information, product or service quality information, financial and operational performance information, and the experience and anticipation of the top managers are used. once the process is designed, it is put into service and no improvement is made on it unless there is any complaint. each complaint, even if it is at the bottom level, creates a form of the judgment of internal/external customer. what is correct is to find the basic reasons for the main failure, to develop solution and to ensure continuity in improvement, instead of adding a new control and cost layer to the process such that this problem never occurs again upon the complaint. the enterprise, which suggested its targets and strategies, must present the processes whereby it may ascertain the current status of activities by suggesting owners of these processes and must define the critical processes. thus, the processes may be improved (teymur 2009 p.63) process improvement is increasing the performance level of the process. the process management and process improvement is not a method for one time; it is important that it is continuous. because process improvement will be done in the institution, the employees of the institution should be made adopted that it contains continuity and the participation of the employees to the improvement should be ensured. let’s have an example to process improvement areas from hospitals; such as having physical arrangements compatible with the process flow in polyclinics, monitoring the official papers in the service departments, preventing movement of papers exposed by establishing automation system. 3.2. methods used for process improvement simplification: it is decreasing by eliminating or combining the unnecessary steps, such as waiting, repeated activities, number of approvals, which doesn’t add value, not containing any conversation, in the process (i̇dea 2001 s.169). 38 harun dumantepe, f. serab onursal since the processes are complex, the improvement activities must be organized. when we consider the process improvement activities from with a team approach, it enables us to get long-term results and minimize the implementation period (gonca 2008,p.53). changing the decision points: if a decision point will be placed in the process, it is putting these decision points forward, therefore ensuring that all the activity m ade is made for nothing as a result of negative decision when waning to entire process. parallel working: in multiple applications, one activity starts after another one ends. it is ensuring that the activities, which can be done simultaneously, of the ac tivities following each other, are performed before waiting for the process ends in order to decrease process cycle time(bozkurt 2003). simplification: is changing the way the task is done and it is made that it is done simpler. outsourcing: is focusing on the activity, which is the organization’s main reason for being, by this way procuring the other activities from external resources, therefore ensuring that it is done both with lower cost and by the expert persons. authorization/team work: it is decreasing the process cycle time by expanding the task done by the person, decreasing the control and approval steps, authorizing the person, and ensuring the autocontrol. in process improvements and progress of the system, the participation of the employees with recommendations is ensured. it is ensuring that the problem is solved at the source by going down to the root causes and by developing recommendations by the ones doing that task. systemic improvements: such improvements, based on information system, are performed usually as below: • doing the activities which are manual at present with integration, carrying out the activities inside the software, • speeding up the access to information and the systems, • using expert systems. in order to be able to eliminate the problems occurring in the process, primarily all processes, including the subprocesses, are evaluated and the reasons found are placed to the cause and effect diagram (fish bone diagram). the cause and effect diagram is a tool for finding different reasons of a problem, putting in an order (eroğlu, 2006). it is a graphical method for establishing a relation between any problem and factors causing it. the main problem is placed to the head side of the fishbone, the basic and subcauses on the a rrows on the spine (figure 3). 4. material and method in this study, the process flow chart, fishbone diagram prepared by the process owners of embryology laboratory process of a test-tube baby center and the form times table, filled by the, embryologists , and the tables indicating the task times were used. the application was made in a test-tube baby center having activities in istanbul since 1996. as a method, process improvement and process control were preferred and the results are examined together with the control tables indicating the task times of the employees. necessity for having a medical assistant in the processes for the success of the hospital 39 the steps followed up in the study are: step 1: determining the critical process step 2: defining the processes with the work flow chart step 3: measuring the forms and filling times and conveying them to the tables, step 4: determining the purpose of the study, step 5: using the cause and effect diagram (fishbone) for solving the problem, step 6: establishing the new work flow, and step 7: entering the new measurement data to the control tables. 4.1. main processes of the tube baby center in the application the test-tube baby centers, structurally, have three main processes. these consist of medical, embryology and administrative services. there are physicians and medical support departme nts under the medical services. the physicians consist of gynecology and obstetrics experts, specialized in their area. the parts which are stated as medical support are psychologist, anesthesia expert, urologist, and alternative treatment experts, outsour ced. embryology is the kitchen of the test-tube baby centers. embryologists consist of biologists graduated from biology. the administrative services consist of nurses and patient admission personnel. 4.2. tube baby treatment processes tube baby treatment process consists of 5 subprocesses (figure 1). these processes are completed in 4 weeks in total (jinekoloji ve gebelik .com). the first process: the first interview and evaluating the couples: in this stage, the couples are examined; if they did have other tube baby trials beforehand, the analysis and treatment information related with them are taken. the pregnancy, miscarriage or birth histories are listened and, after the necessary evaluations are made, the treatment planning is made. the second process: stimulating the ovary and forming egg: in this stage, it is targeted to develop more than one egg by stimulating the ovaries of the mother to be stimulated by using various medicines. this stage is a process of approximately 10 – 12 days. the third process: oocyte picking up process (opu): in this stage, the eggs developed by using various medicines are picked up, accompanied by ultrasound, by the expert physician under anesthesia in the day and time determined. the sperm sample is taken from the sp ouse in the same day, if there is no sperm, the sperm is taken with the microtesticular sperm extraction (tese) process. the fourth process: intracytoplasmic sperm injection (icsi) method: in this stage, the oocytes picked up and the sperm sample taken from the spouse are passed through special procedures and a sperm selected from the pool is injected to each matured egg in the determined time. after 16 and 18 hours, it is checked whether they are fertilized or not. the eggs, normally fertilized, are moni tored inside special devices (incubator) in the embryology laboratory. this stage is a process of 2 to 5 days. the fifth process: transferring the embryo inside the uterus: in this stage, the embryo or embryos, reached the required quality, are placed to the uterus of the mother by the expert physician by means of a special cathater. the transfer process is a process lasting shortly like 5 minutes and painless. it is checked whether pregnancy occurs or not by pregnancy test after 13 to 15 days from the tr ansfer procedure. 40 harun dumantepe, f. serab onursal figure 1. tube baby treatment process (jinekoloji ve gebelik .com) 4.3. determining the critical process and process improvement steps in the study, the experience of the owner of the process and team on the subject was used. step 1: the importance leveling was made based on the tasks made and it was determined that the main tasks of the embryologists are treatment and analysis. the tasks, not completed during work hours of the day, causes overly setbacks and dissatisfactions. it was determined that the critical process is the embryology laboratory. step 2: the work flow charts belonging to the process was formed (figure 2). the condition of the process was analyzed by using the work flow chart. necessity for having a medical assistant in the processes for the success of the hospital 41 figure 2. flow chart of the embryology laboratory before process improvement step 3: the times used for the forms filled were measured and entered to the tables (table 1). with the performance indicators form, in time, the total times of the tasks made by the embryologists were calculated in the tasks done by the embryology laboratory among the tasks analyzed (table 2). table 1. form times, filled in the embryology laboratory before process improvement form time (min) number total (min) embryology form 1 60 60 embryo freezing form 2 10 20 embryo thawing form embriyo 2 10 20 embryo destruction consent form 1 3 3 sperm freezing form 1 3 3 sperm thawing form 1 1 1 sperm destruction consent form 1 0,5 0,5 semen analysis form 1 6 6 intrauterine insemination form: 1 0,2 0,2 embryo transfer report form 1 10 10 information on the price of embryo freezing without transfer 1 10 10 notifying the payment information of the patients to the accounting department 1 15 15 148,7 2 hours 30 minutes total minutes total hours 42 harun dumantepe, f. serab onursal table 3. task times of the embryology laboratory employees before process improvement tasks attendant average time per task (minutes) average daily number of patients total time thawing the frozen embryos before transfer procedure. embryologist 20 10 200 freezing the embryo embryologist 20 11 220 doing embryo monitoring and evaluation. embryologist 3 40 120 making the embryo transfer procedure. embryologist 8 8 64 participation in the quality control and routine cleaning procedures in the embryology laboratory. embryologist 30 1 30 performing the procedure for puncturing the membrane (zona pellucida) surrounding the embryo by means of the method called as membrane opening when required. embryologist 1 5 5 participating in the general laboratory cleaning made once a week. embryologist 30 1 30 giving information on fertilization to the patients for which the procedure is applied. embryologist 1 10 10 measuring and recording temperature and co2 values without opening incubators. embryologist 2 15 30 assessing whether the eggs are fertilized or not after 18-20 hours following intracytoplasmic sperm injection (icsi) or insemination (ivf) procedure and keeping the necessary records related with this subject and informing the laboratory chief or related physician on the cases which have fertilization problem. embryologist 3 10 30 assessing the embryos developing from the eggs fertilized with respect to the number and quality of cells after 66-68 hours following intracytoplasmic sperm injection (icsi) or insemination (ivf) procedure and selecting the embryos to be transferred together with the laboratory director. embryologist 2 60 120 making the oocyte picking up procedure (egg picking up) embryologist 20 10 200 denudation procedure (making elimination) embryologist 7 10 70 making contribution to the preparation of culture dishes. embryologist 1 10 10 making microinjection procedure (icsi). embryologist 25 10 250 taking blastomer from embryos with biopsy procedure for preimplantaion genetical diagnosis. embryologist 10 1 10 preparing various solutions used in the procedures for assessing semen macroscopically and microscopically. embryologist 3 1 3 regularly checking the liquid nitrogen amount present in the liquid nitrogen tank and informing the laboratory officer on the amount of the remaining liquid nitrogen amount. embryologist 5 1 5 making the macroscopic and microscopic assessment of the semen by taking sperm samples given from the sperm collection container. embryologist 1 1 1 performing the sperm washing procedure. embryologist 30 1 30 answering the incoming telephones of the tube baby laboratory and directing them to the related persons. embryologist 1 30 30 completing the missing documents and forms in the patient files. embryologist 2 40 80 placing the material order for the embryology laboratory and recording the incoming material invoices to the computer. embryologist 15 1 15 entering the data of the patients related with the embryology laboratory to the computer environment and making them ready for analysis. embryologist 5 60 300 informing the patients on the date and time when the transfer procedure will be done. embryologist 1 10 10 preparing the list of the patients for which opu and transfer procedures will be made. embryologist 1 15 15 1888 377,60 6 hours 30 minuteshour per person the list of the tasks done by 5 embryologists in the application center total time (minutes) 5 embryologists (time per person) necessity for having a medical assistant in the processes for the success of the hospital 43 step 4: determining the improvement needs one of the most important factors for the success of test-tube baby treatment is the quality of the assisted reproductive treatment (apt) laboratory. in general it is assumed that the effect of the laboratory and embryologists is 50% with respect to the contribution to the total success in the tube baby application. it is required that the tasks providing that such a success occurs are fulfilled with care. it is expected that the embryologists, in addition to treatment and analysis tasks, record the data to the patient monitoring system, used by the hospital, to the systems where statistical data is monitored mandatorily and healthnet screens within the terms of reference, stated. there are forms required to be filled by embryologists after each process in embryology and it is known that there is no time left for data input tasks after completing the main tasks. they cause delays and errors unintentionally. a big problem requiring solution is experienced. step 5: fishbone diagram (figure 3). the reasons affecting not entering data in time, correctly and efficiently to the hospital software are evaluated. the main problem is reached when the subreasons of the reasons are enquired among themselves. figure 3. not making the data entry to the hospital software in due time. fishbone diagram step 6: the reasons were determined and new flow chart was issued for the solution (figure 4). it was decided to employ auxiliary healthcare personnel however the necessity that this person should have medical knowledge among the qualifications was emphasized. the definition of this personnel to be employed was included to the organization as “medical assistant”. 44 harun dumantepe, f. serab onursal figure 4. flow chart of the embryology laboratory after process improvement step 7: it was assessed which ones of the times calculated are the tasks without value added for the embryologists. the time performance durations were calculated for the tasks to be done by the medical assistant. the tasks for which change of duty would be done were distributed related with the process. the time for filling the forms by the medical assistant were measured and the gains were determined (table 3) and the total times of the tasks done by embryologists were measured (table 4). table 2. form times, filled in the embryology laboratory after process improvement form the percentage of the tasks assumed by the medical assistant medical assistant embryologist embryology form 50% 30 30 embryo freezing form 40% 8 12 embryo thawing form embriyo 40% 8 12 embryo destruction consent form 100% 3 0 sperm freezing form 50% 1,5 1,5 sperm thawing form 50% 0,5 0,5 sperm destruction consent form 50% 0,25 0,25 semen analysis form 0% 0 6 intrauterine insemination form: 50% 0,1 0,1 embryo transfer report form 100% 10 0 information on the price of embryo freezing without transfer 100% 10 0 notifying the payment information of the patients to the accounting department 100% 15 0 86,35 62,35 1 hour 25 minutes 1 hour 05 minutes total minutes total hours necessity for having a medical assistant in the processes for the success of the hospital 45 table 4. task times of the embryology laboratory employees after process improvement. tasks before now current embryologist time current medical assistant time thawing the frozen embryos before transfer procedure. embryologist embryologist 200 freezing the embryo embryologist embryologist 220 doing embryo monitoring and evaluation. embryologist embryologist 120 making the embryo transfer procedure. embryologist embryologist 64 participation in the quality control and routine cleaning procedures in the embryology laboratory. embryologist embryologist 30 performing the procedure for puncturing the membrane (zona pellucida) surrounding the embryo by means of the method called as membrane opening when required. embryologist embryologist 5 participating in the general laboratory cleaning made once a week. embryologist embryologist 30 giving information on fertilization to the patients for which the procedure is applied. embryologist embryologist 10 measuring and recording temperature and co2 values without opening incubators. embryologist embryologist 30 assessing whether the eggs are fertilized or not after 18-20 hours following intracytoplasmic sperm injection (icsi) or insemination (ivf) procedure and keeping the necessary records related with this subject and informing the laboratory chief or related physician on the cases which have fertilization problem. embryologist embryologist 30 assessing the embryos developing from the eggs fertilized with respect to the number and quality of cells after 66-68 hours following intracytoplasmic sperm injection (icsi) or insemination (ivf) procedure and selecting the embryos to be transferred together with the laboratory director. embryologist embryologist 120 making the oocyte picking up procedure (egg picking up) embryologist embryologist 200 denudation procedure (making elimination) embryologist embryologist 70 making contribution to the preparation of culture dishes. embryologist embryologist 10 making microinjection procedure (icsi). embryologist embryologist 250 taking blastomer from embryos with biopsy procedure for preimplantaion genetical diagnosis. embryologist embryologist 10 preparing various solutions used in the procedures for assessing semen macroscopically and microscopically. embryologist embryologist 3 regularly checking the liquid nitrogen amount present in the liquid nitrogen tank and informing the laboratory officer on the amount of the remaining liquid nitrogen amount. embryologist embryologist 5 making the macroscopic and microscopic assessment of the semen by taking sperm samples given from the sperm collection container. embryologist embryologist 1 performing the sperm washing procedure. embryologist embryologist 30 answering the incoming telephones of the tube baby laboratory and directing them to the related persons. embryologist medical assistant 30 completing the missing documents and forms in the patient files. embryologist medical assistant 80 placing the material order for the embryology laboratory and recording the incoming material invoices to the computer. embryologist medical assistant 15 entering the data of the patients related with the embryology laboratory to the computer environment and making them ready for analysis. embryologist medical assistant 300 informing the patients on the date and time when the transfer procedure will be done. embryologist medical assistant 10 preparing the list of the patients for which opu and transfer procedures will be made. embryologist medical assistant 15 1438 450 287,60 90 5 hours 1 hour 30 minutes the list of the tasks done by 5 embryologists in the application center (after medical assistant) total time (minutes) 5 embryologists (time per person) hour per person 46 harun dumantepe, f. serab onursal 5. findings and comments it was found that the embryologists get over the daily working time of 7,5 hours (table2) and work for 9 hours. the embryologists stated that they postpone the forms required to be filled after the daily works and data entering issue to the next day as secondary task and they place importance to the analysis tasks which are their main tasks. they stated that they conveyed their complaints on the other administrative tasks to the management and wait for the conclusion. they mentioned that they experience motivation and focusing on the work problem and the drawback they experience that this may cause big mistakes with respect to both data entering and the main tasks. it was found that correct, timely, reliable, and errorfree data entering is made after the medical assistant started working. the time used by the embryologists for the daily works decreased to 6 hours 5 minutes and it was observed that the ratio of making mistake also decreased because the embryologist can do the works he does during the day more calmly, slowly and regularly. 6. conclusion and recommendations in this study, process improvement was made and the result has shown that the medical part who has difficulties for completing the main works because of intensity during the daily working hours needed assistants in the administrative and systemic tasks. the candidate pool was established by the management related with a medical assistant need, which have biology or medical assistantship training, experienced in hospital software, the interviews were started with the candidates who are expert in their area. as the medical assistant assumes certain tasks, it was measured that the performance of the medical personnel increased. it should be an inevitable obligation for all departments that it is adopted that the similar studies are also made in the other processes of the hospitals and the times seen as lost are gained and information reliability is ensured. today, his is considered as a key part which is essential of the clinics for the quality healthcare service. thanks to his, medical education quality increases and the waiting times and bureaucratic procedures decrease. at the same time, thanks to his, patient care and medical treatment quality standards also increase and it is prevented that the information belonging to the patients are lost (yilmaz, 2014). the biggest hinder before sustaining the successes in the domestic and abroad healthcare services is actually not keeping the files and data of the patients correctly, timely and completely. regardless how big is the software cost, not being able to produce correct, timely and reliable data brings to patient loss and failure. it is inevitable that suitable precautions are taken. references akbolat, m. (2014), sağlık kurumlarında bilgi sistemleri. eskişehir: anadolu üniversitesi. bektaş, m. (2013), hastanelerde malzeme yönetim süreci: bir üniversite hastanesi örneği. yüksek lisans tezi, s. 345. bozkurt, r. (2003), süreç i̇yileştirme, 3. basım, ankara: mpm yayınları no:661, 2003 eroğlu, c. (2006), süreç i̇yileştirme ve bir uygulama. yüksek lisans tezi, s. vii. gonca, a. (2008), süreç yönetiminde kalite yönetim prensiplerinin uygulanması üzerine araştırma. yüksek lisans tezi, s.53 i̇dea. (2001) kritik i̇ş süreçleri analiz ve geliştirme metodolojisi (ki̇sag), i̇stanbul, 2001 jinekoloji ve gebelik .com. (tarih yok). nisan 01, 2016 tarihinde http://www.jinekolojivegebelik.com/2012/06/tupbebek-asamalari.html adresinden alındı karapınar, s. (2006), i̇ş akışı analizi yoluyla bir hastane i̇şletmesinde süreç i̇yileştirme çalışması. yüksek lisans tezi s. 74 narlı, y. (2009), sağlık sektöründe hasta memnuniyetini arttırıcı süreç i̇yileştirme çalışmaları üzerine örnek bir uygulama: dış kapı yıldırım beyazıt hastanesi uygulama. s. 82-95. necessity for having a medical assistant in the processes for the success of the hospital 47 teymur, i̇.(2009), i̇şletmelerde süreçlerin analizi, i̇yileştirilmesi ve süreçlerle yönetim yapısının kurulması ve uygulama çalışması. yüksek lisan tezi, s.63 şenel, ş. (2004), sağlık kuruluşlarında süreç yönetiminin uygulanabilirliği ve bir uygulama örneği. yüksek lisans tezi, s. 80-129. yılmaz, y. a. (2014), sağlık kurumlarında bilgi sistemleri (2. baskı b.). eskişehir: anadolu üniversitesi. validity of linder hypothesis in bric countries journal of international trade, logistics and law, vol. 2, issue 1, 2016, 27-34 limitation of power of the counsel to review the file in the criminal procedure: law no. 6572 and it’s consequences coşkun koç, (lawyer) malatya bar association, turkey abstract: the article no. 153 of the law of criminal procedure, which regulates the power of the counsel to examine the file, has been amended by the law no. 6572, the article no. 44, dated 02.12.2014. according to the amendment, if the power of the counsel to examine the content of the file or taking copies of the documents jeopardizes the purpose of the investigation, it can be limited by the judge upon request of the prosecutor. however, limiting the power of the counsel to examine the investigation file is against the european convention on human rights and the constitution. indeed, the european convention on human rights gives a ruling of violation of right in cases where it determines such a limitation of power. the power of the counsel to examine the content of the file is the sine qua non of a fair trial. it also serves the purpose of revealing the truth. in this study, we will try to examine the effect of the amendment made with the article 44 of the law no. 6572 about power of the counsel to examine the file on the fair trial principle. keywords: fair trial, equality of arms principle, counsel, examine the file jel classification: k14 1. introduction the 153rd article of code of criminal procedure (ccp) no: 5271 on an authority of defense counsel to review the file has been amended for twice within a year with law no: 6526 on february 21, 2014, and article 44th of law no: 6572 on december 02, 2014. these two regulations are worlds apart. in accordance with the amendment by law no 6526, all obstacles and exceptions for a defense counsel to review the full content of the file on investigation phase and take a copy of the documents of his/her will without a charge have been revoked in article 153rd of ccp. however, the amendment by article 44th of law no 6572 on such amendment within less than a year has turned article 153rd of ccp into another identity. according to the regulations in force; authority of defense counsel to review full content of the file or take a copy from the documents may be limited by the order of the judge upon the public prosecutor if it jeopardizes the objective of the investigation. the entitlement of the defense attorney to review the file is a crucial instrument for the exercise of the right of defense through the course of criminal procedure. in order for the thorough and proper exercise of the right of defense, being an universal right, the defense attorney should be able to review the file and obtain duplicate copies of the contents of the same without any restrictions at the enquiry stage, which would allow the defense attorney to gain knowledge of any and all pieces of evidence for and against the suspect and to prepare the defense statements and develop the defense position accordingly. otherwise, the equality of arms principle cannot be suggested to have been observed as it would solely be the public prosecutor, who has access to the case file at the enquiry stage. this article intends to study and discuss how and to what extent the restrictions introduced by the code no. 6572 on the defense attorney’s entitlement to review the case file impair the right to due process (fair trial) and contradict with the established criminal procedure in the light of the european convention on human rights (echr). this study also intends to analyze the reasons why the law-maker revoked the entitlement granted to the defense party to review the case file within such a considerably short period as ten months. however, we have to provide overall information about the authority of defense counsel to review the file for this review to be more proper and for identifying the problem and solution propositions. the authority of defense counsel to review the file has no restriction in the prosecution phase; therefore, it is excluded from the study. 28 coşkun koç 2. authority of defense counsel to review the file 2.1. right to a fair trial and equality of arms principle one should primarily establish the meanings of the “right to due process (fair trial)” and the “equality of arms principles” in order to be able to put forth the inconveniences and matters of drawback that the restriction by the code no. 6572 of the entitlement of the defense attorney to review the file. the very fundamental principle in turkish criminal procedure is the fair trial principle, according to which a state of law should realize justice fairly and lawfully. the said principle being intended to secure the principle of rule of law as ideally as possible; it requires the human dignity to be actualized and to be observed through the course of trial (ünver ve hakeri, 2015: 16-17). the right to a fair trial is regulated in article 6 of the echr. this article secures the right to fair and open trial if accused or define the rights and obligations of individual in private law. (mole and harby, 2006: 6). the right of defense counsel has been secured at subparagraph (c) of the paragraph 3rd of the article. this paragraph applies only to criminal proceedings (leigh, in the turkish translation 354, dursun, 2004). the right to a fair trial may be violated if defense counsel may not have the right to review the investigation file or not given an enough time to review the full content of the file or not provided an opportunity to review some documents to defense to prevent arrest (çulha et al. 2013: 61). right to a fair trial involves the principle of equality of arms. this principle refers to the fact that each party to a case may have the reasonable facility to present his/her allegations to the court in the conditions which she/he is not disadvantageous against the other party. (mole ve harby, 2006: 46). the equality of arms principle implies the establishment of the balance between the powers and entitlements of the suspect/defendant and those of the prosecutor, the extent of which balance is limited to the framework required for the protection of the victim within the scope of the criminal law. it should be noted here that the said principle does not imply total equality. as a matter of fact, it should be put that the extent of powers of the prosecutor is always broader than that of suspect or the defendant. however; such balance should not be upset against the right of defense, the defense party should not be rendered incapable of defending itself or the right of defense should not be restricted. in other words, we can say that if defense turns into an object rather than a subject, it violates the principles of equality of arms (özbek et al. 2015: 62). echr ruled in dombo beheer v netherlands case that each party must be afforded a reasonable opportunity to present his case under conditions that do not place him at a disadvantage vis-a-vis his opponent (dombo beheer/ netherlands decision, no. 14448/88, 10/27/1993). as a rule, it is proposed that the principle of equality of arms in trial and legal remedies are valid in court proceedings. it is debatable if this principle is valid throughout the investigation phase. however, the european court of human rights assesses the trial as a whole under right to a fair trial at article 6 of european convention on human rights and identifies principle of equality of arms with prosecution and rules the violation of right to a fair trial (article 6 of echr) for the illegality that is not met at several phases of the trial and violates the principle of equality of arms at investigation phase (özbek et al, 2015: 63). 2.2. the authority of defense counsel to review the file generally in order for the defense attorney to be able to properly fulfill its duty of defense, s/he should have knowledge of all pieces of evidence for and against the suspect or defendant. the characteristics of orality of accusation trial provide this opportunity to the accused and defense counsel as a rule. however, defense counsel may not get information about the flow of the investigation for it is confidential and written. the most useful way to overcome the obstacle is through review of the file (centel, 1984: 111). as a matter of fact, section 153 of the code of criminal procedure entitles the defense attorney to review the case file, providing, “the defense attorney may review the file content, and obtain duplicate copies of any document therein without having to pay a fee through the course of the enquiry stage.” such entitlement imposes, on the other hand, on the defense attorney the obligation to conduct such review thoroughly, elaborately limitation of power of the counsel to review the file in the criminal procedure: law no. 6572 …. 29 and properly as a defense attorney, who does not do so in the absence of any legal or actual obstacle would, in our opinion, have not completely performed his/her duty. because a defense attorney cannot possibly serve to the interests of the suspect or the defendant, to whom it provides legal assistance, without being fully familiar with the pieces of evidence, statements and documents within the file. perhaps the first and most important reason for enabling this exception to the secrecy of the investigation is that defense counsel may not have the opportunity to collect evidence directly through law enforcement officers just as the public prosecutor does. defense counsel requests information in such cases. therefore, the only source of information about the case is often the investigation file. in other words, the defense relies on the investigation file. according to kunter, the reason why this authority has been recognized is to prevent judge getting information from unbeknown places and eliminate the secret file system (kunter, 2009: 418). in our opinion, the control mechanism is one of the reasons why this right has been provided to the defense counsel and the main target is to provide the right to a fair trial of the individual. the right to review the investigation file secured under article 36th of the constitution and echr 5/4, 6/3 and c aims to prevent misjudgment as an integral part of the defense a principle of equality of arms, which are the sine qua non of a fair trial. in order to practically use the rights provided to the suspect or accused as the subject of the trial such as bringing forward evidence, question and the right to silence bases on how and to what extent he can get information about the content of the incrimination. the entitlement of the defense attorney to review the enquiry file is not subject to “permission” rule. unless there is a confidentiality order regarding to the file, the defense attorney may take the liberty of reviewing the enquiry document. even though there is no clear regulation in european convention on human rights (echr), european court of human rights (echr) bases authority of defense counsel to review the file on the right to liberty and security of the person (echr 5/4) during the detention, principle of equality of arms and right to a fair trial (echr 6/3-b). according to the 3-b subparagraph of the article 6 regulated under the right to a fair trial: everyone charged with a criminal offense may have adequate time and facilities for the preparation of his defense. in this context, the suspect or the accused should have adequate time for preparation of his defense by considering the scope and complexity of the file and facilitate reviewing the evidence that bases the accusations before the trial regarding the public prosecution against him (öztürk et al., 2015: 254). in addition, according to european court of human rights decision the counsel to appeal effectively to the detention of his/her client, the right to review the file must be unrestricted (ceviz/turkey no. 8140/08, erkan i̇nan/turkey no. 13176/05, nedim şener /turkey no.38270/11 ahmet şık/ turkey no.53413/11, lamy /belgium no.10444/83, nikolova/bulgaria no. 31195/96, schöps/germany no. 25116/94, garcıa alva/germany no.23541/94, lietzow/germany no.24479/94, mooren/germany no. 11364/03). (http://www.barobirlik.org.tr/detay.aspx?id=38340/2016). as you can see, the authority of defense counsel to review the file has been regulated indirectly. however, echr has filled the gap with case laws and set the valid standards for all council members. save for the legal exceptions; defense counsel may have access to the document and information and be informed completely (ünver and hakeri, 2015: 236). the defense attorney may review any papers and documents relating to the case and the enquiry. such papers and documents are all documents, photographs, criminal record, registration file, and verdicts, reports and rogatory minutes of previous civil and criminal suits, which are collected in favor and against from the moment when the law enforcement officer is included in the case and added to the indictment by the prosecution office. the defense counsel may have an authority to take a copy (he can take a photograph if unable to photocopy) in a physical and technical manner and review all types of arms, cartridge, empty case and cd etc, which have been protected, seized or confiscated and which cannot be put in the file physically in the scope of the file (centel and zafer, 2015: 193). the defense counsel may take a copy and review all evidence under protection and investigation file according to german criminal procedure code (stpo m.147 / 1) (bozdag, 2014: 166). if the judge of the criminal court of peace does not issue a restraining order, neither public prosecutor nor law enforcement 30 coşkun koç officers provide the file to the defense counsel in part. the defense counsel may review the full content of the file without anything being hidden. otherwise, the right of defense is restricted and "abuse of trust" is committed. the enquiry file, being reviewed and obtained duplicate copies of, to be located at prosecutor’s office, at law enforcement’s office or at court does not constitute a difference. the defense attorney may use this right of his/her at all three departments mentioned. the council of state has revoked the provision, requiring law enforcement officers to obtain the written approval of the public prosecutor to meet the request of the defense counsel and regulated in the first subparagraph of the article 22 of the regulation on apprehension, detention, and interview on the grounds that such provision is illegal (regulation on apprehension, detention, and interview article 22/1, stopped execution of by the council of state, plenary session of the chambers for administrative cases with december 15, 2005 and 2005/762 decree has been revoked by council of state 10th. chamber, may 22, 2008, file no: 2005/5845 and decision. 2008/3450) despite such ruling, law enforcement officers continue to receive written or verbal instruction from the public prosecutor for defense counsel to review the file. the main reason why law enforcement officers act in this way is that they just want to be on the safe side and guarantee themselves. according to dülger, defense counsel takes side with the suspect during the apprehension without having any information about the investigation and is not able to fulfill his duty (dülger, 2012: 64). we believe that this practice of law enforcement is wrong. it lacks a legal basis. the right to defense is the sine qua non of the fair trial. therefore, the limits of this right should be regulated by the law, not by the application of the law enforcement. neither code of criminal procedure nor other legislations contains a clear provision regarding to how long the defense attorney can take time to review the enquiry file. there is no time limited for the defense counsel. according to centel, the time period of defense counsel to review the file should be appreciated according to the characteristics of every case (centel, 1984: 117). we agree with this opinion and furthers that there should be generous time for defense counsel to review the file due to the importance of the right to defense. the right to defense should not be sacrificed for the sake of a short delay in administrative activities or legal proceedings. 2.3. the authority of defense counsel to review the file in the event of detention order of confidentiality of enquiry file constitutes a particular importance on the cases of which suspects are hold for trial as in that case, the individual would be stripped of his/her freedom although there is no verdict of conviction regarding to him/her. we are of opinion that this subject should be discussed under a different topic due to significance of its consequences. if we study the approach of european convention on human rights (echr) regarding the said subject, we would understand that they take the subject as a matter of individual freedom and safety which is stated in echr article 5/4 but not in the terms of right to due process (fair trial) regulated in 6th article of echr. the supervision of arrest set out in the echr 5/4 should be in compliance with the principles of equality of arms between the persons, the right to a fair trial. if the attorney of the arrested person may not be afforded to an opportunity to review the documents in the file to defense effectively against the arrest warrant, then there is no principle of equality of arms (öztürk et al. 2015: 261). european court of human rights in 1989 lamy / belgium decision (no.10444/83, 30/03/1989) resolves the violation of echr 5/4 for defense counsel is not able to review the file for thirty days following the arrest and states that it is against the principle of equality of the arms and adversarial proceedings that while counsel for prosecution knows the content of the file, defense counsel does not know the content of the file. sener / turkey case (no. 38270/11, 07/08/2014) the echr resolves the violation of the convention by assessing that applicant and his attorneys are not able to use the facilities to object to the reasons in a satisfactory manner against the justification of the arrest of the relevant person. if we examine the case under code of criminal procedure, every person whose liberty has been restricted has a right to benefit from the defense counsel's help (yıldız, 2006: 196), and the right of defense counsel to review the file does not change depending on the whether his client is arrested or not. in other words, the right to review the file is limitation of power of the counsel to review the file in the criminal procedure: law no. 6572 …. 31 provided regardless of accused arrest. there is no distinction between arrestee or not under the right of defense counsel to review the file under ccp article 153. however, the right of accused to have an early and comprehensive information about the content of the file if he is an arrestee is important and of top priority to prevent jeopardizing the objective of the investigation. (öztürk et al. 2015: 161). the arrest is a heavy protection measure, restricting the liberty of a person without a finalized conviction. the defense counsel should know the content of the investigation file to object to arrest. the principle of equality of arms requires so. (yenisey nuhoğlu, 2015: 206). the defense counsel should be provided priority and ease to assist his client legally, whose liberty has been restricted. therefore, the review of defense counsel on the file should not be prevented due to the confidentiality order. otherwise, there is a risk of person to be deprived of his liberty for years without knowing the reason of accusations. 3. the amendments and results of the law no. 6572 153/2, 3 and 4th clauses of code of criminal procedure, which states that if the defense attorney reviewing the file contents and obtaining duplicate copies of these documents would endanger the purpose of the enquiry, this entitlement of his/her can be restricted but this restriction would not be effective on some documents, have been repealed by the code no.6526 dated 2.21.2014. the amendment mentioned has removed an obstacle standing in front of the defense right; and a new system, where no restrictions are for the defense attorney to review enquiry file has been established. as a matter of fact, according to şahin, from the very beginning, the defense attorney has had limitless access on the file on each stage of the criminal procedure with this regulation. however, this amendment did not stay so long. 153th article of code of criminal procedure has been changed back into by the code no. 6572. 2nd, 3rd and 4th clauses, which had been repealed by the code no. 6526 and which had been restricting the right of defense of the defense attorney, have been brought into effect again by this code. according to the amended 153rd article of code of criminal procedure no 6572: (1) the defense counsel may review the full contents of the file related to the investigation phase and may take a copy of his choice of documents, and is not obliged to pay any fees for such. (2) the power of the defense counsel may be restricted, upon motion of the public prosecutor, by decision of the justice of the peace, if a review into the contents of the file, or copies taken, hinder the aim of the ongoing investigation.. such decision may only be given for investigation for the following crimes: a) crimes in turkish penal code no 5237 date october 26, 2004; 1. voluntary manslaughter (article 81, 82, 83) 2. sexual assault (except for the first paragraph, article 102) 3. child molestation (article 103) 4. production and trading of addictive or relieving/exciting drugs (article 188) 5. forming organized groups with the intention of committing crime (article 220), 6. offenses against national security (article 302, 303, 304, 307, and 308) 7. offenses against constitutional order and operation of constitutional rules (articles 309, 310, 311, 312, 313, 314, 315, 316) 8. disclosure of information relating to public security and political interests of the state (article 326, 327, 328, 329, 330, 331, 333, 334, 335, 336, 337). b) arms trafficking defined in the law on firearms and knives and other tools (article 12). c) embezzlement defined in the article 160th of the banking law no 5411 and october 19, 2005. d) offenses defined in the smuggling law no 5607 date march 21, 2007. (3) the records of the submissions provided by the individual or by the suspect who was arrested without a warrant, as well as the written expert opinions and the records of other judicial proceedings, during which the abovementioned individuals who are entitled to be present, are exempted from provisions of the second paragraph. (4) the defense counsel may review the full contents of the court files and all secured pieces of evidence, beginning with the date of approval of the indictment by the court; he may take copies of all the records and documents without any fee. (5) the representative of the victim shall enjoy all the rights provided by this article, also. 32 coşkun koç as you can see, it is a step back which has been taken to strengthen the right to defense with law no 6526 in article 153rd of ccp. the authority of defense counsel to review and take a copy of the content for the offenses listed has been restricted by the judge order to the prosecution phase. it is not possible for us to explain such reverting back the article to its former shape within a short period of time with legal principles. mps, lodging a statement of opposition to such regulation in the justice commission in turkish grand national assembly (tgna) (https://www.tbmm.gov.tr/sirasayi/donem24/yil01/ss641.pdf / 2016) have claimed that government has made amendment due to their needs and recent developments. those expressing their views in favor of the proposal in the tgna justice commission: the secrecy of the investigation is one of the important tools for the presumption of innocence, one of the universal principles of the law, into practice. the secrecy of investigation is an obligation to put the presumption of innocence and the right against self-incrimination into action by realizing the criminal justice in a correct, true and real manner. … the restriction orders for the aggravated investigations for organized crimes are of vital importance. namely, if the restriction order is not taken for the cases which may hinder the aim of the investigation, file review requests may delay the public prosecutor's duty to press charges, and protect the evidence, completion of investigation in a brief time and in full. therefore, it may result in failure of doing the investigation in a reasonable time and thereby violating the right to a fair trial. therefore, we have to consider that confidentiality order which may be taken during the investigation for organized offenses, and other crimes may pave the way for a more effective investigation phase and thereby establishing the justice. we have to say that there are some provisions in the code of criminal procedures to provide confidentiality for the sake of trial in the investigation phase. the decision and proceedings as to the supervision of communication may be kept confidential during the measures. (ccp 135/7). after the measures end, the minutes related to the decision and proceedings for supervision of the communication may be reviewed and taken a copy. similarly, decisions and other documents related to appointment of the undercover investigator are protected in public prosecution office. even after the end of his mission, the identity of the undercover investigator shall be kept a secret (ccp 139/3). documents related to protection measures are under confidentiality, as well. however, this confidentiality bases on the law not by the rule of the judge (centel and zafer, 2015: 193). while there is an opportunity under the law, giving unlimited authority to the judge for taking confidentiality decision does not comply with the right to a fair trial. in relation to our topic, özbek states that provisions brought with law no 6572 are exceptions, not an essential principle for they restrict the rights and judge and prosecutors have to consider this and should not turn prohibition decision into an ordinary application (özbek et al. 2015, 256). we agree with this opinion in terms of content and express that it just seems like a wish. there is no article related to the sanctions on the judge and prosecutors if they turn restricting the right of defense counsel to examine the file into an ordinary practice. as the author states, making do with the auto-control mechanism equals to leaving the right to defense to the mercy of the judge and prosecutor. the time period to remove the confidentiality decision on the investigation file with this amendment has been accepted as "...beginning with the date of approval of the indictment by the court" in the article 153/4 of code of criminal procedure amended with code no. 6572. "content of the file has been expressly stated in the article. however, when we consider the realities in our country, this period is so long and violates the right to defense. if suspect knows what he is been accused of, only then he can defend himself effectively. if suspect and defense counsel have information early about the accusation for him that has started the criminal proceedings, then they have the opportunity to start defending and benefit from the defense tools on time. (öztürk et al. 2015: 253). systems, in which reviewing files and obtaining duplicate copies of these files are forbidden, remind totalitarian/authoritarian systems that implements confidential file system. however, it is required by the principle of the state of law to eliminate the confidential file system and the right of defense counsel to review every document, benefitted by the court and prosecution office refers to not violation of the right to defense under article 36th of constitution (kocaoğlu, 2012: 174). https://www.tbmm.gov.tr/sirasayi/donem24/yil01/ss641.pdf%20/ limitation of power of the counsel to review the file in the criminal procedure: law no. 6572 …. 33 according to centel and zafer, the review of defense counsel on file shall not be hindered for any other reason than the hindering the aim of the investigation. if a defense counsel uses the information obtained from the case file other than the aim of defense and in bad faith, disciplinary measures have to be applied by applying to bar or if his action constitutes a crime, then apply to judicial authorities. furthermore, the right of defense counsel to review the file should not be taken away, by considering the possibility to abuse, as long as he has the power to execute his profession (centel and zafer, 2015: 197). another discussion topic is to review of evidence under protection under investigation phase. according to kocaoglu, although we have to trust defense counsel for his proceedings and qualifications, the review of defense counsel on the evidence until the indictment has been completed and sent to the court does not make a great difference for the right to defense in consideration of the defense as a human being for criminal justice to be established (kocaoglu, 2012: 177). we disagree with this opinion. because it makes a great difference for the establishment of the right to defense if defense counsel could only see the protected evidence at the start of the prosecution phase as the author expresses. in fact, if defense counsel has a grasp of the file and evidence at the prosecution phase, then it is a late establishment of defense right. this idea bases on distrust. the author does not trust the defense counsel, a subject of the trial and perceives him as the criminal to interrupt the trial process. however, defense counsel is a professional and he gives guarantee by being subject to professional discipline. the defense counsel has the duty to supervise whether a material fact is sought in accordance with the law as well as his duty to defend the suspect. the defense counsel has to know, control and direct the processes of investigation and prosecution in order to fulfill this task, (dülger, 2012: 63). for this, first of all, he must be aware of the contents of the investigation file. in conclusion, we will address to the way of working of the courthouse. according to the law no 6572, the judge orders the restriction of the power of defense counsel to review the file upon the request of the public prosecutor. however, as we are all aware that public prosecutor and judge work at the same courthouse. sharing the same physical environment paves the way for people to develop "respect" relations. according to kocaoglu, as we can see some samples in practice, granting confidentiality order about the investigation "for the sake of prosecutor's request" contradicts with all universal values of law (kocaoglu, 2012: 176). we too share the same opinion with the author. 4. conclusion and assessment the 153rd article of ccp no. 5271 on an authority of defense counsel to review the file has been amended for twice within a year with article 44th of law no: 6572 on december 02, 2014. according to the amendments, defense counsel's power to review the full content of the investigation file or take a copy from the documents may be restricted until the phase of prosecution with the decision of judge upon the request of the prosecutor if it hinders the aim of the investigation in the listed offenses. however, restriction of the power of defense counsel to review the investigation file is contrary to the european human rights convention and the constitution. because the defense is also one of the subjects of criminal procedure. if the functionality of defense is disabled, it is evident that the right to a fair trial set out in the article 6th of echr is violated. as we have provided the examples above, echr resolves for violations in cases where the power of defense counsel to review the file is restricted. in such cases, it causes as an annulment for the lack of right to fair trial under ccp 289/1-h. the regulation, brought together with law no 6572, is problematic for the right to a fair trial and doubles the problem if the suspect is arrested as well. because it is not possible for defense counsel to defend his client due to the confidentiality order. these people may even have the risk of being arrested for a long time without knowing the accusation about them. by all means, in some instances, confidentiality of enquiry comes to the forefront and a regulation regarding to this field is needed. however, restriction of entitlement of the defense attorney to review the file should not be the fundamental rule due to confidentiality requirements of the enquiry. not a very broad restriction as in the code 34 coşkun koç no.6572 but an exceptional regulation regarding to instances indicated with “numerus clausus” should be made. besides, there are already confidentiality options generated by law regarding to some measures of precautions such as communication surveillance (ccp article 135/6), where confidentiality is very important for the sake of the enquiry, and assignment of a confidential enquirer (ccp article 139/3). while there is already such an option, granting the judge an extra limitless power of discretion means weakening the right of defense. the main reason why people find the amendment made by law no 6572 positive is that they have concerns that defense counsel may violate the confidentiality of the investigation. in our opinion, this is irrelevant. defense counsel is a subject of the trial. he fulfills a public duty. he is subject to strict rules to execute his profession and to be qualified in the profession. furthermore, it is possible to start a disciplinary investigation before the bar and also judicial investigation about the defense counsel, abusing the information from the investigation document. defense counsel has to be trusted for these qualifications, not to be distrusted. the time period to remove the confidentiality decision on the investigation file with this amendment has been accepted as "...beginning with the date of approval of the indictment by the court" in the article 153/4 of code of criminal procedure amended with 6572. "content of the file has been expressly stated in the article. in our opinion, such delay for defense counsel to review the investigation file disables the right to defense. if we look at the realities in our country, it takes so much time for the indictment to be accepted by the court. it is far from hard to for defense counsel to defend the suspect without knowing the accusation, it is impossible. as a result, we suggest the amendment made with the code no. 6572 which has such a negative effect on “right to due process (fair trial)” to be reverted and 2nd, 3rd and 4th clauses of ccp article 153 which restricts the entitlement of the defense attorney to review the file to be repealed. as a matter of fact, the code no.6526 has had brought the said system and never got any complaints by practitioners regarding to violation of confidentiality of the enquiry. references bozdağ, a. (2014). “ceza muhakemesi hukukunda müdafi”, ankara: adalet yayınevi. centel, n.b. (1984). “ceza muhakemesi hukukunda müdafi”, i̇stanbul: kazancı yayınevi. centel, n. ve zafer, h. (2015). “ceza muhakemesi hukuku”, i̇stanbul: beta basım. çulha, r. vd. (2013). “cmk cep kitabı”, ankara: tbb yayınları. dülger, m. v. (2012). “ceza muhakemesinde müdafinin konumu ve uygulamada karşılaşılan sorunlar” ankara barosu dergisi, v.4: 39-76. kocaoğlu, s.s. (2012). “müdafi”, ankara: seçkin yayıncılık. kunter, n. vd. (2009). “ceza muhakemesi hukuku”, birinci kitap, i̇stanbul: beta basım. leigh, l. h. (2004). “adil yargılanma hakkı ve avrupa i̇nsan hakları antlaşması”, çev., s. dursun. ankara: adalet akademisi yayınları. mole, n. and harby, c. (2006). the right to a fair trial, strasbourg: council of europe. özbek, v. ö. vd. (2015). “ceza muhakemesi hukuku”, ankara: seçkin yayınları. öztürk, b. vd. (2015). “nazari ve uygulamalı ceza muhakemesi hukuku”, ankara: seçkin yayınları. ünver, y. ve hakeri, h. (2015). “ceza muhakemesi hukuku”, ankara: adalet yayınevi. yenisey, f. ve nuhoğlu, a. (2015). “ceza muhakemesi hukuku”, ankara: seçkin hukuk. yıldız, a. k. (2006). “ceza muhakemesi hukukunda yakalama ve gözaltına alma.” selçuk üniversitesi hukuk fakültesi dergisi, 14 (1): 131-214. https://www.tbmm.gov.tr/sirasayi/donem24/yil01/ss641.pdf. [11.01.2016] http://www.barobirlik.org.tr/detay.aspx?id=38340. [03.02.2016] https://www.tbmm.gov.tr/sirasayi/donem24/yil01/ss641.pdf http://www.barobirlik.org.tr/detay.aspx?id=38340 journal of international trade, logistics and law, vol. 2, num. 2, 2016, 127-134 evaluation of horizon’2020 and effects on public transport büşra boysan, (msc) istanbul commerce university, turkey i̇smail ekmekçi, (phd) istanbul commerce university, turkey abstract: european union frame programs is a research program with one of highest budget in the world. it operates for the purpose of the improving research and technology, to promote university-industry cooperation, creating mutual and powerful sources, providing human resources and to support international cooperation. it provides support with a specially established fund. in turkey, european union programs coordination is done over tubitak. tubitak, aside from undertaking the job of being a coordinator for constituting international consortiums, it also promotes participation with various support and rewards. in this article, encouraging participation to european union projects in order to move r&d activities in turkey to a universal level, general overview will be provided to this process in order to be able to benefit from this effectively. in the direction of this general overview, world trends will be examined under horizon 2020 headings while discussing the subject of transportation. especially on the subjects of energy efficiency, smart cities, integrated transportation, effects of projects that are applied or aimed in the world on transportation will be examined. near future of the transportation sector will be discussed and different models that can be adapted to istanbul will be evaluated. transportation potential that will be examined under these headings supported by horizon 2020 is a pre-promotion to creating consortiums countrywide. keywords: european union projects, horizon 2020, support programs, consortium, public transport, energy efficiency on transport, smart cities and transportation, integrated public transport, projects with potential on transportation, horizon 2020 and transportation 1. introduction the concept where technological and social innovations force the world trend: universalization. based on this concept, sustainability and propagation of the projects gain importance and concepts of international collaborations, technological transfers, adaptation and integration come to the forefront. for the regional development agencies to be functional and for them to actualize the objectives expected of them, existence of the variables listed below is absolutely necessary (kayasü et al, 2003:9):  enough population size  culture and infrastructure for entrepreneurship  existence or constitution of qualified workforce  determining regional development strategies  existence of convenient sectors for development in a region hosting these factors, strategic ventures of the regional development agencies are gathered in five main groups (hughes 1998:620).  providing financial assistance or support  uncovering new investment fields  doing consultancy for sme (small and medium sized enterprises)  determining development objectives for the region in the long term.  contributing to developments in social fields 128 büşra boysan, i̇smail ekmekçi as emphasized by these studies, purpose of regional support programs is, from transportation to technology, from infrastructure to human resources, pioneering in terms of innovation transfer in various fields. studies to establish international collaborations also bring the need for coordination with it. european union frame programs, while carrying out this coordination mission, provides financial support for these innovative applications to come to life. for turkey to play a part in these projects, while also helping to open up the horizon for establishing technology, this trend can be caught as technological improvements applied on projects in europe are adapted to our country. industry organizations, sme’s, sme unions, universities, research institutes, research centres, public organizations, civil society organizations, international organizations, individual researchers can all participate to the study within the scope of horizon’2020. having close up relations and developing mutual projects with universities in the region and other educational establishments is also within the objectives of regional development agencies. as a result of the collaborating with the universities for the purpose of actualizing the regional development, doing analysis that will provide not only directing economic, social, technologic structure of the regions, but also revealing stronger and weaker sides of the region and giving the possibility to scrutinize the threats is going to be of utmost importance (goddard and chatterton 1999:685-699). in this context, various support organizations have started within the universities. in istanbul commerce university, may 2004, it was established to contribute in informing public and improving turkey-european union relations with an interdisciplinary approach by means of developing research and application projects on the subjects of law, politics, economics and social at the process of turkey’s full membership to european union. by establishing many university-public, university-private sector-sme collaborations, technical and r&d capacities of the universities are evaluated within the scope of the project. 2. evaluation of 6th and 7th frame programs and transferred classes total budget of the 6th frame program within the years of 2002-2006 that took 5 years was prepared as 17,5 billion euro. 7th frame program which lasted 7 years had a prepared total budged of 53,2 billion euro. for the project planned to be between the years 2014-2020 with the duration of 7 years, reserved budget is announced to be 71 billion euro. turkey, after the acquired learning process during the 6th fp, drew a rising graphic at 7th fp with the applied correct strategies on the basis of participated projects. however, due to some structural issues, turkey was under the potential that it could show during the program. these types of structural issues can be divided into two groups which are namely; issues about the functioning of 7th fp and problems related to internal functioning of turkey as a whole. examples for issues related to the program could be rooted structuring and turkey having difficulties being included in this program, too much competition with two few projects, not giving space for turkey or its associated countries on certain calls etc. for problems related to internal functioning of turkey as a whole, lack of experience and awareness, weak collaboration culture, insufficient r&d for the private sector could be shown as examples. in these programs; not being able to complete certain r&d activities that are being conducted in university and research centres, project output taking too long to enter into the market, innovation not being reflected on activities as expected, business expenditure ratios added to direct expenses and gift ratios being different for work packages and many gift programs, tight financial reporting and accounting inspection mechanism, lack of resources for sme’s and problems within warranty-risk capital has been seen. in addition to this, lack of coordination between europe innovation and technology institute (eit) and competitiveness and innovation program (cip) related to r&d and innovation activities at 7th fp applied separately also caused resources to not to be used efficiently (bağrıaçık, a., 2014). evaluation of horizon’2020 and effects on public transport 129 according to these evaluations, for projects that will be supported at horizon’2020, projects with its material outputs with wide range of fields to use have gained importance. sustainability of the technologies developed after the projects, is considered to be one of the most important evaluation criteria amongst the prepared projects. 3. title, subtitles for horizon’2020 and reserved budgets 3.1. societal challenges total budget of the program: 30 billion €s.  healthy, active aging and welfare  food security, sustainable agriculture and bio economy  safe, clean and efficient energy  smart, clean and integrated transportation  increasing climate change and resource efficiency  inclusionary, innovative and safe societies 3.2. industrial leadership total budget of the program: 17 billion €s.  leadership amongst simplifying and industrial technologies field  accessing venture capital  new research program for sme 3.3. excellent science total budget of the program: 24,4 billion €s.  european research council  new and improving technologies  marie curie activities  research infrastructure 4. horizon’2020 – tubitak coordination tubitak, while providing the necessary orientation and coordination for the participation to eu projects, undertakes the factor of increasing performance on this subject as a mission. according to this mission, it encourages organizations to participate in consortiums and project preparations with various supports. in this context, it created support and reward programs. these are:  travel support: expenses similar to participation and travelling fees, participation to the meeting fee for an individual invited for a meeting by the coordinator to science days that are organized within the scope of horizon’2020 are covered by tubitak financially.  project pre-evaluation support: for draft projects before being presented to the european commission, evaluation or examination of the project by an expert or a consultancy company and similar work is financed by tubitak.  support for being a coordinator: travelling support for the purpose of establishing a consortium, organizational support for the purpose of establishing a consortium, education support for project writing-presentation, project writing services support or project pre-evaluation services support is included (tubitak, 2014).  supraliminal award: award given by tubitak for projects which are, after being evaluated by expert independent referees, any project called in private and determined to have more points than supraliminal points.  merit pay is a reward given to certain projects after specific evaluations if the project owner applies direct or indirectly. 130 büşra boysan, i̇smail ekmekçi aside from these, tubitak, when the calls start, is assigning personnel for calling headlines and establishing consortiums about those headlines and is also doing some studies on carrying offers for consortium to related authorities in turkey. 5. effects of public transport on horizon’2020 public transport authorities can be included in many topics indirectly and carry out supportive activities. however, within the scope of the program, under the heading of societal challenges, subject of public transport is pointed out directly. smart, clean, integrated transport program reserved its 6,339 million €s budget for public transport projects. public transport authorities such as iett, ego, eshot etc. can create consortiums for the innovative and visionary projects they wish to bring to life, can search for partners for the projects that they have drawn the lines for or by participating in the consortiums that they established, they can do studies make their project come to life. another reasonable topic for the public transport authorities to be included is the headline of secure, clean and efficient energy. in this topic, 5,931 million €s budget is reserved. as is known, one of the most important subjects that the public transport is interested in the latest years is the subject of carbon emission. under this heading, many subjects similar to reducing carbon emission, giving public transportation support to establish carbon free zone, usage of electric cars etc. are foreseen to be included in the projects. 6. smart, clean and integrated transportation in terms of public transport and evaluation of effective energy programs and world transportation trends amongst the subjects that the public transport authorities undertake as their missions, meeting the needs of passengers come first. especially in metropolis cities, public transport authorities aim to meet the increasing demand showing positive acceleration with the increase in population and limited sources. in the last century, as the roads were improving and highway transportation becoming more common, important certain problems were also transferred to our current century. situations such as increasing traffic density, congestion, delays, travelling time caused an increase with the accidents. in order to decrease these negative effects of transportation systems or at least to control it, the idea was revealed as, systems established to control it should at least be more efficient, safe, secure, active and economically designed and maintained. concept of smart transportation systems (sts) came to life as a result of an effort like this (yardım and akyıldız, 2004). half of the total annual oil consumption throughout the world and one of three of the total energy consumption is done on public transport sector 8 (oecd, 2012). this unreasonable result, for a sustainable life cycle, proves the importance of smart systems and efficiency in the transportation sector. for smart transportation systems to be regulated with today’s technology, most important factor is advanced transportation management systems. when these systems are applied, instantaneous solutions to instantaneous problems can be brought forward. advanced transportation management systems, aside from being informed instantaneously about traffic congestion and unexpected events, also gives possibility to regulate features such as speed limits, traffic lights, electronic traffic signposts, lane separation from a central location or automatically. furthermore, these systems can ensure control and toll collection processes from remote or automatically at the part of the road which is accessible with a fee. in some situations, in order to maintain the traffic flow, pricings to toll roads can also be done dependent on time aside from the vehicle type (black and others, 2006). another one of the headings discussed within the scope of horizon’2020 is, coordinating an entire city by a smart and integrated system with smart cities. with these systems, all activities within the master plan for the city can be coordinated. subject of transportation holds an important ground for smart cities. for example, estimative organizations such as special activity, event, walking, concert etc. are entered into the system. for these situations that might affect the traffic flow, new routings are established as planned before. for non-assessable natural causes, accidents etc. which cannot be estimated beforehand, case analysis are being developed. in such situations, evaluation of horizon’2020 and effects on public transport 131 alternative routes, lines and courses having a flexible movement capability can only be made possible with smart transportation systems. on the subject of constructing smart city systems, one of the most important subjects that all authorities are on is doing all this within the master plan. of coursed managing an entire city with a single smart city application is not possible. sustainability and flexibility of the installed systems should not be removable with the systems that came after it, it should be able to feed the new systems that are currently available and this is only possible if it is done within a master plan. for this approach, in smart city applications, shows the importance of pilot application work. for smart buildings, all smart applications similar to delivering public services from e-systems, planning transportation systems beforehand and delivering them to passengers from mobile systems, including all cases that are estimated or not estimated beforehand into the system, integrated bicycle roads, giving bicycle services from mobile applications, using nfc systems, especially pilot application should be chosen for small regions to gain the necessary experience. moreover, within the scope of horizon’2020, new type of approach that the authorities are oriented at is, instead of doing master plans for wide masses, its sustainability analysed with a master plan on terms of point of view should be in project offers with the application being tested for smaller regions. at the outset of mechanisms that trigger efficient and clean energy, kyoko protocol which became valid at 16 february 2015 is the first. after finishing the term also named as first term at the year of 2012, it was elongated for 8 years between the dates 1st of january 2013 – 31st of december 2020. kyoko protocol is a protocol, for the purpose of regulating purpose and principles to be applied and improved; it came to discussion for signature at the 3rd meeting of “parties conference” which is held annually by climate change frame contract prepared by the european union. it could be shown as the most comprehensive agreement in terms of fighting climate change. its main purpose; is to stop threatening effect born of humans with greenhouse gas accumulation to a threatening level on the climate systems. essential responsibility of the countries signing this protocol is, within the measurements of scope of the values determined with the protocol, is to reduce greenhouse gas emissions. the most important value given to countries by kyoto protocol: “awareness”. this sustainable life concept led by kyoto continues on countries increasing its effects. in this protocol where european union countries also had various commitments to, it was seen that secure, clean and effective energy program will contribute under the headings within the scope of horizon’2020. horizon’2020, aside from supporting environmental projects with different topics related to fighting against climate change, reserved a 5,931million €s of funds just for secure, clean and efficient energy program. when energy efficiency is mentioned within the context of transportation, first factors that come to mind are clean fuel and common use of vehicles that do not consume fuel oil, raising vehicle standards, informing consumers and orienting them to vehicles with lower emission is some of the factors within. in the transportation sector, %99 of the consumed energy is provided by fuel sources and %25 of the greenhouse gas comes from transportation. in our country, if it is considered that about %9093 of the goods and passenger transport is done on highways, subject of greenhouse gas oscillation gains a serious meaningful importance. on the subjects of using efficient and clean use of energy in transportation, various studies are being run. with the metrobus project done by iett, 625,000 ton carbon dioxide oscillation has been prevented. furthermore, using vehicles with electricity and cpg and energy deficiency can also be obtained. on projects where carbon emissions were inspected within the safe, clean and efficient energy program of horizon’2020, within the plan of aimed values to be determined to be decreased, on projects where distribution of roles between authorities are being conducted, public transport sectors can replace them. 132 büşra boysan, i̇smail ekmekçi lowering carbon emission values to an individual can only be possible with mass transportation authorities are accepted into the system. on travels which are done with individual cards, amount of carbon in emission can be determined. in order to support reduction of individual carbon emission reduction, it is pre-projected to use various awarding mechanics and create a new trend like. subjects similar to “choosing the passenger of the month, granted free rights to ride” are subjects that are discussed around the globe and can be shown as encouragement to people to join this act of individual reduction. by gsm operators being included into the system or following individual carbon emissions from mobile applications should form other important parts of the ending. iett as one of the public transport authorities has some projects related to smart transportations systems and energy. main terms amongst these are: driving simulator systems: driving simulations exclusively is recreation of all characteristics of a real vehicle and the environmental factors which it is in relations with the vehicle within the virtual media. driving simulators are facilities designed to give people the real drivers to drive a vehicle on an experimental stand. essential reasons for using the simulator are to reducing the amount of time spent on r&d and education and expenses. on board internet service: serving vehicles are aimed to provide free wireless service to all passengers while it’s moving. project is being funded by istanbul development agency with a supportive gift. on board charging service: as an obligatory need for the daily life, this aimed to provide the possible need for energy for mobile phones during the trip. with this application, all devices similar to mobile phones and tablets can be charged in the bus continuing the trip and save on their time. project is being funded by istanbul development agency with a supportive gift. announcing system for disabled: for visually-impaired individuals, by giving life to certain required regulations in public transport, with the purpose of increasing these individuals participation to social life and to give a more comfortable and accessible public transportation service, a system that announces the bus approaching the station, line number, its destination orally has been put on the vehicles. project is being funded by istanbul development agency with a supportive gift. touch screen at stations: it was aimed for the passengers to use this informative touch screens interactively and get a higher quality service. cng motor change: buses that were chosen after feasibility studies, by doing their cng changes, they both save on fuel and prevent harmful gases from being released into the environment with exhaust emission. echo driving systems: after giving echo driving educations, with driver personnel who are more aware things, less fuel is consumed and less carbon is emitted into the atmosphere providing higher driving quality. aside from these, authorities other funded projects that come to the fore are about the subject of transportation which may be funded are, estimation algorithms within the scope of horizon’2020, push to talk systems and studies done related to them. 7. expected results it technologies attract the attention as an important opportunity in the aspect of increasing energy efficiency in the transportation sector. due to it technologies, for carbon dioxide emissions caused due to transportation at the year of 2020, %11(2,2 gt) decrease is estimated globally (gesi, 2008). for this decreasing that is estimated for the year of 2020, various movements have started. horizon’2020 is supported with clean and active energy programs along with smart, clean and integrated transportation that evaluation of horizon’2020 and effects on public transport 133 contributes to the increasing of pre-envisioned efficiency. if we collect the priority fields of the program in a table like a summary, it can be shown on the figure below. figure 1. priority areas (european innovation partnership on smart cities and communities – strategic implementation plan, 2013) starting with smart, clean and integrated transportation heading that point to public transport, for public transport authorities to join consortiums and for their secure, clean and effective energy programs turkey is seen as a very important country for europe. especially for services provided at istanbul, having more users compared to other european countries in ratio, cosmopolite structure, features such as being able to hold all cases, can be interpreted as an advantage for turkish authorities to be part of this projects. the most important factor for all the projects that will be done is collaboration with universities. systems envisioned as university sources and public or private sector applications are all gathered together, are seen as an ideal roof instalment for a project. in this context, for the universities, as seen at the example with istanbul commerce university, the need to raise awareness in terms of making eu and eu projects more common amongst their units is revealed. for turkey, benefiting at a maximum level from horizon’2020 and being involved in global technology development projects, for tubitak in particular, are seen as important developments for all authorities. references kayasü s., pınarcıoğlu m., yaşar s., dere s., (2003), yerel/bölgesel ekonomik kalkınma ve rekabet gücünün artırılması: bölgesel kalkınma ajansları, i̇stanbul, i̇stanbul ticaret odası, yayın no: 2003-8 hughes j.t. (1998) ‘the role of development agencies in regional policy: an academic and practitioner approach’. urban studies 35.4, 615-624 goddard j.b., chatterton p., (1999), “regional development agencies and the knowledge economy: harnessing the potential of universities”, environment and planning center: government and policy, volume 17, 685-689. i̇stanbul ticaret üniversitesi/istanbul commerce university http://ww4.ticaret.edu.tr/abmerkezi/ türkiye bilimsel ve teknolojik araştırma kurumu, uluslararası i̇şbirliği daire başkanlığı, avrupa birliği çerçeve programları ulusal koordinasyon ofisi: ‘ab 7. çerçeve programı-ara değerlendirme raporu), 2012, ankara bağrıaçık, a., 2014, ‘horizon 2020 araştırma ve yenilik projelerinin analizi’, i̇stanbul http://ww4.ticaret.edu.tr/abmerkezi/ 134 büşra boysan, i̇smail ekmekçi ec.europa.eu/programmes/horizon2020/h2020-sections www.h2020.org.tr/tr/content/koordinator-olma-destekleri yardım, s., akyıldız, g., akıllı ulaştırma sistemleri ve türkiye’deki uygulamalar, yıldız teknik üniversitesi, 2004 oecd, world energy outlook, 2012 black, w. r., m. van geenhuizen, “ict innovation and sustainability of the transport sector”, ejtir, vol. 6, no.1, 2006, pp. 39-60. global sustainability initiative (gesi), smart 2020: enabling the low carbon economy in the information age, 2008. european innovation partnership on smart cities and communities strategic implementation plan, 14.10.2013, page 7. journal of international trade, logistics and law, vol. 1, num. 1, 2015, 25-30 challenges of eu security on the example of cybeterrorism policy izabela oleksiewicz, (phd) technical university in rzeszow, poland abstract: in addition to traditional threats to information as spying or leaking state secrets and business secrets appeared the new threats, among which the most dangerous is cyberterrorism. taking into account the problems of cyber-terrorism, includes, in particular, the analysis of legislation aimed at ensuring the security of information systems of individual countries particular, this subject should be also recognized as requiring at the present time the insightful analysis. therefore, this publication is an attempt of characteristics the determinants of this phenomenon and analysis of the latest legal solutions in the fight against cyber terrorism within the european union. moreover, it was made the attempt to find an answer to the question whether the current legal solutions of the european unio n in the area of security are an effective tool in the fight against cyberterrorism. keywords: cyberterrorism; policy; eu; challenges 1. the notion of cybeterrorism the definition of cyberterrorism had also given m. pollite defining it as a deliberate, politically motivated attacks carried out by non-state groups or clandestine agents against information, computer systems, software, and data at the result of what the people not participating in the fighting experience the violence.(polit, cyberterrorismfact or fancy?) the term “cyberterrorism” appeared for the first time in 1979 in sweden in the report showing computer threats. it covered any activity involving computers, aimed at the destruction of ict systems, supervisory and control systems, programs, data, etc., and consequently intimidation of the governments and the societies to exert psychological pressure, bringing to life-threatening or result in considerable damage. in the 80s of the twentieth century this term was used in the american special services, pointing to the possibility of carrying out electronic attacks by the enemies of the united states. in 1998, at the headquarters of the fbi created the national infrastructure protection center (nipc), whose task is to coordinate the collection of information about the threats, responding to the threats or attacks on critical information elements of the infrastructure of the state. defining cyberterrorism as a combination of cyberspace and terrorism means that such activity is associated not only with the hostile use of it and the action in the virtual sphere, but is also characterized by all constitutive elements for the terrorist activity (denning, is cyber terror next?).. this term refers to the unlawful attacks and threats against computers, networks and the information held in them in the aim is to intimidate or coerce the government or its people in order to achieve certain political or social benefits. in addition, in order to qualify an attack as a cyberterrorism attack, it should be made as a result of violence against people or property, or at least cause significant damage in order to induce fear. it must be stated that the concept of cyberterrorism is used in the context of a politically motivated attack on computers, networks and information systems in order to destroy the infrastructure and intimidating or coercing the government and people of far-reaching political and social objectives in the broad sense of the word (liedel, 2006, 36). this concept is the object of greater interest for at least of 80 s. of the twentieth century, and the speculations on 26 izabela oleksiewicz this subject have intensified after the attacks of 11 september 2001 in the usa. as a typical threats are indicated the traffic control systems, the bank infrastructure, the energy supply systems and water as well as personal database systems, and government institutions (pomykała, 2009, 112-113) the abovementioned definitions show that cyberterrorism is understood in the world in two ways. according to the first concept, the terrorism and cyberterrorism is distinguished only by the use of information technology to carry out the coup, while the second one focuses on computer systems as a target of attacks, and not a tool to carry them out. it seems that the true definition arises only after connecting of both approaches (suchorzewska a, 2010). cybercrime is defined as a form of use of telecommunications networks, computer networks, internet aimed breach of any good protected by law (białoskórski, 2009)(jemioły, 2009)( kosiński, 2013). cybercrime differs from the classic crime primarily operating in an environment related to computer technology and the use of computer networks to commit crimes (siwicki, 2013). its distinguishing feature is, however, not to protect any one of the common good (siwicki, 2013). today, almost every illegal activity is reflected in the internet. the global nature of the internet allows extremely fast communication and the transfer of most forms of human activity to the network, too, and these negatively received. increasingly frequently speaks of cyberspace as a new social space, which reflected the same problems as in the real world. cybercrime is therefore a modern variant of crime, exploiting the possibilities of digital technology and the environment of computer networks. this makes that protection against the threats posed by cybercrime is extremely difficult and requires taking a number of projects including challenging multi-faceted and broad international cooperation. the effectiveness of this protection cooperation is essential for individual countries to establish a common policy against cybercrime and its concretization, specifying the priorities and uniform principles of joint action. thanks to these general rules require implementation into national law of the country, becoming the basis for institutional and functional system of instruments to fight cybercrime. the creation of an effective system to counter cybercrime is not easy, requires a thorough analysis of the phenomenon in the long term, and the creation of such a system may encounter numerous problems in adapting the general guidelines of international law or eu into domestic law. 2. the eu internal security determinants religious, demographic, social and ideological issues apart from military and economic challenges have become the main factors of crisis in europe today. undoubtedly, cultural differences, and especially religion are the main motif of various terrorist groups. cultural factor can also be a kind of barrier to mutual understanding of the objectives and intentions, the consequence must not be a terrorist attack in the traditional sense. the source of aggravating these tensions may be the fact that the cultural and civilizational diversities are often used as a bargaining chip in the event of a conflict, when in fact the sources of the real reasons for their rivalry are quite different (snyder, 2003). globalization seems to be so advanced that a network of various linkages between countries and societies in the world are too dense to be disintegrated or reduced. the inevitable consequence of globalization is the erosion of state sovereignty, which affects each of the countries, although to various degrees. this is due to “deterritorialization” of social processes and the deepening of various global or international interdependence in every area of social life. this process takes place gradually, but as durable as the globalization affecting in this way to order and international environment. the processes of globalization, especially affecting the socio-economic sphere, create new security risks. it also has the importance of the fact that part of the crisis-phenomena takes place outside its territory. they directly impact on the internal situation of european countries and the european community. in the opinion of large sections of challenges of eu security on the example of cybeterrorism policy 27 communities to maintain security of employment and an adequate number of jobs, the appropriate level of social security and cultural identity should be a priority task of the state1. to find an answer to the question of what actually a cyber-war is, at the outset it would be necessary to understand why it networks are increasingly being used by governments? first of all, this is due to specify electronic signal path, and hence the same cyberspace. in cyberspace there are no borders because traditionally understood, although ict infrastructure is located in specific countries, it is immaterial, but operates on the basis of the actually existing infrastructure, generating an electromagnetic field. using this feature, you can get tangible material benefits. with the immateriality of cyberspace other characteristics are related. first of all, the network is global2. as a consequence, the limitations of a physical character do not apply here. it is relatively easy to hide a real identity of the perpetrators of the incidents of ict. lack of not only strategic intelligence, but also, in many cases, the possibility of identification of the person responsible for the attack computer. this is, contrary to appearances, the problem of fundamental importance. identification of the subject responsible for the break-in is in fact essential for the preparation of an appropriate policy response, judicial or military one. another important feature of cyberspace are relatively low operating costs there. the development of conventional military capabilities is usually associated with very high financial outlays, including not only the training of personnel, but also the modernization and maintenance of equipment. meanwhile, the tools that can be used to attack the ict environment, in this perspective, are almost free3. the use of cyberspace helped by the fact that, as demonstrated operation in 2007 in orchard the measures of this type can sometimes replace or supplement conventional military operations (lakomy, 2010). cyberspace and speed attacks make conducting defense activities difficult. at the same time as indicated above, the offensive actions are relatively cheap and easy to carry. this feature of cyberspace is more pronounced, as there is the greater dependence of societies on its application. the paradox can be noted. on the one hand, the use of ict in all spheres of human life is associated with momentous benefits, for example, organizational, communication and financial position. at the same time it makes it a technologically advanced body which is much more sensitive to ict attacks. in addition, as noted by fred schreier (schreier, 2015), ict space is seen by many as a part of the common heritage of the mankind. in his opinion, an important feature of the ict is favoring offensive action on the defensive. the last group of reasons due to which cyberspace has a growing interest in countries associated with the broader sphere of information is ict space because it has a huge potential from the perspective of propaganda or psychological operations. new information and communication technologies can be effectively used, e.g. to manipulate public opinion or disinformation4. 3. new legislative changes in the counter cyberterrorism policy of the european union the latest directive 2014/41/eu of the european parliament and of the council of 3rd april 2014(jol eu l 130 on 1.05.2014). concerning the european investigation order (eio) in criminal matters art. 1 paragraph 1 of the directive defines the broader concept of eio than that which was contained in the framework decision 1 theoretically, one person could potentially make detriment, which in fact can be the result of the activities of organized terrorist groups or military units. 2 it can wipe actors distant from each other by thousands of kilometers. space ict facilitated this practice both state and nonstate entities. now, from the other end of the globe, with a relatively low risk of incurring the consequences it can be almost instantly obtain relevant data, including, for example, document and technology of fundamental importance for national security. 3 state relatively easily may come into possession of malware (viruses, trojans, worms), as well as the equipment needed to carry out even advanced operations. increasingly, government agencies themselves are developing the most powerful tools. however they do not involve the major costs in terms of budget (the case of the stuxnet virus). 4 an interesting manifestation of such measures was russian cyber-attacks on estonia and georgia in 2007-2008. in both cases, limiting opportunities for active information policy for these countries, helped to strengthen the position of the russian federation in the international arena. 28 izabela oleksiewicz 2008/978/jha. in the current wording it means a judicial decision issued or approved by a judicial authority5 "the issuing state"6 to call "the executing state"7 to carry out one or several specific investigative order to obtain evidence. the directive shall apply from 21st may 2014 to 22nd may 2017. member states shall take the necessary measures to meet its requirements. it replaces the existing so far rules ratified by poland of the european convention on mutual assistance in criminal matters of 1959 and the convention on mutual assistance in criminal matters between the member states of the european union in 2000. as well as the council framework decision 2003/577/jha the execution in the european union of orders freezing property or evidence and the framework decision 2008/978 / jha on the european evidence warrant (jol eu l 350, 30.12.2008). the eio is like the eaw of 2008 another instrument based on the principle of mutual recognition. thus, facilitating cooperation between eu member states, excluding the double criminality requirement in the list of crimes, including terrorism. moreover, the procedure of their application is simple, steps are taken directly by the judicial authorities. however, the european evidence warrant in 2008 is often rated as an useless instrument because it requires certainty as to the presence of evidence in the requested state (catelan, cimamonti, perrier, ,2014, 135) in connection with this new instrument or eio, which was created, it covers almost all investigative and does not have this requirement. these instruments are crucial in the fight against the use of the internet for terrorist purposes, because they allow rapid international cooperation. the eio mechanism was created to enable the courts, prosecutors and other investigative authorities for a direct transmission of requests for specific proof, secure and search the property or hearing by videoconference. the judicial authority of the country, to which eio was directed, has limited grounds for refusal of enforcement of such a request (e.g. due to national security concerns) and strict deadlines for its implementation. as a general rule it has seen european orders in the same way as those issued by national authorities. according to article 3 of the objective range of the eio governing each investigative action beyond creation of a joint investigation team and the gathering of evidence within such a team investigation, as provided for in art. 13 of the convention on mutual assistance in criminal matters between the member states of the european union and the council framework decision 2002/465/jha unless these actions are being taken to implement article 13 paragraph 8 of the convention and article 1, section 8 of the framework decision 2002/465 / jha (jol l 138, 4.6.2009). therefore, in accordance with art. 4 eio directive may be issued: a) with respect to criminal proceedings, which initiated a judicial authority or which may be brought before the judicial authority in the case of an offense under the law of the issuing state; b) in proceedings brought by the authorities in respect of acts threatened with punishment under the national law of the issuing state, as they represent a violation of the law, and the decision may give rise to proceedings before a court having jurisdiction in particular in criminal matters c) in proceedings brought by judicial authorities in respect of acts which are punishable under the national law of the issuing state, they constitute a breach of law, where the decision may give rise to proceedings before a court having jurisdiction in particular in criminal matters; and d) in connection with proceedings referred to in point a), b) and c) which relate to offenses or infringements for which a legal person may be held liable or punished in the issuing state. 5 in contrast, the executing authority is the authority competent to recognize an eio and ensure its execution in accordance with this directive and with the procedures applicable in similar domestic cases. 6 this means the member state in which the eio is issued (art. 2 paragraph 1 item a). 7 this means the eio executing member state in which you want to perform a particular investigative measure (art. 2 paragraph. 1 item b). challenges of eu security on the example of cybeterrorism policy 29 in addition, the issuing authority in accordance with art. 6 eio of this directive may do so only if the following conditions are met: a) issuing the eew is necessary and proportionate to the purpose of the procedure referred to in article 4, taking into account the rights of the suspect or the accused; and b) in a similar national case management to carry out the investigative measure(s) indicated in the eio is permissible under the same conditions however, when the executing authority has reasons to believe that the conditions referred to in art. 6, paragraph 1, have not been met, it may consult with the issuing authority on the so-called eio why they were taken. after such consultation, the issuing authority may also decide to withdraw eio. 4. conclusion the fact is that modern information systems which form part of the critical infrastructure of the cou ntry require a much more solid protection than it seemed a few years ago. the effect of rapid technological development has become a strong dependence of the economy on it systems. they control nowadays telecommunications, banking, energy supply, the air traffic system, a network of trains, control water supply and sewage disposal. we could say that the modern economy would cease to function without them. the need for security seems to be a self-evident truth. some companies are aware of this fact, others unfortunately not. certainly protection systems can be improved through the introduction of new legislation providing good practices in the area of security. however we must remember to set new rules balance the need for security with the right to privacy (oleksiewicz, hss, vol. xix, 21 (1/2014), 113-130). all these features make that cyberspace is increasingly becoming a target of the country. some of them already since the 90s of the twentieth century develop its potential in this field. one can understand not only employed professionals and their infrastructures, but also the techniques and tools used in ict attacks. rightly it recognized that in its present form cyberspace can be effectively applied to meet specific interests in the international environment. another regulation eio introduced is a simplified and harmonized legal framework for cooperation in the collection of evidence for transnational criminal proceedings or investigations. cooperation between the european union and the member states in the field of information security assurance is not easy due to the large number of systems and various initiatives undertaken in this area. however, it should be clear that this cooperation is developing very quickly. it seems that depending on the specific sector, its effects will be seen in the near future. another important aspect of this case is education. all the time insufficient number of computer users are unaware that their computers may be targeted by teenage hacker or be used as a remote weapons by terrorists. conducting awareness, but lacking the alarming tone of the educational campaign would certainly help improve safety in this area. references białoskórski, r. (2011), “cyberzagrożenia w środowisku bezpieczeństwa xxi wieku. zarys problematyki” wydawnictwo wyższej szkoły cła i logistyki, warszawa. catelan n., cimamonti s.,. perrier j.b. (2014), la lutte contre le terrorisme dans le droit et la jurisprudence de l`union europeenne, press universitaires, marsylia. denning d. “is cyber terror next?” avaible at: http://www.cs.georgetown.edu/~denning/infosec/cyberterrorgd.doc. (accessed 14 may 2009). 30 izabela oleksiewicz gniadek a.(2009), cyberprzestępczość i cyberterroryzm – zjawiska szczególnie niebezpieczne, [in:] cyberterroryzm. nowe wyzwania xxi wieku pod red. t. jemioły, j. kisielnickiego, k. rajchela, wyd. wsizia, wspol, wso aon, warszawa. janowska a.(2004), cyberterroryzm rzeczywistość czy fikcja? [in:] społeczeństwo informacyjne. wizja czy rzeczywistość? v. i, wyd. agh, kraków. kosiński j., waszczuk a.(2013), cyberterroryzm a cyberprzestępczość, [in:], współczesne zagrożenia bioterrorystyczne i cyberterrorystyczne a bezpieczeństwo narodowe polski, red. p. bogdalski, z. nowakowski, t. płusa, j. rajchel, k. rajchel, wspol, wsizia, wsosp, wim, warszawa. lakomy m.(2010), znaczenie cyberprzestrzeni dla bezpieczeństwa państw na początku xxi wieku, „stosunki międzynarodowe”vol. 42. liedel k.(2006), bezpieczeństwo informacyjne w dobie terrorystycznych i innych zagrożeń bezpieczeństwa narodowego, wyd. adam marszałek, toruń. madej m.(2007), zagrożenie asymetryczne bezpieczeństwa państw obszaru transatlantyckiego, pism, warszawa. oleksiewicz i.(2014), ochrona praw jednostki a problem cyberterroryzmu, hss, vol. xix, 21. polit m., cyberterrorismfact or fancy? , avaible at: http://www.cs.georgetown.edu/~denning/infosec/pollitt.html (accessed 14 may 2009). pomykała m., cyberterroryzm [in:] bezpieczeństwo i zagrożenia współczesnego świata, red a. olak, i. oleksiewicz. schreier f.(2015), on cyberwarfare, „dcaf horizon 2015 working paper”, t. 7 siwicki m.(2013), cyberprzestępczość, wydawnictwo c.h.beck, warszawa. snyder r. (2003), hating america: bin laden as a civilizational revolutionary, “review of politics” no: 4 suchorzewska a.(2010), ochrona prawna systemów informatycznych wobec zagrożeń cyberterroryzmem, lexisnexis, warszawa. jol eu l 130 on 1.05.2014. jol eu l 350, 30.12.2008. jol l 138, 4.6.2009. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 42-46 42 incompliance of law no. 23 of 2014 on local governments and law no. 6 of 2014 on villages related to the role of local governments in supporting village development muchammad akmal al khaysi universitas 17 agustus 1945 surabaya, indonesia tomy michael universitas 17 agustus 1945 surabaya, indonesia received: june 14, 2022 accepted: september 05, 2022 published: december 01, 2022 abstract: law number 6 of 2014 on villages state that the village has the authority to regulate its own household, one of which is to provide welfare for the village community through community empowerment and village development in order to provide a prosperous life, so it is necessary to explore the local potential of the village. several articles in law number 6 of 2014 on villages, including articles 112 to 115, highlight the importance of the role of regional governments in encouraging village development. several articles in law number 6 of 2014 on villages, including articles 112 to 115, highlight the importance of the role of local governments in encouraging village development. law number 23 of 2014 concerning local government, which is one of the legal underpinnings for regional government regulations, is unclear and contradicts law number 6 of 2014. furthermore, except from offering technical guidelines, law number 23 of 2014 ruling local government does not specify how the sectoral sector (regional apparatus) at the district level might collaborate with villages in the provision of basic services. community and village empowerment services are solely entrusted to village affairs (pmd). this poses challenges on the ground, which reduces local government support for village development. keywords: development, village, local government 1. introduction the imbalanced expansion of villages and cities will have an impact on the social and economic aspects of the two residents. first, cities will have a higher population density as a result of the creation of jobs in the fields of production and services ranging from the lowest quality and category (scavengers) to the highest (predictive computer experts), as opposed to villages that still rely on traditional agriculture, which is dependent on good seasons and land conditions ranging from the worst to the driest, forcing residents to wait for sustenance without wasting time. village communities have begun to embrace rational (modern) thinking in order to maximize time, energy, and (extra) skills; encourage them to investigate regions where they may optimize this time and energy potential, such as cities, villages, and areas with relatively higher economic opportunity. second, the rate of loss of agricultural energy in the community is increasing. this will be most severe after harvest when labor shortages in intensive agricultural processes lower efficiency and increase waste (husna and mardhiah, 2019). the economic life of the village is increasingly unable to accommodate skilled workers due to traditional agricultural conditions that do not attract labor and the limitations of market economic mechanisms in the village which are unproductive and do not provide immediate and direct income (quick yielding). this is due to a lack of immediate results. the situation mentioned earlier is characteristic of developing countries; unfortunately, there is no way to prevent it due to the fact that the quick rate of economic processes in cities will always outpace the rapid rate of economic growth in rural areas (fadhal et al., 2021). the enactment of law number 6 of 2014 regarding villages is a significant step forward in the administration of the government affairs of the state of indonesia. the development process in indonesia has been facilitated by this incompliance of law no. 23 of 2014 on local governments and law no. 6 of 2014 on villages related to the role of local governments in supporting village development 43 law, which is also a symbol of encouragement for rural areas (dewi et al., 2018). the village, as an entity with certain characteristics and qualities, is able to construct its community with the capital strengths and opportunities it possesses. a worthy goal is to construct indonesia from the periphery by strengthening regions and villages within a unitary state, which is why the mandate of the village legislation is becoming stronger (hastuti, 2021). from a legal-political perspective, law number 6 of 2014 on villages is the result of protracted political effort and thought to make the village a foundation for enhancing the quality of life. the enactment of villages law no. 6 of 2014 is the result of a long political effort, as well as a mental battle, to make the village the foundation of the nation's progress. the key point of contention among those debating the subject is whether the village authority structure is centralized or decentralized. aside from the political tensions that occurred after the 2014 election, law no. 6 of 2014 also advocates for the legal protection of rural areas. this village regulation replaces the village regulations established in law numbers 22 and 32 of 2004. following the enactment of law number 6 of 2014 and law number 23 of 2014 addressing local government, these village regulations are only included in the community and village empowerment section of law number 23 of 2014. if left unchecked, it will lead to gaps in the sector, especially in terms of local government assistance for village development. the discrepancy between the two rules has a significant effect on cities with great potential but little development. if allowed to continue, the subsector with laws dealing with villages that are not in accordance with law no. 6 of 2014 will create a gap in the field (fadhal et al., 2021). 2. discussion 2.1. constitutional basis and village arrangements in the reformation era as a unitary state, indonesia has a multiethnic and multicultural society that comes from within and around the village. the community was the first to establish a fully autonomous and self-sufficient democratic government. the village had its own political structure and technique, as well as its own social norms, for a very long time. this is the forerunner of the contemporary indonesian nation. however, village development has not yet reached the government's top priority. in each autonomous region of indonesia, the notion of the village has evolved to reflect the historical priorities, customs, and culture of the local population. villages in the indonesian constitutional system, as outlined in the 1945 constitution of the republic of indonesia, are very important in the discussion of village law. because the 1945 constitution of the republic of indonesia stipulates the relationship between the state, village and citizens, that is how it is. the publication of an academic article in 2007 by the fppd and the directorate of village and district government of the directorate general of pm marked the completion of a protracted process that led to the recognition of the subsidiarity notion. the initial idea was that villages were included in the territory because decentralization only extended to districts and cities, while districts and cities handed over some of their authority to villages (widnyana, karunia and sujana, 2020). law no. 5 of 1979 is in incompliance with the spirit of the 1945 constitution and the obligation to recognize and defend specific origin rights; hence, the government prescribes a substitute for this law, namely law no. 22 of 1999 concerning regional government, which comprises village restrictions. these replacement laws are the result of the necessity to recognize and defend specific origin rights, which must be replaced or repealed. during the reformation period, law number 22 of 1999 on regional government was enacted, and it was later modified with law number 32 of 2004 on regional government. the revocation of law no. 5 of 1979 on villages culminated in the enactment of law no. 22 of 1999 on regional government. the criteria for village governance in this law are contained in chapter xi articles 93-111. (there are a total of eighteen articles.) in terms of decentralization, law no. 22/1999 places a high value on local diversity, paving the way for local communities to reclaim their long-lost identity following the implementation of law no. 5/1979, which reduced the state's control over the village and gave the village authority to strengthen its existence and autonomy. furthermore, the law permits local communities to reclaim their lost identities during the implementation of law no. 5/1979. if the village is the lowest government unit under the head of the subdistrict according to law number 5 of 1979, then the village is a legal community unit that has the right to manage and manage the local community according to law number 22 of 1999. the status of the village as the lowest level of government according to law 5 of 1999 1979 and sub-district. unlike the previous law, this law regulates village administration separately from law number 5 of 1979 concerning village government (dewata et al., 2018). muchammad akmal al khaysi & tomy michael 44 2.2. village regulations under law no. 6 of 2014 in terms of local government legislation, it still needs improvement after 17 years of reform (1999-2016). separation tactics finally, the regional government law no. 32 of 2004 came into effect, resulting in three new laws: the regional government law, the village law, and the district head election law. this is the culmination of years of work. after a long discussion, the legislators finally passed law number 6 of 2014 which discusses the village, on january 15, 2014. the implementation of this law was outlined in presidential proclamation 43 of 2014, which has now been revised to presidential proclamation number 47 of 2015, dated june 30, 2015. law number 22 of 1999, updated with law number 32 of 2004, and finally amended by law number 23 of 2014, has had a considerable influence on village government, especially with the issuance of law no. law no. 6 of 2014. village governance in the [deleted text] indonesian has improved as a result of government legislation and the pp on village funds. based on pancasila, the 1945 constitution of the republic of indonesia, the unitary state of the republic of indonesia, and bhinneka tunggal ika, the state budget has become the basic framework for administering village governance, village development, rural community development, and empowering rural communities and this initiative is funded by the state budget (apbn) (fitriyani et al., 2018). although the introduction of new laws and regulations in the administration of local government has had a significant impact on village governance since reform began with the ratification of law no. 22 of 1999, which was later revised by law no. 32 of 2004 and lastly amended by law no. 23 of 2014, the ratification of law no. 23 of 2014 also caused problems due to inconsistencies between the two laws (semaun, 2019). several provisions in law no. 23 of 2014 on villages failing to meet the requirements stipulated in law no. 6 of 2014, which states that all village laws and regulations must comply with the provisions of law no. 6 of 2014; a comparison of law no. 23 of 2014 and law no. 6 of 2014 is presented below. law no. 6 of 2014 law no. 23 of 2014 the government, provincial government, district/city government encourage and supervise the implementation of village government. (article 112) there is no central government guidance or supervision (appendix for the division of congruent affairs in the pmd sector). the government, provincial government, district/city government encourage and supervise the implementation of village government. (article 112) there is no provincial government guidance or supervision (appendix for the division of congruent affairs in the pmd sector). the government, provincial government and regency/municipal governments may delegate guidance and supervision to regional apparatus. (article 112 paragraph 2) village affairs are only considered as part of the dpmd's mission (community and village empowerment sector). the local government does not see the importance of technical support from related sector agencies (fields) to villages make efforts to expedite rural development (article 115 letter k, guidance, and supervision of regency/city regional governments). guidance and supervision are only available in the village government administration field (attachment to the division of congruent affairs in the pmd sector) incompliance of law no. 23 of 2014 on local governments and law no. 6 of 2014 on villages related to the role of local governments in supporting village development 45 make efforts to promote village development through financial assistance, support, and technical assistance (article 115 letter l, guidance and supervision of regency/municipal governments) guidance and supervision are only available in the village government administration field (attachment to the division of congruent affairs in the pmd sector) 2.3. the effect of village law and local government law inconsistency the impact of the inconsistency of the two laws is very much felt in villages that have the potential for natural resources and human resources that can be optimized; as a result, various innovations from villages with this potential are not reached and are not touched by the district government, which is less than optimal. mentoring is another impact to consider; many villages that have begun to move toward village independence but are not supported optimally are ultimately inconsistent, and some even decline to become less developed villages due to a lack of optimal support from the local government; indeed, the presence of uu no. 6 of 2014 makes the village an independent village, and develops the potential of the existing village independently (kristina eti, 2019). however, this cannot be used as a standard, as the village must be self-sufficient, the need for support from the government makes the village controlled and coordinated from top to bottom. one form of example that occurs in the field is in village development in the tourism sector in ketanen village, panceng district, gresik regency. ketanen village has very abundant natural potential, namely limestone mountains, which can be used as a village tourist attraction in addition to being used by residents as house foundation material. it is an innovation from the ketanen village government to transform former limestone quarries into a tourism object that can empower village communities, the initial plan began in 2018 and was then realized in 2019 to build an initial design, at that stage, guidance and assistance from the local government does not exist even though it is an early stage of development, namely the design of village tourism designs, then development begins in 2021. there is no guidance or support from the local government, particularly relevant agencies, at that level, yet guidance should be provided at that moment. assistance directly in the field is desperately needed for tourist management and management, not only for tourism managers but also for the larger community participating in it, especially the msmes who will complete the tour should receive optimal guidance and assistance. as a result of these issues, the village government has always felt a lack of assistance from the local government in terms of community empowerment to participate in the village's development. it is undeniable that the supervision guidance program and also village assistance are very rarely carried out by local governments, the existing coaching activities are only a form of socialization that is held centrally, not directly in the field, even if it is only scheduled every semester which means twice a year, this is a form of real problems in the field, namely at the rural level, the lack and absence of direct guidance and assistance to the village is a form of the consequence of the inconsistency in the two laws. 2.4. central government efforts to address inconsistency in order to address this issue, the central government must promptly adopt and ratify a government regulation concerning the implementation of concurrent government affairs in accordance with the mandate of chapter iv, part three, article 21 of law no. 23 of 2014: "further provisions governing the implementation of concurrent government matters are governed in government regulations," according to law no. 23 of 2014 concerning regional government article 9 paragraph 1. "concurrent government affairs [upk] are government affairs that are divided between the central government and the province and district/city areas." concurrent government activities include provincial and district/city responsibilities. if the implementing regulations of law number 23 of 2014 which have been promulgated by the central government, have not been ratified eight years after being issued, then there are ways and solutions to harmonize law number 23 with law number 6 on monday, august 10, 2020, data and information collected from the ministry of home affairs shows that there is already an rpp for the implementation of dual government affairs. this is how the state secretariat calculates the rpp (95%) (badrudin and siregar, 2015). muchammad akmal al khaysi & tomy michael 46 3. conclusion the purpose of this study is to identify the factors that hinders the use and adoption of digital financial products and services in ethiopian banking industry through illustrating it from some selected commercial banks in jimma town, and mixed research approach is well suited. case studies are in which the researcher explores in depth a program, and event, and activity, a process, or one or more individuals(creswell, 2013). hence, to achieve the objective of the study, the case study method was applied with explanatory research design as the result of explaining the state of affairs. references badrudin, r. and siregar, b. (2015) ‘the evaluation of the implementation of regional autonomy in indonesia’, economic journal of emerging markets, 7(1), pp. 1–11. doi:10.20885/ejem.vol7.iss1.art1. dewata, e. et al. (2018) ‘the effects of local government characteristics and audit opinion on the performance of district and city governments in indonesia’, jurnal dinamika akuntansi dan bisnis, 5(2), pp. 151–162. doi:10.24815/jdab.v5i2.9057. dewi, n.i.k. et al. (2018) ‘exploring the potential of cultural villages as a model of community based tourism’, journal of physics: conference series, 953(1). doi:10.1088/1742-6596/953/1/012072. fadhal, m. et al. (2021) ‘village fund management: pattern of community participation for village development’, international journal of multicultural and multireligious understanding, 8(3), p. 65. doi:10.18415/ijmmu.v8i3.2377. fitriyani, l.y. et al. (2018) ‘determinants of village fund allocation’, jurnal akuntansi multiparadigma, 9(3), pp. 526–539. doi:10.18202/jamal.2018.04.9031. hastuti (2021) ‘village financial management towards village fund policy for community empowerment’, international journal of science, technology & management, 2(4), pp. 1249–1257. doi:10.46729/ijstm.v2i4.267. husna, c.a. and mardhiah, n. (2019) ‘public participation in rural development playning’, jurnal community, 4(2), pp. 57–65. doi:10.35308/jcpds.v4i2.994. kristina eti, s.d.r. (2019) ‘analisis pengelolaan alokasi dana desa dalam pembangunan desa’, ilmu sosial dan ilmu politik, 8(3). rahayu, d. (2017) ‘economics development analysis journal strategi pengelolaan dana desa untuk meningkatkan kesejahteraan masyarakat desa kalikayen kabupaten semarang depi rahayu 1 ’, economics development analysis journal, 6(2), pp. 107–116. available at: http://journal.unnes.ac.id/sju/index.php/edaj. semaun, f. (2019) ‘penyelenggaraan pemerintahan desa’, jurnal pekan : jurnal pendidikan kewarganegaraan, 4(1). doi:10.31932/jpk.v4i1.373. widnyana, i.k., karunia, i.p. and sujana, i.p. (2020) ‘strategy for development of tourist village in bali island’, international journal of research -granthaalayah, 8(3), pp. 324–330. doi:10.29121/granthaalayah.v8.i3.2020.164. journal of international trade, logistics and law, vol. 1, num. 1, 2015, 31-39 a marketing approach towards the sufficiency of ready-made garments to satisfy the needs of children with autism mehmet akalın, (prof. dr.) marmara university faculty of technology meral akkaya, (research assistant) marmara university faculty of technical education abstract: autism is a term of which we have been aware recently in our country through visual and printed media and which we have seen examples around us. together with opening dependent and independent education centres for children with autism, children with autism have found the opportunity to receive education in line with their needs. with individual education programs developed by the teacher suitable for the development of the child with autism, they can acquire skills in various development areas. dressing skill, which is one of the main skills necessary for every individual, is a mandatory skill that children with autism need to acquire to satisfy their own needs. in the first three parts of the study a conceptual frame was given and the definition, history, types, characteristics, and behaviour problems of children with autism were presented, and clothing comfort and other concepts were explained. in the fourth part, method, material, research approach, sample and population, numerals, limitations, data collection technique and data analysis technique were explained and the results were presented in tables. the study was carried out to reveal dressing problems children with autism encounter and to determine to what extent the clothes made by ready-made clothing sector satisfy the needs of children with autism and it was found that children with autism have difficulties in using ready-made clothes. keywords: autism; dressing problems; ready-made garments; marketing 1. introduction autism generally appears during the first years of a person's life. it manifests itself in breakdowns in social interaction and verbal communication and continues through life (luleci, 2011). one of the main reasons why autism has been the centre of attention recently is the fact that it has been recognized well and the frequency of it has increased. (aydin, 2003). normal children are born in a way to have a number of skills regarding each field of development whereas children with autism have many inadequacies which are related to holding an object with hands, toddling, eating, talking, understanding the mimics, and mimicking skills (darica et al, 2002). since dressing is a complicated process, it may take months to teach a child to get dresses on her/his own if the child has a learning difficulty. it is important that children with learning difficulties gain dressing skills, use these skills, and reach the level of normal children, which in turn will help children with autism to carry out their lives and use dressing skills independently. gaining this skill is a significant gain both for the family and the child (soganci, 2011). during this process it is necessary to avoid clothes that the child may not wear easily and that have a complicated structure. the aim of this study is to identify the dressing problems of children with autism and to determine to what extent readymade garments are suitable for these children. the study was planned and conducted to reveal the problems children with autism encounter in terms of dressing. for this purpose, to what extent ready-made garments satisfy the needs of children with autism, the features of clothes they might use and how appropriate zipping aids are were investigated. 2. autism and child with autism autism is disability appears within the first three years of life and continues through the life (korkmaz, 2000). there are both individual differences and similarities among children with autism. these children have problems regarding social interaction, verbal and non-verbal communication and imagination and show limited/repeated behaviours and interests (besler, 2015). although its symptoms and severity generally decrease, it continues for a life time. the 32 mehmet akalın, meral akkaya severity of the situation and the way problematic behaviours accumulate differ by every child (kayaalp, 2000). the individual with autism perceives everything including the self as an object (good). that is, there is no integrity in her/his life. for this reason, the world seems like a puzzle of which pieces are never put together. the child cannot see any integrity. for example, when looking at a forest, she/he sees only one tree; thus, the forest is composed of only the tree she/he sees (mebk12.meb.gov.tr/meb_iys_dosyalar/06/14/.../11100534_otzm.doc.) 2.1. types of autism asperger syndrome: asperger syndrome is different from other types in that there are not language development problems. it is a milder form autistic syndrome than other autism types(http://www.otizmvakfi.org.tr). pedantry and specific problems in manipulative skills are typical. these children have normal or superior intelligence and behavioural problems. gestures, mimics, and use of body language are problematic (korkmaz, 2000). childhood disintegrative disorder: children with this disorder develop normally at least two years after birth. the disintegration becomes evident with increasing activities, unrest, anxiety and losing previously-gained skills (talking etc.). severe mental disability appears in childhood disintegrative disorder (dogan, 2013). rett syndrome: rett syndrome begins between the 6th and 18th months and affects almost only girls. with this genetic syndrome, all mental, social, communicative and kinetic skills regress and balance disorders appear (http://www.otizmvakfi.org.tr). it is a serious psycho-motor development regression in which the head is smaller compared to the body and hand movements disappear (volkmar 2007). atypical syndrome: atypical syndrome is diagnosed in patients who have some symptoms of autism or asperger syndrome (http://www.otizmvakfi.org.tr) 2.2. behavioural problems of children with autism temper tantrums: temper tantrums generally become evident in age periods of 2 and 5. talking is limited or absent and thus the child cannot express herself/himself verbally. for this reason, behaviours called temper tantrums such as kicking, crying, shouting, and throwing herself/himself on the floor emerge. behaviours damaging the environment: screaming outdoors, damaging the items in the house. self-harming behaviours: these behaviours generally appear when the child gets angry, anxious, or unsuccessful. for example, pulling hair, scratching face, biting hands etc. among severe behaviours are hitting the head on the wall, biting the hands until they bleed. stereotypical (repetitive series of body movements) body movements:  sensory stimulation: swinging back and forth, swivelling.  visual stimulation: moving the fingers in front of the eyes, making figures with the fingers.  tactual stimulation: touching the ears, hands with with the rhythmic movements of the hand.  auditory stimulation: verbigration. (i̇lik, 2006). 3. clothing comfort in some sources clothing comfort is defined as a neutral situation independent of pain and discomfort, psychological and physiological harmony between human being and environment, not feeling uncomfortable or unsatisfied in any garment, satisfying harmony between human being and environment (oner and okur, years:17). clothing has personal, physical, mental, and social effects on children. the child learns how to dress tastefully and in a wellmatched way from the adults and it is possible to help the child to get dressed by asking for her/his opinion. however, the most evident feature of autism is that children with autism are not able to express what they want to wear because of not being able to communicate and this situation emphasizes the importance of clothing in terms of the child socializing and feeling worthy (soganci, 2011). 3.1. basic elements of clothing comfort clothing comfort is composed of two basic elements, namely psychological and physiological. physiological comfort included thermo-physiological (thermal or calorific) comfort, sensorial comfort and body movement comfort. http://www.otizmvakfi.org.tr/ a marketing approach towards the sufficiency of ready-made garments to satisfy the needs of children ... 33 psychological comfort is usually named aesthetic comfort. aesthetic comfort is perceived the clothing features that affect the person's psychology via sensory organs (eyes, ears, skin etc.) (li, 2001; kaplan and okur, 2006). figure1. basic factors affecting clothing comfort (okur et al, 2008) 4. research methodology 4.1. method and findings this study which aimed to identify clothing problems of children with autism was carried out using school survey method. a questionnaire was prepared for parents or coordinator teacher and administered. 4.2. population and sample the population of the study was composed of children with autism studying in education centres for children with autism (eccwa) in istanbul in accordance with the rule "in order to generalise the study to a certain population, the study is done on small sample groups according to random sampling" as pointed out by karasar (2001).the sample of the study was composed of 60 individuals with autism (aged between 3 and 16) studying in ministerial eccwas in istanbul 4.3. premises the answers to the questionnaire questions are correct. the information found in the literature is correct. the sample group involved in the study represents the population. 4.4. limitations the subject of the study is limited to identifying clothing problems of children with autism and making design regarding the solutions. the study is limited to eccwas in istanbul. the study was carried out between september 2014 and june 2015. 4.5. data collection technique the literature of the study was created by reviewing various books, journals, periodicals, and online reviews. the questionnaire form developed by the researcher was used to collect research data. 34 mehmet akalın, meral akkaya 4.6. data analysis technique while the data was entered into the computer, teacher and family variables were coded. following the coding process, data analyses was done using spss package program. the findings regarding general information, questions prepared for the parents, behavioural characteristics of the child with autism, clothing skills, general skills, and zipping aids were shown in percentage-frequency tables. 5. findings 5.1. general information regarding children with autism this section includes sex, age, height, weight, duration of education and general behaviour characteristics of the children. table 1. distribution of demographic values regarding the children with autism sex frequency percentage valid cumulative girl 13 21,7 21,7 21,7 boy 47 78,3 78,3 100,0 total 60 100,0 100,0 date of birth 1999-2002 5 8,33 8,33 8,33 2003-2007 18 30,0 30,0 38,33 2008-2012 37 61,67 61,67 100,0 total 60 100,0 100,0 height 90-120 22 36,67 36,67 36,67 121-150 24 40,0 40,0 76,67 151-190 14 23,3 23,3 100,0 total 60 100,0 100,0 weight 12-25 29 48,33 48,33 48,33 26-40 15 25,0 25,0 73,33 41-60 7 11,67 11,67 85,00 61-80 9 15,0 15,0 100,0 total 60 100,0 100,0 according to table 1, 21,7% of the children were girls and 78,3% of them were boys. the children in the group were aged between 3 and 16. 8,33% of the children were born between 1999 and 2002, 30% of them were born between 2003 and 2007, and 61,67 were born between 2008 and 2012. height of the children participated in the study varied between 90 cm and 187 cm. 36,67% of the children were 90 -120 cm tall, %40 of them were 121-150 cm tall and 23,3% of them were 151-190 cm. the children participated in the study weighed between 12-80 kg. 48,33% of them weighed between 12 and 25 kg, 25% of them weighed between 26 and 40 kg, 11,67% of them weighed between 41 and 60 and 15% of them weighed between 61 kg and 80 kg. a marketing approach towards the sufficiency of ready-made garments to satisfy the needs of children ... 35 table 2. distribution of values regarding duration of education in any education institution of children with autism duration of education frequency percentage valid cumulative up to 1 year 6 10,0 10,0 10,0 1-3 years 24 40,0 40,0 50,0 4-8 years 23 38,33 38,33 88,33 9 years and more 7 11,67 11,67 100,0 total 60 100,0 100,0 as it is seen in table 2, 10% of the children with autism were educated for 1 year or less, 40% of them were educated between 1 and 3 years, 38, 33% of them were educated between 4 and 8 years, and 11, 67% of them were educated for more than 9 years. table 3. distribution of values regarding the number of disabled members in the families of children with autism disability status within the family frequency percentage valid cumulative yes 0 0,0 0,0 0,0 no 60 100,0 100,0 100,0 total 60 100,0 100,0 the data in table 3 show that there was no other individual with any kind of disability in the families of children with autism. table 4. distribution of values regarding clothes buying choices of families of children with autism clothes buying choices of families for children with autism yes no total fre quency percen tage fre quency percen tage fre quency percen tage if a well-known brand had special clothes designed for children with autism, i would buy them. 26 43,3 34 56,7 60 100,0 if there were a brand designing special clothes for children with autism, i would buy them. 21 35,0 39 65,0 60 100,0 if there were websites selling clothes for children with autism, i would buy them. 11 18,3 49 81,7 60 100,0 the answers given by the parents are shown in table 4 indicate that 43, 3% of the parents would buy the products of famous brands if they had special clothes designed for children with autism and 56, 7% of them would not buy 36 mehmet akalın, meral akkaya them. 35% of the parents stated that they would do shopping from these brands if there were a brand designing special clothes for children with autism whereas 65% would not want to buy clothes of these brands. 18,3% of the parents stated that they would do online shopping if there were websites selling clothes for children with autism while 81,7% of them would not like to do online shopping. 5.2. general behavioural characteristics of children with autism table 5. the distribution regarding general behaviours of children with autism. behavioural characteristics yes no total fre quency percen tage fre quency percen tage fre quency percen tage has temper tantrums. 60 100,0 0 0,0 60 100,0 tends to undress during temper tantrums. 6 10,0 54 90,0 60 100,0 tends to rip the clothes or part of the clothes during temper tantrums 12 20,0 48 80,0 60 100,0 dirties the clothes during eating. 31 51,7 29 48,3 60 100,0 wipes hands on clothes after eating. 16 26,7 44 73,3 60 100,0 the data presented in table 5 show that 100% of the children with autism had temper tantrums. 10% of the children took off their children during temper tantrums and 90% of them did not have such a tendency. 20% of the children had a tendency to rip their clothes during temper tantrums but 80% of them did not show this behaviour. almost half of the children dirty their clothes while eating whereas the other half does not dirty their clothes. according to the answers given by the parents and the teachers, 26, 7% wipes their hands on clothes after eating and 73% did not wipe their hands on their clothes. 5.3. state of children with autism regarding dressing skills this part shows the distribution of dressing skills and skills regarding zipping aids table 6: distribution of values regarding dressing skills of children with autism dressing skills of the individual general skills frequency percentage tells apart underwear always 49 81,7 sometimes 9 15,0 never 2 3,3 total 60 100,0 tells apart outerwear. always 48 80,0 sometimes 10 16,7 never 2 3,3 total 60 100,0 tells apart bottom clothing. always 49 81,7 sometimes 9 15,0 never 2 3,3 total 60 100,0 a marketing approach towards the sufficiency of ready-made garments to satisfy the needs of children ... 37 table 6: continue tells apart top clothing. always 50 83,3 sometimes 8 13,3 never 2 3,3 total 60 100,0 tells apart clothing by season. always 26 43,3 sometimes 14 23,3 never 20 33,3 total 60 100,0 the data in table 6 show that 81, 7% of the children always tell apart underwear, 15% of them sometimes tell apart underwear and 3, 3% of them never tell apart underwear. 80% of the children always tells apart outerwear, 16, 7% sometimes tells apart outerwear and 3,3% never tells apart outerwear. 81, 7% of the children always tell apart bottom clothing, 15% of them sometimes tell apart bottom clothing and 3, 3% never tell apart bottom clothing. 83, 3% of the children always tell apart top clothing, 13,3% of them sometimes tell apart top clothing and 3,3% of them never tell apart top clothing. 43, 3% of the children always tell apart clothing by season, 23, 3% of them sometimes tell apart clothing by season and 33, 3% of the children never tell apart clothing by season. table 8. distribution of values regarding zipping the zipping aids skills of children with autism zipping aids frequency percentage fastens velcro always 58 96,7 sometimes 2 3,3 never 0 0,0 total 60 100,0 fastens press studs always 38 63,3 sometimes 15 25,0 never 7 11,7 total 60 100,0 fastens a hook-and-eye always 18 30,0 sometimes 17 28,3 never 25 41,7 total 60 100,0 belts always 18 30,0 sometimes 14 23,3 never 28 46,7 total 60 100,0 buttons big buttons always 36 60,0 sometimes 10 16,7 never 14 23,3 total 60 100,0 buttons small buttons always 24 40,0 sometimes 14 23,3 never 22 36,7 total 60 100,0 zips a zipper with teeth. always 39 65,0 sometimes 9 15,0 never 12 20,0 total 60 100,0 38 mehmet akalın, meral akkaya according to the values in table 8, it is seen that 96, 7% of the children always fasten velcro, 3, 3% of them sometimes fasten velcro. 63, 3% of the children always fasten press studs, 25% of them sometimes fasten press studs and 11, 7% of them never fasten press studs. 30% of the children always fasten a hook-and-eye, 28, 3% of them sometimes fasten a hook-and-eye and 41, 7% of them never fasten a hook-and-eye. 30% of the children always belt, 23, 3% of them sometimes belt and 46, 7% of them never belt. 60% of the children always button big buttons, 16, 7% of them sometimes buttons big buttons and 23, 3% of them never buttons big buttons. 45% of the children always button small buttons, 23, 3% of them sometimes button small buttons, and 36, 7% of them never button small buttons. 65% of the children always zip a zipper with teeth, 15% of them sometimes zip a zipper with teeth, and 20 % of them never zips a zipper with teeth. 6. results the study was carried out to identify the problems children with autism (aged between 3 and 16) studying in education centres for children with autism (eccwa) in istanbul while dressing and to determine to what extent ready-made garments satisfy the need of these children and it was found out that  almost half of the parents of the children with autism stated that they would buy the products of famous brands if they had special clothes designed for children with autism, more than half of the parents stated that they would not buy them. also, a great majority of the parents would do online shopping if there were websites selling clothes for children with autism.  children with autism were found to dirty their clothes while eating.  majority of the children with autism tells apart bottom and top clothing and underwear and outerwear, but have difficulty in picking up the right clothes by season.  while majority of the children do not have difficulty in using zipping aids such as velcro, press stud, big buttons and zips, they have difficulty in using hook-and-eye, belt and small buttons the following suggestions were made in line with the results of this study.  brands should design and produce special clothes for children with autism.  dirt-repellent fabrics should be used for clothes for children with autism and so that they are not isolated from their social lives.  families should support gaining children with autism dressing skills and families should be involved in the education process.  if special clothes would not be purchased for children with autism, clothes with velcro, press-studs, big buttons and zips should be preferred.  in order for dressing skills to be gained in special education centres for children with autism, textile and fashion departments should be applied to and appropriate education materials should be prepared. references aydın, a. 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(edt), (2007) autism and pervasive developmental disorders, contet 1: diagnosis and definition of autism and other pervasive developmental disorders fred r. volkmar and catherine lord. http://www.otizmvakfi.org.tr, haziran 2015. mebk12.meb.gov.tr/meb_iys_dosyalar/06/14/.../11100534_otzm.doc,haziran2015. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 11-17 11 its strength, as well as its presence, is vital: managing hr systems as a process melih şükrü ecertaş gebze technical university, turkey oya erdi̇l gebze technical university, turkey received: dec 12, 2021 accepted: march 22, 2022 published: june 01, 2022 abstract: within the scope of organizational behavior, human resource management has been among the most popular research areas for nearly half of a century. the relationship between human resource management and organizational performance is one of the most attractive topics for researchers and business practitioners. researchers, who have focused on different human resources management "contents" (job satisfaction, organizational commitment, performance appraisal, incentive wage systems, etc.) for a long time, not only have argued in the last 20 years that the content alone is not enough, but also emphasized the importance of the "process" of applying these contents. the "hrm system strength" theory, which bowen and ostroff introduced in 2004, inspired by mischel's (1982) strong situation approach and kelley's (1967) covariance model of attribution theory, stands out as the most remarkable of the above-mentioned "process" focused studies. hrm system strength focuses on the common opinion of the employees about what is expected from them by the organization, and its basic proposition is that the company has a strong hr system depending on how distinctive its hr practices are , how consistent they are , and to what extent it has consensus among employees. in this article, we will discuss in detail the concept of hrm system strength, its underlying theories, its 3 sub-dimensions and its relationship with other related hr applications. keywords: human resource management system strength, attribution theory, situation strength 1. introduction organizations continue to exist with a certain strategy that is aligned with their aims and objectives. the greater the importance of external-oriented decisions such as market and customer strategy, the greater the importance of internal-oriented actions such as organizational growth. after 1980, "human resources," which were previously viewed as a cost element, began to be analyzed from a strategic standpoint (devenna, fombrun and tichy, 1981, baird and meshoulam, 1988). the primary goal of human resource management has always been to improve organizational performance. guest's (1987) new strategic framework pioneered this new method in human resources management, bringing a new viewpoint to the phrase "people management." by the 1990s, the link between human resource management and organizational performance has become one of the most popular research topics. the most important issue in the interaction between organizational performance and people management has been called high performance work systems (huselid, 1995). huselid (1995) emphasized selection and recruitment methods, performance management and incentive payment systems, talent development, and brought attention to the fact that such specialized approaches boost productivity in high performance work systems. employee participation in decision-making processes (levine and tyson, 1990), employee training (bartel, 1994), profit sharing with employees (kruse, 1993), teamwork within the context of comprehensive job design (macy and izumi, 1993), and high commitment (arthur, 1994) are examples of high-performance work systems that increase productivity. by the 2000s, even though many different subjects in human resource management came to the fore both in academia and in business practice, the "black box" attempted to be explained in the relationship between melih şükrü ecertaş & oya erdi̇l 12 organizational performance and human resources has not yet been fully resolved. when the studies conducted until 2003 were thoroughly analyzed, it was observed that the relationship between hr management and performance was studied empirically (wright and gardner, 2003) in a comprehensive manner, while the role of "psychological processes" were overlooked (wood, 1999). the "hrm process" approach can be said to have arrived at this point. in 2004, bowen and ostroff emphasized the significance of the "process" of how hr procedures are viewed by employees, as well as the "contents" of this human resources activity. a strong atmosphere is created when employees have a shared vision of what is expected from them and which behaviors are rewarded by the firm. to generate this strong climate, hr policies must be unique, that is, clear, understandable, and rational, and must be implemented in a fair and consistent manner by all implementing managers in consensus. the authors' "hrm system strength" approach emphasizes the notions of "strong climate," "distinctiveness," "consistency," and "consensus." in this study, we will go through the hrm system strength method in depth and look at how it relates to other organizational behavior principles. 2. hrm system strength as a concept focused on “process” as previously stated, thousands of various "applications" in the field of human resources management were proposed between 1984 and 2004. young et al. (1996) presented the top examples from five major studies in their study where the best of these were assessed (arthur, 1992; delaney, lewin & ichniowski, 1984; freund & epstein, 1984; huselid, 1995; mcduffie, 1995; pfeffer, 1994). there is a plethora of applications that can be considered "benchmarks." however, the problem of how these procedures are seen within the organization remains unresolved. bowen and ostroff (2004) established their "hrm system strength" approach by combining mischel's (1982) approaches to "situational strength" and the co-variation model of attribution theory (kelley, 1967). while hrm activities are viewed as a communication flow from the employer to the employee (guzzo and noonan, 1994), this method investigates how these practices are perceived by employees in a similar manner. employees make mental connections to human resource management practices. human resource management systems are classified as either strong or weak based on the degree of distinctiveness, consistency, and consensus among employees. 3. dimensions of hrm system strength in the simplest words, bowen and ostroff's (2004) method is concerned with how "anticipated" behaviors that everyone "accepts" are "clearly" conveyed by the organization and how "consistent" its field practices are. ten years later from the unique study, bowen and ostroff (2016) reviewed the studies on hrm system strength and they identified a fundamental distinction between their original argument and many other studies in the same literature. originally, "hrm system strength" was a an organizational-level phenomenon, whereas “perceived hrm system strength" was studied at the employee-level. the three primary aspects of human resource system strength, which are “distinctiveness", "consistency", and "consensus", as defined by bowen and ostroff, will be addressed in detail below, along with their sub-dimensions. 3.1. distinctiveness in the literature, it is well explained that differentiated human resource practices improve an organization's overall performance (hlltrop, 1996). the effectiveness of an hr application that fails to capture the employee attention and has neither an appeal nor a purpose is subject to debate. it is the framework that focuses on the organization's human resource strategies with regards to recruiting and engaging personnel. bowen and ostroff (2004) discuss four essential mechanisms that contribute to the "distinctiveness" of human resource practices, which are namely visibility, understandability, legitimacy of authority, and relevance. 3.2. visibility it refers to the extent to which employees are aware of the company's human resource policies. there is a positive correlation between apparent human resource procedures and employee performance. its strength, as well as its presence, is vital: managing hr systems as a process 13 3.3. understandability effective human resource communication requires clarity and simplicity. it is crucial for employee performance and motivation. internal signals concerning the company's management methods that are incomprehensible would undermine the organization's cohesion. it is self-evident that complex messages that are visible to everyone but are incomprehensible will cause more harm than good. for example, using a reward system including an incentive model on which only the sales managers who built it have knowledge does not benefit the sales force or boost the company's revenue. 3.4. legitimacy of authority implementing human resource practices with status and prestige is significant and meaningful in terms of corporate governance. the fact that human resource managers have authority within a corporate decision-making system indicates that employees will pay increased attention to the messages they send (andersen, cooper and zhu, 2007). human resource managers have genuine authority bestowed by the corporation; this demonstrates the formality of the organization's roles, expectations, and practices. 3.5. relevance this is the condition in which human resource objectives are congruent with business strategy. human resource management policies that are unrelated to the organization's primary goals and strategies cannot be anticipated to be sustainable and lead to a deteriorating corporate climate. table 1. dimensions of hrm system strength distinctiveness consistency consensus visibility instrumentality agreement among hr decision makers understandability validity legitimacy of authority consistent hr messages fairness relevance 3.6. consistency consistency is critical in human resource procedures, as it is in any other discipline, and numerous researches have been conducted on this subject (baron and kreps, 1999; kooji et. al., 2013). regardless of time or circumstance, in any situation where cause-effect relationships exist, the company's attitudes and behaviors toward employees must be consistent. instrumentality, validity, and consistent hr messages are the sub-dimensions of consistency. 3.7. instrumentality as behaviors and their outcomes become more consistent, employees notice the principle of instrumentality more frequently. it establishes a distinct, unambiguous understanding of the cause-effect relationship between expected behaviors and the corresponding outcomes. instrumentality can also be defined as the degree to which employees' behaviors are directed toward desirable behavior patterns. 3.8. validity human resource strategies are designed to achieve specific goals, but if those goals are not met, they lose their consistency and reliability. in summary, validity refers to the degree to which human resource practices accomplish what they are anticipated to achieve. 3.9. consistent human resources messages the human mind is continually looking for consistency. in other words, two distinct approaches should not conflict with the fundamental objectives. consistency is critical for persuasion in employer-to-employee communication. it is a case of sending consistent messages incessantly. melih şükrü ecertaş & oya erdi̇l 14 3.10. consensus consensus is a positive aspect in the development of a strong corporate culture and organizational climate. it is beneficial for employees to agree on what is expected from them and to see this from all managers in a consistent manner. 3.11. agreement among human resource decision makers employees in firms have social interactions with a variety of supervisors from various departments daily. the fact that they are all in agreement on human resource policies will also improve the employees' perception of "consensus." 3.12. fairness it refers to the employees' perceptions that they are treated “fairly" within the organization. the concept of "justice" has been thoroughly researched in human resource literature and has been established as one of the crucial elements in practical implementations (kee et. al., 2004; beugre, 1998; lavelle et.al., 2009). performance appraisal is quite common in human resource practices, and by promoting equal and comparable appraisal among employees, the fundamental notion of justice is enhanced, hence increasing the organization's overall performance (kavanagh et. al., 2007). 4. the drivers of hrm system strength theory 4.1. organizational climate business strategies and human resource policies of an organization should be congruent and linked. as illustrated by bowen and ostroff; the human resources policy of an innovation-oriented company should also support the innovation strategy. also, the human resource policy of a customer satisfaction-oriented company should also be focused on the services provided to the customers. indeed, whatever dominating climate exists in the culture of the firm, employees' expectations will be established within the context of that climate. when we view culture as a collection of the company's assumptions and values, we may see it as both a precursor to the human resource system and a mediator of the link between human resources and performance (denison, 1996). while organizational beliefs and values influence human resource practices, they also shape the norms that govern individual and organizational performance (bowen and ostroff, 2004). bowen and ostroff determined that organizational climate is a more appropriate term for their theory based on organizational culture and organizational climate studies (denison 1996; schneider, salvaggio, & subirats, 2002) since they desired to tackle human resource management system strength from a multidimensional perspective, that is, both at the individual and organizational level. 4.2. situational strength bowen and ostroff used mischel's "situational strength" technique to determine whether the organizational climate is weak or strong. according to this definition, a scenario is considered "strong" if it results in a "conformity" interpretation in the mind of the individual, and "weak" if it results in an "ambiguity" interpretation (mischel and peake, 1982). it is believed that organizational culture creates a "strong situation" by directing employees toward unambiguous ideals and goals, and uniting minds, around common denominators (bowen and ostroff, 2004). 4.3. attribution theory among the attribution theories that address how people make meaning of the events they experience in their brains, kelly’s covariance model in 1976 served as a foundation for bowen and ostroff's development of the hr system strength approach. in terms of explaining the cause of something, the theory of covariation examines whether the cause exists in multiple conditions or not (kelly, 1973). these causal attributions are classified into three categories. 1. congruence: does the owner of the conduct always exhibit the same behavior? is the cause-and-effect relationship time-independent? 2. distinctiveness: can that specific activity be viewed clearly? do it always have the same cause-effect relationship when examined by someone who is not familiar with the subject? its strength, as well as its presence, is vital: managing hr systems as a process 15 3. consensus: do other individuals in a comparable scenario behave similarly in a similar cause-effect situation? as can be seen from the three frameworks above, kelly (1967) describes the causal attributions of behaviors. on the other hand, bowen and ostroff advocate for a "strong situation" based on these three characteristics. 5. the impact of hrm system strength as previously said, success is ultimately determined by the effect of human resource investigations on organizational performance. along with financial aims, organizations have more qualitative human resource targets. employee motivation, commitment, and satisfaction can all be used as instances of such human resource objectives. hauff, alewell, and hansen (2016) discovered that a robust human resource management system improves a company's ability to achieve its human resource goals. change management is crucial for organizational development. businesses that can reinvent themselves during challenging times emerge stronger. employee support for change enables the organization to refresh itself, grow, and compete more effectively in the market. employees contribute favorably to the organization’s demand for change in organizations with a robust human resource management system (alfes et al., 2019). additionally, change occurs only in the presence of strong leadership. at times, when managers dispute over their leadership style, the company's change and progress may fail. however, in firms with a robust human resource management system, followers of the leaders retain their motivation and can keep up with the company's growth despite this paradoxical leadership struggle (jia et al., 2018). employees' perceptions of management methods as distinctive, consistent, and consensus-building have been found to be favorably connected with emotional commitment (sanders, dorenbosch and reuver, 2008; cafferkey et.al.,2019; bos-nehles, conway and fox, 2021). meyer and allen's (1991) perspectives on organizational commitment are extremely important for understanding human resources and their performance. the "normative commitment" relates to the employee's obligation to remain in the organization, whereas the "continuance commitment" refers to the perceived costs associated with leaving the organization. on the other hand, "affective commitment" refers to an individual's emotional affiliation with an organization (meyer and allen, 1991). employees' emotional identification with the organization will be achievable only if the organization communicates clearly what is expected from employees and which behaviors are rewarded, and whether the organization's approach towards anticipated behaviors is consistent and equitable throughout. 6. conclusions and discussion we may assert that the value of human resource management models in establishing a sustainable competitive advantage has grown in popularity over the previous three decades. numerous human resource management applications are discussed above as “content" studies. however, in this study, we attempted to emphasize the relevance of "process" studies in addition to content-oriented human resource management research. numerous studies have demonstrated that the same human resource management procedures produce inconsistent results due to changes in the employees’ perception processes of human resource management practices within the organization. the hrm system strength theory places a premium on how well managers interact with employees in practice, rather than on the quality of the "content" of these studies. assume that we establish difficult targets for all employees using a variety of key performance indicators. are the staff fully aware of the objectives set for them? are these reasonable targets? are the objectives aligned with the organization's overall strategy? are the managers' behaviors toward employees similar when they implement and evaluate these goals? let us be certain that if we receive affirmative responses to these questions, our performance management system's contribution to our company's organizational success will significantly grow. melih şükrü ecertaş & oya erdi̇l 16 references alfes, kerstin, et al. 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(1996). human resource management, manufacturing strategy, and firm performance. academy of management journal, 39(4), 836-866. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 78-90 78 investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries imam hissein alio istanbul commerce university, turkey mehmet sağlam istanbul commerce university, turkey received: august 10, 2022 accepted: september 22, 2022 published: december 01, 2022 abstract: the main objective of this study is to shed light on the effects of chinese investments on the global competitiveness of sub-saharan africa, specifically chad, ethiopia, and ghana. the study employs a qualitative technique based on depth semi-structured interviews. in the indepth interviews with field professionals and experts, four questions were asked to one participant from each country. the depth interviews show that ghana and ethiopia have the most competitive potential respectively. on the other hand, chad has no chance of competing due to limited resources. while chad is characterized by poor governance and limited economic freedom, ghana and ethiopia have relatively a large capacity to attract foreign investment. china, as a strong competitor, uses various strategies to beat local rivals in chad, ethiopia, and ghana. in this regard, it offers a wide range of products of average quality at affordable prices to customers in chad and ethiopia, while benefiting from large-scale production, economies of scale, and tax breaks in ghana. with this, local investors are unable to compete with china, which negatively impact the local markets to flourish, especially in the long run. keywords: china, sub-saharan africa, investment, global competitiveness 1. introduction the relationship between investment and competitiveness has received increased attention across a number of disciplines in recent years. in this context, factors such as foreign direct investment (fdi), trade and labour productivity have been cited as major determinants of competitiveness in both efficiency-driven and innovationdriven countries (rusu and roman, 2018). identifying factors that affect competitiveness has become a critical strategy for companies, sectors, and countries to not only survive but also expand. as indicated by asiedu (2006) the availability of resources, well-structured institutions, and market potential of the host country are the prime factors that influence china’s fdi to africa (asiedu, 2016). china has engaged with africa in the last six decades. this relationship which has been considered by many scholars as one of the prominent examples of south-south cooperation (ssc) has begun especially after several injustice practises, political and economic exploitations caused by the western powers which go by the name of the north. china has begun to come into the front, especially after establishing itself among the most powerful industrial powers in the globe (bbaala, 2015). with this aim in mind, china continued to cooperate more with the southern countries, especially africa’s resource-rich countries. africa's natural resources and the search for new markets are the primary drivers of china's engagement with the continent, while africa appears to benefit from chinese infrastructure development projects, foreign direct investment (fdi), and trade (haroz, 2011). studies over the past two decades have provided important information on the sino-african relation. it is now well established from a variety of studies that the bilateral cooperation between china and africa is on the rise. chinese fdi in africa has clearly increased over the preceding decade, with investment directed specifically at africa following the 2015 focac high point, when china contributed $60 billion to the continent (abdullahi, 2020). investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 79 in parallel with these developments, the subject of chinese investment in sub-saharan africa has received scant attention in the research literature. although studies have recognised both negative and positive impacts of chinese investment in sub-saharan africa, research has yet to systematically investigate the effect of chinese investment on the global competitiveness of sub-saharan africa. in other words, several studies have been conducted on the chinese investment in sub-saharan africa including abdullahi (2020); bbaala (2015), niu (2019) and breivik (2014) however, specifically, no work has been done to investigate the impact of chinese investment on the global competitiveness of sub-saharan africa, at least to the best of this researcher's knowledge. consequently, this work aims to collect data that will help in filling these gaps. 2. competitiveness as is known, competitiveness is one of the most essential factors of both economic and technological development. it has become a crucial issue in the field of economics due to its driving force of the capital system. yet according to the classical theory, competitiveness increases the level of production between firms and labourers. for this and similar reasons, competitiveness has been studied many years and nowadays has turned into an honourable subject in economy (semizoğlu, 2019). competitiveness refers that in order to compete, one must be more successful or better than others who are also attempting to do the same. according to united states author nancy pearcey “competition is always a good thing. it forces us to do our best. a monopoly renders people complacent and satisfied with mediocrity” (arun, 2018: 1). according to the definition of world economic forum (wef, 2016), competitiveness is defined as “the set of institutions, policies, and factors that determine the level of productivity of a country”. based on the view of la falce et al; (2020), competitiveness is the capability of a nation to sustain and extend its markets. organisation for economic co-operation and development (oecd) refers to firm competitiveness as the “capacity of firms to compete, to increase their profits and to grow. it is based on costs and prices, but more vitally on the capacity of the firms to use technology and quality and performance of the products” (wignaraja, 2003: 22). according to okereafor et al. (2015), the sole understandable way of defining competitiveness at the typical level is productivity which stress that the growth of productivity that is related with national competitiveness strategy. porter (1990) averred that the development or growth of any economy is calculated by its efficiency to nourish competitiveness, produce, keep, and tempt economic activities which make sure enrichment. 3. relationship between investment and competitiveness some scholars suggest even more sceptical views regarding the link between investment and competitiveness. more explicitly, although most of the studies in the literature have agreed on the existence of a relationship between investment and competitiveness, however some of these studies have not acknowledged the condition in which this relationship takes place. for example, there is a debate as to whether this relationship can take place in a competitive or monopolistic market. in this regard, some studies suggest that a market with competitive conditions would result in more investment compared to that with monopolistic characteristics; while others claim the opposite by acknowledging that better incentives for investment can only be achieved under monopoly (dube, 2009). according to schumpeter (1939), the most important reason why a monopolistic market is optimal for competition is the desire of firms to monopolise the market in the future. this desire also serves as a driving force for firms to improve the production process. with this purpose in mind, these firms are expected to invest and innovate today for their own benefits in the future, which also benefit other firms. other scholars such as dube (2009) however, criticise this “one-size-fits-allapproach” which generalises the relationship between investment and competitiveness across sectors. dube (2009) therefore concludes that deciding on whether a sector will open up for competition should depend on the sector-specific characteristics. simply because there are some sectors which are more beneficial to investment in monopolistic conditions than competitive conditions. within the scope of the investment-competitiveness connection, the relative importance of competitiveness has been subject to considerable discussion. much of the literature pays particular attention to the positive impacts of competitiveness on investment and the economic environment in general. some of these studies suggest that promoting competition has an important role to play in pushing firms to improve efficiency and contribute to prosperity and well-being by offering wide-ranging quality products and services at affordable prices. in addition to imam hissein alio & mehmet sağlam 80 these, the positive impacts of competition, especially on investment have been recognised by many countries today (khemani, and carrasco-martin, 2008). in the light of all facts that has been mentioned so far, one may say that there is positive correlation between investment and competition. in other words, results from earlier studies demonstrate a strong and consistent association between investment and competition. investments, particularly foreign direct investment (fdi) on the other hand, does not only provide capital for domestic investment, but also creates employment opportunities for the host countries, including sub-saharan africa. investments, especially foreign direct investment (fdi), not only provide capital for domestic investments, but also create employment opportunities for host countries, including sub-saharan africa. therefore, the investments made contribute to the competitiveness of the country in different ways. 4. overview of chinese investments in sub-saharan africa many studies have identified china-africa relations as one of the most notable examples of south-south cooperation (ssc) over the last six decades. this cooperation began in earnest after southern countries or developing countries from africa and asia were subjected to a series of injustices, political and economic exploitations caused the western powers (the north) during the colonial era. the southern countries, also known as the south, suffered from underdevelopment and backwardness throughout this time. as a result, many south countries began to shift their focus and so collaborated with the eastern bloc rather than the western bloc. since then, as a south country, china has begun to take the lead, particularly after establishing itself as one of the world's most powerful industrial powers. it began to compete with the already established hegemonic nations such as the united states and japan (bbaala, 2015). competition between great powers on the other hand remains an ever-present phenomenon in africa, especially when considering the anarchic nature of the international arena, where every country is looking for its selfinterest. the united states and china for instance, have strained relations in a time when they need to cooperate more than ever (salitskii and salitskaya, 2020). returning to the relationship between china and africa, despite the fierce competition, china continued to cooperate more with the southern countries, especially africa’s resource-rich countries. thanks to this collaboration, china gained access to natural resources such gas, oil, minerals, and forests, as well as the ability to expand into new markets. besides, the existing literature on potential determinants of china's involvement in africa cites resource seeking, efficiency seeking, market seeking, and strategic asset seeking as primary reasons for china's involvement in africa (dunning, 1993). another study done by breivik (2014) to investigate the motives behind china’s presence in africa between 2003 -2011 using panel data from 49 african countries concludes that china is mainly driven by natural resources, gdp, market size and trade openness. nevertheless, recent studies have cited foreign direct investment (fdi) as the most important aspects of china's activities in the continent. underdevelopment, large population (the second largest continent after asia and with more than 1.2 billion people) and the presence of natural sources (such as bauxite, iron, silver, petroleum et cetera), have pushed many african countries to attract foreign investors. this being the case, many african countries had signed more than 972 bilateral investment treaties (bits) since 1960. on the other hand china has been an important partner since then. today there are more than 3,400 settled chinese enterprises operating in various parts of the continent. president xi jinping has also declared $60 billion financial support to africa which will be given as government aid and investment (niu, 2019). china has fdi stock of $40 billion in africa, which makes the country the fourth largest fdi stock provider in the continent, only behind the united states, the united kingdom, and france (unctad, 2018). when it comes to fdi flows however, the top 10 recipient countries are respectively angola, kenya, congo (drc), south africa, zambia, guinea, congo (brazzaville), sudan, ethiopia, nigeria, tanzania, and they hold more than 75% of china’s total fdi flows in the continent. when it comes to investment areas however, china’s outward fdi stock is concentrated in several industries. a report on china’s outward investment published by ministry of commerce of the people’s republic of china (mofcom) reveals that construction sector (29.8%), mining sector (22.5%), financial services sector (14%) manufacturing (13.2%) leasing and business services (5.3%) are the top five industries in africa which attract china’s outward fdi stock the most (ministry of commerce of the people’s republic of china. 2018). investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 81 the point of view on china's cooperation with africa is one that is widely shared by both chinese and african people, who see the collaboration as a chance for both parties to benefit. many africans now see the partnership with china as an opportunity for mutual benefit and win-win outcomes (sautman and hairong, 2007: 80). beyond the fact that china invests more than other european countries, china's investment model, the "chinese model," fully meets the needs of africa. for instance, china, unlike the western one, does not require cash payments in exchange for investments. that is to say, china accepts natural resources rather than cash in exchange for investments, a practice known as infrastructure-for-resources (ifr) or resources-for-infrastructure (rfi) (bbaala, 2015). another distinguishing feature of the "chinese model of investment" or the "beijing consensus" which emerged as an opponent to the well-known "washington consensus" is that it does not impose any neoliberal reform package such as privatisation, deregulation, and social spending cuts, which are also known as "imf conditionality”. the primary reason for such an approach is china's aforementioned "non-intervention policy". this being the case, the principle of non-interference has been a central tenet of china's africa policy from the beginning. “in its relations with africa, china consistently upholds the principles of sovereignty, equality and non-interference into other countries' internal affairs. they remain the fundamental principles of china's diplomacy toward africa” (ying, 2018: 31). 5. methodology this study uses a deductive approach to investigate the impacts of china’s investments on the global competitiveness of sub-saharan africa (arlbjorn and halldorsson, 2002; yin, 2003). as most experts such as brautigam (2009) also points out, the chineseafrican relationship in general and the investments and projects carried out by china in particular, are very complex and ambiguous areas in the field. therefore, using deductive, qualitative research methods can help better understanding of the subject as well as explaining it. qualitative research techniques can also aid in reaching and forming accurate conclusions about the issue, especially when taking into consideration the debate mode that surrounds the subject as described above. going deeper into the study, this work uses semi structured interviews as a main data collection instrument, where in-depth interviews were conducted with professionals and experts of the field. the reason why this instrument was selected is that it is the most appropriate method for this study, especially when it comes to providing better understanding of the subject under study. as it allows collecting the required data to determine factors of chinese investment affecting competitiveness in sub-saharan africa as a semi structured interviews; it also provides enough space for flexibility, clarification, and discussion, where the interviewees can share their opinions, attitudes, and strategies in an unrestricted manner (topolansky barbe, 2008). on that note, managers, professionals, chief executives, and key-decision makers who have sufficient knowledge and experience in the field were interviewed. to put it more explicitly, the interviewees were aware of the chinese investment in sub-saharan africa, especially chad, ethiopia, and ghana and so they were deliberately selected from these countries which included in this work. this was important especially when it comes to obtaining the right information from the right sources. 5.1. significance of the study as it has been mentioned earlier, although extensive research has been carried out on chinese investment in africa in general, no single study exists which investigate the effects of chinese investments on the global competitiveness of sub-saharan africa (especially chad, ethiopia, and ghana). this study will therefore seek to obtain data which will help to address these research gaps. consequently, the work will be a useful source for academicians and researchers who want to conduct future research in the field. in addition to its academic contribution, this study will also provide valuable insights that can help governments, investors and policy making institutions in taking the right steps while developing policies. approaching the subject from both the western and the eastern perspectives and more importantly presenting an authentic african stance will be a great contribution to the literature as whole. this being the case, the present study will therefore provide a valuable contribution to the literature in this area. 5.2. research questions as stated previously, the purpose of this study is to shine light on the impacts of china’s investments on the global competitiveness of sub-saharan africa, especially chad, ethiopia, and ghana. the research questions of the study prepared in this context were formed as follows. imam hissein alio & mehmet sağlam 82 • question 1: to what extent do you consider chinese investments sufficient in terms of competitiveness, do you have any suggestions? • question 2: what are your thoughts on the chinese investments and competitiveness when considering both global and local market conditions including your company and sector? • question 3: what are the impacts of chinese investments on the local market and customers by considering its role in fostering competitiveness? • question 4: how do you see the future of chinese investments and it’s impacts on the competitiveness of your country, any comments, or suggestions for future improvements? 6. findings the findings obtained from the semi-structured in-depth interviews with one expert participant from three countries are respectively summarized below. 6.1. chad's interview results question 1: to what extent do you consider chinese investments sufficient in terms of competitiveness, do you have any suggestions? when it comes to the question of whether chinese investments are sufficient in chad, the interviewee responded that chinese investments are not enough. because the chinese investments in chad have not reached the desired point yet. question 2: what are your thoughts on the chinese investments and competitiveness when considering both global and local market conditions including your company and sector? the truth is that china competes with producing countries all over the world. today chinese goods compete with all world products including chad’s products. one of the most important reasons why chinese products stand out in the world market is that they are cheap. another reason is that china offers products according to the purchasing power of its customers. for example, while it offers high quality and expensive products to a market with high purchasing power like europe, it offers cheap and low-quality products to a market with low purchasing power like africa. “chinese investments are sufficient in terms of competitiveness...today chinese goods compete with all world products. china offers products according to the purchasing power of its customers. it offers high quality and expensive products to europe and offers just the opposite for the africa” (c.i, participant 1, january 21, 2022). question 3: what are the impacts of chinese investments on the local market and customers by considering its role in fostering competitiveness? the interviewee from chad used this part of the interview to highlight that chad is a consuming country. because most consumed goods, particularly manufactured goods such as packaged goods, paper, textiles, machinery, clothing, and vehicles, are imported from countries such as nigeria, cameroon, sudan, and china. in this scenario, local consumers are looking for high quality and affordable products at the same time. consumers in the country, on the other hand, have limited purchasing power due to low earnings. this being the case, china has begun to offer affordable products to consumers, including but not limited to technological devices such as cell phones, clothing, and shoes. when viewed from this aspect, one can conclude that china's presence in chad has benefited regular customers. especially that china introduces a wide range of products with average quality and affordable prices that suit purchasing power of the local customers. while this situation benefits consumers, it also pushes manufacturers to compete. therefore, it is possible to say that chinese investments and products have positive effects on the chadian market, as it contributes to the competitive environment in the country. to explain the impacts of chinese investment on local market, the interviewees from chad expressed the belief that unlike developed or developing countries, the private sector in the country is very weak compared to the public sector. because the country's overall economy remains fragile, and conflict-affected. this situation has an impact on not only employment but also the country's competitive climate. as a result, local investors are still unable to compete with foreign investors like china. the following quote summarizes the interviewee’s views: investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 83 “chad is a consuming country that generally import from countries such as nigeria, cameroon, sudan, and china. consumers in the country, on the other hand, have limited purchasing power due to low earnings. this being the case, china has begun to offer a wide range of products with average quality and affordable prices that suit the purchasing power of the local customers. all those suggest that china's presence in chad has benefited regular customers” (c.i, participant 1, january 21, 2022). question 4: how do you see the future of chinese investments and it’s impacts on the competitiveness of your country, any comments, or suggestions for future improvements? even though china is currently focused on economy rather than politics, there are many question marks about the country's future direction. many experts are now questioning whether china, which has grown stronger in africa over time, will interfere in african politics in the future, as present superpowers such as the united states and france do, and whether china will use hard power rather than soft power. the debt policy that china has recently adopted in countries such as kenya and ethiopia may turn into a trap for these countries in the future. indeed, china took over the kilindini harbour mombasa port, the biggest port in east africa and so china has managed the harbour in exchange for release of the debt. moreover, china wants to have a place in africa in the military sense. for example, china currently has a military base in djibouti, and this number may increase in the future as african chinese relations develop. yet because chinese investors have a competitive advantage in nearly every aspect, local investors are unable to compete, which does have a negative impact on the local market's ability to improve. instead of having an unbalanced partnership in which china benefits at the expense of the sub-saharan african countries, the relationship should be designed to benefit african countries too. the interviewee's viewpoints are summarized in the following quote: “china is currently focused on economy rather than politics, however, there are many question marks regarding the country's future direction. experts are questioning whether china will interfere in african politics in the future, and whether china will use hard power rather than soft power” (c.i, participant 1, january 21, 2022). 6.2. ethiopia’s interview results question 1: to what extent do you consider chinese investments sufficient in terms of competitiveness, do you have any suggestions? as a matter of fact, china has overpoweringly broken into the african market, especially ethiopia. as it has fearlessly and unsmilingly invested in various areas and parts of the country. it made investment from construction to mining to manufacturing and financial services. the reason why chinese investors are unfearfully investing in the continent is that they are fully supported by both china and the local governments in africa. for instance, chinese investors are financially supported by china while also granted some privileges in some legal and bureaucratic procedures in africa. with this mind, china has made various agreements with the local governments in africa to provide investment environment for its citizens. therefore, when there is a problem, the problem remains between the countries. chinese government provides even advocacy services to the chinese investors in such cases. another important feature of chinese investors is that they can communicate well with local businessmen and therefore they can easily establish partnerships. because they are more business-oriented, chinese investors use local investors as an asset to benefit from their experiences in the local market. due to these and similar reasons, it is possible to say that chinese investors are doing a good job in the ethiopian market in terms of competition. in response to the question, the interviewee highlights that: “china has overpoweringly broken into the ethiopian market. it has fearlessly and unsmilingly invested in various areas construction to mining to manufacturing and financial services. the reason why chinese investors are investing in the continent is that they are fully supported legally and financially by both china and the local governments in africa. china doing a good job in the ethiopian market in terms of competition” (e.i, participant 2, january 14, 2022). question 2: what are your thoughts on the chinese investments and competitiveness when considering both global and local market conditions including your company and sector? imam hissein alio & mehmet sağlam 84 commenting on impacts of chinese investment on competitiveness in ethiopia, the interviewee emphasised that china’s investment in ethiopia has some positive and negative aspects. one of the positive sides of china’s investment is that it opens up new employment opportunities for the local markets, especially when considering country’s huge working capacity. while also creates business spaces for local businessmen who lack resources and so desperately look to form partnerships with others. china’s investment also helps transferring technology, brings knowledge and experiences to the country which lacks experience in this regard. the negative side is that because chinese investors have competitive advantage in nearly all aspects, local investors cannot compete with them which negatively impact the local market to flourish, especially in the long run. as in this case, there will not be a fierce competition environment in the market. “china's investment creates jobs and partnerships, transfers technology, brings knowledge and experiences to ethiopia. with this, local investors cannot compete with them which negatively impact the local market to flourish, especially in the long run... and there will be no severe competition in the market in this regard” (e.i, participant 2, january 14, 2022). on sectoral basis, however, the results have shown that there are a lot of chinese firms operating in various sectors such as the paint industry. even though chinese firms do not negatively affect the local firms in the foreseeable future, however this condition may change over the long term. this is mainly because of the demand and supply gap in the market. when asked for more specific examples, interviewees provided the following: “in the paint industry, where my company also operates, there are many chinese firms operating on a sectoral basis. even though chinese firms do not have a negative impact on local firms in the near future, this situation may change in the long run. since there is a demand-supply mismatch in the market” (e.i, participant 2, january 14, 2022). question 3: what are the impacts of chinese investments on the local market and customers by considering its role in fostering competitiveness? talking about impacts of chinese investment on local market and customers in ethiopia, the interviewee expressed that know-how, innovation, and technology transfer are the main assets that can positively contribute to competitive environment in the country if the local government establish an environment that is based on mutual gain and trust. another advantage is that because chinese products are generally of poor quality, local manufacturers can win the competition, especially when they offer quality products. however, due to its raw material inventory advantage and economies of scale, china continues to outperform the competition. the interviewee cited the following example to explain why china's low quality cannot compete with locally produced high-quality products: “for example, in the paint industry where my firm operates, customers prefer the products we produce in the country much more than the chinese products. despite this, china still beat the competition thanks to its raw material inventory and economies of scale” (e.i, participant 2, january 14, 2022). question 4: how do you see the future of chinese investments and it’s impacts on the competitiveness of your country, any comments, or suggestions for future improvements? in response to the question: ‘how do you see the future of chinese investments and it’s impacts on the competitiveness of your country, any comments, or suggestions for future improvements? the interviewee highlights that: “considering the current course, one can argue that chinese investments in ethiopia and africa will increase in the future. however, i think that china-africa link should be a win-win type of relationship” (e.i, participant 2, january 14, 2022). 6.3. ghana’s interview results question 1: to what extent do you consider chinese investments sufficient in terms of competitiveness, do you have any suggestions? in response to question 1, the interviewee indicated that china is mostly operating in the retail sector. for instance, china has made significant shopping mall investments in ghana. even in the mining sector, prior to the arrival of the china, people were primarily engaged in manual mining until the china arrived and introduced sophisticated machinery. this process has been accelerated by the presence of new technology. as nearly every gold-bearing region in ghana has been discovered thanks to chinese influence and technology. the interviewee explained how chinese investments in ghana had changed the game: investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 85 “prior to the coming of the chinese to ghana, people were mainly doing manual type of mining until the chinese came to introduce sophisticated equipment in the mining sector... places before then we never even thought of now with the influence of the chinese has made it possible for mining to be discovered in otherwise unknown environment” (g.i, participant 3, january 09, 2022). in explaining the role played by technology, the interviewee also added that: “in terms of positive aspects, the chinese have introduced technology that was previously unknown. a technology which has made it possible for new discoveries in otherwise unknown places that we normally never thought of having gold there, now we have discovered almost every part of ghana that has gold deposit” (g.i, participant 3, january 09, 2022). however, one must admit that the introduction of those sophisticated equipment to the ghanaian territory came with its own negative consequence. the environment has been damaged because of the kind of tools used by china, and people have begun to express their dissatisfaction with the situation. for instance, the mining activities took place in the forest has destroyed the water bodies which are also having negative consequences for the time being, and possibly in the future. when asked for more specific examples, interviewees provided the following: “the impact on the environment is so severe. as china is aggressively operating in forests and natural places, the water bodies and the aquatic animals in the country are being destroyed and we know for sure that if the last three dies mankind can no longer survive. yes, to a larger extend china has impacted us in both positive and negative ways” (g.i, participant 3, january 09, 2022). in fact, according to estimates, if precautions are not taken, almost all of ghana's water bodies will be destroyed within the next few years. as major rivers, such as the oti and ofin, have been negatively impacted. it should not be forgotten that ghana's top export commodity is cocoa, followed by gold, and that these two commodities generate a significant portion of the country's revenue. as a result, the more the country mines, the more revenue it generates; however, a cost-benefit analysis shows that ghana may benefit today, but there is a risk in the future. therefore, ghana must take a step back and consider these environmental consequences. the following quote summarizes interviewee views regarding the first question: “in accordance with the estimates, in the next couple of years all most all of ghana’s water bodies as well big rivers such as oti river, ofin river are going to be destroyed if care is not taken. therefore, if you do the balancing in terms of cost-benefit analysis you can see that we may benefit today but in the future the danger is there. so, there is a need for ghana to pause a little bit and think about these environmental consequences” (g.i, participant 3, january 09, 2022). question 2: what are your thoughts on the chinese investments and competitiveness when considering both global and local market conditions including your company and sector? as stated before, china has now started investing in retail sector, almost all household items in the ghanaian market are either made in china or supplied from china. before the chinese presence, most of the ghanaian traders were traveling to china, but in recent times, china itself is coming down to establish businesses in the country. china is now competing with indigens and so there is no space in the market. the interviewee does believe that such trend is not limited to ghana, but also applies to almost the entire sub-saharan african region. because the current trend in africa is that china is invading those countries and so definitely having impact on the local markets. the local market is therefore unable to compete with china, particularly in household items, where china benefits from largescale production, economies of scale, and tax breaks provided by the local governments. all these factors help reducing the cost of production to a considerable extent. “the china has now started investing in retail sector, especially household items. in recent times the chinese are coming to establish businesses in ghana. now china is competing with indigens and there's no space in the market. such trend is not only limited to ghana, but it also applies to almost all subsaharan africa. the common trend is that chinese are invading these countries and so definitely having impact on the local markets” (g.i, participant 3, january 09, 2022). in terms of competition, however, china uses pricing as one of the strategies in breaking down the competitors in the local market. therefore, when viewed from this perspective, those are so much on the indigens, and so china is taking businesses away from them. when one looked at the other way around, profits that are made in the end imam hissein alio & mehmet sağlam 86 transferred from ghana to china. to highlight the impacts of chinese investment on the local markets, the interviewee asked: “who benefits at the end of the day? the local market is rather helping chinese market to be stronger whereas the ghanaian market becomes weaker” (g.i, participant 3, january 09, 2022). question 3: what are the impacts of chinese investments on the local market and customers by considering its role in fostering competitiveness? for the consumers, one must admit that most of the chinese products are cheap relative to the european products, namely low-end goods. china’s strong presence in the african market has made it possible for many african people to have access to certain facilities, products as well as technological devices including mobile phones. another aspect is that chinese products are relatively affordable, and less low-quality products that cannot last for quiet long time (short life items). in other words, china provides consumers with low-cost, but short-life products. “because of china's presence in the african market, many africans now have affordable access to various facilities, products, and technological devices such as mobile phones and so on” (g.i, participant 3, january 09, 2022). questions 4: how do you see the future of chinese investments and it’s impacts on the competitiveness of your country, any comments, or suggestions for future improvements? the respondent from ghana forecasted that china will continue to have a strong presence in the african market. because, like it or not, the world's power has shifted to china, particularly given china's enormous global market impact. china has now surpassed the united states in almost every aspect of trade and investment. for this reason, china will continue to act in accordance with its competitive advantage in the global economy. even when viewed through the lens of porter's model, china now has competitive advantage not only in terms of supply and demand conditions, but also in terms of structure and rivalry. as porter also stated, these are the primary determinants that contribute to the creation of a national environment in which businesses can emerge and learn how to compete. however, as china benefits from its competitive advantage, it must be mindful of the rights of others so that the relationship can always been a win-win situation. in this case, china will benefit and so the sub-saharan african countries which are mostly at the weaker end of the relationship. instead of being a lopsided relation where china has advantage over the sub-saharan countries, the relationship should be structured in such way that benefit all. that is to say, there should be a sense of balance in the cooperation. “china will continue to have a strong presence in the african market. however, instead of being a lopsided relationship in which china has an advantage over sub-saharan african countries, the relationship should be structured in such a way that all parties benefit” (g.i, participant 3, january 09, 2022). 7. conclusion, implications and recommendations 7.1. conclusion to conclude, the study looked at the competitiveness of chad, ethiopia, and ghana within the context of chinese investment in sub-saharan africa. findings from in-depth interviews reveal several discourses regarding china’s presence in the continent: in terms of competitiveness sufficiency, collected data from the semi-structured interviews has shown that china has overpoweringly broken into the african market. it has fearlessly and unsmilingly invested in various areas from construction to mining to manufacturing and financial services. despite some negative environmental consequences such as damage to forests and water bodies, the introduction of new technologies has accelerated this process. the reason why chinese investors are investing in the continent is that they are fully supported legally and financially by both china and the local governments in africa. as a major investor, china doing a good job in the african market in terms of competition. regarding the effects of chinese investment on africa's and the world's competitiveness, the analysis of the collected data revealed that chinese investments are sufficient in terms of competitiveness. as today chinese goods compete with all world products. moreover, china’s investments create jobs and partnerships, transfer technology, bring knowledge and experiences to africa including chad, ethiopia, and ghana. domestic investors on the other hand are unable to compete with china, which could have negative influence on both local market and competitiveness. for instance, the local market is unable to compete with china in household items where china benefits from largeinvestigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 87 scale production, economies of scale, and tax breaks provided by the local governments. with this, china uses pricing as one of the strategies in breaking down competitors in the local market. china also provides products based on the purchasing power of its customers. for example, it offers high-quality, expensive products to europe while doing the inverse for africa. talking about the impacts of chinese investment on local market and customers, the interviewees expressed that know-how, innovation, and technology transfer are the main assets that can positively contribute to competitive environment in the continent. despite this, china still beat the competition thanks to its raw material inventory and economies of scale. consumers in the continent, on the other hand, have limited purchasing power due to low earnings. this being the case, china offers a wide range of products with average quality and affordable prices that suit the purchasing power of the local customers. this has enabled many africans to have access to certain facilities, products, and technological devices such as mobile phones. when viewed from this aspect, china's presence in continent has benefited the local customers. however, because the chinese products are relatively affordable, they are less low-quality products that cannot last for quiet long time (short life items). it is forecasted that china will continue to have a strong presence in the african market. especially that china has now surpassed the united states in almost every aspect of trade and investment. for this reason, china will continue to act in accordance with its competitive advantage in africa. china is currently focused on economy rather than politics, however, there are many question marks regarding the country's future direction. experts are questioning whether china will interfere in african politics in the future, and whether china will use hard power rather than soft power. the debt policy that china has recently adopted in countries such as kenya and ethiopia may turn into a trap for these countries in the future. indeed, china took over the kilindini harbour mombasa port, the biggest port in east africa and so it has managed the harbour in exchange for release of the debt. instead of being a lopsided relationship in which china has an advantage over sub-saharan african countries, the relationship should be structured in such a way that all parties benefit. however, when the three competing countries of chad, ethiopia, and ghana are compared, the single conclusion to be drawn from the in-depth interviews in this study is that ghana and ethiopia have the best potential to be competitive, respectively. while chad with limited resources has no potential to compete. this is all to say that ghana has a competitive advantage over ethiopia and chad. ethiopia, on the other hand, has a competitive advantage over chad. therefore, chad is in a worse position than ethiopia. it appears that chad has been unable to compete due to a lack of a well-established economic system. 7.2. scope and limitation of the study the study has some limitations. firstly, even though the sub-saharan africa region includes as many as forty-six countries, the study mainly focuses on chad, ethiopia, and ghana. secondly, the present study was subject to a number of weaknesses. the most important limitation lies in the fact that the researcher faced with several problem regarding collecting the related data, particularly primary data, where some firms and experts selected from the related countries were not able share well-structured information concerning the chinese investment and its impacts. these problems mainly originated from time and finance constraints which restrained the researcher from conducting the interviews in some of the selected countries especially, ethiopia, and ghana. what is more, the present study was subject to a number of potential methodological weaknesses. as noted by topolansky barbe (2008), the difficulties in interviewing key decision makers, non-response bias, lack of representativeness, data validity, and the interviewer's personal bias are the main downsides connected with using this research technique (topolansky barbe, 2008: 174). because of these limitations, study findings must be treated with some caution. 7.3. implications the study's findings highlight key elements that could have a significant impact on sub-saharan africa's economic development. as a result, the study's findings have several important implications for future practice. economic openness should be increased through more liberalised economic policies, as openness is widely acknowledged as a key factor in fdi inflows as well as fostering competitiveness. removing investment and trade restrictions such as taxes, quotas, exchange controls, and embargoes should be the first step to be taken in this imam hissein alio & mehmet sağlam 88 regard. international organisations and partners such china can also help improve and stabilise democratic institutions in the continent. given the positive and statistically significant effect of the private sector on competitiveness and economic growth, sub-saharan african countries, especially chad should prioritise private sector development. private sectors can be enhanced by reviewing existing investment legislation and introducing incentives including but not limited to tax relief, legal arrangements, privatisations. while doing so, it is important to keep the public and private sectors in harmony. as public-private sector consultation has proven to be tremendously beneficial in increasing the efficacy of government policy and investment decisions. to better use the abundance of natural resources and attract foreign investment, countries with natural resources should pursue policies aiming to completely liberalize (privatize) natural resource sectors. natural resource-related conflicts and instability must be addressed to maximise natural resource development and production while encouraging a fair distribution of income. governments of sub-sahara africa should play an active role in creating and promoting business-friendly environments, if they want to attract more foreign investment and boost competitiveness. governments can help firms gain competitiveness by providing finance, research, information, professional advice, and trainings as well as developing infrastructure. however, before all of these, fundamental obstacles such as political instability, corruption, and poor governance must be addressed. as is known, infrastructure capacity is extremely important for competitiveness and economic development. infrastructure services such as transportation, communication, water, and power systems are critical for keeping up with economic changes brought about by industrialization, urbanisation, and globalisation. in this regard, africa should benefit from china's technology and experience. therefore, infrastructure investment from china should be prioritised, however, it must be ensured that these investments are long-term (sustainable). the private sector should also provide alternative sources for infrastructure investment in this regard. for example, the private sector can promote the use of renewable energy sources including solar, wind, and hydropower. serious attention should be paid to human resource development if competitiveness and economic development are to be achieved. human capital accumulation is key in attracting fdi, as investors prefer to invest in markets with dynamic, high-quality, and experienced workforce. however, it is possible to have a healthy workforce by focusing on future industries with the ability to compete in the global market. to achieve this, both local governments and the private sector must work together to foster and strengthen university-industry collaboration for research and development, skills development, and innovation. governments also should allocate adequate resources to science and technology education including information technology and digital technologies, as well as other knowledgebased resources. 7.4. recommendations the study further contributes to the growing body of evidence that chinese fdi in sub-saharan africa is vertical in nature (resource-seeking). it should also be noted that, because competitiveness policy is so broad in scope, the policies recommended here are much more focused on infrastructure and the overall structure of the economy. 1africa-china relationship should be built on common economic values such as mutual gain, mutual trust, mutual respect, and so on. 2the investments should be strategic, well-planned, and directed to priority areas such as infrastructure and agriculture. however, it must be ensured that these investments are sustainable and environmentally friendly. 3a business-friendly environment should be established to attracts more investment and increases competition. that is to say that governments should create favourable market conditions that are a win-win situation for africa and investors alike. 4the investments should transfer knowledge, technology, and experience to the continent. the investments should specifically provide african workers with the opportunity to gain knowledge, skills, and experience in this regard. 5instead of the public sector, where local governments have greater state control over economies, the private sector should be prompted not only to create alternatives, but also to foster competitiveness in local markets. 6human resource development must receive significant attention, as investors prefer to invest in markets with a dynamic, high-quality, and experienced workforce. 7social responsibility should be considered in the investments made. as a result, companies should make efforts to operate in ways that benefit society and the environment rather than destroy them. investigating the impacts of chinese investments on the global competitiveness of sub-saharan countries 89 8further research should be conducted to investigate the effects of chinese investment on the global competitiveness of other african countries not mentioned in this study. references abdullahi, h. 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(2018). “china's diplomacy in africa: ideas and practices”. china international studies, 28 (1), 28-46. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 58-66 58 an in-depth interview: supply chain management in denizli integrated textile companies evrim i̇ldem develi̇ istanbul commerce university, turkey received: april 12, 2021 accepted: may 10, 2021 published: june 15, 2021 abstract: in this study, the process between supply chain management, production and distribution is explained through in-depth interviews. it’s focused on examining the meaning of supply chain management (scm) in literature and flow process of money, information and raw material of scm. also, it is pointed out that scm as a system having principles. as a research method, scm system is examined in an in-depth interview with towel -bathrobe textile companies in denizli with facilities integrated from yarn production to fabric production. in-depth interviews were conducted with production managers of 15 towel-bathrobe textile companies. with this study, it is aimed to reveal how the basic rules required for the establishment of a successful scm apply to the relations with suppliers and customers in the production and distribution processes of towel-bathrobe textile enterprises. in addition, three main scm flows; money, information and material were analyzed in the participating companies. as a result of this analysis, a common flow diagram was created for these enterprises. keywords: supply chain management (scm), scm flows, scm rules, scm practices 1. introduction in today’s economical and business system, business world focuses on reducing costs, sustainability in financing, marketing, producing and supplying. this study is based on one of the marketing mix; place as supply chain system. supply chain (sc) is a network of a distribution system that contains raw materials (yarn), finished (dyed fabric) and semi-finished (unpainted knitted fabric) products through logistics. it’s a progressive process that answers needs of customer. the customer is the driver of the chain, because paying money to the members of scm is the customer. 2. supply chain management in literature: according to pounder et al. (2013) scm is a system that is gaining importance in business world in internally and internationally. for christopher (1992) sc refers to meaning of today, which is an organization consisting of operations creating value for company and parts of the chain like suppliers and the customer. by known definition of scm; planning, implementing and controlling the operations for the effective use of raw materials and operating process (oliver and webber, 1992), the view of council of supply chain management professionals (cscmp) by laws (2013) enlarges the definition’s scope with the third and fourth parties of the operating system. in stevens’ study (1989) it’s mentioned the cost effectiveness of scm. according to porter (1980) to have competitive advantage in the market, companies should have generic strategies like; overall cost leadership, focus and differentiation. so, an integrated company can achieve a competitive advantage by implementing its cost leadership strategy. in this study, it’s aimed to express meaning, flow process, importance and the principles of scm. the literature review on these two part is the guide for research part in order to have information about scm flow process from production planning and to finished product level within the in-depth interviewed companies who have integrated factories including yarn factories, which lead them as cost effective companies, as mentioned in porter’s competitive advantage model. an in-depth interview: supply chain management in denizli integrated textile companies 59 2. supply chain management in literature according to pounder et al. (2013) scm is a system that is gaining importance in business world in internally and internationally. for christopher (1992) sc refers to meaning of today, which is an organization consisting of operations creating value for company and parts of the chain like suppliers and the customer. by known definition of scm; planning, implementing and controlling the operations for the effective use of raw materials and operating process (oliver and webber, 1992), the view of council of supply chain management professionals (cscmp) by laws (2013) enlarges the definition’s scope with the third and fourth parties of the operating system. in stevens’ study (1989) it’s mentioned the cost effectiveness of scm. according to porter (1980) to have competitive advantage in the market, companies should have generic strategies like; overall cost leadership, focus and differentiation. so, an integrated company can achieve a competitive advantage by implementing its cost leadership strategy. in this study, it’s aimed to express meaning, flow process, importance and the principles of scm. the literature review on these two part is the guide for research part in order to have information about scm flow process from production planning and to finished product level within the in-depth interviewed companies who have integrated factories including yarn factories, which lead them as cost effective companies, as mentioned in porter’s competitive advantage model. 2.1. process in supply chain management there are 3 main flows within the sc system, which are; money, information and raw material flow (lee, 2000) shown in figure 1. figure 1: scm system through money, information and material flow source: kramarz, m. & kramarz, w. (2019). “managing the flow components in supply chains”. metabk, 58(12): 158. blue arrow shows money flow where money comes from the customer from end of the chain to distributor-seller etc. and from distributor-seller to the factory and to the supplier (kramarz and kramarz, 2019). information flow is also shown with blue arrow since information also comes from the region-customer, whether there is any product in storage or in stocks. it’s directly forwarded to factory from distributor-seller etc. for production it’s important to have the information on raw materials. material input is first stage of the sc system as the beginning point is shown with green arrow. other two flows start from the end of chain. the material changes to the order of customer (kramarz and kramarz, 2019). to be part of this system members of sc should share the information needed for production and logistics. in chain if the customer is satisfied with the service or product that she/he has paid for, the company is also satisfied because of the loyalty of its customer, hence long and profitable life of the company depends on loyal customer. the loyal customer who buys the product from regular buying channel knows the regularity of raw material, so if there’s any change within the raw material or raw material supplier, the customer feels the change. stability is vital within the system in order to protect the satisfaction of loyal customer in order to winwin point. scm structurally has long-term relationships. within this the manufacturer stabilizes the relationship between customer and supplier. evrim i̇ldem develi̇ 60 2.2. the principles of supply chain management system the sc has necessary rules for managing the partners in harmony for having sustainable efforts (mentzer et al., 2008). unity of purpose; one of the main purposes of the companies is having profit (vereecke
 et al., 2016). according to fliedner (2003) sc system foresees the allocation of resources and uses resources in an effective way through system management. collaboration; as defined in the studies of panahifar et al. (2015), simatupang and sridharan (2005) it is a way of coming together of two or more companies in order to plan and manage the sc system successfully. in the study of whipple and russell (2007) coming together for a common purpose supports also flow of information between parties simultaneously. collaboration requires intention of working together and sharing time for being effective in managing the scm (audy et al., 2012; fawcett et al., 2002). coordination: according to niemann et al. (2018) visible and effective leadership is needed to set and enact the plan in accompany with operators. the producer company who organizes and manages the scm system provides coordination according to the needs of parties in chain (nuttall, 2013; mentzer et al, 2001). there is need of transparency in order to have effective management. information sharing: clean information flow is the most important function in sharing (voigt and karl, 2012). in the study of al-doori (2019) information sharing is described as an input like sale forecasts, production planning of some knowledge on making strategies through sc (cao and zhang, 2013). the scm system contains parties besides suppliers i.e. logistic companies, retailers, wholesalers and dealers. in a case of incomplete information, these parties will be affected and they will be damaged as economically also as efficiency in working system. for panahifar et al. (2013) the other important issue is the security of information flow between parties of scm system. to preserve the information within flow and also the competitive advantages of the parties a contract is necessary. trust serves as a guarding mechanism of the sc partners’ know-how, experience, price, profit, money-raw materialinformation flow and win-win relationship. for lehoux et al. (2014) and niemann et al. (2018) this can be applied through a long-term contract between the parties. in the study of barratt and oliveira (2001) in order to set trust in relationship between parties, there are time and also cooperation that organizes the implementation of promises given by the parties needed. trust is mechanism, which firstly works inside the company and between employees. (almeida et.al., 2015). transparency is needed to have effective cooperation and collaboration in managing the system. the parties in the scm system monitor money, information and raw material flows of the sc. the parties need clear information about the flows’ position. information about these flows is secured by the contract, so that there is more trust to be transparency about sharing the information (ding, 2013; niemann et al., 2018; klaas and delfmann, 2005). institutionalization: the companies, which don’t have the mind of institutionalization they keep themselves from information flow, where the scm system doesn’t work effectively (parulekar and verulkar, 2015). for an effective scm sharing information on time and having the view of keeping all needed within the money-raw materialinformation flow triangle between parties (sorensen, 2005; ford, 1984). 3. research method the research technique of this study is based on explorative research. in this research method first step is secondary data, literature review, which is mentioned in the beginning part of the study. the other step is to find answers to questions of the researcher through in-depth interview. in-depth interview is an explorative research method that contains one to one interview with the parties related to the searched topic (gegez, 2007). the main reason of why this research technique is chosen is to make depth-interviews with 15 production managers who are the managers of companies, which have yarn factories where they get the raw material to produce towel-bathrobe. with in-depth interview there are two main aims. one is to present the supply chain system process of these 15 companies and explain three flow of scm system within these companies and their parties. the other is to put forward the principles of scm from their business point of view. 3.1. sampling in this study, the textile sector is divided into branches and reduced to fabric production. in the report of ministry of trade (2019) it’s told that denizli and bursa are important cities in turkey that have large production level on an in-depth interview: supply chain management in denizli integrated textile companies 61 towels. referring to this statement the report on ‘81 provincial industry status in turkey’ published by the ministry of science, industry and technology of turkey textile production rate is 25% in bursa, 44% in denizli. according to report of denizli chamber of commerce (2019) nearly 65% exports in denizli belong to textile and apparel products. in the field of textile and apparel exports, denizli accounts for nearly 35% of the country's annual home textile exports. from this point, denizli is decided to choose for the research, where the fabric production is highly observed as 170 company referenced by denizli organized industrial zone. 31 of them are on towel-bathrobe business. the number of companies is the universe of this study. the sampling for this study is decided according to companies in towel-bathrobe sector, which have integrated factories from yarn to towel-bathrobe where there are 15. in this study, 15 companies are examined through in-depth-interview with production managers. these are the managers of companies, which have yarn factories where they get the raw material to produce towel-bathrobe. 3.2. reliability and validity of the study in this study qualitative research method is used through in-depth interview. in qualitative research method view for reliability and validity changes according to some scholars. for guba and lincoln (1982) there needs to be trustworthiness instead of validity and reliability. in their study they mention about some criterias; credibility, dependability, confirmability and transferability. credibility includes prolonged involvement, member checking, peer debriefing-peering by scholars (holloway and wheeler, 1996:10). for prolonged involvement time is needed to have objective point of view about the respondents and also to understand the environment that they live during the production process. within this in-depth interview in order to provide objectiveness and trust interview was executed in afternoon hours in the office of product manager and also before the interview the day was spent withi n the factory observing the applications of processes of sc. member checking involves two interviews. first is the main depth-interview, second is to cite findings about the interview to the respondents in order to check (başkale, 2016). in this study to check the information given about the process of sc management and perception of principles, the findings are told to the respondents. for dependability, triangulation technique is used. the questions asked to increase the internal validity were “are the results credible” and “can these findings be repeated with the same or similar respondents”. in triangulation technique there is comparison between two or more interviews or the results of two or more data sources (such as, individual interviews with different group members). in this study first comparison is used as a triangulation technique, which points out that 15 companies are interviewed (başkale, 2016; mays and pope, 2000; streubert and carpenter, 2011). for creswell (2003) in order to check for the validity of the findings it’s said that at least one of these criterias are to be mentioned within research method. for confirmability of study there some points to be checked like recordings or notes, blogs, findings, process of findings, methods, aim of study, expectations, questions and observations (holloway and wheeler, 2016) which are mostly mentioned in this study. in transferability, there is generalization about the findings. but in qualitative research method the aim is to focus on understanding and explaining the situation that is investigated or interviewed. from this view to verify transferability in qualitative research method the environment of the research, sampling process and features of the respondents need to be explained (sharts-hopko, 2002; başkale, 2016). last criteria of trustworthiness in qualitative research method, transferability is explained in sampling and in-depth interview process of this study. 3.3. the limitations of study because of time and cost limitations, sampling in this study is limited by 15 companies that have integrated factories on towel-bathrobe production in denizli. 3.4. in-depth interview process questions are asked to 15 production managers of yarn factories. the in-depth interview process took 15 days. time period was in september-november 2020. in order to be objective and clear during the interview the aim of the study was shortly told to the product managers. the interview was executed in afternoon hours in the office of product manager and duration of in-depth interview was about 90 minutes for per product manager. before the interview the day was spent within the factory observing the applications of processes of sc. taking notes was the method of interviews rather than recording. recording was not preferred in order to provide trust. in analyzing period, the findings were told to the respondents for checking whether the information given about the process of scm and perception of principles are right or not. the age range of the respondents was 30 to 50. the professional evrim i̇ldem develi̇ 62 experience of the respondents was at least 5 years. the questions, which are asked to the respondents, are grouped in two sections accordance with the aim of the study. section 1 aim: understanding the organization of scm process within companies in towel-bathrobe sector in denizli which have integrated factories from yarn to towel bathrobe. questions: to explain about planning and production process from raw material to finished product, logistics process as a part of sc, money, raw material and information flow within sc members. section 2 aim: implementing the principles of scm according to their understanding. questions: definition and implementation of unity of purpose, coordination, cooperation, implementation, transparency, reliability and institutionalism according to their point of view. 4. findings the aims of this study are to understand how the companies in towel-bathrobe sector in denizli, which have integrated factories from yarn to towel-bathrobe, organize their scm process and to explain how they implement the principles of scm from their point of view. the questions are asked in two sections through in-depth interviews to 15 product managers. 4.1. scm process in towel-bathrobe system flows backward where the customer initiates process when he or she places an order instead of company having a production plan. when the company receives an order for a new product which has not been manufactured before, there should be a sample production phase where the company creates a sample in the laboratory with the correct colour fix, weight, quality and gets the sample approved by the customer before the serial production starts. findings are explained following scm stages; planning, production, logistics and information flow. planning is one of the most important phases in an integrated factory; prioritizing operation plans through time is vital, because in factory there are multi processes in action. prioritizing operation plans is organized depending on the order deadline. production phases identified in this study are as follows:  yarn supply phase: since yarn is needed to produce fabric, integrated companies have their own yard factories. so this is the first supplier in the chain where the order has come into production process.  needle selection phase: the types of needles that will be used in production of towel-bathrobe differ according to weight of towel-bathrobe knitting.  dyeing phase: once the towel-bathrobe knitted, dyeing of fabric will be the following process. the integrated company, which has a dye house, orders the dye and other chemical products if needed in this production process.  washing phase: after the dyeing process is completed, the fabric is washed in the water that’s supplied by artesian well.  pre-packaging phase: the materials for packaging are purchased from other suppliers.  quality control phase: at the end of the production process, the quality control officer checks the finished product for approval and then the finished product get ready for packaging.  packaging and delivery phase: following the packaging, logistics distribution is conducted and the ordered product is delivered to the delivery point mentioned in the contract. the planning department should be prepared to take action in a case of any machine breakdown. considering probable breakdowns, the planning department should foresee the estimated time of repair in order to plan the deadline of an order. the satisfaction levels of the customer are strongly connected to delivery on time given in the contact and fulfilling the material standards studied at lab and approved by the customer at the beginning. logistics, since some of the customers are located in different parts of country and there are long distances between them and denizli where the factories are located in, timely delivery is the key factor for success. if the factories fail to deliver the orders to customers on time, they are faced the penalty fees specified in the contract. delivery on time and logistics are key factors in success of scm where these factors are heavily dependent on information flow and harmony in operations. information flow in the sc and between employees is generally conducted by phone. the companies utilize order forms in order to collect information from the customers and most companies use more or less the same sets of information in these forms. the order form, including quantity, weight, size, deadline, production company and an in-depth interview: supply chain management in denizli integrated textile companies 63 signatures (if it is not a repeating order), is sent to the production company's accounting department. the accounting department investigates the financial risks of the potential customer. if a high-risk level is defined, the order will not be processed, but if there is a medium or low risk, small quantity orders are approved for production. after the approval of the accounting department, the order form is processed and sent to the production department in order to be inserted in the production queue. the scm process is as shown in figure 2 below. figure 2: the scm process of interviewed companies source: output of the in-depth interview 5. conclusion and suggestions in this study, findings about the applied principles within 15 towel-bathrobe integrated textile companies show that some scm principles are not implemented properly. it’s hard to say there is a standard or common use of scm system between companies. the companies reviewed in this study are mostly semi or non-institutionalized. the companies, which don’t have the understanding of institutionalization, are away from information flow, where the scm system doesn’t work effectively. as a result of being non-institutionalized, information is not shareable between the parties in chain. to be part of sc system members of the chain should share the information needed for production and logistics. in case of a technical difficulty in production line, it is not common practice to share information and estimated delay with the customer by these companies. they prefer continuing the production process with a back up producer in order to deliver the order on deadline. informing the customer in case of a problem affecting the delivery date is very important, as it will affect the workflow of the customer and is also an ethical responsibility. only general information is ensured to customer and the parties in scm. the results of the indepth interview with the companies indicate that coordination is mostly not part of the production process. it may be because of the result of un-professional behaviours of the employers. as a result of the in-depth interview; it was found that companies in this study generally exchanged information in the sc via telephone or e-mail. other finding was that employees of these companies did not have the knowledge and understanding required to use mobile technologies and software applications. it has been determined that using the phone as the main tool for information flow may cause some problems like not fully understanding the order details due to ambient noise or forgetting details because taking notes is not practical while the calls answered in production factory. the relationships between the scm principles described in the literature and the information obtained from this study is explained below.  there is unity of purpose between the participant companies but less ability to implement.  collaboration in information, money and raw material flow is interrupted because of limited use of information technology. there is also lack of coordination due to this interruption.  information sharing is not conducted effectively because of limited use of technology.  trust applies varies from company to company.  transparency differs depending on the performance of coordination and cooperation between manufacturer and customer firms.  institutionalization varies according to the companies understanding. evrim i̇ldem develi̇ 64 sc system is a value chain that gathers the abilities of partners and creates harmony and synergy, which make the system powerful, competitive and cost effective where the long-term relationship is established between partners (almeida et.al., 2015). in order for the scm system to function as a machine, all parties involved in the system must complete their duties and responsibilities and comply with the flow diagram. for customer satisfaction it is important to ensure a smooth flow of information and materials to create an effective scm process. this satisfaction will affect the existence and profitability of the enterprise. customer share determines the market share of enterprises. therefore, the loss of loyal customer reduces the profit of the enterprise and its market share. for an effective scm system, the businesses in the sc needs long term contracts, in building long-term relationship with other parties implementing the scm principles. the nature of sc is a living organism shaping up according to system length and needs of the partners. this study's importance, originality and uniqueness are because of the limited number of integrated yarn companies producing towel-bathrobe in denizli. there is also limited research on such companies, particularly on the flow of sc management principles and scm system details. these companies’ being small and medium-sized enterprises (smes) also makes this study significant, since 98 percent of the turkish economy is composed of smes 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(2019). “interaction among information sharing, supply chain structure and performance”. journal of coastal research, school of economics and management, 1(93): 870-878. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 75-89 75 investigating the socio-economic consequences of artificial intelligence: a qualitative research adnan veysel ertemel istanbul commerce university, turkey talha karadayi istanbul commerce university, turkey paraskevi makaritou bahçeşehir university, turkey received: april 10, 2021 accepted: may 28, 2021 published: june 15, 2021 abstract: it is without any doubt that artificial intelligence (ai) is set to radically disrupt humankind in various dimensions. the global economy is one of the dimensions in which ai is about to have an unsettling effect. furthermore, ai is expected to change our societal structures in an unprecedented way. it might even change how humanity views concepts such as labour, education, and governance. however, there are conflicting predictions about those effects. some scholars predict positive socio-economic effects. conversely, other scholars remain fairly pessimistic. this research attempts to reconcile the gap between ai hype and ai reality by offering insight on ai’s potential impact on issues such as employment and economic growth and to highlight the ethical issues that already raise concerns for the future. this article determines the dimensions in which ai is about to have the most disruptive effect in a socioeconomic context. semi-structured interviews with seasoned industry experts, academicians, and futurists with extensive knowledge of ai have been carried out for this purpose. keywords: artificial intelligence, socio-economic effect, employment, overdependence, inequality 1. introduction since the dawn of time, the development of human life has gone hand in hand with technological advances. from the first tools and the invention of the wheel to the present, technology, the visible offspring of the human intellect, has led mankind to longevity, comfort and created tools for understanding the world around it. this change has not always been swift and destructive. but the climate has begun to evolve faster since the 18th century. the disruptive processes were called “revolutions”, denoting that these movements were sudden and radical in nature. each of these has brought in some new technical innovation that would mark the era. and now mankind stands on the verge of the newest: artificial intelligence. artificial intelligence has become hype across societies. according to a recent study, it’s found that there is a broad understanding of what ai is across society (3 out of 4). however, only 2 percent of the respondents really believe that ai has major societal implications (holder, 2018). therefore, it could be inferred that although many have acquainted ai as a new phenomenon, only a few portions of the society are aware of its real implications from a socio-economic perspective. as such, this research attempts to reconcile the gap between ai hype and ai reality by offering insight on ai’s potential impact on employment, economic growth and to present ethical issues that already raise concerns for the future. based upon the extant literature, the research first identified ten topics on the socio economic effects of ai. afterward, semi-structured interviews with ai opinion leaders have been conducted to find the points in which a consensus is reached and the points that deserve special attention. using the gathered insights, the research also aims at creating a meaningful dialogue between working professionals and opinion leaders on the aforementioned phenomenon. adnan veysel ertemel & talha karadayi 76 2. defining ai ai is defined as the ability of a computer system to correctly interpret external data, to “learn” from such data – pretty much like a human being and to use these lessons to achieve specific objectives and tasks through flexible adaptation (a. kaplan & haenlein, 2019). it is expected that artificial intelligence applications developed to exhibit human-like behaviors will one day exceed the level of human intelligence (civelek, 2019). artificial super intelligence is the last step in the evolution of ai. it's when ai comes to self-awareness and obtains consciousness. human brain scanning will be exponentially enhanced, computers will have the requisite hardware and software to mimic not simulate human intelligence, machines will gain access to all information across the internet and will be able to pool their resources and memory by working together and being one, they will have full independence of design and engineering technologies (kurzweil, 2005). 3. ai and socio-economic disruption disruptive technological innovations can support vulnerable people, create ideas that transcend continents, and even change people's aspirations in daily life. so disruptive technologies are likely to be the trigger of a possible revolution. ai is promising unparalleled social, economic, and political destruction that has not been triggered by any technological advance from the industrial revolution to the present. according to some projections, the rise of artificial intelligence in the global economy is projected to invalidate all industries and eventually generate mass unemployment (goode, 2019). in line with expectations, most of the future people may face the fact of transferring their work to machines and as a result, they may turn into vagrants and purposeless beings (civelek, 2018a). for example, robots have started to take a serious place in production in china. foxconn, which supplies parts to technology companies such as samsung and apple, replaced 60,000 human employees with artificial intelligence, reducing the number of employees from 110,000 to 50,000. even in the united states, approximately 1 in 6 factory jobs are handled by artificial intelligence. with these developments, scientists have begun to question radically new uncertainties, including ethical dilemmas and possible ai development scenarios (hauer, 2018). as a result, ai has the potential to lead to an unprecedented socioeconomic disruption. (osoba and welser, 2017). 4. dimensions in socio-economic disruption 4.1. economic growth until 2008, the global economy grew by 5% per year. after the great depression, this percentage dropped to 3-3.5 per cent, even with all the technological advances that have been made in recent years. productivity is the number one indicator of long-term economic growth. yet productivity has decreased over the last few years, with no signs of recovery (schwab, 2017). u.s. labor productivity rose 2.51 percent between 1995 and 2005 and 1.01 percent between 2005 and 2018, while japan's labor productivity rose 1.86 percent between 1995 and 2005 and 0.68 percent between 2005 and 2018 (purdy and daugherty, 2017; goldin et al., 2020). although the rise of artificial intelligence is supposed to show the highest efficiency in economic growth, this is not the case. there may be some explanation at the moment about why ai has not improved production and, consequently, economic growth. it may be that the statistical instruments used are insufficient to calculate the effects of artificial intelligence, that the downward trend has a possibility that it can be disruptive developments, or that artificial intelligence has not yet been incorporated into production processes and has not yet achieved its maximum potential (schwab, 2017). there are some researches which have positive expectation bout the potential effect of ai on economic development. accenture (it is a global management consulting and professional services company that is on the fortune global 500 list and works with many important organizations) claims that by 2035 ai will double growth rates for 12 developed countries and increase labor productivity by as much as a third. pricewaterhousecoopers international-pwc (with offices in 155 countries, it is one of the leading professional services networks in the world which service about assurance, tax, and advisory services) claims that ai will add $15.7 trillion to the global economy by 2030, while mckinsey (it is an american-based international management consultancy firm, which is the world's first management consultancy company, serving organizations in the private, public and social sectors) projects a $13 trillion boost by that time (funk, 2020). investigating the socio-economic consequences of artificial intelligence: a qualitative research 77 4.2. future of employment the biggest challenge for societies and companies will be to take advantage of the benefits of using artificial intelligence technologies, while providing opportunities for new products and services, and avoiding dangers and disadvantages in terms of increased unemployment and greater wealth inequality (makridakis, 2017). one of the most anticipated impacts of artificial intelligence is a huge unemployment that has the potential to cause. however, when we look at the consequences of unemployment, we cannot see artificial intelligence as a single independent reason. unemployment might also be attributed to other technologies, such as automation and advanced robotics. ai, in its present form, can complement human entrepreneurship and be used as a tool. but what happens when ai surpasses intelligent human? there are two distinct views about what could happen in the future; the positive and the negative. some scholars claim that technology and job development have always gone hand-in-hand. the use of software displaces some others, thus generating new jobs, but the size still contributes to job growth in new industries. nevertheless, skill-based unemployment is recognized and emphasizes that it is the duty of policymakers to broaden job retraining programs (mccarthy, 2014). others, however, claim that in 2010, just 0.5 percent of the u.s. population was working in occupations that did not exist a decade earlier. they also point out that the bulk of the workforce was professional employees with higher skills, most of whom had a degree in stem (berger & frey, 2015). however, as far as short-term predictions are concerned, the 2018 report on the future of jobs predicts that while 75 million jobs will be lost by 2022, a total of 133 million new positions will arise that will establish a more distinctive working atmosphere between humans, machines and ai (schwab, 2018). the risk of unemployment stems from the capacity of ai to automate processes that require little or no human interaction. right now, poor ai can only perform the basic tasks for which it was first programmed. however, in the years to come, the world is about to witness more skills learned by ai, potentially making human labor redundant. 4.3. society there are conflicting views about the effect of ai on society. robots are constantly and increasingly replacing people, and unemployment is inevitably spreading around the world. despite the advances in technology, the digital divide is felt, especially in developing countries, and there are economic and biological divides beyond the digital divide. this new ecosystem contains many threats (civelek, 2018b). coupling with the threat of increased unemployment, ai, in fact, might well lead to social unrest. additionally, some authors voice their concerns about the risk of social inequality in that those who have ready access to ai technologies are likely to have unprecedented power with regard to those with no access (stone et al., 2016). another argument raised by pessimists is the potential risk social credit scoring (scs) systems currently employed in china. according to scs, all citizens are constantly being tracked using digital means (i.e. big data, surveillance systems) and receive a numerical score that reflects their trustworthiness in all aspects of life including their social behavior, timely tax payment, etc. (singer and brooking, 2018). those who receive low scores could even be punished by the state. some authors argue that scs’s could have disastrous effects on societies in the long run (singer and brooking, 2018; crane et al., 2019; dignum, 2019). optimists, on the other hand, argue that increased automation made possible by ai systems will eventually lead to a golden era. in such a vision, there will be a rise in leisure time (churcher, 1991), and humankind will benefit from the ai by unloading their burden to robots. 4.4. value of employment while several economists assume that ai will ultimately reduce the cost of goods and services, due to its maximum productivity and decreased workforce, the spread of these economic benefits will mean little for the general public, previously working in low or medium-wage jobs, who would be unable to access these products and services in any way. this will lead to increased discontent, social conflict, and inequality; opportunities will emerge for those with access to ai technology and give them a competitive advantage over those without access (stone et al., 2016; microsoft, 2018). adnan veysel ertemel & talha karadayi 78 optimists, on the other hand, assume that the increased automation caused by ai would make the world look. the working week will be reduced to a few hours per week giving rise to leisure; the intelligent machines will take over the economy, while humans will reap the fruits of their labor and be free to devote their time to other more rewarding ventures. (churcher, 1991; makridakis, 2017). 4.5. singularity and inequality the concept of technological singularity: is a concept that arises from the combination of nanotechnology, genetics, and robotic technologies, which include artificial intelligence too. the concept of technological singularity is derived from the concept of “singularity”, which defines “impossible and unpredictable events” in physics. technological singularity refers to a threshold that kurzweil put forward and predicted to happen in 2045, and where artificial intelligence will surpass human intelligence and can no longer be predicted (big think, 2009). after the singularity, the level reached will allow us to overcome the limitations of our biological bodies and brains and to greatly increase creativity (kurzweil, 2005). kurzweil (2005) argues that together with singularity, people will gain power over their destinies and mortality will be in the individual's own hands. according to the author, people will be able to live as long as they want. by the end of this century, the non-biological part of human intelligence will be trillions of times more powerful than untouched human intelligence. even, if the human-machine gap closes after the singularity, there will be able to consist another type of inequality between those who adapt and those who resist. in order for humans to contend with robots, it is expected that humans will resolve to artificially improve their bodies and minds; one of the predictions includes nano-bots in our bloodstreams to enhance mental abilities (kurzweil, 2005). as kurzweil argues, even if people increase their capabilities after the singularity threshold, there are still some inequalities. for example, will biological augmentation be possible for all segments of society equally? while this is happening, certain segments of society may not have it, even if they desire to have it, or may not prefer such augmentation. even if the expense of these changes is brought down as argue, by moore's law and therefore made available to the masses, the real question remains: what will happen to people who wish to remain “pure” human beings? 4.6. ethics of ai another emerging problem of ai that will impact society and raise questions in the coming years is the issue of ethics. ethics and morality have, until now, been a requirement for a degree of awareness; indeed, our entire legal system is based on that principle (kurzweil, 2005). kurzweil (2005) suggests that it is too soon to formulate methods to instill a deep ai in human ethics. but inching towards a powerful ai, even if it takes years, with the ability to make decisions for humans instead of human ones, without holding a serious debate on the very pressing question of ethics, would be detrimental to society, and the consequences could be irreversible. some researchers agree that business leaders, policymakers, scholars, and researchers in interdisciplinary fields must work together to ensure that ai upholds the following preliminary principles: fairness, reliability and safety, privacy and security, transparency, and accountability (microsoft, 2018). 4.6.1. fairness ai should treat everyone fairly, without prejudice, and be able to behave in the same way with similar groups of people. one would assume that since machines are merely logical, that would be an easy obstacle to overcome, but this is not the case. in 2018, amazon discovered that the algorithm used to recruit workers for technical positions discriminated against women. the explanation for this was that the algorithm was trained using cv data that had been collected for more than a decade. since stem occupations are dominated by males, the algorithm concluded that males are preferable to this form of the job description and acted accordingly (dastin, 2018). one of the problems in the future would be using unbiased data sets and tracking the conclusions made by the algorithms. 4.6.2. reliability and safety a degree of confidence must be achieved for the public to embrace ai-based systems. reliability and protection are the highest priorities for ai to be disseminated. ai should be tracked and regularly checked not just for normal situations, but also for unforeseen conditions. the system cannot be perfect and therefore requires continuous monitoring to ensure reliability, protection, and accuracy and to deter possible bad actors (caruana et al., 2015). investigating the socio-economic consequences of artificial intelligence: a qualitative research 79 4.6.3. privacy and security large data sets are needed in order to train ai algorithms to perform certain tasks. these data come from all sorts of mediums. the need for privacy and security has always been a common concern by humans during technological progress, but today the protection of privacy is much more important. people are not willing to share their personal information unless there is a guarantee of privacy and protection that the information will not be used in a malicious manner, directly or otherwise. in 2016, the european union introduced the gdpr to govern the free flow of data through the digital single market. it is intended to enhance the rights of its people to their digital information, enabling them to have control over how, when, and from whom their information is used (official journal of the european union, 2016). companies and businesses must also demonstrate this degree of dedication to privacy. 4.6.4. transparency incomprehensiveness is a real issue with ai. if ai begins to make a decision that affects people, those people would want to know how it came to their decision; what was the rational sequence of conclusions that led to that decision? failure to provide these descriptions of the inner workings of ai to the people would result in general mistrust and, in the end, utter disdain for ai's verdicts where possible. 4.6.5. accountability another critical topic that raised questions is the issue of transparency. who's in charge of ai? millar et al. (2018) stated that there are currently three forms of ai accountability in the literature. the first form of accountability argues that ai is accountable for being transparent; accountability is paralleled by explicability. the second form of accountability applies to the group of people or entities that would be responsible for the adverse effects of the algorithm or the ai itself. the third and widest form of accountability is the socio-technical framework that produces and deploys. 4.7. religious beliefs there are also theological arguments about faith, transcendence, human and computer evolution, and religion about ai. however, it must be pointed out that if in the future, robots exceed human beings, these questions would not only be posed in philosophic cycles. here you can see a trend, political views, as well as religious ones, are part of who we are as individuals. that raises the question, what happens if the ai discussion questions these deeply ingrained beliefs? the effects of this incompatibility on views will be felt very profoundly by society. in particular, it is cautioned that if ai generally challenges the fundamental assumptions human beings have, it may increase the tensions that exist between deeply religious communities defending their fundamental values and those whose views are influenced by a more secular perspective. extremist groups battling extreme, politically driven violence can pose the greatest danger to global cooperation and stability (schwab, 2017). 4.8. human interaction ai and robotics are going to transform our understanding of society and human relations. machines are likely to replace humans in the labor market and there is no guarantee that ai or computers will not replace humans in their social duties as well. think of the example of caring for the elderly. children might find it very convenient to let smart robots take care of their elderly parents while they continue their lives and careers. however, this reality is going to rob us of the chance to feel sympathy and affection. in particular, when we outsource “child care or elderly care” to machines, we deprive others and ourselves of the opportunity for spiritual development and dedication. in addition, this can alter our definition of what is perceived to be a morally worthwhile goal (visala, 2018). 4.9. overdependence of ai and loss of skills overdependence on ai is very troubling. ai is sure to offer us comfort, but it is likely to come at the expense of our critical thought and to eventually lose our skills and talents (anderson et al., 2018) adnan veysel ertemel & talha karadayi 80 its use in our everyday lives will give us a lot of comforts, but will we eventually give up our independent thought and make it a negative situation? 4.10. ai as a threat to democracy in june 2016, people voted for the brexit referendum took place. to be sure, this day went down in history as a bad day for democracy. facebook and cambridge analytica have been accused of targeting people whose personal information has been leaked on social media considered convincing and bombed them with “fake news” days before the elections in order to change direction. many have accused this reality of tilting the scale benefit to the “leave” vote. facebook was accused of creating “fake news” using facebook advertising, which then targeted people who were classified as easy to navigate (cadwalladr, 2019). these and similar circumstances demonstrate that ai could well be a big threat to the future of democracy. 5. methods within the scope of the study, interviews were conducted with 6 person interview group consisting of business people, academicians, and entrepreneurs who have extensive knowledge about artificial intelligence and were asked questions about the following issue:  effect of ai on economic prosperity  the impact of ai on future of employment  universal basic income, and activities to reduce the impact of ai on the workforce  social credit score (scs) and future perspective  singularity and inequality  the future of “ethics, fairness, privacy, reliability, security and transparency” concepts  ai and human spirituality /religious beliefs  the effect of ai on human interaction  overdependence on ai and deskilling  democracy in the future with artificial intelligence 6. finding based on the semi-structured in depth interviews, the compilation results are given in this section. as shown in table 1, there is a general consensus among participants that artificial intelligence is likely to have a positive impact on economic prosperity provided that industry 4.0 is adopted by the corresponding countries. table 1: the effect of ai on economic prosperity participants the effect of ai on economic prosperity m.s -positive effect m.a -positive effect (with the industry 4.0) m.e.c -positive and negative effect (positive just for countries, which ai and robotic technologies are, entered the production process. negative for other countries or regions) t.a -positive effect (with the industry 4.0 and min. in 2030s) u.k -positive effect (not overvaluation and min. in 2045s) a.h.k -positive effect (with the industry 4.0) despite schwab's (2007) negative expectation on productivity and economic growth, the findings of the this research coincide with the positive expectations of accenture, pwc and mckinsey organizations (funk, 2020). on the other hand, as can be seen from table 2, no participant expects mass unemployment. however, 4 out of 6 respondents emphasize that ai can gradually lead to unemployment. besides, there is a general acceptance (5 out of 6) that there will be severe unemployment in operational jobs. investigating the socio-economic consequences of artificial intelligence: a qualitative research 81 table 2 : the impact of ai on future of employment participa nts the impact of ai on future of employment m.s mass unemployment is not expected. not cause unemployment new jobs will replace the jobs that disappeared. serious unemployment might occur in operational jobs. m.a mass unemployment is not expected. not cause unemployment new jobs will replace the jobs that disappeared, and ai will be a complementary tool to the human workforce. serious unemployment might occur in operational jobs. m.e.c mass unemployment is not expected. cause unemployment transform people into purposeless beings serious unemployment might occur in operational jobs. t.a mass unemployment is not expected. cause unemployment new jobs will replace the jobs that disappeared. serious unemployment might occur in non-technology producing countries and will cause a disaster. u.k mass unemployment is not expected. cause unemployment new jobs will replace the jobs that disappeared. serious unemployment might occur in operational jobs. a.h.k mass unemployment is not expected. cause unemployment jobs with a lot of human interaction will remain to belong people serious unemployment might occur in operational jobs. however, 4 out of 6 participants think that new jobs will emerge to replace lost jobs. this result conforms to the points schwab (2018), berger and frey (2015) emphasized previously. the following statement of m.a on this subject is thought-provoking:  if your occupation is just replying for a question which is “how?”, then, it will be done by a robot and ai. you should fear. but if your occupation can be described by answering for a question which is “why?”, don’t fear. (m.a.) on the other hand, there are those who are very pessimistic about this issue. we understand from the following statement that my m.e.c represents this cluster:  ...i think that ai is our last masterpiece. we cannot produce anything greater or more sophisticated after that, because ai can and will replace completely humans at some point and we will jump in another step of evolution, on the other side of evolution. we will create a more intelligent creature than us. it’s very dangerous. …also another problem ai will continuously replace human power and at the end of the day humans will be redundant, and our skills will perish. humans will turn to aimless beings. …redundancy is decease, an infection for humanity because humans will have no purpose. (m.e.c) we should also emphasize that u.k brings an opposing point of view to the statement of m.e.c with the following expression:  how we define unemployment is also important. it is also important what the added value resulting from this unemployment is. for example; artificial intelligence increases unemployment and productivity. perhaps this situation enables that unemployed workforce to equip itself with other activities, skills, and faculties. then why would it be negatively affected by this? (u.k) when we look at activities to reduce the impact of ai on the workforce, participants generally think that universal basic income (ubi) is necessary and should be implemented by the states. adnan veysel ertemel & talha karadayi 82 table 3: universal basic income, and activities to reduce the impact of ai on the workforce participants activities to reduce the impact of ai on the workforce m.s taxation should be on companies that do not employ people. states should revise education systems. m.a ubi should be applied. states should revise education systems. m.e.c ubi should be applied. revising education systems are a vain effort. t.a ubi should be applied. states should revise education systems. u.k ubi should be applied. ai and related factors should be standardized a.h.k ubi should be applied. states should revise education systems. on the other hand, participants also agreed that, as mccarthy (2014) points out, it is necessary to revise education systems to reduce the devastating effects of ai since the social credit score is against important values such as privacy and freedom, the participants, like some scholars, consider this practice to be absolutely wrong (singer & brooking, 2018; crane et al., 2019; dignum, 2019). table 4: social credit score and future perspective participants social credit score (scs) and future perspective m.s scs is a practice against freedom. scs creates competition everywhere, even in neighborhoods. scs will be a necessary feature in the future. m.a scs is a practice against freedom. an extremely wrong application. scs and similar practices are not very realistic. m.e.c scs is a practice against privacy. an extremely wrong application. t.a scs is a practice against privacy. an extremely wrong application. scs and similar practices are not very realistic. u.k scs is a practice against privacy. an extremely wrong application. scs and similar practices are not very realistic. a.h.k scs is a practice against privacy. an extremely wrong application. people are experiencing a similar situation that is currently rated by private companies in all areas of life around the world. on the other hand, a.h.k stated that we experience a similar scs today as well:  china does this as a state policy, but in fact, we live this by being graded by private companies in every aspect of our lives. i put the chinese state aside, there are huge data in big companies. i, personally guess that these kinds of things are happening all over the world, and i don't think they're right. (a.h.k) overall, the participants think that inequality between people is about to increase significantly, which is in line with the expectations of stone et al (2016) and microsoft (2018), investigating the socio-economic consequences of artificial intelligence: a qualitative research 83 table 5: singularity and inequality participants singularity and inequality m.s income inequality will not rise in the long period if humanity will be prepared to developments. there will be inequality for those who are not ready. biological divide and digital divide will arise. m.a inequality will extremely rise. there will be inequality for those who are not ready. biological divide and digital divide will arise the concept of redundant human will emerge m.e.c inequality will extremely rise. there will be inequality between those who can access technology and those who cannot. biological divide and digital divide will arise. the concept of redundant human will emerge t.a inequality will extremely rise. there will be inequality for those who are not ready. biological divide and digital divide will arise the concept of redundant human will emerge u.k at first, inequality will rise. ai-supported tools will become cheaper and more economical in terms of cost gradually after a point. a.h.k inequality will rise. there will be inequality for those who are not ready. additionally, the inequality expected to occur in terms of the biological and digital divide may vary according to the people, companies, and countries that are and are not prepared for the future with artificial intelligence. additionally, half of the participants argue that the concept of redundant human will emerge. in this regard, m.a's statement is explanatory:  if you don’t have ai technology in the future you will be useless. you will live like in stone age. you will do nothing. whatever you do will be worthless. you will try to produce something; it will be very expensive, very slow and in limited number in quantity. you will not be able to sell it. so you will stop. whatever you try to do, you will meet the same reality as a very wild shock. (m.a) in contrast, u.k has a more optimistic perspective, which differs from other participants on this issue:  in every innovation, there is a small user segment that this innovation addresses first, and after a certain period, it becomes more economical, cheaper, and more common in terms of cost and becomes massive.(u.k) not much consensus has been reached on other concepts, while half of the participants were built a consensus about ethics. participants generally stated that it is not correct to speak precisely and make predictions in today's world where even experts on these subjects are unsure. adnan veysel ertemel & talha karadayi 84 table 6: the future of ‘ethics, fairness, privacy, reliability, security and transparency’ concepts participants ethics, fairness, privacy, reliability, security and transparency m.s ai will be more ethics. ai is expected to be more fair in its decisions because emotions or self-ambition will not influence its decision. life will be safer and more transparent with ai. m.a ethics of ai will be shaped by the ethics of the people who made it. ai will be invisible; we will not be sure if it is doing something fairless. life will be safer and more transparent with ai. m.e.c ethics of ai will be shaped by the ethics of the people who made it ai is expected to be more fair in its decisions because emotions or self-ambition will not influence its decision. t.a no certain predictions can be made. since technological developments are made for a commercial purpose, concepts such as 'ethics, confidentiality, transparency, justice' are never a priority for these commercial companies. the important thing is the commercial success and the success of the product. no certain predictions can be made. u.k regulations should be made to protect ai against humans and human against ai about ethics. regulations should be made to protect ai against humans and human against ai about fairness. life will not be safer and more transparent with ai (unless regulations are made to protect ai against humans and humans against ai.) a.h.k ethics of ai will be shaped by the ethics of the people who made it no certain predictions can be made. no certain predictions can be made. a.h.k voices the common ethics perspective lucidly:  the way you raise a child determines the future prejudices and ethical stance that child will have. therefore, the reaction of the model you will draw changes according to ‘the data set’ you provide. …the whole issue can be shaped from here. in fact, there is nothing the machine does wrong or learns for itself. he makes inferences from our social knowledge. the dirtier our knowledge, the more dirty the machine will be. the more our understanding of ethics is crooked, the more crooked artificial intelligence will be. (a.h.k) besides, t.a emphasizes that companies or profit-making organizations ignore such matters:  technology is developing very quickly and very wildly. while doing this, this business is done for a commercial purpose. therefore, the concepts such as ethics, machine bias, privacy, transparency, and justice are not very priority issues. the important point here is the commercial future and the success of the product.(t.a) investigating the socio-economic consequences of artificial intelligence: a qualitative research 85 unfortunately, the participants could not reach a consensus on this topic. each participant has their own views. while m.s thinks that humanity is very close to immortality, m.a emphasizes that artificial intelligence will be good for religions and that virtual clergy will emerge, while t.a stated that different results can be observed depending on the prevalence of religious beliefs of societies. other participants emphasized that religion and ai are not closely related. table 7: ai and human spirituality /religious beliefs participants ai and human spirituality /religious beliefs m.s religion and its teachings will have to adapt to the new circumstances which ai will bring. m.a ai will minimize the risks of wrong interpretations of religious texts. this will indeed prove very beneficial for mitigating the effects of future religious clashes. m.e.c ai and religion are not closely related. t.a in societies that have strong beliefs and cannot easily adapt to technology, it will be difficult and time-consuming for artificial intelligence to change religion or reform, whereas in societies, on the contrary, the effects of artificial intelligence in this area will be faster and more effective. u.k ai and religion are not closely related. a.h.k ai and religion are not closely related. however, considering the following statements of a.h.k and u.k., it can be said that they are close to a common view:  if you put god in the gaps in the world, you will lose that belief one day when a physical explanation comes. it doesn't affect me because i don't put my faith in those gaps.(a.h.k)  let's say in the future, a technology superior to artificial intelligence came out. then how will we determine the answer to this question? if you are now making something a part of religion, it is expected that there are no higher dimensions or mechanisms. because religion is such a thing. (u.k) half of the respondents agree that human interaction is declining. two of them did not emphasize that day-to-day loneliness emerges as a serious problem. some participants argue that the interaction does not decrease, but only shifts to the digital environment. two of the participants anticipate that in the future, humans will have relationships with robots. table 8: the effect of ai on human interaction participants the effect of ai on human interaction m.s there is declining human interaction (in some ways because most of the critique comes from old behaviour). in the future people will also have relationships with robots. there is more interaction among people today because of the technology such as calling, social media and chat apps. m.a there is declining human interaction people are living in artificial world and communication is digital. loneliness is getting more problematic day by day. m.e.c people will may not think that they need to face to face interaction. people are living in artificial world and communication is in the future people will also have adnan veysel ertemel & talha karadayi 86 digital. relationships with robots. t.a people will be inclined to maintain their nature without the need for buildings and physical environments. u.k ai's greatest impact will be on "communication styles", "communication and relationship management" and "human interaction". people are living in artificial world and communication is digital. a.h.k there is declining human interaction loneliness is getting more problematic day by day. in addition, t.a pointed out that if we increase the developments in this area even more, we can be completely isolated from the physical environments:  if we make virtual communication more realistic, and we can make ourselves feel in that environment, it will be possible to continue our life and communication in a way that we will never need those buildings and environments. (t.a) all participants share the concerns as stated by anderson, rainie, and luchsinger (2018) and agree that artificial intelligence leads to excessive addiction. table 9: overdependence on ai and deskilling participants overdependence on ai and deskilling m.s there is overdependence. there is a benefit inside this relationship. m.a there is overdependence. m.e.c there is overdependence. human skills will surely perish and deskilling will rise because of ai, because of the machines. t.a there is overdependence. there is a benefit inside this relationship. u.k there is overdependence. a.h.k there is overdependence. there is a benefit inside this relationship. nonetheless, 50% of participants stated that this addiction would not be a problem as long as it remained in simple and routine processes. furthermore, there is a benefit in this relationship, such as having more time to be more productive and efficient. however, two other participants expressed concern that if ai becomes an integral part of people's businesses and daily lives, it could pose a serious risk. some participants argue that this period of duty in routine processes can make our lives easier and make us more efficient. t.a expresses this addiction clearly:  in fact, as human beings, we have a structure that likes to escape towards ease. wherever there are things that make our job easier, we love to use them and make them a part of ourselves. therefore, if it will really give artificial intelligence a number of important advantages in terms of the things we do day-to-day, it is very likely that we will leave the responsibilities and duties to them and focus on only certain things. (ta ) all but two of the participants emphasize that ai does not pose a threat to democracy, but rather will create a more democratic environment. investigating the socio-economic consequences of artificial intelligence: a qualitative research 87 table 10: democracy in the future with artificial intelligence participants democracy in the future with artificial intelligence m.s ai will not be a threat to democracy in the future. m.a ai will not be a threat to democracy in the future. m.e.c ai will not be a threat to democracy in the future. t.a policy makers can use technological advantages such as ai to their advantage. u.k ai will not be a threat to democracy in the future (by itself). the probable effects of ai on democracy will not occur in near future. a.h.k ai will be a threat to democracy the probable effects of ai on democracy will not occur in near future. on the other hand, a.h.k argues that ai will pose a threat to democracies due to the risk of manipulating people's decisions. on the other hand, governance by ai is not expected to occur in the near future. m.s's thought about why artificial intelligence will contribute to democracy is noteworthy.  the traditional system says we need to go to election every five years. i don’t want to give my opinion every 5 years, i want to do that every minute. if ai is a part of our cities, part of our countries, part of our life it will collect data every minute, every second and it will help those who execute. ...it will be a direct democracy.(m.s) 7. conclusion according to the results, there is a main or somewhat general consensus on the disruptive effect and nature of ai on economic prosperity, mass unemployment, overdependence/deskilling effect, and inequality between people. no consensus is reached for other dimensions including ethics and religion. the results have important implications both in scholarly and managerial contexts. having compiled the interview results, the dimensions upon which a consensus is reached among the experts are as follows. there is a general consensus regarding three of the dimensions in question – namely; the potential of the ai to bring about economic prosperity provided that the countries have transitioned themselves to industry 4.0, the likelihood that ai will cause overdependence and deskilling effect, the expectation that ai will not cause mass unemployment in the short term. the dimensions upon which participants haven’t reached a consensus, yet state a general attitude are as follows; universal basic income (ubi) is seen as a necessity of a future world dominated by ai (5 out of 6 participants), social credit score (scs) is seen as an unacceptable practice by majority of participants (5 out of 6) in terms of privacy. ai is likely to cause unemployment especially for operational jobs (4 out of 6 participants). ai is regarded as unlikely to have a major threat to democracy (4 out of 6 participants), majority of the participants believe that inequality between people will only get worse. 4 of them believe this will take place between those who are prepared for ai and others. no consensus was reached for ethics and religion dimensions. the findings have important contribution to the extant literature on ai. according to the results, its foreseen that ai is likely to bring more poverty, rather than prosperity to underdeveloped countries. it will also lead to inequality between people and deskilling effect. the results also have important managerial, sociological, and economical implications by highlighting the areas which deserves the most attention regarding ai and socioeconomic structures. adnan veysel ertemel & talha karadayi 88 references anderson, j., rainie, l., & luchsinger, a. 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(2018). as artificial intelligence advances,humans behaving like machines will be a bigger problem than machines being human. university of helskinki https://www.helsinki.fi/en/news/data-science-news/asartificial-intelligence-advances-humans-behaving-like-machines-will-be-a-bigger-problem-than-machines-beinghuman (accessed 10 june 2020) journal of international trade, logistics and law, vol. 8, num. 2, 2022, 26-36 26 determination of project management technique using ahp decision-making in projects soner malkoç istanbul commerce university, turkey figen yildirim istanbul commerce university, turkey received: june 09, 2022 accepted: august 15, 2022 published: december 01, 2022 abstract: this study presents the analytical hierarchy process (ahp) as a potential decision-making method of project management techniques in international trade project management. forms created by ahp method with the involvement of 7 employees, including administ rative and technical project managers and project planning supervisors working in the project management organization of a leading engineering and technology company in turkey, were collected by in-depth interview technique. after the consistency analysis, the final project management technique analysis was made. according to the findings obtained in the study, result orientation, delivery performance competence and installation cost efficiency were evaluated as the 3 most important criteria when deciding on the project management technique; that, the decision makers will apply in project management. it is possible to mention that agile project management is the most preferred technique. in future studies, the effect of creating an ideal project management technique framework in project management organizations can be examined based on the sequence of techniques revealed in this study and their superiorities. keywords: project management techniques, ahp, decision-making 1. introduction the selection of management techniques in projects requires appropriate success criteria due to the uncertainty of the available information. manageability, ease of use, customer orientation, technological compatibility, resource efficiency, results orientation, reliability, delivery performance competence, installation cost efficiency and execution cost efficiency are critical factors involved in the selection process. since the decision-making process analysis includes different project success criteria in the selection of project management techniques, it is necessary to evaluate the importance level of each criterion and the weight of each alternative according to these criteria. the most effective selection approach for project management techniques is possible by considering multiple project success criteria simultaneously (şimşek & kasapoğlu, 2006). in this study; the ahp model, which is a multi-criteria decision-making method, was used for the selection of the most appropriate project management technique in a 1.1. international trade and project management techniques the exchange of goods and services has increased day by day, increasing the trade volumes between countries, and this has emerged as a determinant phenomenon in the development of international trade and international relations (şeker, 2020). the main target in standardization and adaptation strategies; by making comparisons between the local market and international projects and administrative processes, revealing the differences and forming strategies for making up these differences (sayar, 2019). the company, which develops its project management technique with each new project, has to create a strategy to be permanent in the new market by adapting the base time, quality and determination of project management technique using ahp decision-making in projects 27 resource management framework components in investment and the selection of project management techniques in international markets. there are many theoretical and practical management techniques suggestions and applications in project management. the most known and widely used project management techniques are: waterfall, agile, kanban, pert, and cpm. 1.1.1. waterfall in the waterfall model, the document, which is basically the output of each stage, is taken as the input of the next stage (farrell, 2008). the model does not cope well with changes, requires a lot of rework, and causes unpredictable quality and cost problems due to late-stage control (sommerville, 2011). 1.1.2. agile agile method is a project management technique in which an intense communication and cooperation is established between project stakeholders. it is an iterative and constantly evolving chain of processes that can be adapted to meet changing needs in a timely manner, resulting in high-quality deliveries that are cost-effective (ambler, 2005). 1.1.3. kanban kanban technique focuses on turning these negative situations into gain opportunities by aiming to reveal the inefficiencies in the workflow processes and working on these inefficient areas in terms of development. 1.1.4. pert in the pert (project evaluation and review technique) method; it is aimed to manage the uncertainties in the project by using statistical methods that will enable analytical estimating the most optimistic, pessimistic and probable estimations. each activity has the earliest and latest start and finish times and delay times (schleip & schleip, 1972). 1.1.5. cpm cpm method determines the project lead time using the relationships between project activities in a network structure. in a project network, there is at least one path that takes the longest time. this is called the critical path. the critical path is the most time-consuming sequential path of activities required to complete the project. the length of the project is equal to the critical path (taghipour, seraj, amin, & changiz, 2020). 1.2. project success criteria used in evaluation of project management techniques in this study, ease of management, ease of use, customer orientation, technological compatibility, resource efficiency, result orientation, reliability, delivery performance competence, installation cost efficiency and execution cost efficiency were determined as the project success criteria in evaluation of project management techniques. 1.2.1. ease of management project management tools provide ease of management for the applications used to define and plan project activity steps, assign resources, determine the start and end dates of the steps, follow the workflow processes, and make changes related to tasks and resources much more flexible. (ömürbek, makas, & ömürbek, 2015). 1.2.2. ease of use most of the project management tools are complex, large-scale methods of managing quite large projects and teams. (laudon & laudon, 2013). in the meaning of ease of use; the number of activities in the project, the size of the organization, the first year of use of the project management tool and its scope are confessed as the main factors in determining the appropriate technique. (liberatore & pollack-johnson, 2003). soner malkoç & figen yildirim 28 1.2.3. customer orientation the main reason of customer orientation in organizations is keeping existing customers and gaining new customers (abdullah, şenbabaoğlu, & dölarslan, 2016). in the studies, it has been emphasized that customer-oriented structures are ahead of their current competitors in terms of meeting the needs of the customers and developing the products that the customers really needs (brady & cronin jr, 2001). 1.2.4. technological compatibility companies have to regularly develop new products, technologies and services in order to continue their development in the global arena where competition is high (akman & alkan, 2006). technological compatibility refers to adapting the first innovations to customer needs encountered in the market by following a technologyoriented approach (harms & thomas, 2008). 1.2.5. resource efficiency an efficient structure obtained in resources; positively affects production volume and final quality (wilkinson, 2005). 1.2.6. result orientation result orientation in project management also determines the quality and reliability of the completed projects (chen, chen, & li, 2005). result orientation means meeting the desired output within the cost program and technical performance requirements at the end of the project and in the following period (kotnour, 2000). 1.2.7. reliability the requirements defined at the beginning of the project development processes must be defined by the customer and these needs must be applicable with the appropriate mechanisms determined (gencer & kayacan, 2017). 1.2.8. delivery performance competence setting certain standards for the project deliveries, it is of great importance especially when the main purpose of project management is to complete the projects within the planned time and within the budget regardless of the sector. (von wangenheim, da silva, buglione, scheidt, & prikladnicki, 2010). 1.2.9. installation cost efficiency the difference in project management tool features and price ranges especially compels project managers to choose the appropriate tool for the project they are carrying out (ahmad & laplante, 2006). the development processes in the project management tools complicate the project phases and create weaknesses in successful completion of the projects. (nalbant, 2015). 1.2.10. execution cost efficiency planning, management and control processes of project activities in order to reach performance, cost and time targets represent project management in a holistic sense (adamaszek, czumaj, englert, & räcke, 2011). failure to properly manage the cost of project management, which is one of the main project success criteria, may cause projects to fail (coşkun, 2012). 2. method 2.1. the research model previous studies in the literature on the subject have been observed as the studies including handling and comparison of two project techniques, emphasis on detailed success competence of project management techniques, and analyzes made with a commercialized and distinctive project management approach. in this study, unlike other studies, it is aimed to make a significant contribution to the future studies on the investment management and process of entering a new market in the international trade based on different project determination of project management technique using ahp decision-making in projects 29 success criteria especially customer orientation. results were obtained according to the rankings created by the experts in the project management area in different sectors and different work flow processes by using the ahp technique and by determining the tendencies of the employees. h0: the most important project management technique will be the waterfall, according to the ranking that will be formed as a result of the project implementations in the project management organizations universe. h1: the least important project management technique will be the pert, according to the ranking that will be formed as a result of the project implementations in the project management organizations universe. h2: the ahp is a method that can be used in the selection of project management technique that can be applied in project management organizations by obtaining effective and efficient information and creating a result-oriented framework. h3: quantitative decision-making methods can be used in the project management technique selection process to be applied in the project management organizations universe. h4: the study shall create an analytical, systematic and academic framework for future studies on this subject. 3. the universe, sample and research group the general target of this study is the project management organizations of private companies operating in the field of international trade. the specific target of the study is the project management organization of the selected engineering and technology company. matrices filled by people directly involved in project technical management, project administrative management, project planning and execution activities, selected using the non-probabilistic judgmental (intentional) sampling method in the study universe, are presented. the main reason for the selection of the stated company within the generally determined working universe; this company, which has national and international project management practices in different sectors, seeks project management techniques that can produce more effective and result-oriented outputs institutionally and continuously in the relevant project processes, and has the competence infrastructure to apply these techniques effectively. 3.1. data collection tools using the ahp multi-criteria decision-making method, 7 employees determined by using “depth interview” entered data into the forms and the final ranking was created with consistency checks in the method process. depth interview is a data collection technique that interprets why and how the structure of the relationships by the openended questions (tekin & tekin, 2006). 3.2. data collection and processing by using the saaty multi-criteria decision-making approach ahp method, the comparison matrix was normalized and the weight matrix (w) was obtained by averaging the rows. after the weights were calculated, their correlation with the comparison matrix was checked. if conflicting, the resulting weights were not used. first of all, the vector max, which provides the equality, was obtained (saaty, 1980) (saaty & kearns, 2014). then, ci (consistency index), ri (randomness index), and cr (consistency ratio) were obtained. in the ahp method, a cr < 0.1 indicates that the application is consistent. if cr > 0.1, the entered severity scale data should be re-evaluated. the relative importance weights of the project success criteria and the alternatives were created. afterwards, the result was found by multiplying the relative importance weights of the alternative matrix and the project success criteria (şahin, 2007) 3.3. analysis of the data the ranking resulting from the evaluation of 5 project management techniques determined in the ahp method flow according to 10 different project success criteria. the ranking resulting from the cross-evaluation of 10 success criteria determined in the ahp method flow. the ranking resulting from the independent evaluation of 5 project techniques by the participants. at the end of the study, the common effects of three separate data streams were analyzed. soner malkoç & figen yildirim 30 4. findings 4.1. analysis of ahp matrices and findings figure 1. project management hierarchy figure 1 shows the developed project management hierarchy. the number of consistent ahp matrices detected is 77. only consistent results were included in the study. in the table below, the w (weight) values of consistent ahp matrices are calculated separately and their geometric averages are taken on the basis of the project success criteria and their summary form is shown according to the project management techniques. table 1. summary of ahp results determination of project management technique using ahp decision-making in projects 31 figure 2. ahp matrix figure chart agile project management technique has been determined as the least important in terms of ease of management criteria compared to all other success criteria. the most important project management technique in terms of ease of management has been the kanban technique. with the selection of kanban technique, it is clearly seen that there will be a positive effect in ease of management. in terms of ease of use criterion, waterfall has been one of the techniques determined as weak importance according to the all other success criteria. on the other hand, it is clearly seen that there will be a positive effect in terms of ease of use with the selection of pert. in respect to customer orientation criteria, agile project management technique has been well ahead of other techniques with a clear distinction. from the aspect of technological compatibility agile and cpm have been the most important. it can be said that the prominence of agile technique was expected, especially with the intense use of technology behind it and the benefits of stakeholder communication it provides. agile has emerged as the project management technique with the highest importance in terms of resource efficiency criteria. regarding results orientation criteria, agile approach which aims to reach project deliverables through repetitive processes by increasing the level of communication between stakeholders, distinguished from the other techniques, was evaluated. from the point of delivery performance competence; agile and cpm project management techniques have emerged as the two most important techniques. in the criterion of installation cost efficiency; for the first time kanban technique has been evaluated at the highest level of importance. in terms of execution cost efficiency, agile has emerged as the technique with the highest importance, while cpm at the lowest level compared to the ranking in all other criteria. these results are the findings revealed by the ahp matrices, which is the first evaluation scale. therefore, they shall not be considered as final results. 4.2. analysis of project success criteria matrix and findings in addition to the ahp matrices, the project success criteria matrices were also evaluated among themselves, and the second group of scale data was created. the number of determined consistent criteria matrix is 7. it is expected that the new criterion scale will make a consistent contribution to the total analysis. table 2 and figure 3 shows the criterion with the importance percentage and weight ratings of project success criteria. table 2. project success criteria matrix weights table soner malkoç & figen yildirim 32 figure 3. project success criteria matrix result chart 4.3. analysis of project management techniques matrix and findings the project management techniques matrix is an additional study that was given as the third evaluation scale and does not include the consistency test differently from the two group evaluation scale studies performed in the previous sections. it is the process of inclusion of the findings that obtained as a result of the evaluations by the same participants in terms of the frequency and preference of the 5 different project management techniques and their effects on the project success. each participant formed the weight of the project management techniques matrix by giving a value between 1 and 5 in terms of the preference rate and effect on project success on the main project management techniques groups. then, the project management techniques matrices were evaluated by taking the geometric averages of the weights of the mentioned project management techniques. table 3. project management techniques evaluation results kri̇terler w1 w2 w3 w4 w5 w6 w7 geometri̇k ortalama yüzde dağilim yöneti̇m kolayliği 0,04 0,04 0,04 0,04 0,04 0,03 0,02 0,03 3% kullanim kolayliği 0,12 0,13 0,14 0,12 0,14 0,11 0,02 0,10 9% müşteri̇ odaklilik 0,09 0,09 0,09 0,11 0,10 0,08 0,04 0,08 7% teknoloji̇k uyumluluk 0,05 0,05 0,06 0,06 0,06 0,06 0,05 0,05 5% kaynak veri̇mli̇li̇ği̇ 0,05 0,05 0,06 0,05 0,07 0,06 0,24 0,07 6% sonuç odaklilik 0,22 0,22 0,22 0,22 0,13 0,23 0,21 0,21 18% güveni̇li̇rli̇k 0,07 0,08 0,09 0,08 0,08 0,09 0,15 0,09 8% tesli̇mat performansi yetki̇nli̇ği̇ 0,22 0,19 0,17 0,16 0,16 0,19 0,17 0,18 16% kurulum mali̇yeti̇ veri̇mli̇li̇ği̇ 0,16 0,15 0,17 0,15 0,13 0,22 0,16 0,16 14% yürütme mali̇yeti̇ veri̇mli̇li̇ği̇ 0,14 0,16 0,16 0,15 0,12 0,17 0,19 0,15 14% determination of project management technique using ahp decision-making in projects 33 figure 4. project management techniques evaluation chart the results of the project management techniques matrix are given both on the table and in the chart. the ranking and percentages of the mentioned project management techniques are shown in figure 4. 4.4. findings of the comparative analysis to reach the comparative analysis level, the analyzes made in three different areas as; • first analysis area; ahp matrices • second analysis area; project success criteria matrices, • as a final analysis, project management techniques matrices although there is a clear ranking and evaluation finding in each analysis area, revealing the final analysis finding that includes all analyzes has been important in terms of reaching more precise and meaningful results from different perspectives, especially in the study target. the results were obtained by multiplying the ranking values of the main project management techniques determined on the basis of success criteria and adding them separately with each other. the graphic representation of the final results is as follows. proje yöneti̇m tekni̇kleri̇ k1 k2 k3 k4 k5 k6 k7 geometri̇k ortalama yüzde dağilim waterfall 15,00 10,00 25,00 12,00 15,00 20,00 20,00 16,01 31% agile 20,00 15,00 20,00 16,00 10,00 20,00 25,00 17,39 34% kanban 4,00 6,00 2,00 9,00 8,00 9,00 6,00 5,66 11% pert 4,00 2,00 2,00 6,00 16,00 16,00 9,00 5,80 11% cpm 9,00 2,00 9,00 6,00 16,00 6,00 6,00 6,62 13% soner malkoç & figen yildirim 34 figure 5. company's final project management techniques chart in the final graphic, there are remarkable differences between the results from separated analysis areas and the final analysis results, especially in the technical order. within the scope of this study, it was thought that waterfall project management technique would be the most important project management technique group, but this hypothesis could not be confirmed. because the most important project management technique group for the company has been the agile technique by far (58%). waterfall technique, on the other hand, took the second place with a percentage of 15% in order of importance. it was predicted that pert project management technique would be the least important and this prediction was confirmed with a significance level of 8%. it was expected that ahp is the method that can be used in the selection of project management techniques shall be applied in organizations for obtaining effective and efficient information and creating a result-oriented framework. this prediction has been confirmed according to the results. in the project management technique selection process to be applied in the universe of project management organizations, it was foreseen that quantitative decision-making methods could be used. this foresight was confirmed, since the information obtained with the ahp model are verifiable, systematic and consistent. with this result, a usable application area has been opened to decision makers and project management technique users in analysis areas similar to this study. figure 6. comparative results graph 5. conclusion, discussion and recommendations the existing project organizations of companies that are actively involved in international trade play important roles in both managing their investments and entering new markets. in this context, it has a great importance to choose the appropriate project management technique for management of current projects, and the acquisition and execution of future projects. result orientation, delivery performance competence and installation cost efficiency criteria are also the success criteria that play a role in the selection of the most suitable technique for the project in question in addition to technical selection factors such as the type of projects, country of business, communication between project stakeholder. the main reason why the agile project management technique ranks first in the company's project organization is that the technique in question is considered much superior to other techniques according to the result orientation criterion. it has been evaluated by the participants that the agile technique is a more suitable technique for resultoriented, with its ability to produce a flexible output, contrary to the detailed steps framework of the waterfall technique. financial, calendar and material deliveries are very important in the success of the project and especially in increasing customer satisfaction levels. in terms of delivery performance competence, the agile technique, which determination of project management technique using ahp decision-making in projects 35 is structured to respond quickly to changes in the project process, has surpassed waterfall and kanban techniques with a serious difference in evaluation. again, when considered in the context of the delivery performance competency criterion, waterfall and kanban techniques were evaluated at lower levels than the agile technique in responding to changing demands. the main reason for this situation is the project steps that are created beforehand in both techniques and are structured relatively less flexibly. regarding installation cost efficiency, waterfall technique's need for a higher installation cost compared to the agile technique was also reflected in the final ranking preferences. as a result of the analysis, the cpm technique, which is in the last place, is a technique that only focuses on the critical processes of the project in a limited way, and it has not been evaluated as preferable from the point of the result orientation, delivery, and installation cost expected from an ideal project management technique. the main reason why pert technique, which is based on the logical and preconditional structuring of activities at the beginning of the project, emerged as the least preferred technique by the participants; it has emerged that it is not preferred especially in terms of result-oriented and delivery performance criteria. these findings reveal an analytical framework that can be used in the business world and academia for the choice of project management technique in the next step. the findings show that companies aiming to stand out from their competitors in terms of results-oriented and delivery performance competency criteria, will find the opportunity of developing their ability to both produce faster project deliveries and dynamically adapt to the scope, calendar and cost changes experienced during the project process by using the agile project management 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(2005). downsizing, rightsizing or dumbsizing? quality, human resources and the management of sustainability. total quality management and business excellence, 16(8-9), 1079-1088. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 29-32 29 the puzzle of unemployment and inflation: a causality analysis to ethiopia minyahil alemu haile jimma university, ethiopia received: 02 june, 2020 accepted: 28 july, 2020 published: 10 dec, 2020 abstract: the puzzle of unemployment and inflation has remained controversial. the choice between the two ends up with cost borne from the other end. of course, the policy aim is to keep them both to their minimum possible rates. countries need to examine the dynamics between the two and choose one with lesser harm to the general system. we applied granger causality approach to examine the nature of cau sality between inflation and unemployment to ethiopia, using a time series running from 1984 to 2018. accordingly, the-two-way causality between inflation and unemployment (cyclical) variables has been confirmed. thus, macroeconomic policies need to appreciate this interdependence while designing policy settings. keywords: granger causality, inflation, phillips curve, unemployment 1. introduction of the chief ends with macroeconomists, the two basics are to keep inflation and unemployment minimums. however, these two different ends appear to contradict in practice. phillips curve is the popular macroeconomic theory to hypothesize an inverse relationship between inflation and unemployment variables. a premise is that, a rise in production and employment is possible only at the cost of rising prices and vice versa. any policy scheme to boost the aggregate demand is associated with higher output, higher employment and higher price. owing to more demand (due to additional employment), the price level tends to rise sustainably, which in turn, could result in higher inflation. in contrast, when the aggregate demand falls following the fall in aggregate output, an economy ends up with rising unemployment and but, falling inflation rates (mankiw, 2008; snowdon and vane, 2005) the1960s us experience showed the validity of the phillips curve very well. at the time, policymakers tried reducing unemployment only at the cost of higher inflation, which is exactly what was briefed with the phillips curve (see pirayoff, 2004; mankiw, 2010).the fall in tax rate coupled with expansionary monetary policy in 1964, increased the aggregate demand and reduced the rate of unemployment rate below 5 percent. this upward move in aggregate demand has continued, even, during the final years of 1960s following the us government expenditure for financing war against vietnam. as a result, the us economy was forced to experience lower unemployment and higher than the targeted rate of inflation, towards validating the phillips curve hypothesis here again. the earlier years of 1970s were harsh to us economy due to inherited inflation from the 1960s. following the application of tight monetary policy and the us recession due to the organization of petroleum exporting countries (opec) during the late 1970s, the higher unemployment has reduced the inflation rate only slightly; though farther increase in oil prices pushed inflation up (curtis and irvine, 2015; heijdra, 1996). our back-look is not just to tell you history alone, but rather, how the two policy variables tend to contradict in practice. all this is to indicate the paradox of unemployment and inflation in policy formulation. a basic concern with regard policy formulation could be determining the optimum level of both variables, and then controlling their normal operation. the original phillips curve, however, was limited only to wage inflation; but because of its implication with the general price inflation, the phillips curve has been extended to unemployment-inflation analyses, which we are employing here too. minyahil alemu haile 30 by far, it is vital to attest how the two macroeconomic variables are acting each other in a particular system. the phillips curve is, therefore, an instant tool of analysis in that regard. we aimed at verifying the validity of the phillips curve in the context of ethiopian economy. for our purpose, we have extracted a time series of realizations on seven macroeconomic variables and examined the dynamics of each in the very long run. for the causality issues, however, we focused only on the series of the unemployment and inflation variables for periods ranging between 1984 and 2018. in an attempt to appreciating the likely time impact on the nature of causation, we also have considered both the short and long run analyses. perhaps for ethiopia, unemployment and inflation are the two most development disasters at present. despite the recently appreciable growth records, the country’s economy has been unable to satisfy the ever rising employment demands (nbe, 2016; wb, 2015). besides, the country has registered higher inflation rates for the last three or four consecutive months, compared to the same for the last ten and even more years. according to the government’s halffiscal year performance report, the consumer price index (cpi) measured inflation rate was estimated at 14 percent during june, 2018, average of 12 percent during september to december, 2018, again 12 percent during february, 2019, and mounted to 16 percent in may, 2019 (mofec, 2019). when we look at these figures, ethiopia is hosting the double-digit inflation rate which is in excess of the recommended threshold of 8 percent. besides, the unemployment rate in the country was registered to be more than an average of 12 percent for the last two years, thereby signifying the severity of both problems in ethiopia. surprisingly, both variables tend to move in the same direction because of the country facing many internal and external shocks. even though it needs a more detailed investigation of a complete system, we focus on only two of the appealing policy challenges: inflation and unemployment. the recent trends in both variables indicate the highest and continuously rising rates through time, and that both variables have been the most development challenges in the country. a wiser approach is to deal with the dynamics of each, and scrutinize which mainly enlightens the other and decide on the appropriate strategic action thereof. 2. methods and procedures 2.1. data source and type the data used were exclusively of secondary types, and obtained from the national bank of ethiopia. for the causality tests, we collected a time series data set on the cpi inflation and the cyclical unemployment rates from the time periods between 1984 and 2018. 2.2. stationarity tests the granger causality assumes that the variables under consideration are all stationary (maddala, 1992). to examine the unit root properties both variables were subjected to the augmented dickey-fuller unit root examination approach. accordingly, both variables were suggested to be integrated of order one. besides the stationarity tests, we have examined all of the necessary pre and post estimation tests and in none of them is invalidity suggested. 2.3. the model the granger causality test approach has been employed to address our objective thereof. this method is the popular approach in most empirical analyses that are looking at the endogeneity of different variables of interest in their model adapted for empirical analysis. the granger causality necessitates stationarity among all the series of interest. besides the variable being stationary, the test also requires that the error terms involved shouldn’t be correlated. we actually confirmed both necessities as parts of our methodological procedure. from maddala (1998; wooldridge, 2013), granger causality test is based on the following regressions; lnuemtt = ∑  𝑛 𝑖=1 ilncpit – i +∑  𝑛 𝑖=1 ilnuemtt – i+ u1t …………………. (1.1) lncpit = ∑  𝑛 𝑖=1 ilnuemtt–i + ∑ 𝛽 𝑛 𝑖=1 ilncpit – i+ u2t………………….…. (1.2) where,  represents the first difference; i = 3 is the suggested lag length to minimize aic; uemt and cpi, respectively, are the unemployment and inflation rates. cpi is the consumer price index used as proxy to inflation; the puzzle of unemployment and inflation: a causality analysis to ethiopia 31 and ln is the natural logarithmic operator of corresponding variables; and t is the time trend. the granger causality test is based on the f-statistics obtained from regression of equations (1.1) and (1.2) above. for instance, from (1.1) we first regress the current unemployment on its current as well as all of its lagged values and current inflation only to obtain the restricted residual sum of squares (rssr). next, we run the same regression including all of the lagged terms of the inflation variable to obtain the unrestricted residual sum of squares (rssur). then the f-statistic is given by the formula (gujarati, 2004): f = (𝑅𝑆𝑆𝑅− 𝑅𝑆𝑆𝑈𝑅) ℎ ⁄ (𝑅𝑆𝑆𝑈𝑅) 𝑛−𝑘 ⁄ ………………………………………….. (1.3) where, h represents the number of uemt lagged terms, and k is the number of parameters estimated in the unrestricted regression, which follows f-distribution with n–k degrees of freedom. a null hypothesis is, then, h0: ∑i = 0 implying that, the lagged uemt do not belong in the equation. if the calculated f exceeds the critical at chosen level of significance, we reject the null hypothesis, and say the lagged uemt terms belong in the regression: which is to mean cpi causes uemt. exactly similar procedure is followed to test whether the influence runs the other way. 3. results and discussion below we present the short run and long run causality analyses results, respectively. table 1.1: short-run granger causality wald test results null hypothesis (h0): f-stat prob. unemployment does not granger cause inflation 2.124081 0.1459 inflation does not granger cause unemployment 3.312775 0.0444 source: (own analysis based on nbe, 2018) evident from table (1.1) is only unidirectional causality between inflation and the unemployment variables. specifically, we confirmed the flow of influence from inflation to unemployment owing to the significant probability value of the computed f-statistics thereof; and nothing in reverse. hence, we partly guarantee the phillips curve in the short run in reference to ethiopia. table 1.2: long-run causality analysis results null hypothesis (h0): α prob. unemployment does not cause inflation -1.304447 0.0000 inflation does not cause unemployment -7.775125 0.0000 source: (own analysis based on nbe, 2018) where α is the corresponding cointegrating parameter, or the coefficient of error correction term (ecm); and prob. represents the probability of each computed t-statistics of the corresponding cointegrating parameters. the long-run causality between the two variables behaves differently while the short-run situation is noted. as we can verify very easily from table (1.2), the computed cointegrating coefficients are negative in sign as well as strongly significant in magnitude, whereby implying for the existence of bidirectional causality between inflation and unemployment in the long run. it means that, inflation causes unemployment and unemployment in turn causes inflation in the long run. the transmission is not in a single path, unlike the case in the short-run. we thus confirm that, the phillips curve is operational with reference to the long run macroeconomic dynamics of ethiopia. minyahil alemu haile 32 4. concluding remarks in reference to the ethiopian economy, inflation causes inflation causes unemployment in the short run, though short run causality the other way is not suggested. in the long run, both variables are significantly dependent one another. hence, macroeconomic policy makers need to consider the interdependence between inflation and unemployment while framing the national policies regarding them both. references curtis and irvine (2015), “principles of macroeconomics: theory, markets and policy”, independent publication, trent and calfornia universities. gujarati (2004): basic econometrics, 4th ed., new york: the mcgraw-hill heijdra (1996): the foundations of modern macroeconomics, oxford university press, usa maddala (1992): introduction to econometrics, 2nd ed., new york, usa mankiw (2008): principles of macroeconomics, 5th ed., tsi graphics inc., usa mankiw (2010): macroeconomics, 7th ed., 41 madison avenue, usa natinal bank of ethiopia (2016), country report annual, addis ababa, 2016 nbe (2001/2009): national bank of ethiopia monetary policy framework, economic research and monetary policy process, nbe, addis ababa, ethiopia pirayoff r. (2004), “cliffsapp economics micro and macro”, john wiley and sons, incorporated, 2004 romer (1996): advanced macroeconomics, advanced series in economics, mcgraw-hill companies, usa snowdon and vane (2005): modern macroeconomics: its origins, development and current state, edward elgar publishing inc. usa wooldridge (2013): introductory economics: a modern approach, cenage learning, 5th ed., michigan state university, usa. world bank group country survey (2015), eth-2015-wbcs-v01-m journal of international trade, logistics and law, vol. 8, num. 1, 2022, 133-140 133 problems in cross-border e-commerce and development of cross-border e-commerce performance scale safiye gizem saydam i̇stanbul commerce university, turkey mustafa emre ci̇velek i̇stanbul commerce university, turkey received: april 07, 2022 accepted: may 25, 2022 published: june 01, 2022 abstract: digitalization has brought some changes in the commercial field as well as in every field. it has removed the international borders and introduced the concept of electronic commerce, which enables easy trade in the electronic environment. in this study, it is aimed to determine the problems experienced by cross border e-commerce companies and to develop the cross border e-commerce performance scale. in this context, as a first step, the most important problems were determined by interviewing the executive of the companies operating in the sector in order to create the survey questions. in the second stage, a questionnaire was applied to a group of 55 people consisting of middle and senior e-commerce experts. the validity and reliability analyse of the questions forming the questionnaire were made. as a result of the analyses, a scale was developed that measures the performance of cross border e-commerce companies. this scale developed in the field of cross border e-commerce is a first in the world. in the study, cross border e-commerce is examined in general terms and as the main problems in the sector; problems arising from marketing, logistics, taxation and customs, payment, support and incentives have been identified. the problems arising in the field of cross border e-commerce were examined in detail, and solutions and suggestions were developed to these problems, contributing to the sector. keywords: cross border e-commerce, electronic commerce, international trade 1. introduction the developing technology, commerce has also started to digitalize. digitalization in commerce has rapidly developed and become widespread, adding a global dimension to e-commerce. the fact that the borders are removed in international trade, it is less costly than traditional trade, and most importantly, it is easier to compete with competitors in world markets, has revealed a new concept called cross border e-commerce. cross border ecommerce has enabled businesses, especially smes, to access and create a wider market presence by providing cheaper and more efficient distribution channels for their products or services. especially with the existence of electronic trade customs declaration provided within the scope of micro export, it has strengthened the competitiveness of enterprises in international markets. with the widespread use of the internet and technological developments, electronic commerce emerged and continued to grow rapidly. thanks to this rapid growth, it has become a competitor of traditional trade today. electronic commerce provides consumers with opportunities such as speed, time, unlimited space, and geographical location compared to traditional commerce. in addition, it provides users with the opportunity to compare many products and reach affordable products. on the other hand, with e-commerce, there has been an increase in the existing product variety and competition on the basis of price. this situation has made e-commerce attractive for consumers and sellers. on the other hand, cross border e-commerce has become a geographically unlimited trade thanks to the widespread use of the internet, the increase in the use of social media and cultural sharing. safiye gizem saydam & mustafa emre ci̇velek 134 2. definition of cross-border e-commerce cross border e-commerce is the online shopping of consumers from vendors in different regions or countries and the transmission/receiving of products via cross-border logistics (ding, 2018). according to wang, cross border ecommerce is an international e-commerce in which international trade transacts between different countries and delivers goods through cross-border planning and management agreements (wang, 2014). figure 1: scope of cross border e-commerce (ding, 2018) with cross-border e-commerce, businesses market their products or services to consumers or other companies in international markets. they catch important opportunities by using network technologies, especially when selling internationally. in classical export, businesses primarily aim to find business partners or distributors with whom they can work in target markets. after determining the companies with which they will cooperate, they need to go through many stages during the export process. they are exposed to difficult operational processes such as opening export declarations and preparing packing lists. they are responsible for covering the extra costs at every stage. however, it is possible to eliminate these additional costs incurred with micro-export, in other words e-export (kalalı, 2021). 3. micro export micro export is export transactions within the scope of electronic commerce customs declaration. the government has streamlined procedures to encourage entrepreneurs to micro-export. within the scope of international trade activities, in order for the goods that will enter or exit turkey to pass through the customs procedures, detailed information should be given to the customs administration about these goods and the foreign trade transaction right. this declaration is called customs declaration (gümrükrehberi, 2018). electronic commerce customs declaration is the application that is applied in the customs procedures of the goods transported by air or road, postal and fast cargo transportation and that all transactions related to the customs declaration are carried out in electronic environment, without paper. electronic commerce customs declaration is done on behalf of legally authorized fast cargo operators, buyers and senders (gümrükrehberi, 2018). authorized operators create electronic commerce customs declaration on behalf of sellers through indirect representation over computerized customs activities systems (bi̇lge system). within the scope of electronic commerce customs declaration;  exportable goods not exceeding 300 kilograms and 15,000 euros in incoming or outgoing goods,  books or similar printed publications for individual use, the value of which does not exceed 150 euros,  goods whose value is up to 1,500 euros, and whose amount does not exceed 30 kilograms in gross, excluding diplomatic goods and passenger belongings, subject to the free circulation entry regime, which does not constitute a commercial quantity and nature,  sample items and models,  passenger's personal belongings arriving one month before or three months after his entry into the country, problems in cross-border e-commerce and development of cross-border e-commerce performance scale 135  it is appropriate to transport printed publications and books sent to or provided by public institutions, museums, libraries, organizations dealing with scientific research or education (ministry of trade, circular no. 2020/25 postal and express cargo transportation, 2020). 4. scale development process the scale development process consists of two phases. first, qualitative research was conducted. first of all, a qualitative study was conducted in order to determine the problems faced by the employees in cross border ecommerce. at this phase, the items of the survey were formed through face-to-face interviews. in the second phase, the formed survey was applied to 55 participants. firstly, kaiser-meyer-olkin-measure of sampling adequacy and barlett's test of sphericity tests were applied for purification. then, factor analysis was performed. cronbach's alpha was used to determine reliability after factor analysis. as a result, the items in the scale were grouped under 5 dimensions. sub-dimensions of micro export performance scale; (1) problems related to logistics, (2) problems related to marketing, (3) problems related to taxation and customs, (4) problems related to support and incentive, (5) problems related to payment. 5. construct validity and reliability at the first stage, all the questions were entirely included in the principle component analysis. the total variance explained values of the data are analyzed in table 1. according to this result, the cross border e-commerce performance scale consists of 6 sub-dimensions and 70,970 percent of the total variance is explained by these subdimensions. table 1. cross border performance scale item standardized factor loads variables items standardized factor loads problems related to logistics l2104 0.874 l1801 0.836 l2003 0.766 l2205 0.669 l2306 0.637 problems related to marketing p0505 0.863 p0606 0.836 p0404 0.773 problems related to taxation and v1004 0.902 safiye gizem saydam & mustafa emre ci̇velek 136 customs v0802 0.774 v1206 0.593 problems related to support and incentive d2502 0.904 d2401 0.796 problems related to payment o1401 0.762 o1502 0.622 p<0.05 for all items table 1 shows that items l2104, l1801, l2003, l2205 and l2203 constitute the first factor. the first factor consists of 5 items with factor loads between ,874 and ,637. items p0606, p0505 and p0404 constitute the second factor. the second factor consists of 3 items with factor loads between ,836 and ,773. items v1004, v0802, v1206 seem to constitute the third factor. the third factor consists of 3 items with factor loads between .902 and .593. items d2502 and d2401 constitute the fourth factor. the fourth factor has factor loadings of .904 and .796. items o1401 and o1502 constitute the fifth factor. the fifth factor has factor loadings of .762 and .622. table 1: statements in cross border e-commerce performance scale items l2104 the fact that the products do not reach the customer in accordance with the delivery time affects our cross-border ecommerce performance negatively. l1801 long shipping processes negatively affect our cross-border ecommerce. l2205 the fact that the products do not reach the customer as a result of problems arising from the customer or the address system of the countries affects our cross-border e-commerce negatively. problems related to logistics l2003 incorrect or damaged products due to cargo affect our crossborder e-commerce negatively when they reach the customer. l2306 the high costs at airports affect our cross-border e-commerce negatively. p0505 the fact that the cultures of the countries to be marketed are different negatively affects the cross-border e-commerce problems in cross-border e-commerce and development of cross-border e-commerce performance scale 137 performance. p0606 the different languages spoken in the countries to be marketed adversely affect our cross-border e-commerce performance. problems related to marketing p0404 the costs of international marketing methods (social media ads, google ads, etc.) affect our cross-border e-commerce negatively. v1004 problems in customs taxation of the returned product after its delivery negatively affect our cross-border e-commerce. v0802 the problems experienced in the return of the electronic commerce customs declaration given as a result of product return affect our cross border e-commerce negatively. problems related to taxation and customs v1206 the fact that there is an additional withholding tax on internet advertisements affects our cross-border e-commerce negatively. d2502 the inadequacy of government support in the field of logistics affects our cross-border e-commerce negatively. (freight support, warehousing support etc.) problems related to support and incentive d2401 insufficient international advertising support affects our crossborder e-commerce negatively. o1401 exchange rate fluctuations and non-use of local currency adversely affect our cross-border e-commerce sales. problems related to payment o1502 the fact that paypal is not used in turkey affects our crossborder e-commerce negatively. table 3 shows statements in cross border e-commerce performance scale. alpha model will be used while performing the reliability analysis in the study. after the factor analysis of the scale, the reliability of each subdimension (factor) should be determined numerically. cronbach's alpha is the fit value depending on the correlation between the questions. this value shows the total reliability level of the questions under the factor. if the cronbach's alpha value is 0.70 and above, the scale is considered reliable. however, when the number of questions is low, this limit can be accepted as 0.60 and above (sipahi, yurtkoru, & çinko, 2008). safiye gizem saydam & mustafa emre ci̇velek 138 6. discussions & solutions suggestions 6.1. problems related to marketing the fact that there are too many goods and competitors in the international market makes competition in cross border e-commerce difficult. in this competitive environment, the existence of businesses and the ability to promote themselves have become their top priority (güler, 2010). first of all, before businesses enter a foreign market, they need to have extensive knowledge about that market. however, at this phase, consumers living in different countries have different consumption habits due to different cultures. businesses state that their inability to access sufficient information about foreign markets negatively affects their cross border e-commerce performance. in addition, competing with brands that have entered the market before and reached a certain market share in the market has become one of the other challenges for businesses. after conducting market research, businesses start advertising for the target country. in cross border e-commerce, online marketing techniques such as social media are used rather than classical advertisements. especially, techniques such as social media ads, google ads, e-mail marketing are frequently used for cross border e-commerce companies (kumah, 2017). many businesses face the problem of paying too many taxes and commissions for social media ads. recently, there has been an increase in the consumption of environmentally friendly and sustainable products around the world. however, the marketing of sustainable products brings many problems for businesses. the use of recyclable packaging, clean energy and environmentally friendly logistics systems bring additional costs for companies (chen l. f., 2019). firms should make investments and marketing costs accordingly in order to bestow these additional costs. 6.2. problems related to taxation and customs among the taxes that micro-export companies have to pay are sct, vat, local taxes and taxes belonging to the customs of the countries they export to (tepav, 2014). taxes paid in turkey are refunded under certain conditions within the scope of etgb. the emergence of different amounts of customs taxes in cross border e-commerce countries negatively affects the performance of cross border e-commerce enterprises. one of the problems in cross border e-commerce is the lack of permanent personnel who are competent in customs processes. the e-export legislation is a difficult and detailed one, and there are operational problems for the personnel who do not have knowledge of this information. it is of great importance in terms of micro-exports to train well-equipped personnel who have knowledge of the legislation in this field. 6.3. problems related to payment there are many differences between the payment methods used in cross border e-commerce and traditional methods. customers who want to shop across borders do not have a preferred payment system on the site where they will shop, which reduces trust in that site and customers prefer not to shop. businesses that want to make crossborder sales must use international payment methods. however, the inability to use an internationally valid payment method such as paypal in turkey significantly affects the competition of businesses in the international market. various countries have enacted too many laws regarding payment methods. it is a problem for businesses that there are too many legislative differences for payment systems. for example, in brazil, the use of credit cards is prohibited outside the countries they belong to, and the validity of electronic signatures is not recognized in china (tepav, 2014). for such reasons, electronic wallets are used in most countries. however, by using electronic wallets, they may incur losses in exchange rate fluctuations. in addition, using the currency of different countries instead of the local currency can cause problems for businesses. 6.4. problems related to logistics logistics is considered as one of the important and difficult stages in e-export. according to the study conducted with online shoppers in the usa, 90% of the participants stated that if their orders are delivered on time, they can shop from the same seller again and they can spend 50% more in their second shopping than in the first (anbar, 2001). in cross border e-commerce logistics, cargo processes can be long due to the fact that products are sent to crossborder regions. at the same time, logistics costs can be very high due to the long distances of the products. today, problems in cross-border e-commerce and development of cross-border e-commerce performance scale 139 cross-border delivery times can take less than 24 hours by air. among the expectations of e-export customers is that their orders arrive quickly, completely and undamaged. the fact that the address systems of the countries are different, especially in the middle east countries, increases the return rates due to the different address systems and difficult availability (nart & isayev, 2019). the increase in return rates causes an additional cost and time loss for businesses. 6.5. problems related to support and incentive in cross border e-commerce, there are some deficiencies as well as supports and incentives by the state and other public institutions. inadequate advertising support for companies that want to do cross border e-commerce in foreign markets causes problems for businesses. government incentives are needed for the high costs in logistics operations and additional costs at airports and in the country where the product is shipped. the fact that the call center costs are not supported by the state, which is one of the important stages of ensuring customer loyalty and brand awareness after the sale of the product, affects cross border e-commerce negatively.. 7. conclusion the process of electronically purchasing the products or services they need from international markets by businesses or individuals is called cross border e-commerce. while electronic exports provide individuals with the opportunity to shop quickly and easily from international electronic sites or marketplaces, it also increases their competitiveness by providing businesses with the opportunity to reach new markets in a fast, less costly manner. however, since cross border e-commerce are not fully developed compared to traditional exports and most countries cannot adapt to cross border e-commerce yet, it causes some problems. in the study, the problems in the cross-border ecommerce activities of the companies were evaluated in detail. the data obtained from the answers of 55 people participating in the study were analyzed and it was aimed to develop a cross border e-commerce performance scale. according to the findings, it has been determined that companies face many problems in cross border e-commerce. if these problems are resolved, companies will be able to continue their cross border e-commerce operations more effectively and easily. it is necessary to solve the problems, to make various investments and to have incentives from the government. in this scale development study, cross border e-commerce performance scale was gathered under 5 dimensions. logistics related problems arise until the products leave the warehouse and reach the customer. problems arising from payment such as the use of different payment methods by countries and different currencies cause problems arising from payment. many factors such as the cost of marketing activities cause marketing problems. tax and customs-related problems, which may cause additional costs and cause problems for customers, force companies. all things considered; this is a new scale development study that can be considered a limitation of the study. as this is a newly developed scale, it needs to be tested in different samples and industries. the more the scale is tested and verified, the more it will contribute to the literature. references ding, f. (2018). developing e-commerce logistics in cross-border relation. berlin: developing e-commerce logistics in cross-border relation. wang, j. (2014). opportunities and challenges of international e-commerce in the pilot areas of china. international journal of marketing studies, 6(6), 141-142. kalalı, g. (2021). türkiye'de e-ticaret ve i̇şletmelerin uluslararası rekabetçiliğini geliştirmek için kullandıkları i̇hracat odaklı e-ticaret uygulamalrı. kayseri: nuh naci yazgan üniversitesi social science institute. gümrük rehberi, g. (2018, 11 23). gümrükrehberi.gov.tr. 09 26, 2021 www.gümrükrehveri.gov.tr: https://gumrukrehberi.gov.tr/sayfa/etgb-elektronik-ticaret-g%c3%bcmr%c3%bck-beyannamesi-nedir from received. turkey trade minister. (2020, 10 22). 2020/25 sayılı genelge posta ve hızlı kargo taşımacılığı. 09 26, 2021 gümrük müşavirleri derneği: https://www.igmd.org.tr/202025-sayili-genelge-posta-ve-hizli-kargotasimaciligi_haberi from received. sipahi, b., yurtkoru, e., & çinko, m. (2008). sosyal bilimlerde spss'le veri analizi (2nd edition.). i̇stanbul: beta. safiye gizem saydam & mustafa emre ci̇velek 140 güler, e. (2010). i̇şletmlerin yabancı pazarlara girişinde elektronik ticaret ve endüstriyel pazar (b2b) uygulamaları. i̇zmir: dokuz eylül university social science institute kumah, m. k. (2017). the role of social media as a platform for ecommerce, how social media is gradually becoming a major role in e-commerce. vaasan ammattikorkeakoulu university of applied sciences international business. chen, l. f. (2019). green certification, e-commerce, and low-carbon economy. environmental science and pollution research, 26(18), 17965–17973. tepav. (2014). türkiye'de e-ihracat fırsatlar ve sorunlar. i̇stanbul: türkiye ekonomi politikaları araştırma vakfı. anbar, a. (2001). e-ticarette karşılaşılan sorunlar ve çözüm önerileri. akdeniz i̇.i̇.b.f. journal, 18-32. nart, ö., & isayev, o. (2019). a'dan z'ye e-i̇hracat (1st edition b.). i̇stanbul: ceres publications. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 37-47 37 relevance of african socio-cultural values in curbing corruption in public procurement hamisi kileo sama college of business education, tanzania, united republic of received: march 17, 2022 accepted: april 27, 2022 published: june 01, 2022 abstract: the paper aims at determine the relevance of african socio cultural values in curbing corruption in public procurement. the hypotheses tested in this study were adopted from review of literature in a cross sectional study. confirmatory factor analysis was used to confirm, reduce and simplify data, in regression models and test the existence of well-defined dimensions of african socio-cultural values in curbing corruption in public procurement. the empirical findings indicate that of the three variables which are social values, cultural value and self efficacy are significant factors in influencing transparency, accountability and ethical compliances in curbing corruption in public procurement. the implication of the findings indicate that for curbing corruption in public procurement to be improved, focus needs to be placed on inclusion of socio cultural values in public procurement reforms. keywords: african socio-cultural values, corruption, public procurement 1. introduction the issue of corruption in public procurement has received a good deal of attention at local and international levels in recent years. this is because most of governments are facing challenges of infusing accountability, transparency and ethical compliances accompanied with increasing scandals in public procurement which calls public debates and media attention (jibrin et al., 2014; araujo et al., 2005). these corruption scandals have negative impact to governments and entire public procurement profession. despite the fact that the synthetic reconstruction of public procurement practitioners’ habits wasn’t added to the body plan of the public procurement reforms at first. an option of human behaviour element in public procurement can help to explain and revealing entire logic of public procurement reforms and the very nature of changing procurement practitioners’ habits. in the context of human transactions accountability, transparency and ethical compliances is about moral wholeness – a consistency between what a person believes, professes and does (valencia, 2016). there are mutual influences between thought styles and the procedural "rules of the game" that are developed by a community of scientists, operating in a larger social context, to establish and maintain certain types of institutions and reward systems, styles of presentation, attitudes toward competition and cooperation, and relationships between science, technology and society (rusbult & van lange, 2003). in today’s environment of rapid change and uncertainties, with extraordinary reforms and transformations, major threats in public procurement are transparency, accountability and ethical compliances (fijnaut & huberts, 2002). socio-cultural values (scvs) are part of life style of particular society that distinguishes it from other communities with features and characteristics like social values and cultural which are hard to be abandoned (khalili & retnowati, 2013; băbeanu, et al., 2015). the way in which we make ethical decisions is based on some key ethical principles that have evolved to form the basis of biomedical ethics. they include autonomy, beneficence, non malfeasance, justice and sometimes veracity. valuable traditional principles which are disregarded provides basis for sustainable solutions to development challenges. some scholars believe that corruption in africa and other developing regions arises from the existence of cultural norms and behaviors, underdeveloped, poor education, and poverty (jabbra, 1976; kamoche et al., 2004). other researchers believe that corruption in africa is related to the clash between traditional and foreign norms that hamisi kileo sama 38 accompany modernisation and industrial development (mbaku, 1996). as such, corruption is seen as an unavoidable consequence of economic modernization and political development (alam, 1989; bayley, 1966). however, it is clear that economic development, westernized socio cultural values and education are by no means a guarantee for eliminating corruption. in current literature, corruption is often seen as deep-rooted, common and permanent; it is in all social systems, cultural and societal behaviours (alatas 1990; williams 2000; omosegbon, 2010) 1.1 nexus of social cultural values and corruption despite a comprehensive legislative framework, the southern african countries have not escaped from the shameful list of corrupt states (habtemichael, 2009; carr, 2009). in practice, however, government has been accused of not doing nearly enough to fight corruption (tangri & mwenda, 2006). those accused of corruption, especially the powerful elites, are never held to account, and continue to hold public office (nwabuzor, 2005). this evidence confirms that endemic corruption in southern africa is linked to the indication of poor economy thus sweeping and radical measures to arrest corruption are highly necessary. control and containment of corruption, is one of procurement profession’s more important roles in society, but fraught with difficulties and temptations that put procurement professions at risk of being sidetracked, confused or (worse yet) corrupted (christensen & cheney, 2014; arrowsmith, et al., 2000). the absence of effective accountability, transparency and ethical compliances mechanisms has meant that government actors either fail to follow the prescriptions of law, or manipulate them (peruzzotti & smulovitz, 2006; black, 2001). in official policy, most governments have acknowledged magnitude of problem of corruption and have established various mechanisms to fight it, including enactment of anti-corruption laws, one of which established corruption watchdogs (heilbrunn, 2004; de sousa, 2010). aspects of public procurement process nevertheless render it particularly vulnerable to anticompetitive and corrupt practices (de sousa, 2010; meagher, 2005). resulting loss to public infrastructure and services, whether in quality or range, typically has heaviest detrimental impact on most disadvantaged in society, who rely on public provision to greatest extent (engle, et al., 2007; power & wilson, 2000). this leads to high price levels of businesses. overall, corruption reduces efficiency and increases inequality. in general, according to achua (2011) moneys lost because of subversion of public procurement process represent wastage of public funds. every culture includes a somewhat different web of patterns and meanings: ways of earning a living, systems of trade and government, social roles, traditions, expectations for behaviour, attitudes toward other cultures, and beliefs and values about all of these activities (inglehart & norris, 2003; jasper, 2008). based on the concepts of ethical relativism, if someone holds to moral standards that differ from those of the prevailing group culture, then that person must adapt to the prevailing standards to avoid acting unethically (jones, et al., 2007; etzioni, 2010). this means that, the selfishness of the individual is weakened by the needs of the group – the views of the group filter out the selfishness of the individual (reisinger & turner, 2012; power & wilson, 2000). unusual behaviours in some occasions, may be considered either merely amusing, or distasteful, or punishably criminal (becker, 2017; esmail, et al., 2013). one of the strongest arguments against ethical relativism comes from the assertion that universal ethical and/or moral standards can exist even if some practices and beliefs vary among cultures. in other words, it is possible to acknowledge cultural differences and still find that some of these practices and beliefs are wrong. consider a discussion of claims like “morality is just a matter of opinion” or “it may be wrong for you but it’s not wrong for me” or “other cultures have different morals than we do and we can’t judge them” is unavoidable in these courses. in actual fact, it may also be inappropriate to speak of a “national” culture in the african context, primarily because many african countries are a collection of diverse ethnic groups struggling to establish a “national” identity following their forced “amalgamation” by european colonialists (kamoche et al., 2004). in addition, cultural dimensions have been found to vary across different countries and different tribes. here it is noted that, cultural relativism can also be criticised for being of limited practicability in workplaces with contrasting (bi-polar) cultural groups. although many studies have been conducted to investigate issues in cross-cultural business (blocker, 2011; pauleen, 2010; standifer, 2010), to the best of our knowledge, few and may be none has focused on the impact of culture on the ethical compliance. understanding scvs is critical because it can dramatically influence how individuals observe and interpret the business world around them, for example, whether they perceive situations as opportunities or threats of corruptions in public procurement (gaglio, & katz, 2001; thomas, 2008). schiffman and kanuk (1983) cited by wilson and relevance of african socio-cultural values in curbing corruption in public procurement 39 gilligan (1997) collaborate this by indicating that the individual develops a sense of achievement, individualism and freedom of action, success, efficiency, humanitarianism and these are the key drivers of behaviour. zakaria and abdul-talib (2010) notes that national culture which underlines employee cultural values, beliefs and attitudes have remarkable impact on firms’ performance and hence should not be undermined. this means, a person’s culture likely affects his or her opinions about the “right or bad” procurement behaviour. previous research has investigated influence, causes and effects of corruption to public procurement (barr & serra, 2010; sandholtz & taagepera, 2005; fan, 2002; luo, 2008). broadly speaking, these influences have been categorized as either individual or situational. individual characteristics include things such as scvs, cultural diversity within nations and the existence of “multi-tribal” states. this area offers promise in better understanding the causes of ethical behaviour in public procurement. specifically, it is believed that scvs, a major human dimension of public procurement, can significantly influence behaviours, attitudes, and other operational outcomes. however, the relationship between scvs and corruption may not be direct. it is likely that corruption is manifested through unfair and unjust policies, procedures, and decision making. working in an environment characterised by balancing the interests of various stakeholders, leadership effectiveness and process integrity, corruption is likely to discourage feelings of commitment and loyalty by transactional stakeholders. problems for ethical insensitivity causes firstly, the generally perceived failure to be able to give a convincing account for why one is justified in privileging their own interest and secondly, the secondary practical problem of difficulties in identifying what is and what is not in one's own self-interest. in order to analyse more precisely the direct and indirect effects of scvs and its nature, more granular data are needed. some scholars have tried to assess these aspects by using sector-level data and the results are not clear cut. while most studies do not find any evidence of positive externalities and spillovers of scvs on the ethical compliance in public procurement, some show that such positive effects appear but only with some time lag. it is claimed that public servants should seek a broad and solid understanding of ethical approaches and traditions (pinto 2009), and look for methods for thinking about the link of culture and ethics in public procurement decision-making process (delali, 2014; namugenyi, 2012) because ethical requirements imposed onto governments, public administrations and public officials have become more demanding and diversified. extensive review of the literature indicates that although a large number of studies have examined effects of corruption in public sector, there is still relatively little theoretical and empirical research on relationship of scvs and corruption (park, 2003; getz & volkema, 2001; and zyglidopoulos & fleming, 2008). as mutonyi (2003) and ferguson (2018), have themselves recognised that there has been much discussion of the theory-practice gap in controlling corruption in public procurement, few direct empirical investigations have been conducted. to date, few studies have explored relationship of scvs and corruption in curbing corruption within the context of africa in general, and tanzania in particular. this highlights need for further empirical research to provide greater understanding broader efforts to raise awareness on relevance of scvs in curbing corruption in public procurement. 2. methodology this study was based on theoretical and review of previous literature to develop research propositions that culminated into formulation of conceptual framework. being theoretical, its arguments and conclusions will be drawn from primary and secondary sources of information through an extensive review of scholarly literature relating to scvs relating to mitigation and prevention in public procurement. the study used a survey approach to collect data representing real phenomena in population from which study sample was drawn. study focused on the relevance of african scvs in curbing corruption in public procurement. a cross-sectional survey design was utilised to gather quantitative data to assess relationships between study variables. usually, a cross-sectional study involves data collection that covers a one-off time period. data collection of individual observations can occur at one point in time or may be over a period of days, weeks or months. in the case of current study, data collection period was over a period of four months in dodoma city. the aimed study is a non-experimental in a positivity philosophy, intended to include quantitative research. stratified random sampling was used in selecting elements of a targeted population whereby some or more sample elements deliberately included and others excluded. path analysis model based on hypotheses was used to analyse relationships between dependent and independent variables while maintaining connectivity of reliability, ethical hamisi kileo sama 40 issues and objectivity of the study. statistical tool of microsoft excel and spss model will be used for data input, analysis and presentation. data was collected using written questionnaires that were distributed to respondents during december 2021 and january 2022. generally, 345 respondents participated in the study and a total of 334 questionnaires were found to be suitable for further analysis. as is often the case with similar studies, the authors used convenience sampling as the respondents were selected based on their accessibility and proximity (the proportion of the respondents included in the sample was 59.7%). on average, these participants were 24.6 years old (standard deviation of 1.70 years) and 30.9% of them were female. in all cases respondents had some kind of previous experience in scvs and public procurement. 3. results and findings display of results and findings entail discussion of quantitative data collected through semi-structured questionnaires. in this study quantitative method was used in capturing data. quantitative research is a formal systematic process in which numerical data which was used to obtain information linking scvs dimensions (independent variable) and curbing corruption in public procurement (dependent variables) through its dimensions (accountability, transparency, and ethical compliances) in public procurement. in this study, quantitative analysis research method was used: firstly, to for saving time and resources; secondly, to enable replicability; and thirdly, to ensure easy interpretations, explanations, and conclusions and fourthly, eliminating or minimising biasness of judgment of african socio-cultural values in curbing corruption in public procurement. 3.1 goodness of fit goodness of fit estimates was used to determine how well hypothesised measurement model fits the observed correlation (within sampling error). in this case, model fit was based on three additional criteria: firstly, the roots mean square error of approximation (rmsea); secondly, comparative fit index (cfi); and thirdly, the root mean square residual (rmr). for the case of this study, following recommended criteria were used to determine goodness of fit of the model to the data: rmsea < 0.10, cfi > 0.85, rmr < 0.10 (kline, 2005). 3.2 confirmatory factor analysis (cfa) in order to ascertain the degree of association between constructs under investigation, the pearson correlation was computed. table 1 below presents the correlations between the constructs. as can be seen, the correlations decrease as one move away from the main diagonal, meaning that the correlations decrease as a function of the number of lags between the factors – a typical feature of a correlation structure (joreskog & sorbom, 1984). the findings from the research indicate that the correlation between the independent variables and the dependent variable ranged from 0.558 to 0.867. table 1: inter item correlations s/n construct 1 2 3 4 5 6 7 8 9 10 11 12 13 14 a cultural values (cvs) 1 culture 1.0 2 attitude .784* 1.00 3 beliefs .820* .760 1.00 b social values 4 school influence .759* .753* .667* 1.00 5 mass media .528* .686* .832* .764* 1.00 6 reference group .682* .768* .721* .558* .841* 1.00 7 peer influence .682* .768* .785* .697* .754* .682 * 1.00 c self efficacy 8 social persuasion .569* .735* .618* .768* .785* .697* .735* 1.00 9 mastery experience .692* .567* .572* .658* .805* .689* .764* .571* 1.00 10 vicarious experience .765* .628* .684* .584* .721* .804* .567* .695* .717* 1.00 relevance of african socio-cultural values in curbing corruption in public procurement 41 11 physiological states .671* .734* .647* .803* .618* .592* .751* ..594* .691* .832* 1.00 c mitigation of corruption 12 transparency .770* .764* .637* .394* .767* .815* .568* .687* .597* .694* .587* 1.00 13 accountability .826* .867* .697* .730* .864* .764* .750* .624* .698* .756* .815* .695* 1.00 14 ethical compliances .782* .697* .783* .862* .714* .697* .806* .657* .718* .672* .758* .589* .694* 1.00 after analysis of fit indices and factor intercorrelations, in terms of intercorrelations, results explain the empirical relationships between the manifest variables measured. accordingly, the relations between 334 empirical measures can be explained in terms of a 14-factors correlation structure. 3.3 multiple regression analysis multiple regression analysis is used in exploring the pattern of relationship between scvs dimensions (independent variable) and curbing corruption in public procurement (dependent variables) through its dimensions (accountability, transparency, and ethical compliances) while regression analysis test indicates level of confidence, direction and effect size of variables. the general equation and hypotheses of svcs and cc in public procurement is formalised as: 3...1;)( 0  iccscvs i  where: scvs = social cultural values; cc = corruption curbing representing independent variables, i = standardised beta coefficients; 0 = constant term and  = standard error term multiple regression analysis is well suited to test hypotheses in business and social science fields of research (cohen et al., 2003). the hypotheses propose a relationship between one or more factors (independent or predictor variables: x1, x2 …, xn) and an outcome (dependent or criterion variable, y). in order to test and interpret interactions, predictors in interaction need to be centred to maximise interpretability and minimise multicollinearity problems that arise between lower order terms (for example x) and higher order terms (for example x*y) in the regression equation. centring of variables does not affect the slope of the regression equation or the coefficients of the higher order terms, but it does affect the lower order terms coefficients when such higher order terms are present in the equation. 3.3.1 equation one: effects of svs in cc svs = β0+ β1 (tr) + β2 (ac) + β3 (ec) + ε0. where: svs = social cultural values; tr = transparency; ec = ethical compliance since in regression analysis, range is 0 ≤ r2≤1 values closer to 1 indicating better fits, therefore cc provided a moderate fit in explaining variations in svs. this was regressed as: svs = 0.738+0.626(tp) + 0.724(ac) + 0.876(ec) r2 = 69.5%; se = 0.022 from above calculated values, the regression analysis showed specified direction resulting to strong and positive relationship between svs and cc and it was also statistically significant. this is verified with the fact that magnitude and directions of all standardised regression weights satisfied all requirements (at confidence level, β < 0) whereby β1 hamisi kileo sama 42 is 0.738, indicating positive relationship (high values of one variable tend to occur together with increase values of the other variable) and thus consistent with the theory (i.e., positive signs). svs is high and therefore increases mechanisms of curbing corruption and all were significant (at p<0.05) as shown in table 2. table 2: effects of svs in tcs path β0 r2 β2 se p-value cohen’s d determinant r2 β se cohen’s d svs → cc 0.738 0.695 -0.824 0.626 0.017 0.729 tp 0.134 0.626 0.027 0.871 ac 0.119 0.724 0.061 0.751 ec 0.212 0.876 0.104 0.698 *p<0.1, **p<0.05; ***p<0.001 (two-tailed) 3.3.2 equation two: influence of cvs in cc from calculations of regression analysis, range is 0 ≤ r2≤1 values closer to 1 indicating better fits and therefore cc provided a moderate fit in explaining variations in cvs. this was regressed as: cvs = 0.695 +0.598(tp) + 0.691(ac) + 0.762(ec) r2 = 73.1%; se = 0.009 from above analysis, the regression analysis showed specified direction resulting to strong and positive relationship between cvs and cc and it was also statistically significant. this is verified with the fact that magnitude and directions of all standardised regression weights satisfied all requirements (at confidence level, β < 0) whereby β2 is 0.695, positive relationship (high values of one variable tend to occur together with increase values of the other variable) and thus consistent with the theory (i.e., positive signs). cvs is high and therefore increases mechanisms of curbing corruption and all were significant (at p<0.05) as shown in table 3. table 3: influence of cvs in cc path β0 r2 β2 se p-value cohen’s d determinant r2 β se cohen’s d cvs → cc 0.695 0.731 -0.676 0.639 0.013 0.756 tp 0.141 0.598 0.019 0.757 ac 0.127 0.691 0.023 0.684 ec 0.164 0.762 0.044 0.724 *p<0.1, **p<0.05; ***p<0.001 (two-tailed) 3.3.3 equation three: influence of se in cc basing on calculations of regression analysis, range is 0 ≤ r2≤1 values closer to 1 indicating better fits and therefore cc provided a moderate fit in explaining variations in cvs. this was regressed as: se = 0.738 +0.626(svs) +0.724(cvs) r2 = 69.5%; se = 0.018 from above analysis, the regression analysis showed specified direction resulting to strong and positive relationship between se and cc and it was also statistically significant. this is verified with the fact that magnitude and directions of all standardised regression weights satisfied all requirements (at confidence level, β < 0) whereby β3 is 0.824, positive relationship (high values of one variable tend to occur together with increase values of the other variable) and thus consistent with the theory (i.e., positive signs). se is high and therefore increases mechanisms of curbing corruption and all were significant (at p<0.05) as shown in table 4. relevance of african socio-cultural values in curbing corruption in public procurement 43 table 4: influence of cvs in cc path β0 r2 β3 se p-value cohen’s d determinant r2 β se cohen’s d ses → cc 0.738 0.695 0.824 0.626 0.017 0.729 svs 0.134 0.626 0.027 0.871 cvs 0.119 0.724 0.061 0.751 *p<0.1, **p<0.05; ***p<0.001 (two-tailed) 4. discussion despite the inconsistent findings of previous research, this study provides evidence that there is a direct positive link between scvs and curbing corruption in public procurement. thus, there are three paths in curbing corruption. the first path is to test influence african social values in curbing corruption in public procurement. the second path is to test to what extent the african cultural values curb corruption in public procurement while providing a nexus between self efficacy with accountability, transparency, and ethical compliances. results of this investigation support our hypotheses that african svs are related to the ventures of curbing corruption in public procurement. results indicate that higher levels of svs are associated with higher levels of transparency, accountability and ethical compliances. individual who is against corruption tend to invest excessive amounts of energy into sense of transparency, accountability and ethical compliances and to be uncomfortable with frauds, falsification and dishonest conduct in public procurement. such fusion could extend to the larger community. as was discussed by puttee (2005), campos & pradhan, (2007) nwikina (2013), svs in a society generated through school influence, mass media, reference group and peer influence tend to improve social ties or relations, justice, kindness, generosity, patriotism, perfection, and excellence truth can help to mitigate malpractices. results indicate that high levels of cvs are associated with higher levels of ethics, accountability and transparency. this suggests that individuals who are uncomfortable with cvs in relationships may not be actively involved in the larger community, indicating disconnection from a broader life-purpose as well as lack of transparency, accountability and ethical compliances. this results support an association between cvs and initiatives of curbing corruption in public procurement. it may be that highly reactive individuals with cvs have no difficulty in exhibiting transparency, accountability and ethical compliances with others and the larger community because social bond reduce social distance in their relationships. these results are in line with observation of gilman (2005), menzel (2009) and idang (2015) who argued that cvs serve as the criteria its members use to determine what behaviour is appropriate, to guide self-presentation and to justify their choices to others. the overall level of the participants was found to be moderate in the investigation of relevance of african sociocultural values in curbing corruption in public procurement. a good deal of studies conducted among socio-cultural values, corruption and public procurement have stated parallel findings in line with the current finding (morera, et al., 2006; d'zurilla, 1998; sager & gastil, 1999). however, some researchers have reported lower levels of satisfaction of curbing corruption by using regulatory means (treisman, 2007; manzetti & wilson, 2007). in this study participants were found not to differ in relation to their gender perceptions on the methodology of curbing corruption in public procurement. many studies in literature have reported no significant gender difference concerning socio-cultural values in solving decision making problems (damania, et al., 2004; azfar, et al., 2001; hamarta and arslan, 2010). on the other hand, female have been reported to be more satisfied on using sociocultural values than their male colleagues in a number of studies in curbing corruption in public procurement (aidt, 2003; park and blenkinsopp, 2011; galtung, 2006; azfar, et al., 2001). yet, a few have noted that females are more satisfied on using scvs than males in curbing corruption in public procurement (treisman, 2007; park & blenkinsopp, 2011). in the current study, the svs (in terms of school influence, mass media, reference group, peer influence) did have any influence in curbing corruption in public procurement. although some researches support this finding (azfar, et al., 2001; rothstein, 2011; rose-ackerman, 2013; morris, 2008), many studies have reported that as participants’ become more aware of svs, their ability in curbing corruption in public procurement increases (treisman, 2007; park & blenkinsopp, 2011). however, a few studies on svs have implied that respondents have negative attitude in applying scvs in curbing corruption in public procurement (morera, et al., 2006; d'zurilla, 1998). the findings of the current study have figured out that type of svs in which the participants originate lead to significant influence in curbing corruption in public procurement. morris (2008) has also found svs are of profound hamisi kileo sama 44 influence in shaping our motivation to engage with bigger-than-self problems. however, cultural relativism can also be criticized for being of limited practicability in workplaces with contrasting (bi-polar) cultural groups (adeleye, 2011, pauleen, 2010, standifer, 2010). overall, taking into account the former studies on scvs, we can conclude that most respondents generally have reasonable levels of being satisfied in applying scvs differences in curbing corruption in public procurement. thereby, it can be suggested to conduct large scale studies to understand motives in ability of scvs, and then attempt to reduce corruption in public procurement. 5. study conclusion, contributions and recommendations scvs in the paper were established to have many dimensions and could be seen to have three main thrust: firstly, social values, secondly, cultural values and thirdly self efficacy. however, this paper has attempted to focus on relevance of africans scvs in public procurement in curbing corruption. there is no doubt that this paper argues that corruption in public procurement is destructive to african economy, and sends some warning signals to africans to be conscious on assault of drivers of corruption. to meet the challenges of corruption, what africa needs to do is to intensify efforts in redeeming whatever is redeemable from its rich scvs. one critical area we can suggest for intensification of these efforts of scvs inclusiveness in curbing corruption. 5.1 study recommendations in order to achieve these points discussed above the following recommendation on relevance of africans scvs in public procurement in curbing corruption are made:  in order to promote corruption prevention awareness, scvs should be emphasised in africa’s system of education; this will help the child to value their culture;  scvs should be documented on mass media and this should be shown to the people from time to time. scvs programmes in our mass media should be adapted to the country environments. this is very necessary because evil communication corrupts good manner; and  traditional education should be integrated into the school curriculum at all levels of education and scvs should be inculcated into the young ones and this should be monitored not only by the teachers but all elderly members of the society as it used to be the case in the past. the society should show strong disapproval to any malpractices on the part of both the young and old. also, good behaviour should be encouraged through reinforcement. 5.2 study contributions this study contributes to public procurement literature by providing a model for mitigation and prevention of corruption in public procurement. it is the first such study. the major contribution of the current study is derived from the novelty of africans scvs in public procurement in corruption mitigation. the model designed by this research has filled a major gap in understanding african scvs in public procurement in corruption mitigation. secondly, the study contributes to the discussion corruption mitigation, using the scvs in an african environment. the study is significant to public procurement because of the fresh ideas from a different discipline, which has been used to establish academic venture. the study has also added to the knowledge of corruption mitigation in developing countries. thirdly, the study provides insights on two of the socio-economic factors of social values and cultural values as they relate to valuable african traditional principles which are disregarded provides basis for sustainable solutions to development challenges. inferring to that rutherfold and ahlgren (1991) positioned that the ways in which people develop are shaped by social experience and circumstances within the context of inherited genetic potential. also, in terms of findings, this paper identifies role of african scvs in curbing corruption in public procurement for future research in anti-corruption theory and practice. a number of factors were help to explain the sharp divergence of views in the literature and the skepticism surrounding the relevance of african scvs in curbing corruption in public procurement. based on the paper literature review, the paper develops a conceptual framework built on best practices of african scvs in curbing corruption as well as the shortand long-term strategic perspective. relevance of african socio-cultural values in curbing corruption in public procurement 45 the paper shows a new conceptual framework and establishes a holistic view of anti-corruption themes. based on the framework, future research areas may be identified and states can identify important concepts. implications based on the framework, a number of propositions are developed to facilitate empirical research on relevance of african scvs in curbing corruption in public procurement. therefore, findings of this study will be of great use to the government, lending institutions in formulating procurement policies so as to promote compliance in the public sector. finally, the study increases understanding of scvs in public procurement in corruption mitigation african context. the research report has the potential to lead to improved understanding of sources of africans scvs in corruption mitigation. the study results could help public procurement practitioners in less developed countries assess the likelihood of success of african scvs. 6. limitations and future research there are some limitations which have been identified in this study. first, it utilizes a cross-sectional research design. further investigation by collecting longitudinal data is recommended to examine the dynamic relationships between the constructs. second, comparative studies between scvs of different countries would be valuable in capturing the influence of scvs and curbing corruption in public procurement. although scvs is increasing affected by globalisation, further research would benefit by replicating and extending the conceptual model proposed in this study to other countries to increase the generalisation of the research findings. also, this study was conducted in the context of public sector within a limited geographical region in tanzania, dodoma city, which may affect the generalisability of these findings. future research could apply for this model to different contexts and countries. moreover, order of questions may have affected the respondents’ answers. future research may be conducted to determine whether changes in the order of arrangements of questions can affect the study outcomes. finally, even though this study has found that scvs is positively associated with curbing corruption in public procurement, other relational outcomes also need to be explored in future research. specifically, contract management and risk management has been widely discussed in recent public procurement research, which involves value for money and ethical compliances. other relational outcomes such as scvs in whistleblowing and entrepreneurial government are worthy of being investigated. acknowledgement and statement of conflicts of interest we acknowledge the sincere efforts and expertise of practitioners and regulators in the field of public procurement. this work wouldn’t have been accomplished without his help. the author declare that no competing interests exist. references adeleye, i. 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(2008). ethical distance in corrupt firms: how do innocent bystanders become guilty perpetrators?. journal of business ethics, 78(1-2), 265-274. journal of international trade, logistics and law, vol. 8, num. 1, 2022, 179-188 179 the impact of political factors on economy and business in turkey gözde yilmaz işık university, turkey damla özekan yeditepe university, turkey received: april 01, 2022 accepted: may 30, 2022 published: june 01, 2022 abstract: the goal of this research is analyzing the impact of politics on business and economy in turkey. how influencial are political factors for managers with respect to accretion of the companies? what is the dimension of political consciousness of managers and employees and what kind of regulations can be made? the study is going to enlighten answers to these questions. total 37 sme managers attended in the study. after collecting the qualitative data within surveys, it was interpreted as quantitative extent through spss program. in addition to the normal dispersion and reliability of the data; t-test, ancova, anova and linear correlation analyses were practiced. findings demonstrated that the managers of smes consider the political factors and they are impacting positively. in regard to categorical variables, mostly bachelor degree graduates, young and middle-aged, both male and female participants indicated that politics is effective on economy and business, but when the detailed statistical analysis is examined between the variables, any significant data cannot be observed. keywords: political factors, political behavior, political economy 1. introduction the structure of market functions includes political rules and regulations. economic power is an important core principle for political power. economics belong to wealth and politics belong to strength complicatedly. the base of international political economy (ipe) constitutes politics and economics with states and markets in international context. the split between political sphere of the government and economic sphere of the market creates modern and capitalist society. economic liberals reckon that if the economic system works by itself without political intervention then it would reach the peak. free market does not imply a system without politics. the term free market comprise of conditions of employment, taxation, consumer and producer protection, and treaties. both politics and economics are involved within complexity in liberal free market economic orders. the base of mercantilist theory is originated in 16th and 17th centuries and affiliated with modern and sovereign state. foremost political elites who are the creator of modern state rely on mercantilism and thought that strong state can be built by conducting economic activity, thus economics is a constituent of politics and a basis for political power. mercantilist theory assert that economy should promote growing power of the state, so politics should be superior than economics. economic liberals propose that politics is not more significant than economics. according to adam smith, markets tend to extend themselves for the persuading human needs which the state of government cannot intervene. he alleges that rationalist individuals have mutual gains from free exchange and also the basic resource is economic marketplace which is prosperous, progressive and cooperative, but political intervention and government regularization is wasteful, reactionary and conflictual. liberal economists have been enhanced many norms including exibiting economic development and people’s welfare which demonstrates that economy can implement its own rules and mechanisms without any intervention, and the rules are inherent for the process of economic procuration gözde yilmaz & damla özekan 180 and troke. additionally, liberals contemplate that governments can essentially intervene to politics. they believe laissez-faire which means nonintervention on economics without any formation and limitation. for the sake of market, political legal rules should be implemented and laisse-faire should be comprehended correctly that government can appeal political regulations with minimal underpinning for the straight market function. during 1930s, keynes specified that one of the outstanding advantage of citizens is market economy, but it’s also a risky, nescient and ambiguous place. this topic can be solved by improving the administration of the market and keynes positively concentrated on the management of the market wisely by state. liberalism pertains to main actors as individual citizens and private companies, natural economic relationships within cooperation and positive-sum game, maximum economic goals embracing individual and social well-being, and economics is autarchic in relation to economics and politics (jackson and sorensen, 2013). 1.1. goal of the study the topic of the study is ‘the impact of political factors on economy and business in turkey’ which both political aspects and business issues has an important interaction for company managers and government officials in contemporary capitalist world order. the research has two purposes; first one is to find out the reciprocal interaction of politics and business and the second one is to explore whether gender, age, education level, business sector and political identity of company owners. 1.2 research questions the research questions are; 1) how influencial are political factors for managers in regard to development of the corporations? 2) what is the dimension of political consciousness of managers and employees and what kind of regulations can be made? 1.3 descriptions of concepts politics: people’s activities which contains regulation, protection and arrangement of rules. the term is closely correlated with conflict and cooperation, and include different political views like art of government, public affairs, negotiation and accordance, as well as allocation of resources and empery (heywood, 2007). political factors: including the issues for government to specify the measurement of state intervention on economy. trade restrictions, labor law, foreign trade policy, political stability and instability in offshore market, government policies, environmental law and tax policy are included in the scope of political factors (marketing theories – pestel analysis-political factors, available at: www.professionalacademy.com). political behavior: joining in a political process and activity as both individually and collectively that constitute political outcomes relative to state governance and policy. it connoting legitimate and illegitimate manners of political participation and activities such as interest groups’ activism, voters’ electoral acts, social movements, revolution (coups d’état), military coup and terrorism (scott and marshall, 2009). international business: including human capital, research and development, marketing and manufacturing, as well as providing goods and services it means profit-oriented business operations beyond the national borders both privately and governmentally (i. katsioloudes and hadjidakis, 2007) (petkovska et al., 2017). business types: float of a firm based on the juridical statute, inclusive of sole proprietorship, partnership, limited partnership, corporation, limited liability company, non-profit organization and cooperative (business structure – what is a business structure?, available at: www.sumup.co.uk) (kinnison, 2019). 1.4 importance of the research the importance of the research is illuminating government officials to regulate and implement necessary legislation in order to develop national economy and advantage to small and medium sized companies in turkey by considering the outcomes of the research. the study is subjected to turkey’s small and medium-sized enterprise (smes) and citizens based on political factors and political behavior within compare and contrast of world business. the impact of political factors on economy and business in turkey 181 2. literature review 2.1. the relationship between the politics and business the political environment impact business in various ways. it should be understood that the political factors have the capacity to change results so the companies should be prepared to deal with the national and international outcomes of politics. transformations in the government policy creates the political factors related to economic, legal, social or a mix of these factors. trade control, employment law, tax policy, government involvement in economy, corruption level, data protection law are some of the political factors that affect economy and business. there are 4 main impacts of the political factors on business: changes in regulation; changes by governments in their rules and regulations have impacts on businesses. impact on economy; the political condition of a country affects its economic situation and the economic situation affects the business performance. political stability; lack of political stability in a country has impacts on business operations, specially fort he international corporations. mitigation of risk; companies with international operations usually buy political risk insurance in order to decrease their risk exposure. the index of economic freedom is a good example of the risk exposure in some countries and gives an idea on how politics impact business decisions. developing markets have faced different advancements from 2010s within their political environment. continuos changes in political stability have negative effects on economic growth, consumption and investments on developing economies. increasing of income inequality such as rampant corruption and high unemployment rates in some of the markets keep maintaining political stability as a challenge for developing economies for the following years. developing economies’ business environments, which directly affects foreign direct investment (fdi), tourism and other economic activities that take place in developing economies, are affected by recent changes in the political situation. contrary to political stability that will help to attract fdi, increasing political turmoil will undermine investor reliance and therefore will affect fdi inflows. (changes in political stability impact business environments in emerging markets, 2014, available at: www.euromonitor.com) many regulations and policies that guide businesses are set by governments. some of the regulations such as minimum wage are necessary, while other policies may or may not influence the business directly. the mutual effect and reciprocal relationship of politics and business can be described in five phases: policy as a market catalyst; it is a policy that can be implemented by the government that changes the behavior in the business environment. as an example, carbon-based taxes can be gathered by the government and subsidies for businesses which use renewable energy can be granted. the government is able to guarantee the development of new technology which will bring the crucial change. while investors will lose interest in that sector if more taxes or duties are implemented on a particular sector more than obligated, exemption of these tax and duties on these sectors can trigger investment that will generate growth. political stability and political culture; government policy will rely on political culture of the moment all the time. policy created and implemented in an unstable country will be different from the one that is done in a politically stable country. in order to promote local businesses and attract foreign investors, a stable political system which can make business-friendly decisions must take place. government taxation and spending; it is governments earning money for expenditures from taxation which means increased spends, more taxes or borrowing. especially for entrepreneurs who take risks by starting and managing businesses, any increase in tax will impact negatively on investment. one of the other negative impacts of increased spending is the limited pool of savings which leads to leaving less money for private investment. therefore, because of reduced private investments, production of goods and service declines which may result in elimination of jobs. setting interest rates; the policies implemented by governments can affect interest rates, and an increase in interest rate can increase borrowing costs. high rate in the interests will also be the reason for decrease in consumer spends. on the other hand, low interest rates will attract investment because of the increased production in businesses. the short-term solution is the government printing more money to influence interest rates but it will eventually result in inflation. businesses cannot grow in a high level of inflation environment. regulations and permits; trade regulations and requirements for permits or licences and the federal minimum wage affects business. businesses may have to spend lots of money and time to comply with regulations which at the end gözde yilmaz & damla özekan 182 prove to be ineffective and unnecessary. on the other hand, fair and effective regulations will ultimately promote business growth (williams, 2019). 2.2. the intervention of politics into trade international labor law is usually characterized as a collection of laws consist of both public (i.e., law between nations or governments) and private international law. it may also contain 'comparative law,' which refers to legal ideas that are applied in various nations. a collection of laws that applies to a specific group of nations is another hub for international labor law. environmental regulations also arrange the majority of a company's operations. at all stages of the innovation process, including raw material extraction and product manufacturing, distribution, marketing, transportation, and disposal, environmental problems and principles must be integrated into company strategy. the majority of economists' debates regarding the impacts of trade policy regulation are ideological rather than logical. while tariffs may force consumers to pay more for import products, households and the whole economy are influenced in a variety of ways, both favorably and adversely. what matters is the circumstances under which industrial intervention programs are implemented. in most cases, trade deficits and surpluses drive monetary and other economic adjustments in the affiliated nations, which tend to correct the imbalances. it is incomprehensible to believe that in a trade war, all countries lose. this cannot be true, not only because there is abundant documentary proof that the countries are benefited from trade regulation, but also because the claim is logically untenable. while taxes and other types of trade interference can increase costs for consumers, this is just one of the ways these policy instruments affect them and it is frequently a small one. tariffs and currency depreciation are not the only types of trade interference, but also they are not the only way that global trade and capital flows are distorted. employees' rights are now included in an increasing amount of bilateral and international free trade deals, and also regional economic participation accords. indeed, during the last two decades, the number of free trade deals incorporating labor clauses has risen dramatically (contemporary trade policies). 2.3. manager’s strategic planning in a global setting, strategies refer to a strategic plan of the company for gaining a competitive advantage over its competitors. this strategy led the corporation to specific clients, markets, goods, and operations in worldwide marketplaces, rather than simply one. in a global setting, strategy must supervisors in creating a powerful global perspective, allocating scarce resources globally, participating in major markets, forming global partnerships, and engaging in competitions in due to international competitors, as well as establishing activities that add extra value on a world stage. (katerina and aneta, 2015). ever since mid-1970s, governments were becoming increasingly involved in international corporations' activities. they now routinely impose tough requirements on mncs seeking to do business in their country. they discuss some of the ramifications of establishing a reasonable balance for international corporations' organizational structures. in latest days, hosting countries' desire to conserve sovereignty about their own financial systems have hampered mnc executives' ability to deploy economic resources. moreover, nations have frequently tampered with the independent process of mnc strategy formation. managers who are or will be subjected to such constraints may find it helpful to differentiate between the two types of government interference. the first is best viewed as a restriction on strategic freedom since it establishes the legislative and monetary ground conditions for an mnc's choice to compete in a host nation. the second is best seen as a challenge to managerial autonomy, since it aims to affect the internal mechanics of an mnc's decision-making process. they combined represent a significant encroachment on mnc executives' strategical liberty. any limitation on management or tactical independence is a severe concern. these constraints may be enough to cause a multinational corporation to either avoid entering or depart from a national market. (doz and prahalad, 1980). 2.4. the role of international organizations nongovernmental organizations (ngos) and civil societies have expanded in numbers, size, and influence over the last several decades, becoming key players in business, particularly business–government relations and the larger role of business in society. environmental groups, business associations, labor unions, human rights organizations, consumer groups, church and religious groups, academic institutions, think tanks, trade and industry associations, grassroots not-for-profit organizations, and many others are examples of non-state, non-firm actors. the impact of political factors on economy and business in turkey 183 companies and governments may seek partnership with ngos in order to mitigate negative consequences of their operations and better anticipate their "partners'" future behaviors. in effect, this strategy weakens the function of ngos as watchdogs. ngos that construct new regimes or operating regions where they have unique and difficultto-duplicate skills may create new industries or institutions. ngos can play an important role in society's administration and monitoring. they can act as consumer advocates for other institutions, providing critical clarity; they can vigorously protest and conduit or agglomeration worker and consumers ’ preferences; they can shift the sentiment polarity of dominant frames (for example, from the more negative "social regulatory oversight" to the more positive "corporate social"); and then they can straight restrict firms when such firms agree to give up power to them. (dahan et al., 2010). tüsiad, centered primarily in ankara, istanbul, and izmir, represents turkey's largest industrialists, enterprises, financial industry, insurance businesses, construction industry, and other services. as a result, tüsiad members engage in a diverse set of economic activities. tüsiad's member companies play a significant role in the financial markets. in the manufacturing, construction, and finance industries, tüsiad's 227 members created 47 percent of turkey's additional value. furthermore, these businesses employed roughly 414,000 individuals. tüsiad has risen to the top of turkey's international trade which means that its role in politics is not immeasurable. (demirkol, 2006) 3. data, methodology and hypotheses 3.1. participants of the study the total number of participants are 37 which company owners constitutes during the years of 2020 and 2021. appropriate sampling method executed for the selection of participants and instruments are implemented as participants acted voluntarily from different genders, ages, education levels, business sectors and political views. managers of small and medium sized companies were selected especially in order to provide the most prevailing data from turkey. the sample involve 12 females and 25 males and, the upper age ranges are between 20-29 (%27), between 30-39 (%27) and between 40-49 (%21,6). most of the company managers have bachelor degree with 51,4 percent, master degree with 27 percent and high school graduates with 21,6 percent. in business sectors, the rate of information technologies is 13,5 percent and food sector had 13,5 percent rate samely, also, trade sector including sales and marketing is having 10,8 percent and 8,1 percent of managers work on social and private services. 3.2. data collection instruments to obtained the data of this study, statistical package for social science (spss) was used and questionnaire forms of political factors and consumer behavior were conducted for exact measurement. 3.3. questionnaire forms of political factors the questionnaire forms were created for both managers and consumers to collect and measure political behaviors, information about gender, age, education level, political ideology and business sectors. the questions compose of political factors which are effective on business including taxes, rules of law, codes of conduct and governmental actions for company managers. the responses were obtained by using likert scale (1-strongly agree, 2-agree, 3neutral, 4-disagree, 5-strongly disagree) and in-depth questions. 3.4. hypotheses of research hypotheses are studied and tested for the purpose of this thesis are; h.1. both males and females believe that politics affect business. h.2. most educated people believe that politics affect business. h.3. middle-aged people believe that politics affect business. h.4. white-collar entrepreneurs believe that politics affect business. 3.5. data collection procedure data was collected through social media tools such as linkedln by distributing the online surveys to the groups and individuals in 2020-2021 academic spring semester (mirabeau et al., 2013). online surveys presented with written information including the research topics, goal of the research within its usage area, confidentiality issues and information about the researcher. participations substantiated voluntarily by taking nearly 5 minutes. gözde yilmaz & damla özekan 184 3.6. data analysis procedure descriptive research method was used for this study which is based on absolute facts within surveys and case studies (pedamkar, available at: www.educba.com). after collecting qualitative data, it was transformed to quantitative data by applying for spss program. the data does not involve in any missing value. to demonstrate the hypotheses of the first part of the research; acceptable reliability test (68,4%) (kılıç, 2016), test of normality (shapiro-wilk values 224-417) (testing for normality using spss statistics, available at: www.laerd.statistics.com), questions of the survey within mostly strongly agreed responses, t-test (p=,000, p<0,005) and ancova analysis (p=,832, p>0,05) (yılmaz, 2019) were implemented. 4. results 4.1. test of reliability the value of cronbach’s alpha is 68 percent which is very close to level of 0.70 and a sufficient outcome for the reliability test (testing for normality using spss statistics, available at: www.laerd.statistics.com). the descriptive statistics revealed that the mean value for participants’ political interaction scores was 26.49 with a standard deviation of 4.79. the each mean value is very low, it means that most of the firm owners agreed on the political impact on businesses. accordingly, aiming to determine the awareness of company owner about political and legal issues, 19 statements are proposed. the statements and the replies has not any missing value and provided as per likert scale by respondents. 4.2. test of normality the number of male entrepreneurs are 25 and female entrepreneurs are 12. the data does not include any missing value. average median and standard deviation values are indicated with maximum and minimum values. skewness and kurtosis values are between -2 and +2, thus the data exhibits normal distribution. the data of the study proves that the value of significance greater than 0.05 and n number is greater than 30 for both females and males thus, the data is normally distributed. normal distribution can be analysed with the histogram graphs. on the scatter plot graphs, observations around the regression line shows a normal distribution. on the box plot graph, extreme values are not observed. 4.3. survey questions and responses statement 1: as a manager i think that the donation support of government is beneficial for my company and its satisfactory. statement 2: as a manager i take care of implementation of labor law, healthy environment and gender equality rules in my company. statement 3: i am very interested in the issue of tax policy, rating and tax incentives, so i provide to pay on time. statement 4: i interact with business by participating in commercial cooperations and agreements which government involved. statement 5: protection of the consumers and online trade markedly advantage for my company. statement 6: i underfollow the impact of government on economy and make strategic planning in order to minimize the risk. statement 7: as a company owner me and my all employees obey the government limitations strictly in case of state of emergency. statement 8: i have enough knowledge about the concepts like insurance, commercial register, unfair competition, current accounts and negotiable instruments which are based on business law. statement 9: during government restrictions and interventions, presentations of new product and service are implemented in order to maximize the operational efficiency. statement 10: i find beneficial to attempt to foreign market in terms of employment, demand of domestic production and economic growth under globalization process. statement 11: building around freedom of thought, my employees have liberty of speech about governmental actions and political activities. statement 12: as a corporation, we are sensitive towards political events which influence the society and we release our product and service manner in this direction. the impact of political factors on economy and business in turkey 185 statement 13: i think that state governance must be invariably sustained and stable because of negative affect of gross domestic product as a result of policy amendment. statement 14: i think that we must be in league with non-governmental organizations in order to provide sustainability and implement corporate social responsibility projects. statement 15: please indicate the sector that your company is located. statement 16: please indicate your age range. statement 17: please indicate your gender. statement 18: please indicate your education level. statement 19: please indicate main problems in your business sector. it is observed that the most of the replies provided by the participants are positively strongly agreed. accordingly it is indicated by this result that owners of corporations believe in the political factors within legal implementations in their business life. additionally, main unsolved problems and recommendations which are highly connected with politics and legal issues were asked for the participants about their sector. these issues can be considered to solve in order to improve small and medium sized enterprises and contribute to develop national economy. the replies are shown below: replies provided by company owners from textile sector are as follow; 1. constituting new platforms that may increase foreign trade. decreasing exportation procedures. providing tax advantages for new small-sized companies and enhancing entrepreneurship. 2. reducing the restrictions during pandemic period. replies provided by company owners from education sector are as follow; 1. in order to enable to find job for newly graduate instructor of ministry of education, the compulsory internship should be two years on the way of being qualified employee. 2. the physical environment where educational institutions are operating should not be standard and it should be improved on regulations by considering the student profiles and number of the courses. 3. value-added tax rate should be reduced to one percent in the fields of education and health. 4. tax reduction, social security insurance and cost reduction are needed. replies provided by company owners from information technologies sector are as follow; 1. developing research and development and innovation with shared wisdom. it can be provided by constant participation of both public and private establishments at technopark within their membership. 2. innovations and enterprises are developed by contribution of customers more than grants. it is compulsory to create working culture notwithstanding places and overtime. it should be thought that even any person with obstacles can change the world, so the sector should be improved according to this view. 3. unionization and workers’ rights should be reviewed. the scope of state subventions should be extended. social attitude should be change. 4. state subventions and incentives which based on justice and merit should be transfered to information technologies sector more than construction sector, in this way the companies can provide value-added product and services for national economy. 5. in order to train personnel, the education reform in software and informatics programs should be contemporarily appropriate, and incentives like salary and insurance should be provided for companies in order to train new graduates. 6. research and development and investment incentives should be provided for software and informatics companies, and companies from other sectors which want to invest for software. 7. turkey needs education reform, economic reform and merit to hinder brain drain. there must be revolution on economy and state governance. replies provided by company owners from mining industry are as follow; 1. subsistence of unfair competition. lack of semi-skilled workers. visa issues and unpleasant foreign relations. replies provided by company owners from food sector are as follow; 1. agricultural production must be increased, the manufactured foods must be controlled properly for human health and export incentives must be increased. 2. providing standby credits, improving the age limit of retirement and providing assistance for logistics. gözde yilmaz & damla özekan 186 replies provided by company owners from justice and security sector are as follow; 1. turkish bar association and province bars can be functionalized. 2. trainee lawyers and beginning lawyers should not be classified as low-cost labor. 3. works that extend the area of judicial service should be made. 4.4. t-test analysis of hypotheses hypothesis h11 it is explored that the political factors revealed normal distribution, thus applying to parametric t-test is convenient. one sample t-test is used to reveal whether two sample groups (e.g. male-female, married-single) diverge or not. it examines whether the average in a group has a statistically significant graph other than another group or not (burnham, 2012). based on the spss data sig. value is computed as ,000, p<.05. thus, hypothesis h10 is rejected, accepted hypothesis h11. hypothesis h11 being “both males and females believe that politics affect business” and null hypothesis h10 is “both males and females do not believe that politics affect business”; the result of t-test implemented on the replies of the survey’s respondents is accepting h11 “both males and females believe that politics affect business”, rejecting the hypothesis h10 “both males and females do not believe that politics affect business”. this outcome can be interpreted as that political factors are positively effective on behaviors of male and female entrepreneur (yılmaz, 2019). hypothesis h21 based on the spss data sig. value is computed as ,000, p<.05. thus, hypothesis h20 is rejected, accepted hypothesis h21. hypothesis h21 being “most educated people believe that politics affect international business” and null hypothesis h20 is “most educated people do not believe that politics affect international business”; the result of ttest implemented on the replies of the survey’s respondents is accepting h21 “most highly educated people believe that politics affect international business”, rejecting the hypothesis h20 “most educated people do not believe that politics affect international business”. this outcome can be interpreted as that political factors are positively effective on behaviors of business people. hypothesis h31 based on the spss data sig. value is computed as ,000, p<.05. thus, hypothesis h30 is rejected, accepted hypothesis h31. hypothesis h31 being “middle-aged people believe that politics affect international business” and null hypothesis h30 is “middle-aged people do not believe that politics affect international business”; the result of t-test implemented on the replies of the survey’s respondents is accepting h31 “middle-aged people believe that politics affect international business”, rejecting the hypothesis h30 “middle-aged people do not believe that politics affect international business”. this outcome can be interpreted as that political factors are positively effective on attitudes and behaviors of experienced business people. hypothesis h41 based on the spss data sig. value is computed as ,000, p<.05. thus, hypothesis h40 is rejected, accepted hypothesis h41. hypothesis h41 being “white-collar entrepreneurs believe that politics affect international business” and null hypothesis h40 is “whitecollar entrepreneurs do not believe that politics affect international business”; the result of t-test implemented on the replies of the survey’s respondents is accepting h41 “white-collar entrepreneurs believe that politics affect international business”, rejecting the hypothesis h40 “white-collar entrepreneursdo not believe that politics affect international business”. this outcome can be interpreted as that political factors are positively penetrating on managers from many sectors (babbie, 1975). 4.5. ancova-unianova analysis of variance for gender, education and age and estimated marginal means of variables univariate analysis of ancova testing is performed for each of the three subgroups to determine if there are any significant differences between scores on these categorical variables. data of the study includes bachelor degree graduated females between the age of 40 to 49 and high school gradute males between the age of 20 to 29 have the highes mean values with 28,00 and 32,10. data of the study display the p-value of ,310 which means significance exists across groups. to find if there is any significant difference between the variables, it is observed that despite gender variable has a low f-value with ,011 it does not exhibit a significant p-value with ,918. also, education and age variables does not indicate a significance value or difference with the values of ,147 and ,480 as evaluated in the the impact of political factors on economy and business in turkey 187 study. thus, the data can be concluded as although all hypothesis are proved for each variable, any significant differences between the variables are not determined (rothwell, available at: www.sheffield.ac.uk). on the subject of gender, negative values means j group is more dominant than i group and positive values means i group is more superior than j group in mean difference section. univariate f-value is ,007<0.05 which is not a significant value and p-values are greater than 0,05 thus, any significant data is not detected. on the subject of education, negative values means j group is more dominant than i group and positive values means i group is more superior than j group in mean difference section. univariate f-value is ,124>0.05 which is a significant value and p-values are greater than 0,05 thus, any significant data is not detected. on the subject of age, negative values means j group is more dominant than i group and positive values means i group is more superior than j group in mean difference section. univariate f-value is ,648>0.05 which is a significant value and p-values are greater than 0,05 thus, any significant data is not detected (rothwell) (yılmaz, 2022). 5. conclusion the frontiers between states have become more pervious, the circulation of human resources, capital, and production tools has become more attainable the cheapening and diversification of communication has brought the states and businesses of the world closer to each other economically, the disappearance of primitive frontiers in this area has induced the impact of political ties to move to the international arena. this means that managers take into account many more parameters when analyzing political conditions and are ready to review their plans and strategies at any time. for example, when examining the economic environment factors, not only the leading country but also the enterprise's financial performance, which depend on the countries' politics that make up the target market, and its position in international markets should be taken into account. some of the political factors impacting the whole country, some involving the entire world, impact only one sector. for this reason, the influence of each factor on the business can be particular. some of the political aspects, directly and indirectly, affect the business. in addition, while there are factors that the industry can direct itself, the contact with the political and legal authorities can be pretty one-sided, and the companies are impacted by these issues unilaterally and relatively high. political factors are closely related to the political system and the government's policy and attitude towards business. the persistence of the politicians is also directly related to the plans and activities of entrepreneurs. interest groups and investors also anticipate persistence. political stability, power centers, nationalization and privatization approaches, tax laws, antimonopoly and competition laws, environmental protection legislation, foreign trade regulations, health and safety regulations. it is also essential to what political factors in the countries direct their policies. for example, many issues in politicians' hands, such as various policies like industry-oriented, agricultureoriented policies, exchange rates, taxes, and interest rates, directly affect international companies and consumers. political factors ensure positive impacts to business. government officials and entrepreneurs should consider these factors and, law amendment and strategic changes should be done if it is essential. references babbie, e. 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(2022). the effect of politics on international business a descriptive research of turkey. i̇stanbul: işık university. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 52-61 52 reviewing the defense spendings’ effects on foreign trade of turkey i̇. kahraman arslan istanbul commerce university, turkey ömer murat istanbul commerce university, turkey received: 05 augt, 2020 accepted: 20 sept, 2020 published: 10 dec, 2020 abstract: in order to ensure military security in a country, defense spending must be done for having a trained army with modern weapon systems. the effects of defense spending, which are not completed once and must be made continuously, are inevitable. this study sought to answer the question of how to influence turkey's foreign trade balance in defense spending in the years 2000-2018. the granger causality tests in the e-views, a windows-based econometric software program have been used. defense spending has emerged from the analysis did not affect the foreign trade balance in turkey. it is observed that the gross domestic product has an impact on the export and import of defense industry products. keywords: public expenditures, defense spending, foreign trade balance jel classification p33, h560 1. introduction according to the republic of turkey constitution article 5, "the fundamental aims and duties of the state are keeping the independence and integrity of the turkish nation, maintaining the indivisible integrity of the republic and democracy, ensuring the welfare, peace, and happiness of citizens. while the state performs these services, it spends the taxes, collected from the citizens in the country, at optimum levels and primarily performs security, prosperity and development. these expenditures made by the state are called “public expenditures”. the distribution of the public expenditures planned to be made is decided in return for the estimated income with the “budget” approved by the parliament every year. under normal circumstances, "defense spending" always has an important proportion among these public expenditures. accessing real information about defense spending can create sensitivity for the defense power of countries, and access to this information is normally limited. when the real values are reached, these values are kept confidential. regarding defense spending of countries, stockholm international peace research institute (sipri) is the most respected institution worldwide. in this study, the statistical data provided by sipri has been used. defense and security are the sine qua non of the countries. according to the literature researches on defense spending; it can have a positive impact on economic growth, employment, and foreign trade, as well as negative or neutral effects. in this study; the effects of turkey's defense spending on the trade balance are evaluated. foreign trade balance is the difference of the exports and the imports of people and organizations residing in one country to people and organizations residing in other countries (eğilmez, 2019, p.169). in general, the defense is defined as “protecting the sovereignty and independence of the state against the threats and interventions of other states” (bulutoğlu, 2004, p.237). reviewing the defense spendings’ effects on foreign trade of turkey 53 according to the armed forces literature; defensive operations are combat operations conducted to defeat an enemy attack, gain time, economize forces, and develop conditions favorable for offensive or stability operations. the defense alone normally cannot achieve a decision. however, it can create conditions for a counteroffensive operation that lets army forces regain the initiative (fm 3-0, 2008, p.3-10). in order to protect the country against internal and external threats, “such as military personnel expenses, production and import of weapons and equipment, infrastructure expenditures, maintenance-repair-modernization expenses, research and development (r&d) activities etc are called as defense spendings (canbay and mercan, 2017, p.87). it is clear that military expenditure has its economic cost. if a country would like to be militarily strong, it should invest in its economy. once the country is economically strong, too much is at stake to risk in war. countries may also have security by becoming an important partner in the world economy. major powers will protect them from attacks because of the impacts of an attack on the world economy, and on their economy too. maybe, the best way is to get security through economic growth (dunne and tian, 2013, p.9). peter drucker, one of the gurus on management, for armament in 1989: “… weapons have shown that they are not productive and have become a burden to be taken into consideration in terms of economic development and performance. it is the main cause of russia's economic crisis, america's economic troubles and especially backwardness in latin america .... weapons have also lost their military capabilities. they can win the battle, but cannot determine the end of the war. in the age of nuclear, biological, and chemical (nbc) weapons, they are unable to protect their country. now, they cannot be seen as the "war is the implementation of politics by other means (violently)", the well-known discourse of the famous strategist of prussia, karl von clausewitz, but they have become bankruptcy of the policy " (korkmazyürek, 2018, p.138). 2. defense spending in turkey according to the data of the sipri, turkey's defense spending shows an increase in general. although defense spending financing is provided from intra-budget and extra-budgetary sources, the main source is the national defense budget. turkish defense planners suggest preparing for all possibilities. according to the former ambassador şükrü elekdağ, the turkish armed forces should be prepared for "two and a half battles" along our aegean and southern borders for two full-scale operations and an uprising that can be provoked from within the country (ayman and şenesen, 2016, p. 36). turkey's neighboring countries, defense spending is presented in table 1 below. table 1: turkey and its neighbor countries’ defense spending source: it is prepared according to the data from sipri. i̇. kahraman arslan & ömer murat 54 turkey spends more than any of its neighbors’ defense spending according to the table 1. turkey is followed by iran. greece, which came third, had to reduce its defense spending due to the economic crisis. the defense spending of bulgaria, which follows greece, tends to increase, and azerbaijan, which follows it, continues in its current position. armenia, georgia and greek cyprus are the countries that make the least defense spending in terms of total size. because of the internal struggles in the two neighboring countries, syria and iraq, were not added. defense industry support fund (disf) was established in order to realize the turkish armed forces' modernization projects in 1985. moreover, disf provides financial resources needed for the creation of advanced defense industry in turkey, and to ensure a regular and consistent capital flow outside the general budget. it works under the umbrella of the central bank and the presidency of defense industries (yentürk, 2018, p.137). turkish armed forces foundation (taff): it was established in 1987 by law no. 3388 with the aim of contributing with the financial and moral donations to contribute to the increase of the taf's combat power through the development of national defense industry, the establishment of new defense branches, and the purchase of defense weapon systems, tools, and equipment. together with disf, taff is one of the two main factors outside the budget that contribute to the development of the taf. turkish armed forces foundation (taff) expresses its establishment policy on its official internet web page. "some allied countries, which turkey bought their defense equipment, put vetoes to the usage of these weapon systems for turkey's own national interests, during the cyprus crisis in 1964. this has revealed the drawbacks of becoming dependent on other countries. even if they are allies in meeting defense needs. it has undoubtedly revealed the importance of meeting defense needs with local opportunities and has formed the basis of policies for the establishment of a self-sufficient defense industry infrastructure.” taff makes strategic investments in the field of the defense industry. each of them has reached the position of competent both domestic and national companies worldwide. 's companies; aselsan, tai, roketsan, havelsan, i̇şbi̇r, aspi̇lsan are leading companies in turkey. defense news magazine, based in the us-based military publishing company, published the "defense news top 100" list, which is published every year on the basis of the defense sales of the previous year. this year 5 turkish companies aselsan, tai, stm, bmc and roketsan were included in the list. 3. literature an empirical discussion started with the contribution of benoit (1973, 1978) about the relationship between defense spending and economic effects. benoit investigated the link between defense spending and economic growth covering the period 1950-1965 for 44 least developed countries (including turkey). as a result, he found a positive relationship between them. according to benoit, countries with high defense burden generally have the fastest growth rate. however, countries with the least defense burdens show the lowest growth rates. this result impressively led to a large number of research attempts on this topic and led to the creation of a literature that tends not to support benoit's initial findings (dunne and tian, 2013, p. 2). there are not many studies in the literature on the relationship between defense spendings and foreign trade balance. however, it is estimated that such spendings affect budget deficits and thus the current account deficit in developing countries. canbay (2020); in his article that examined between 1990 and 2017; found that defense spending will negatively affect economic growth in the short and long term, but r&d activity positively affects growth. canbay and mercan (2017), in the article examining between 1986-2016; found that defense spending on the production of defense systems will cause economic contraction and current account deficit in short periods. it is the opposite for the long run. doğdu (2018), in his research, revealed that military r&d expenditures had a decreasing effect on the current account deficit, in turkey, covering the years between 1997 to 2015. biswas and ram (1986) concluded that there was no statistically significant relationship between defense spending and economic growth in their study for 58 underdeveloped countries in the 19601970 and 1970-1977 periods. chowdhury (1991) did not detect any causal relationship between defense spending and growth in most countries, according to the results of the granger causality analysis, using data from the period of 1961-1987 and time-series data for 55 developing countries. reviewing the defense spendings’ effects on foreign trade of turkey 55 kusi (1994) examined the relationship between economic growth and defense spending in 77 developing countries for the period between 1971-1989. as the causality relationship varies by country, both the direction and the significance of the relationship differ. özmucur (1995), in 7 countries (including turkey) 1981-1991 study period with his defense expenditure data, has found that the negative effect on economic growth. in the large-scale macro-econometric disarmament model, özmucur stated that as a result of the trust and investment environment brought by the peaceful environment, "if resources can be directed to civilian investments instead of military spending, the contribution to the economy will be greater than the defense industry (contrary to sezgin's finding)." kollias (1997), in turkey for the period 1954-1993 examined the relationship between defense spending and economic growth has determined that there is no causality relationship. sezgin (2001), examined for turkey's defense spending-growth relationship in the years 1956-1994. he used a 4equation model consisting of growth equation, savings equation, foreign trade balance equation, and defense spending equation. according to his results; turkey's defense spending has a positive impact on growth. on the other hand, defense spending does not have a significant effect on the trade balance and savings. sezgin (2004) examined the effects of turkey's defense spending and arms imports. he used the cointegration method of engle and granger using the data from the 1979-2000 period. as a result, he found that the relationship between defense spending and the current account deficit is a negative relationship in the long run. another finding is that in the short term, the current account deficit has a positive relationship with arms imports. dritsakis (2004), examined turkey and greece for the period of 1960-2001. in this study, he found that there is no co-integrated relationship between defense spending and economic growth. in addition, he identified a one-way causal relationship from economic growth to defense spending for both countries. özsoy (2008) examined turkey for the duration of 1933-2004. in his study, he reached a conclusion that supports a short-term causality between defense spending and economic growth. pieroni (2009) examined the relationship between defense spending and economic growth for 90 countries, and negative relations were found between defense spending and economic growth in countries with a high military burden. alptekin and levine (2012), they concluded that defense spending had a clear effect on economic growth in developed countries. dunne and tian (2013) conducted a study covering the 1988-2010 period data of 106 countries with the panel data analysis method. as a result; defense spending in the short and long term has been found to negatively affect economic growth. despite the large number of studies on this subject, it is also a fact that defense spending has significant effects on macroeconomic indicators, although a strong judgment has not been reached about the relationship between defense spending and economic growth and the current account deficit. 4. research methodolgy in this study, we perform the time series analysis to find out the effects of defense spending on the foreign trade balance for the 20002018 term. the granger causality tests in the e-views, a windows-based econometric software program have been used. we tried to figure out the effects of different independent variables. 4.1. model and data set trade balance= trabal, defense spending= defspen, defense industry export= defexp, defense industry import= defimp, exchange rates= exch, gdp= gross domestic product, dummy= 2008 global economic crisis. i̇. kahraman arslan & ömer murat 56 4.2. formula: trabal= 𝛽0+ 𝛽1defspen𝑡+ 𝛽2defexp𝑡+ 𝛽3defimp𝑡+ 𝛽4exch𝑡+ 𝛽5gdp𝑡+ 𝛽6dum𝑡+ 𝑒𝑡 (1) in the formula (1); t is time and 𝑒𝑡 is error term. the dataset of defense spending, defense industry export, defense industry import, and gdp belongs to the 2000-2018 term has been taken from the worldbank website. the exchange rates data set has been taken from the oecd website for the 20002018 term. exchange rates are defined as the price of one country's' currency in relation to another country's currency. this indicator is measured in terms of national currency per us dollar. 4.3. results of the analyzes determination of stability status of series: unit root analyse table 2: classic unit root test variables adf adf first difference taken adf second difference taken phillips perron (pp) pp first difference taken trend+ constant constant trend+ constant constant trend+ constant constant trend+ constant constant trend+ constant constant trade balance -2.184 (0.4689) -2.0397 (0.2688) -4.3067 (0.0186 ) -4.94194 (0.0013) -2.203866 (0.4595) -1.94510 (0.306) -10.611 (0.000) -5.3133 (0.0006 ) defense spending 1.69792 (0.71) -1.04488 (0.7133) -9.1103 (0.000) -7.08891 (0.000) -1.709526 (0.7045) -0.92698 (0755) -0.27355 (0.000) 6.2041 2 (0.0001) defense sector export 4.64129 (0.0088) -0.58236 (0.8473) -5.21303 (0.001) -4.774131 (0.0069) -0.59871 (0.8479) 9.5388 4 (0.000) defense sector import 3.90667 (0.034) -4.02762 (0.0071) -3.9087 (0.0339) -4.02874 (0.0071) exchange rates 0.06812 (0.9928) -0.89736 (0.7649) -5.411 (0.0028) -0.5029 (0.8633) -4.637 (0.0029) -2.40841 (0.3633) -1.12985 (0.6799) -16.96583 (0.0001) 4.7477 6 (0.0018) gdp -1.1598 (0.884) -1.48473 (0.5181) -6.5655 (0.0003 ) -1.0954 (0.6883) -5.1632 (0.0011) -0.569418 (0.9681) -1.47755 (0.5216) -19.386 (0.0001) -3.90888 (0.0096) reviewing the defense spendings’ effects on foreign trade of turkey 57 tests with the same hypotheses were included in the unit root test application in the table 2. the model which trendless and without constant value is not added to the study. because such models are weaker than other models. stability degrees of variables are important for determining the model to be applied in the next stage. according to adf and pp test results, the defense industry imports are stable at the level, while all other variables became stationary when the first difference is taken. in this case, the var based granger causality analysis can be done. table 3: ar characteristic polynomial since the inverse roots of the ar characteristic polynomial in table 3 are located within the unit circle and are not located outside the circle, the var model has a stable structure. the appropriate delay length has been determined before proceeding with the analysis. since the examined time period is not too long, 1-period delay is determined as the appropriate delay level for the model. table 4: var (1) model granger causality analyze results: granger casuality relationship (gcr) null hypotheses chi square value p-value result there is no granger casuality relationship (gcr) btw trade balance & dummy. 0.039104 0.8432 not rejected trade balance →dummy there is no gcr btw dummy & trade balance. 0.548177 0.4591 not rejected dummy→ trade balance there is no gcr btw trade balance & lndefspen. 0.317906 0.5729 not rejected trade balance→lndefspen there is no gcrbtw lndefspen & trade balance. 1.850753 0.1737 not rejected lndefspen →trade balance there is no gcr btw btw lndefexp & trade balance * 3.031515 0.0817 rejected lndefexp →trade balance there is no gcr btw trade balance & lndefexp. 0.080438 0.7767 not rejected trade balance→ lndefexp there is no gcr btw lndefimp & trade balance. 0.066475 0.7965 not rejected lndefimp→trade balance i̇. kahraman arslan & ömer murat 58 there is no gcr btw trade balance & lndefimp * 12.28217 0.0005 rejected trade balance→lndefimp there is no gcr btw lngdp & trade balance. 0.010274 0.9193 not rejected lngdp→trade balance there is no gcr btw trade balance & lngdp. 0.2069 0.6492 not rejected trade balance→lngdp there is no gcr btw lnexchange rates & trade balance. 0.63153 0.4268 not rejected lnexchange rates→ trade balance there is no gcr btw trade balance & lnexchange rates. 0.279774 0.5968 not rejected trade balance→lnexchange rates there is no gcr btw lndefspen & dummy. 0.770172 0.3802 not rejected lndefspen→ dummy there is no gcr btw dummy & lndefspen. 1.231131 0.2672 not rejected dummy →lndefspen there is no gcr btw lndefexp & dummy. 0.286367 0.5926 not rejected lndefexp → dummy there is no gcr btw dummy & lndefexp. 1.17174 0.2790 not rejected dummy → lndefexp there is no gcr btw lndefimp & dummy. 0.00378 0.951 not rejected lndefimp→ dummy there is no gcr btw dummy & lndefimp. 0.521377 0.4703 not rejected dummy →lndefimp there is no gcr btw lngdp & dummy. 2.45e-06 0.9988 not rejected lngdp→ dummy there is no gcr btw dummy & lngdp. 2.272153 0.1317 not rejected dummy →lngdp there is no gcr btw lnexchange rates & dummy. 0.055548 0.8137 not rejected lnexchange rates→dummy there is no gcr btw dummy & lnexchange rates 2.119546 0.1454 not rejected dummy →lnexchange rates there is no gcr btw lndefexp & lndefspen. * 4.211587 0.0401 rejected lndefexp→lndefspen there is no gcr btw lndefspen & lndefexp. 0.290356 0.5900 not rejected lndefspen→lndefexp there is no gcr btw lndefimp & lndefspen. 0.373161 0.5413 not rejected lndefimp→lndefspen there is no gcr btw lndefspen & lndefimp. 0.172801 0.6776 not rejected lndefspen→ lndefimp there is no gcr btw lngdp & lndefspen. 0.876519 0.3492 not rejected lngdp→lndefspen there is no gcr btw lndefspen & lngdp. 0.757987 0.3840 not rejected lndefspen→lngdp there is no gcr btw lnexchange rates & lndefspen. * 5.499745 0.0190 rejected lnexchange rates→ lndefspen reviewing the defense spendings’ effects on foreign trade of turkey 59 there is no gcr btw lndefspen & lnexchange rates 0.30563 0.5804 not rejected lndefspen→lnexchange rates there is no gcr btw lndefimp & lndefexp. * 8.591929 0.0034 rejected lndefimp → lndefexp there is no gcr btw lndefexp & lndefimp. * 6.80466 0.0091 rejected lndefexp → lndefimp there is no gcr btw lngdp & lndefexp. * 4.72447 0.0297 rejected lngdp→ lndefexp there is no gcr btw lndefexp & lngdp. 2.42534 0.1194 not rejected lndefexp →lngdp. there is no gcr btw lnexchange rates & lndefexp. * 39.80565 0.0000 rejected lnexchange rates→ lndefexp there is no gcr btw lndefexp & lnexchange rates. 1.204694 0.2724 not rejected lndefexp →lnexchange rates there is no gcr btw lngdp & lndefimp. 0.641532 0.4232 not rejected lngdp→ lndefimp there is no gcr btw lndefimp & lngdp. 0.158118 0.6909 not rejected lndefimp →lngdp. there is no gcr btw lnexchange rates & lndefimp. 0.006719 0.9347 not rejected lnexchange rates→ lndefimp there is no gcr btw lndefimp & lnexchange rates. 0.348195 0.5551 not rejected lndefimp →lnexchange rates there is no gcr btw lnexchange rates and lngdp * 3.164919 0.0752 rejected lnexchange rates→ lngdp there is no gcr btw lngdp and lnexchange rates 0.058113 0.8095 not rejected lngdp→ lnexchange rates * significant. the significant hypotheses are shown as highlighted and with an asterix on the table 4. the results according to this table 4 are on the table 5. table 5: granger causality test results the following information can be drawn from table 5. concerning the relations of turkey’s economic situation and its defense industry data; the result of the analysis is defense industry export affects the foreign trade balance. i̇. kahraman arslan & ömer murat 60 while the foreign trade balance affects the defense industry import, the defense industry export affects defense spending. defense industry export interacts with defense industry import. it is observed that a triangular cycle (defense industry exports defense industry imports foreign trade balance) triggered by gdp and the exchange rate. defense export affects the trade balance and the defense import in the same time. so we can assume that increasing the export will have a positive effect on the trade balance. higher defense export will restrain the defense import so that using national defense products. we may claim that less defense export will increase the defense import and the trade balance will be affected negatively. the foreign exchange rate affects the defense spending, defense industry export, and gdp. finally, it is observed that gdp affects defense industry export. when gdp grows, the defense export will be increasing as well, or vice versa. taking into consideration the 2000-2018 period, turkey's defense industry export gets more effective results and increase the defense export. so it means; the defense export affects on the foreign trade balance as a result of turkey's leap made in the defense industry, 18 years later reveals that changed, unlike sezgin's findings. 4. conclusion the most important reasons for researchers not to agree on the effects of defense spendings are; the difference of the periods, the adequacy of the data available, the criteria and the difference of the models used are the main reasons for achieving different results. defense spending is made from the same budget as education and public health spending. therefore, while making these expenditures, the problem of “guns vs butter” arises. a large budget devoted to defense can lead to a smaller budget for education, healthcare and social transfer expenditures that have corrective effects on income distribution. aselsan, the most valuable public company in turkey, is operating in the defense industry. it will increase gradually that this kind companies operating in the field of defense industry will continue to produce high valueadded technology, weapons, and equipment and meet the needs of our country in this field from domestic markets. being able to export them in the international arms market will positively affect the foreign trade balance and contribute to the economy. according to the result we reached in our study; the increase in defense spendings will increase the export of defense goods, it will increase the foreign exchange input and it will be possible to decrease the imports of the defense industry. this will have a positive impact on the foreign trade balance. turkey's geopolitical environment in which, prior to the development of foreign trade is possible with the establishment of international peace and mutual trust. relying on import-based defense infrastructure or foreign aid from strategic partnerships such as nato, it is not possible to provide security that is consistent with national interests. the turkish armed forces should use weapons, tools, and equipment, in which software and code programs can be used nationally. in order to support the advanced high tech defense industry, and for having independent state policy; future investments and incentives should be continued in the defense sector so that pave the way for more export income and gdp. references alptekin, a., ve levine, p. 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(2009). military expenditure and economic growth. defence and peace economics, 20(4), 327-339. sezgin, s. (2001). an empirical analysis of turkey's defence‐growth relationships with a multi‐equation model (1956–1994). defence and peace economics, 12(1), 69-86. sezgin, s. (2004), an empirical note on external debt and defence expenditures in turkey. defence and peace economics, 15(2), 199-203. yentürk, n. (2018). türkiye’nin kamu harcamaları. 1’inci baskı. i̇stanbul. i̇stanbul bilgi üniversitesi yayınları. journal of international trade, logistics and law, vol. 9, num. 1, 2023, 278-284 278 artificial intelligence in global business and its communication mahmood masoodifar istanbul ticaret university, turkey i̇smet kahraman arslan istanbul ticaret university, turkey aşkım nurdan tümbek tekeoğlu istanbul ticaret university, turkey received: may 03, 2023 accepted: may 30, 2023 published: june 01, 2023 abstract: this essay explores the role of artificial intelligence (ai) in global business and communication, focusing on the challenges, prospects, and potential threats. ai has revolutionized various industries, offering increased efficiency, improved decision-making, enhanced customer experiences, cost reduction, and competitive advantage. however, effective communication is vital for successful ai implementation, given the technical complexity and ethical concerns associated with ai. strategies such as simplifying complex concepts, visual aids, transparency, education, and stakeholder engagement can address communication challenges. the future of ai in global business holds promise with advancements in machine learning algorithms, integration with emerging technologies, and improved natural language processing. however, ethical considerations, workforce displacement, security risks, trust, and long-term societal implications require attention. responsible ai practices, reskilling/upskilling, cybersecurity measures, trust-building, and collaborative efforts among academia, industry, and policymakers are crucial to mitigate these challenges. by proactively addressing these issues, organizations can leverage ai to drive innovation, achieve a competitive advantage, and create a positive societal impact. the findings of this essay contribute to the understanding of ai's impact on global business and provide insights into effective communication strategies and responsible ai adoption. keywords: artificial intelligence, global business, communication, automation, customer service 1. introduction artificial intelligence (ai) has surfaced as a transformative force in the global business landscape, revolutionizing how organizations operate and make decisions. with its ability to method vast amounts of data, learn from patterns, and perform complex tasks, ai has become an indispensable instrument for businesses seeking a competitive edge in today's fast-paced and data-driven world. this essay explores the role of artificial intelligence in global business and examines its communication challenges and strategies. by delving into this topic, we can better understand how ai is reshaping the business landscape and the significance of effective communication in its successful implementation. artificial intelligence, broadly defined as the development of intelligent machines capable of simulating human intelligence, has witnessed remarkable advancements in recent years. from machine learning algorithms to biological language processing and computer vision, ai encompasses a range of technologies that enable machines to mimic human cognitive functions. as a result, industries across various sectors, including healthcare, finance, and manufacturing, have embraced ai to enhance operations, optimize processes, and extract valuable insights from vast datasets. this essay aims to explore the multifaceted impact of artificial intelligence in global business and shed light on its communication challenges and strategies. as ai becomes increasingly integrated into business operations, artificial intelligence in global business and its communication 279 organizations face the daunting task of effectively communicating its capabilities and implications to stakeholders, both within and outside the company. this requires bridging the technical knowledge gap, addressing ethical concerns, and ensuring transparency in ai systems. the thesis of this essay is that while artificial intelligence offers immense potential for global businesses, its successful integration and adoption depend on effective communication strategies. by examining ai's benefits, challenges, and future implications in the business context, we can uncover the pivotal role of communication in harnessing its potential and addressing societal and ethical concerns. in the subsequent sections, we will provide an overview of artificial intelligence in global business, exploring its various types and applications. we will then delve into organizations' communication challenges when dealing with ai and strategies to overcome them. furthermore, we will discuss the importance of communication in the success of ai implementation and its implications for global businesses. lastly, we will consider the prospects of ai in the business landscape and identify areas for further research. by critically analyzing the role of artificial intelligence and its communication in global business, this essay aims to contribute to the accessible body of knowledge on this subject. through an in-depth exploration of ai's impact, challenges, and potential, we can gain insights into how businesses can navigate the complex landscape of artificial intelligence and leverage its power to drive innovation, enhance productivity, and create sustainable competitive advantages. 2. overview of artificial intelligence in global business 2.1. definition and types of artificial intelligence 1) artificial intelligence (ai) can be described as the development of intelligent machines that can function tasks that would predictably require human intelligence. 2) narrow ai, or weak ai, refers to ai systems designed to perform specific tasks, such as speech recognition or image classification. narrow ai is the most commonly implemented form of ai in business applications. 3) general ai, or strong ai, refers to ai systems that can understand, learn, and apply knowledge across a wide range of tasks, exhibiting a level of intelligence comparable to human intelligence. general ai is still largely theoretical and not yet fully realized. 2.2. adoption of artificial intelligence in global business 1) various industries have embraced artificial intelligence to enhance business operations and decision-making processes. a. healthcare: ai is utilized in medical imaging analysis, disease diagnosis, drug discovery, and specified medicine. b. finance: ai is used for imitation detection, algorithmic trading, customer service chatbots, and risk assessment. c. manufacturing: ai is employed for predictive maintenance, quality control, supply chain optimization, and autonomous robots. d. retail: ai is utilized for demand forecasting, personalized marketing, virtual shopping assistants, and inventory management. 2) examples of successful ai implementations in global businesses showcase the wide range of benefits ai can offer: a. amazon's recommendation system utilizes ai algorithms to provide personalized product recommendations to customers, contributing to increased sales and customer satisfaction. b. google's deepmind ai system defeated world-champion players in complex games like go, demonstrating the capability of ai to excel in strategic decision-making tasks. c. tesla's autonomous driving technology employs ai algorithms and sensor data to enable self-driving capabilities, revolutionizing the automotive industry. 2.3. benefits and advantages of artificial intelligence in global business 1) increased efficiency and productivity: ai automate repetitive and time-consuming tasks, enabling employees to focus on higher-value activities. this leads to improved operational efficiency and productivity gains. 2) improved decision-making and predictive analytics: ai systems can analyze vast amounts of data, identify relationships, and provide data-driven insights, aiding in more accurate decision-making and predictions. 3) enhanced customer experiences and personalization: ai-powered chatbots and virtual assistants offer personalized recommendations and prompt customer support, improving customer satisfaction and engagement. mahmood masoodifar & i̇smet kahraman arslan & aşkım nurdan tümbek tekeoğlu 280 4) cost reduction: ai can help reduce costs by optimizing processes, minimizing errors, and enabling better resource allocation. 5) innovation and competitive advantage: organizations that effectively leverage ai can gain a competitive edge by introducing innovative products and services, streamlining operations, and staying ahead of market trends. the adoption of artificial intelligence in global business is transforming industries across the board. from healthcare to finance, manufacturing to retail, ai is revolutionizing how organizations operate, make decisions, and interact with customers. the diverse applications and tangible benefits of ai implementation demonstrate its potential to reshape the business landscape and release new opportunities for growth and innovation. 3. communication of artificial intelligence in global business 3.1. challenges of communicating artificial intelligence in global business 1) technical complexity and lack of understanding: artificial intelligence involves complex algorithms, models, and processes that can be difficult for non-technical stakeholders to comprehend. communicating ai concepts effectively to business executives, employees, and customers poses a significant challenge. 2) ethical and privacy concerns: the use of ai in business raises ethical questions related to data privacy, algorithmic bias, and potential job displacement. communicating how ai systems address these concerns and adhere to ethical principles becomes crucial for maintaining trust and transparency. 3) perception and fear: in popular media, ai has often been portrayed as threatening jobs or humanity. addressing misconceptions, dispelling fears, and fostering a positive perception of ai are significant communication challenges in global business. 3.2. strategies for effectively communicating artificial intelligence in global business 1) simplifying complex concepts: breaking down technical jargon and explaining ai concepts in a simple, accessible language is crucial for effective communication. presenting real-world examples and use cases can help stakeholders grasp the potential benefits of ai in business contexts. 2) visualizations and demonstrations: visual aids, infographics, and interactive demonstrations can enhance understanding and engagement when communicating ai concepts. visual representations of data analysis or ai-driven processes can make complex ideas more tangible and relatable. 3) transparent and explainable ai: emphasizing the transparency and explain ability of ai systems is vital for building trust and addressing ethical concerns. communicating how ai models make decisions and ensuring that decision-making processes are fair and unbiased fosters confidence among stakeholders. 4) education and training programs: providing education and training opportunities to employees and business leaders is essential for effective ai communication. training programs can enhance awareness, demystify ai, and empower individuals to leverage ai tools and technologies within their roles. 5) stakeholder engagement and collaboration: actively engaging stakeholders and involving them in the ai implementation process fosters a sense of ownership and understanding. collaborative approaches incorporating feedback and addressing concerns help build a supportive environment for ai communication. 3.3. the importance of communication in the success of artificial intelligence in global business 1) gaining stakeholder buy-in and support: effective communication is crucial in gaining support from key stakeholders, including executives, employees, customers, and regulatory bodies. by clearly articulating the value proposition, benefits, and potential impact of ai, organizations can secure buy-in for ai initiatives. 2) mitigating resistance and fostering trust: resistance to change and fear of job displacement are common challenges when implementing ai. transparent and inclusive communication can help address concerns, alleviate fears, and build employee trust, ensuring smooth ai adoption and integration. 3) ensuring ethical and responsible ai practices: communication is essential for conveying an organization's commitment to ethical ai practices. articulating the steps taken to address bias, ensure privacy, and comply with regulatory requirements demonstrates a responsible approach to ai deployment. 4) managing customer expectations: communicating ai-driven capabilities and limitations to customers is vital. being transparent about how ai is used to personalize experiences, improve customer service, or enhance product recommendations helps build trust and maintain customer satisfaction. artificial intelligence in global business and its communication 281 effective communication is critical in successfully integrating and adopting artificial intelligence in global business. by addressing the challenges, implementing appropriate strategies, and recognizing the importance of communication, organizations can overcome barriers, foster understanding, and ensure a smooth transition to an aidriven future. 4. future of artificial intelligence in global business 4.1. potential advancements in artificial intelligence in global business 1) continued improvements in machine learning algorithms: as research and development in ai progress, advancements in machine learning algorithms are expected. these improvements will lead to more accurate predictions, better pattern recognition, and enhanced decision-making capabilities. 2) integration of ai with emerging technologies: artificial intelligence will likely be integrated with other emerging machineries, such as the internet of things (iot), blockchain, and augmented reality (ar). this integration will enable innovative applications and create synergies that drive business transformation. 3) improved natural language handing out: natural language processing (nlp) capabilities are expected to advance, enabling ai systems to understand better and generate human language. this development will enhance communication between ai systems and humans, improving customer service, chatbots, and virtual assistants. 4.2. implications of artificial intelligence in global business 1) workforce and job market transformations: the increasing adoption of ai in global business will inevitably impact the workforce and job market. while ai may automate specific tasks, it will likely create new job opportunities requiring human-ai collaboration. organizations must prepare for reskilling and upskilling employees to thrive in this evolving landscape. 2) ethical considerations and responsible ai practices: the future of ai in business necessitates addressing ethical considerations such as privacy, transparency, and bias. organizations must establish robust ethical frameworks and responsible ai practices to ensure that ai technologies are developed and deployed ethically and with societal well-being in mind. 4.3. opportunities for future research on artificial intelligence in global business 1) unexplored applications and industries: the potential applications of ai in global business are vast and evolving. future research can focus on identifying new industries and areas where ai can be leveraged for transformative impacts, such as agriculture, transportation, or energy. 2) policy and regulatory frameworks for ai adoption: developing comprehensive policy and regulatory frameworks becomes crucial as ai becomes more pervasive. research can contribute to establishing guidelines and standards that govern the responsible adoption and use of ai in global business, addressing legal, ethical, and societal implications. the future of artificial intelligence in global business holds immense promise. advancements in machine learning algorithms, integration with emerging technologies, and improved natural language processing will unlock new business possibilities worldwide. however, these advancements also bring forth challenges that must be addressed, including workforce transformations and the need for responsible ai practices. to harness the full potential of ai, ongoing research is essential. exploring new applications and industries, and examining the development of policy and regulatory frameworks, will shape the responsible and ethical adoption of ai in global business. by proactively addressing the implications of ai and conducting rigorous research, organizations can navigate the evolving landscape, maximize the benefits of ai, and contribute to the development of a sustainable and ethical aipowered future. 5. challenges and threats of artificial intelligence in global business while artificial intelligence (ai) presents immense opportunities for global businesses, it also comes with its fair share of challenges and potential threats. understanding and addressing these challenges is essential for responsible and effective ai implementation. this segment will explore some key challenges and threats associated with ai in global business. mahmood masoodifar & i̇smet kahraman arslan & aşkım nurdan tümbek tekeoğlu 282 5.1. ethical considerations and bias 1) algorithmic bias: ai systems are only as unbiased as the data they are trained on. biases in training data can lead to biased outcomes, perpetuating discrimination or unfair treatment. organizations must ensure their ai systems are trained on diverse and representative datasets and regularly monitored for bias. 2) privacy concerns: the extensive use of data in ai raises privacy concerns. businesses must carefully handle and protect sensitive customer information to maintain trust and comply with privacy regulations. 3) accountability and transparency: ai decision-making processes can be complex and opaque. understanding how ai systems make decisions can be challenging, making it difficult to hold them accountable for their actions. businesses must strive for transparency in ai systems, ensuring they can explain the reasoning behind their decisions. 5.2. workforce displacement and job market impact 1) job automation: ai has the potential to automate specific tasks and roles, which may lead to job displacement or changes in job requirements. organizations must carefully manage the transition and invest in reskilling and upskilling programs to enable employees to adapt to evolving job requirements. 2) socioeconomic disparities: the impact of ai adoption may not be evenly distributed, leading to potential socioeconomic disparities. businesses and policymakers must consider the implications of ai on different segments of the workforce and take measures to minimize inequalities. 5.3. security risks and cybersecurity 1) data security: the collection, storage, and processing of large amounts of data for ai systems increase the risk of data breaches and cyberattacks. organizations must prioritize robust data security measures and ensure compliance with relevant data protection regulations. 2) adversarial attacks: ai systems can be susceptible to argumentative attacks, where malicious actors manipulate inputs to deceive or mislead the system. protecting ai systems from such attacks requires ongoing research and the implementation of robust security measures. 5.4. trust and acceptance 1) lack of understanding and trust: the complexity of ai systems can lead to a lack of understanding among stakeholders, resulting in skepticism or mistrust. organizations must actively communicate the benefits, limitations, and ethical considerations associated with ai to build trust and acceptance. 2) legal and regulatory challenges: the rapid advancement of ai often outpaces the development of appropriate regulations. businesses must navigate legal and regulatory challenges to ensure compliance and avoid potential legal risks. 5.5. long-term societal implications 1) economic disruption: the widespread adoption of ai may disrupt traditional economic models, potentially leading to job market shifts and changes in industry dynamics. governments and businesses must proactively address these disruptions to ensure a smooth transition. 2) autonomous systems and responsibility: the rise of autonomous ai systems raises questions about accountability and responsibility for their actions. businesses and policymakers must establish clear guidelines and regulations to address the potential consequences of autonomous ai systems. in conclusion, while artificial intelligence brings numerous benefits to global businesses, it also poses challenges and threats that must be carefully addressed. ethical considerations, workforce displacement, security risks, trust, and long-term societal implications require thoughtful strategies and proactive measures. by acknowledging and actively managing these challenges, businesses can harness the power of ai reliably and sustainably, unlocking its full potential for global business transformation. 6. conclusion artificial intelligence (ai) has surfaced as a transformative force in global business, offering unprecedented opportunities for efficiency, innovation, and growth. throughout this essay, we have explored the role of ai in global business, discussed its communication challenges, examined prospects, and outlined the potential threats and challenges that come with its adoption. artificial intelligence in global business and its communication 283 ai has proven its value across various industries, enabling organizations to make data-driven decisions, automate repetitive tasks, and enhance customer experiences. from healthcare and finance to manufacturing and vend, ai has revolutionized business operations, unlocking new levels of productivity and competitiveness. however, the successful integration of ai into global business relies on effective communication strategies. communicating the complexities of ai to non-technical stakeholders, addressing ethical concerns, and dispelling misconceptions are critical for fostering understanding and building trust. by simplifying ai concepts, utilizing visual aids, promoting transparency, providing education and training, and engaging stakeholders collaboratively, organizations can navigate the communication challenges and drive successful ai adoption. looking ahead, the future of ai in global business holds tremendous promise. advancements in machine learning algorithms, integration with emerging technologies, and improved natural language processing will continue to push the borders of what ai can achieve. as ai evolves, organizations must be prepared to adapt and leverage these advancements to stay competitive in the rapidly changing business landscape. however, the future of ai also presents challenges and potential threats that must be carefully managed. ethical considerations, such as algorithmic bias, privacy concerns, and transparency, require organizations to establish responsible ai practices. workforce displacement and job market impact necessitate proactive measures to reskill and upskill employees, ensuring a smooth transition to an ai-driven workplace. security risks and cybersecurity vulnerabilities demand robust data protection measures and constant vigilance. trust and acceptance must be fostered through effective communication, education, and addressing legal and regulatory challenges. long-term societal implications, such as economic disruptions and the responsibility of autonomous systems, call for thoughtful strategies and collaboration between businesses, governments, and policymakers. organizations must take a holistic approach to mitigate these challenges and attach the full potential of ai. they must prioritize ethical considerations, invest in workforce development, enhance cybersecurity measures, foster trust, and actively shape legal and regulatory frameworks. collaboration and knowledge-sharing among academia, industry, and policymakers are crucial for addressing the multidimensional challenges associated with ai. in conclusion, artificial intelligence transforms global business, and effective communication is vital for successful integration. by understanding the role of ai, addressing its communication challenges, and proactively managing the potential threats and challenges, organizations can leverage ai to drive innovation, achieve a competitive advantage, and create a positive societal impact. embracing responsible ai practices, fostering trust, and navigating the evolving landscape will position businesses for success in an ai-driven future. as we continue to explore the frontiers of ai, let us strive for ethical, inclusive, and responsible ai adoption that enhances the well-being of businesses, individuals, and society as a whole. references 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(2018). artificial intelligence: the next digital frontier? mckinsey global institute. https://www.mckinsey.com/~/media/mckinsey/industries/technology-media-andtelecommunications/highlights/mgi-artificial-intelligence-discussion-paper.ashx davenport, t. h., & ronanki, r. (2018). artificial intelligence for the real world. harvard business review, 96(1), 108-116. https://hbr.org/2018/01/artificial-intelligence-for-the-real-world lacity, m., & willcocks, l. (2017). nine keys to unlocking the value of robotic process automation. mit sloan management review, 58(3), 43-50. https://sloanreview.mit.edu/article/nine-keys-to-unlocking-the-value-ofrobotic-process-automation/ manyika, j., chui, m., & miremadi, m. (2016). where machines could replace humans—and where they can't (yet). mckinsey quarterly. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/wheremachines-could-replace-humans-and-where-they-cant-yet marr, b. 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(2010). the new organizing logic of digital innovation: an agenda for information systems research. information systems research, 21(4), 724-735. journal of international trade, logistics and law, vol. 2, issue 1, 2016, 49-72 impacts of consumer law no 6502 on insurance activities: comparing with eu law ömer özkan, (phd) istanbul commerce university, turkey ahmet karayazgan, (llm) istanbul commerce university, turkey abstract: as is often the case in many developed and developing countries, in our country, too, the consumer is protected and the exten t and limits of this protection is expanding day by day. the last step in this direction was the law on the protection of consumers no 6502, which entered into force on 28.05.2014 and provides important changes and developments. while these developments were achieved within the scope of the consumer legislation, in the insurance legislation area a strong protection has been brought comprising all insurers/insured which is independent from this and is not limited to the consumers. while this protection has been broug ht onto a new level with the law on insurance no 5684 which entered into force in 2007, it h as been reinforced with the turkish law on trade entering into force in 2012. while the law on the protection of the consumer no 6502 provided a protection outside the insurance legislation for consumer insured it also has brought about diffused accountabi lity in terms of implementation of the legislation the most important common issue in terms of legislation developments in the insurance and consumer legislation is the effort to reflect the principles, rules and developments accepted for consumers and ins urance products/services in the european union acquis to national law.in this context our study has been assessed together with the principles and implementing procedures a ccepted by the consumer law in terms of insurance activities and the regulations inc luded in the insurance law and related secondary legislation ("insurance legislation"). meanwhile an attempt has been made to refer to the relationship between insurance and consumer legislation within the scope of the eu legislation. keywords: distance marketing, insurance, consumer, directive on distance marketing of financial products, law no. 6502, turkish insurance legislation 1. a general view of insurance activity by consumer legislation with the consumer act, no doubts remain that insurance activity is clearly made subject to legislation scope. prior to this act, for a long time, the supreme court of appeals had held that insurance contracts had a commercial nature as they were regulated in the commercial act and could not be regarded as consumer contracts1. in fact, the protection provided by the insurance legislation, adequate protection is provided and furthermore, this protection is provided by taking into consideration characteristics of the insurance contract. therefore, it would be more accurate and appropriate to take advantage of provisions foreseen to protect the insured, rather than general provisions foreseen to protect the consumer2. however, in this new process to be experienced with the act no 6502 on the protection of the consumer, it should be expected that present evaluations and approaches on time change significantly with practice. 1 11.hd., e.2000/10656,k.2001-197, t.18.01.2001: 27(2001)6ykd. s. 855-857. 2 ekşi̇ nuray, prof., law applicable for insurance contracts with foreign factors in turkish and european union law, 1st edition, january 2012, p.18. 50 ömer özkan, ahmet karayazgan while the consumer act also regulates financial services including insurance, in its general justification, one of the most important objectives in going for a change in law is stated to be the transposition, into national law, of the directive no 2002/65/eu on the marketing of financial services, directive no 2005/29/eu on unfair commercial practices, directive no 2008/48/at on consumer credit contracts, directive no 2008/122/eu on resale and change contracts for time share vacation and long term vacation products, directive no 2001/83/eu on consumer rights which the eu has issued recently. in this framework, even though it is expressed that the directives were reviewed and our national law is shaped accordingly, it is seen that the systematic structure which systematically regulates in separate texts and thus distinguishes the distance marketing of financial services and the regulations relating to the protection of the consumer3 was abandoned during transposition into our national law and that financial services were also regulated within the general consumer legislation protection. the most important adverse result of this is that financial services were also entirely included in the provisions on the general consumer protection and against this, in the regulation of many provisions which have become practicable, financial services were not taken into consideration. on the other hand, it is understood that this transposition has been made without taking into consideration the legislation, for example, in the field of insurance, by only taking into consideration the consumer legislation to the evaluation and transposition in a limited scope. for example the directive 2002/65/ec of the european parliament and of the council of 23.9.2002 concerning the distance marketing of consumer financial services and amending directives 90/619/eu, 97/7/eu and 98/27/eu4 (“distance marketing directive”), has been transposed under the insurance legislation and in fact, even though partially, the turkish commercial act “insurance book” to our domestic law to a large extent and without being limited to the consumer. when transposing this directive, a regulation was brought about without building adequate connection, and in fact without taking into consideration at all, any letter regulation which takes into consideration the same directive and which has been regulated including the regulation on the information of insurance contracts under insurance legislation5 and article 1423 of the commercial act 6 however, while it was sufficient to make the effort of detailed regulation on this subject under the insurance legislation which specifically regulates and to that end, to made a reference to the said legislation or holding it reserved7 a second regulation was brought on the same subject which is independent of that and which separates from place to place. furthermore, when insurance companies are implementing these articles they shall need to make a distinction based on, and take into consideration whether the policy owner/insured is a consumer, which will make it even more difficult to implement and construe together these two separate regulations. on the other hand, as it was not foreseen that provisions of article 17 et seq. of the consumer act could not be applied to insurance contracts as a financial service8, in the face of the fact that the present provisions have not taken into consideration, aside from the corresponding regulations in the insurance legislation, insurance practices and precedents on the insurance product and insurance service where the premium is generally paid by installments, it is a significant problem experienced in practice and legal aspects. 3 directive 2011/83/eu of the european parliament and of the council of 25 october 2011 on consumer rights, amending council directive 93/13/eec and directive 1999/44/ec of the european parliament and of the council and repealing council directive 85/577/eec and directive 97/7/ec of the european parliament and of the council) (“consumer rights directive”) according to article 3, paragraph d, financial services are outside of the directive scope. http://ec.europa.eu/justice/consumermarketing/rights-contracts/directive/index_en.htm. 4 directive 2002/65/ec of the european parliament and of the council of 23 september 2002 concerning the distance marketing of consumer financial services and amending council directive 90/619/eec and directive 97/7/ec and 98/27/ec 5 og 28.10.2007 – 26684. 6 even though in the consumer act general reasoning the existence of the code of obligations and commercial act drafts existing at the same time and that they have been taken into account are mentioned, it is evident that they have not been taken into account adequately or ever. 7 even though only in article 49 (5) of the consumer act special arrangements have been reserved by saying provisions in favor of the consumer are applications to insurance contracts and, in contracts related to individual retirement, on the other hand, those given in other legislation regarding the period for backing-down, apart from this no special provisions have been reserved in any other place in the consumer act. 8 even though in the article's reasoning it is stated that financial leasing contracts are explicitly included in the scope, there is no arrangement that other financial services have not been included in the scope. http://www.kapitalmarktrecht-im-internet.eu/en/areas%20of%20law/private_law/european_law/21/directive_93_13_ewg.htm http://www.kapitalmarktrecht-im-internet.eu/en/areas%20of%20law/private_law/european_law/35/directive_1999_44_eg.htm http://www.kapitalmarktrecht-im-internet.eu/en/areas%20of%20law/private_law/european_law/16/directive_85_577_ewg.htm http://www.kapitalmarktrecht-im-internet.eu/en/areas%20of%20law/private_law/european_law/24/directive_97_7_eg.htm impacts of consumer law no 6502 on insurance activities: comparing with eu law 51 likewise, how a defective service in an insurance product shall be and particularly, how the consequences foreseen under article 13 of the consumer act shall be applied seems to be another similar problematic area which is not easy to resolve. however, at this point, by secondary regulations brought by the undersecretariat of treasury’s general directorate of insurance, which is the regulatory and controlling authority for insurance activity, it is seen that the deficient style of viewing regarding the insurance activity in the consumer act is also being shown against the consumer legislation. for example, in the regulation 9 on activities to be considered within the scope of insurance, insurance contracts made in favor of the consumer and insurance contracts made from distance, which was published by the undersecretariat of treasury a short time before 28.05.2014 which was the date the consumer act entered into effect, both in its definitions article, article 4(f) and in part 3, where insurance contracts made in favor of the consumer and insurance contracts made from a distance are regulated, it is seen that article 49, regarding the distance sale of financial services, of the consumer act which was to enter into effect just one month later was not taken into consideration. this difference arises, for example, from the definitions article which is the start of the work. while in article 4(f) of the said regulation, “distance contract: contracts drawn up in written, visual, telephone and electronic media or by using other electronic communication instruments without the contracting parties coming face to face”; in article 49 of the consumer act, in turn, it is defined as “distance contract relating to financial services are contracts drawn up through the use of remote communication tools between the provider and the consumer within the frame of a system created for the remote marketing of financial services.” 2. place of the consumer, and consumer legislation in terms of insurance legislation at a time the insurance act which entered into effect in 2007 involved ambiguity in terms of the insurance activity of the prior act on the protection of the consumer no 4077, a relationship was established in terms of the application of the consumer legislation by referencing such provisions of the consumer legislation which are applicable in terms of insurance. such arrangements included in the insurance act10 can be grouped under the following headings: insurance agency – insurance act art. 23 (9) / has held services offered due to agency activity as defective service under article 4/a of consumer act no 307711 and regulated them to be subject to the consequences of said provision. with this form of regulating, it was penned in a manner which can be applied for the defective rendering of the agency's intermediating service to all insureds in the sense of the consumer act without regards to whether they are a consumer. on the other hand, due to the insured not resorting to legal processes in disputes arising from the insurance contract even in cases it went into the insurance company's responsibility and the agency could be responsible, no court decision or application was found regarding the application of paragraph 9 of article 23. along with this, what the said intermediating service is and how the said provision and especially its consequences shall be applied to that is a legal matter which needs to be separately considered. arbitration in insurance insurance act art. 30 (14) / one of the preconditions for referring to the insurance arbitration commission foreseen with the insurance act is that the issue has not been previously submitted to the arbitration committee for consumer problems. in this manner among the alternative judicial systems the existence of consumer courts is also accepted. goodwill insurance act art. 32 / complaints pertaining to announcements and advertisements are regulated to the notified to the advertising board operating pursuant to the consumer act. accordingly, insurance companies and intermediaries may not arrange their brochures, prospectuses and other documents and their announcements and advertisements of all kinds in a manner to cause an understanding which is outside of the limits and scope of the rights and benefits they shall provide for the insured with their undertakings and may not make statements to persons and organizations which are contrary to facts, 9 og 28982 / 25.4.2014. 10 even though the activities to be appraised under insurance are mentioned in the insurance contracts made in favor of the consumer in article 8 of the regulation on insurance contracts made in favor of the consumer and insurance contracts made from a distance (og 28982 / 25.4.2014), it has been stated in the sector announcement no 2014/22 of the undersecretariat of treasury that this expression “consumer” does not mean a consumer in the sense of the consumer legislation and that the concept of contract made in favor of the consumer is an application of the contracts made in favor of the third person specified in the code of obligations and it is valid for all contracts made in that scope. 11 this article corresponds to article 13 of the new consumer act no 6502. 52 ömer özkan, ahmet karayazgan misleading, deceptive and causing unfair competition. in the event of finding contrariety to this provision the case is reported to the advertising board operating pursuant to the act on the protection of the consumer. apart from this regulation found in the insurance act, the “insurance book” section of the turkish commercial act entered into force in 2012, has explicitly set forth the presence of the consumer legislation in insurance contracts, even if by a single article. according to the said article, obligation to elucidate – commercial act art. 1423.(3) / the undersecretariat of treasury determines the form of the announcement to elucidate the consumer by taking into consideration the regulations of various countries and particularly, the european union. 3. principles regarding carrying the consumer act into effect as with all law amendments, here also the question of what the position of the act and its consequence will be in the face of exiting practices comes to the fore. the answer to that, in turn, is given in the consumer act temporary article 1. as per the said article the following procedures and principles have been specified: 3.1 for the consumer transactions prior to the date on which the consumer act entered into effect, whether they are binding and their consequences, as a rule, the provisions of such law are applied which was in effect when such transactions were realized. however: such provisions which are contrary to this act of such contracts which were drawn up before the date the consumer act entered into effect and are still valid, are not applied starting from the effective date. if foreclosures and lapse of time periods which had started running before the date the consumer act entered into effect have not expired, the foreclosure or the lapse of time expires with the passage of the time foreseen in this act. 3.2 lawsuit brought before the date the consumer act entered into effect continue to be heard at the court to which they were brought. 3.3 until the regulations foreseen in the consumer act enter into effect, such provisions of such regulations and other legislation which are repealed with this act and which were issued on the basis of the act on the protection of the consumer which are not contrary to this act are applied. however, with new regulations having been published on miscellaneous dates as of the date of this student, the said provision has found field of application for a short time. in this framework in terms of this law amendment and of determining according to which consumer law one is to act in the transition period on the starting of the application of the new law, firstly the date of the transaction and/or the date of the lawsuit and the date on which the consumer act enters into force should be determined and according to this the rights and obligations should be determined to the requirement of the above paragraphs. 4. insurance activity in consumer legislation and qualification and area of application of insurance contract insurance activity in consumer act and the conditions for qualifying and applying the insurance contract within the frame of related provisions can be collected under the following headings: 4.1 insurance can be a consumer transaction. according to article 2 (1) of the consumer act, the field of application of this act covers all manner of consumer transactions and applications directed at the consumer. consumer transaction in turn, means, according to article 3(1) of again the same act, all kinds of contracts and legal transactions in goods or services markets which are drawn up between real or legal persons acting in commercial or professional purposes or acting in their name or account, including public legal persons and consumers.12 within the scope of this definition insurance contracts are now also accepted explicitly as a consumer transaction. 4.2 insurance is a service. according to article 3(1) item (d) of the consumer act, “service” comprises the subject matter of all kinds of consumer transactions, outside of goods provisioning, performed or undertaken to be performed in return for a fee or interest. in this framework, insurance contract, as a consumer transaction is included in the service scope. 12 in the reasoning of article 3 of the consumer act, it is stated that with this definition, interpretations arising from the application and narrowing the scope of consumer contracts would be prevented. impacts of consumer law no 6502 on insurance activities: comparing with eu law 53 4.3 insurance is a financial service. in the consumer act “financial services” were defined, not in the definitions article, but in its article 49. 13 in fact, definition in this manner also reveals the ambiguity of the intention of the lawmaker regarding how they wanted to position the financial services, which also included insurance, within the consumer act. according to this article, financial services means all kinds of banking services, service related to credit, insurance, individual retirement, investment and payments. 4.4. the pre-condition of being able to apply consumer legislation to insurance contracts is the policy owner/insured having the quality of “consumer”. even though insurance is accepted as a consumer transaction in the sense of the consumer act in insurance contracts, the other important condition in terms of the consumer act finding an application area in insurance is that the policy owner/insured having a consumer quality in the sense of article 3 (k) of the consumer act. according to article 3 (k) of the consumer act, “consumer” means real or legal person acting on purposes which are not commercial or professional 14. in the reasoning of the said article, even though one of the essential amendments made to the definitions article is expressed to be exclusion of the notion of legal person from the notion of a consumer, based on the expression “acting on purposes which are not commercial or professional” in the article, it is understood that the legal persons meant here rather means those listed in article 16 of the commercial act no 6102. according to the said article 16, as, commercial companies; foundations, associations operating a commercial business to achieve their objectives, and organizations and enterprises founded by the state, provincial special administrations, municipalities and villages and other public legal persons to be managed according to private law provisions as per their own founding laws or to be commercially operated are also deemed to be merchants. they shall not be considered within the scope of consumer15. this definition does not fully respond to the cases where “group insurance contracts” are in question in the sense of art. 1496 of the turkish commercial act no 6102. according to paragraph 1 of the said article, insurance can be taken with a single contract in favor of persons included in a group, which consists of at least ten people and which has the possibility of being designated by the policy owner as to who comprises it according to certain criteria. particularly, in cases where a commercial company is the policy owner and designates its employees as the insureds and takes out health or life insurances, according to whom shall the “consumer” definition be determined. on the other hand, moreover, in cases where a real or legal person is appointed as the beneficiary. on the other hand, in cases where, moreover, a real or legal person is appointed as the beneficiary according to the commercial act no 6102 and this particularly is the company taking out the insurance or a person of a miscellaneous merchant qualification it may become even more difficult to determine whether they are the consumer. the simplest solution in that case shall be to decide through a determination of whether the person to whom the amount or indemnity in the insurance contract shall be paid falls within the “consumer” definition according to article 3 (k) of the consumer act. 4.5. the consumer legislation may, principally, be applied to insurance contracts in all cases where it is not explicitly excluded. the consumer act has not provided for a systematic regulation with respect to which provisions cannot be applied in terms of insurance activity and insurance contracts. as a principle in the circumstances, all provisions which are befitting in content may be applied also for the insurance activity and insurance contracts. when viewed in this scope, the sole article where it is explicitly excluded is 13 the definition given in the consumer rights directive, article 2, para. 12 and the distance marketing directive article 2, item (b) has been taken in to our domestic law. ("financial service" means any service of a banking, credit, insurance, personal pension, investment or payment nature.) http://eur-lex.europa.eu/lexuriserv/ 14 however, according to distance marketing directive article 2, item (b), “consumer” means the real person starting contractual relationship outside of their own commercial purpose, craft or profession within the contracts specified in this directive, and legal persons are excluded from this. ("consumer" means any natural person who, in distance contracts covered by this directive, is acting for purposes which are outside his trade, business or profession). http://eur-lex.europa.eu/lexuriserv/ 15 at this point, the provision of article 16 (2) of the turkish commercial act no 6102 should not be overlooked in this appraisal. according to this article, it has been stipulated that the state, city private administration, municipalities and villages and other public legal persons and associations operating for public benefit and foundations spending more than half of their income to works qualifying as public duty, shall not themselves be considered as merchants whether they operate a commercial enterprise either directly or by hand of a legal person managed and operated according to the provisions of public law. http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=celex:32002l0065:en:not http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=celex:32002l0065:en:not 54 ömer özkan, ahmet karayazgan regulated as the “contracts drawn up outside of the work place” in article 47 of the act of the consumer no 6502 16. pursuant to para. 7 of the same article, the ministry of customs and trade is authorized to establish, by regulation, the application procedures and principles including but not limited to which contracts shall be kept out of scope. as per this authority, as per article 2, para. 7 item (a) of the regulation on contracts drawn up outside of the work place17, it is regulated that also for insurance contracts within the scope of financial services, the provisions of this regulation may not be applied. in fact, it needs to be expressed that, of the insurance activity, the marketing and sales, which are realized especially through intermediaries, are realized within the scope of contracts drawing outside of the work place and therefore, if this exception was not given, the principles brought by the said provision, despite not very suitable for insurance contracts, would have to be applied and by this significance the importance of protecting this exception in the new regulation. 5. insurance as an alternative “guarantee” in consumer legislation the consumer act has, in terms of certain sales types, foreseen the provision of one of a certain type of assurances from the seller/provider to the consumer against the situation that in particular, the seller/provider fails to satisfy its undertaking for certain reasons, including bankruptcy. in this scope, it is expressed that building completion insurance has also been brought as an alternative assurance in view of practices around the world. in this framework, for projects above a side to be determined according to the criterion of the no of residences in the project or the total price for the project, an obligation was brought to the seller to provide an assurance before starting sales, as per art. 42 of the consumer act, for residential sales with pre-payments, and with article 50 para. 8,18 for time share vacation and long duration vacation service contracts. assurances outside of insurance, according to the reasoning of the said articles, items such as the progress system determined by the ministry of customs and trade, tied loan, prepayment amount have been specified. for which situations the seller provides this assurance, in turn, is not clearly set forth in the act's articles. again in the reasoning of the said articles, it is stated that, against the payments which the consumers have made, it is intended to take under assurance either the their acquisition of the residences for which they have insured, or own the time share property, or the monies they have paid, and, even though the bankruptcy of the seller is mentioned among the causes which shall result in this situation, no limitation has been brought on this subject in the articles given in the act. again, according to the said articles, the indemnity, assurance and similar guarantees provided within the scope of building completion insurance provided within the scope of these articles, may not be included in the bankruptcy or liquidation desk, may not be seized, and no provisional injunction and provisional attachment may be placed on them. the undersecretariat of treasury has, according to the same articles, the authority to determine the scope of the said insurance, its conditions and application principles. in this scope, the building completion insurance general conditions in relation with the sale of residences with prepayment has been published by the undersecretariat of treasury on 11.03.201519. according to these general conditions, the subject of the insurance shall be the provision of assurance, according to these general conditions and the policy special conditions, to the beneficiaries specified in the assurance account, in the event the seller cannot complete the project, specified in the policy, which is the subject of the residence sale with prepayment, for reasons of the seller going bankrupt or the real person seller dying or declared disappeared. with this insurance, the insurance company shall issue a policy for the project which is the subject of the 16 in the reasoning of the consumer act article 47 this change has been explicitly stated and it is stated that it has been harmonized with the directive 2011/83/eu of the european parliament and the european council on consumer rights dated 25.10.2011. 17 og 29236 /14.01.2015. 18 on this subject additionally the regulation on time share vacation and long term vacation service contracts regulation (og 29236/14.01.2015) was published. 19 these general conditions were regulated to also include time share vacation and long term vacation service contracts and were put into effect to start from 16.03.2015. impacts of consumer law no 6502 on insurance activities: comparing with eu law 55 residence sale with prepayment and allocate a general assurance limit to the seller, and after residence sales are made to the consumers within the project scope, it shall issue and give an independent surety bond for each consumer, with the residence price being the top limit. 6. prohibition on compelling insurance in consumer legislation in article 32 paragraph 5 of the insurance act, a prohibition has been brought that the right of persons to select their insurance company cannot be restricted and that within the elements of a contract, in cases where one of the parties is compelled to take out insurance in any matter given in this contract, all kinds of conditions placed regarding the insurance in question being taken from a specific company shall be deemed void. a similar regulation has been brought in paragraphs 2 and 3 of article 10 of the regulation on insurances connected with personal loans. according to these regulations, in turn, in mandatory or voluntary insurances, the right of the person using the credit to select the insurance company may not be restricted. all manner of conditions put in the insurance contract or in the credit contract, regarding the insurance to be taken from a specific insurance company, are void. the credit organization informs the credit user that the insurance may be taken out by them or by another insurance broker. the credit organization is obliged to accept the insurance policy which the person using the credit has taken out through another insurance company or insurance broker and which contains the requested coverage. however, the consumer act has brought another prohibition that is different from this prohibition in the insurance legislation. it has been regulated that no insurance can be made in relation with the credit without the consumer's explicit request, either written or via the permanent data register, for consumer credit contracts, in article 29 of the consumer act and in article 26 of the consumer credit contracts regulation (the “credit regulation”) 20, and in its article 38, in turn, for residence financing contracts. the only way to forestall this prohibition, on the other hand, as foreseen again in the same articles, is the consumer's explicit request. however, even in such a case, again as foreseen in the insurance legislation, it is requisite that the coverage which the consumer has obtained from the insurance company they wish is accepted by the creditor. in the event the consumer wishes to take the insurance from the insurance company brokered by the creditor, on the other hand, as per articles 29 (credit regulation art. 26) and 38 of the act mentioned above, this insurance should be matching the credit subject, for amount insurances the remaining debt amount, and its due date. in the sense of explaining this article, the undersecretariat of treasury has published the sector announcement no 2014/18 on 25.08.2014. according to this announcement, it has been expressed that the matter of “contracting for long term or with renewal to fully cover the credit period”, for insurances where the insurance term is not equal to the credit period and contracted with renewal, by taking into consideration the time remaining until the end of the credit period in the final renewal term, it should be ensured that the credit period and the insurance term are matching and in a sense, to be understood as issuance of insurance contracts with a term of less than one year21. according to the article 26 para. 2 of the credit regulation, additionally for amount insurances which are made with credit connection, in cases where the credit debt is repaid before maturity or a change occurs to the credit debt structure, the insurance contract is terminated. however, provided that at the time such transactions are realized the consumer is additionally informed by the creditor and their explicit approval is obtained, the policy may be continued with existing terms or based on the change made to the credit debt structure, the existing insurance policy coverage amounts and the insurance term may be rearranged. in article 29 of the consumer act in the event of breach of 20 og 29363/22.05.2015. 21 additionally in the same announcement, it is stated that based on the fact that insurance contracts connected with existing credits as of the effective date of the consumer act it was found necessary they have to be harmonized with the consumer credit and residential financing contracts to which they are attached to in terms of the credit remaining debt amount and credit maturity, annual or long term insurance contracts for which the credit maturity and the insurance term are not compatible in this sense have to be terminated, in the event of request from the insured when the credit maturity expires, with other requirements remaining reserved, by making a premium return or paying surrender value and that in this framework insurance companies and also the credit organizations having agencies need to take measures along these applications. http://hazine.gov.tr/default.aspx?nsw=trr3vg8kcngodq4jjqvkpw-h7dec+lxbi8=&mid=366&cid=35&nm=647. 56 ömer özkan, ahmet karayazgan consumer credit contracts and the obligation in its article 38, by the ministry of customs and trade, as per consumer act art. 77(3), for those whose breach has been determined, the administrative fine foreseen in again the same article shall be applied (tl 1.162 for year 2016) for each transaction or contract determined to be in breach22. 7. impact of consumer legislation on informing, bidding and drawing up for insurance contract 7.1. avoiding sale. the consumer act amendment, even though does not bring a significant change in the sense of the content of article 6 of the consumer act, in the face of insurance being deemed also a service as a credit transaction, it is evident that it shall be implemented. in that sense, it would be advisable for insurance companies to review their proposal processes directed at the credit based on this article and revise by more clearly setting forth their conditions for their services to be displayed, and the justified reasons for rejecting (by also taking into consideration insurance practices and precedents); because, according to paragraph 2 of the said article, it shall not be possible to avoid without just reason. in the event of acting contrary to this article, in turn, by the ministry of customs and trade, as per consumer act art. 77.(1) of the consumer act, for those who act to the contrary, the administrative fine foreseen in again the same article shall be applied (tl 232 for year 2016) for each transaction or contract determined to be in breach. 7.2 offering services not ordered. another important provision which insurance companies should take into consideration is that, as per article 7 of the consumer act, in the event they conclude or offer an insurance product which has not been ordered, they shall not be able to claim any rights against the consumer. there is no regulation in the insurance legislation regarding the subject of marketing by sending without ordering and/or requesting. on the other hand, this point regulated in article 7 of the consumer act23, shall need to be applied also to insurance contracts in cases which bear similar conditions, because insurance contracts have not been explicitly excluded. according to article 7 para. 1 of the consumer act, if the insurance company sends such insurance product or offers such services which have not been ordered, it may not claim for any rights against the consumer. in such cases, the fact that the consumer has kept silent or has used the goods or service shall not be construed as a declaration of acceptance regarding the drawing up of the contract (para. 1). according to the reasoning of the said article, with the regulation made it has been intended to prevent the consumer incurring a debt through the sending of goods or the offering of services they have not ordered. on the other hand, the person who claims the service has been ordered is obliged with proving this claim (para. 2). it is seen that the consumer act has taken the regulations in the europe legislation partially to our domestic law, however, it has not taken into consideration such regulations which may be considered as important. however, in europe law, in the distance marketing directive no 2002765/ec, this matter has been regulated in the form of two articles. in article 9 of the said directive, services not ordered have been regulated in terms of (“unsolicited services”). according to this, financial services provided to the consumer without any request from them, which in particular, also contain an immediate or forward payment request, should not be permitted. in the case a service not requested has been sent, the consumer has no obligation to provide a response that they do not approve. however, directive article 9 shall not be applied in terms of tacit renewals in distance sales where it is drawn up in a valid manner according to domestic law provisions. 22 imposing administrative sanction pursuant to the above article shall not impede the proceedings to be carried out by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative / judicial sanctions to be imposed pursuant to the article 77(20) of the consumer act, as per other laws, meaning in particular, the articles 34 and 35 of the insurance act no 5684. 23 an arrangement in parallel with this article is given in article 27 of the consumer rights directive impacts of consumer law no 6502 on insurance activities: comparing with eu law 57 in article 10 of the directive, on the other hand, communications established without the other party's consent (“unsolicited communication”) is regulated. of this article […], it is stated that calls made without human involvement, via automatic calling systems (automatic calling devices) and fax are subject to the consumer's prior permission. distance communications apart from this, on the other hand, where a one-to-one call is in question are regulated to be permissible only in the event the consumer's assent is obtained or at least they do not explicitly object. it is also explicitly regulated that in all types of such communications the costs for this cannot be passed on to the consumer. 7.3. tying the insurance to a condition or the provision of purchasing other goods/services. another provision which insurance companies need to take into consideration at the point of proposal is that, as per article 6(3) of the consumer act, unless a precedent, commercial custom or usage or a justified reason on the contrary, they may not tie the sale of the insurance product on conditions of that service determined by it such as quantity, no, size or the condition of purchasing another goods or service. for example, such as the health insurance proposal shall be appraised or the insurance contract shall ne made in return for purchasing a “check-up” service from a specific place. however, in order for such practices to carried out, or to continue with those already done, in terms of putting forth “a precedent, commercial custom or usage or a justified reason on the contrary”, it would be advisable for insurance companies to make their practices and precedents more explicit and clear and to review and development all their documents including information forms and their application processes in terms of being able to put forth the just reason in each instance. in the event of acting contrary to this article, in turn, by the ministry of customs and trade, as per consumer act art. 77.(1) of the consumer act, for those who act to the contrary, the administrative fine foreseen in again the same article shall be applied (tl 232 for year 2016) for each transaction or contract determined to be in breach24. 7.4. sales by the installment payment. in article 17 of the consumer act installment sale contracts are regulated. this articles installment sale contract, installment sale contract is defined as contracts where the seller or the provider undertakes the delivery of the goods or the performance of the service and the consumer pays the amount part. in the said article and its reasoning, it is expressed that the manner of the consumer's payment gains importance rather than the time the performance of the service is made and if the payment has been made in parts by the consumer, then the sale contract shall be in question. additionally, there is no provision that this article may not be applied in terms of financial services, including insurance. under the circumstances, in cases where the insurance contract premiums are foreseen on the policy to be paid forward, it can be said that without additional regard to the form of payment (credit card, eft, cash, etc.), in cases where the policy owner/insured is a consumer, article 17 of the consumer act and the regulation on installment sale contracts25 shall find an application area for insurance product sales which are outside of cases considered to be distance sales. in this framework, it would be advisable to take into consideration the regulation and consequences the said article brings. in article 5 of the installment sale contracts regulation, the condition of it being drawn up as written and otherwise it shall not be valid, by evaluating jointly with the liability to give a policy in the sense of the insurance legislation, it would be legally appropriate the accept that it will be realized by giving by hand or, for distance sales, with permanent data register. 24 imposing administrative sanction pursuant to the above article shall not impede the proceedings to be carried out by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative / judicial sanctions to be imposed pursuant to the consumer act article 77(20), as per other laws, meaning in particular, the insurance act no 5684 articles 34 and 35. 25 og 29236 / 14.01.2015. according to article 2, para. 4 of this regulation, even though it is expressed that this regulation shall not be applicable for shopping made by credit cards, based on this article, in cases where credit card is used in insurance contracts as a payment means, it is difficult to conclude that this regulation shall easily be inapplicable by deeming this as shopping. 58 ömer özkan, ahmet karayazgan in insurance contracts, apart from health insurances or, in some branches, advance payment discount, no delay interest or discount becomes in question between advance or deferred payment or in case of early payment. however, from now on, it would be advisable for insurance companies to review such practices and if they do, or intend to have such practices, and bring clear arrangements regarding this in their information forms for such matters, proposals, policies and special conditions. accordingly, article 18 (1) pertaining to installment sale, the consumer has the right to backdown from the installment sale contract within seven days, without showing any reason and without payment penal clause. according to the second paragraph of the same article, on the other hand, the manner of exercising the right to back-down has been foreseen. according to this, it is adequate that the notice regarding that the right to back-down is being exercised is addressed to the insurance company within this timeframe. the insurance company is obliged to prove that the consumer has been informed regarding the right to back-down. in that case, for insurance contracts where the premium is paid in installments and its insured qualifies as a consumer, it shall be necessary to give a 7-day right to back-down for consumer insureds. it would be advisable to arrange for this case both in the information and in the policy for insurance products directed at consumers. this right to back-down, may be exercised by the policy owner/insured from the contract being drawn up and the policy issued and delivered until the insurance amount /premium advance payment is paid and the coverage starts. however, it should be emphasized that, following means of backing-down have been brought for the policy owners/insureds within the frame of turkish commercial act no 6102 without regards to whether they are consumers. the policy owner may back-down from the contract by paying half of the decided premium before the insurer's obligation starts. in case of partially backing-down from the contract, the premium which the policy owner is obliged to pay is half of the premium related to the potion backed-down from. (art. 1430). in the case where life insurances are in question, the policy owner may back-down from the contract within 15 (fifteen) days of the insurer notifying him that he may exercise his right to back-down. if no informing has been made, the right to back-down expires 1 (one) month after the payment of the first premium. (art. 1489). in the case where health insurances are in question, if the policy owner/insured makes a request for cancellation within the first (30) thirty days from the date the contract was issued and if no compensation has been paid to he insured or in his name within this time period, the premiums paid are returned without deductions within five business days. (private health insurances regulation article 10(1)) however, in the case the insured, qualified as a consumer, does not have one of those listed above or the exercising of this right according to those would be more appropriate, the right to back-down in article 18 of the consumer act may become more meaningful. as per the 3rd paragraph of the said article, before the time for right of backing-down expires, in insurance contracts where the performance of the service is started with the approval of the consumer insured, i.e., the coverage starts with the payment of the advance payment, on the other hand, the consumer may no longer exercise this right to backdown. in the event of acting in default of this article, in turn, by the ministry of customs and trade, as per the art. 77(1)consumer act, for those who act in default of the obligations, the administrative fine foreseen in again the same article shall be applied (tl 232 for year 2016) for each transaction or contract determined to be in default26. 26 imposing administrative sanction pursuant to the above article shall not impede the proceedings to be carried out by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative / judicial sanctions to be imposed pursuant to the article 77(20) of the consumer act, as per other laws, meaning in particular, the insurance act no 5684 articles 34 and 35. impacts of consumer law no 6502 on insurance activities: comparing with eu law 59 7.5. doorstep selling27. as the insurance contracts are being drawn up to a considerable extent outside of the business place in the simultaneous physical presence of the parties or, at the business place of the insurance company or broker or via any remote communications tool, immediately after the interview with the consumer outside of the business place, even though it falls within the definition of the consumer act article 47, as it was held out of scope as per article 2 para. 2. item (a) of the regulation28 on this subject, article 74 of the consumer act shall not be applied to insurance contracts. 8. basic principles which insurance contracts are subject to from the aspect of consumer act in article 4 of the consumer act information providing basic principles with contracts foreseen in the consumer act to be issued in writing and in article 5 the arrangement regarding unfair conditions has been adopted. according to the article 5, para. 1 of the consumer act, “unfair condition” means contract conditions included in the contract without negotiating with the consumer and cause imbalance to the detriment of the consumer in the rights and obligations of the parties arising from the contract in a manner to contradict the rule of honesty. accordingly, the insurance contracts are also a contract included in the scope of the consumer act and especially the provision regarding distance contracts regarding financial services in its article 49, in addition to the principles regulated from the insurance legislation, as a rule also the principles regulated in consumer act article 4 and article 4929 shall be applied to insurance contracts. in terms of unfair conditions, on the other hand, according to article 5 of the consumer act30, it has been regulated that the provisions of this article shall be applied to the contracts prepared by organizations or persons, companies, such as insurance companies, which are performing their activities with a permission given by the law or authorized bodies, without regards to their qualifications. insurance companies, in addition to the principles given in the insurance legislation and the commercial act, should adhere to the following principles, procedures and rules: a) contracts should be drawn up at least in type size twelve, in comprehensible language, in an open, plain31 and legible manner. (para.1) b) in the event contract terms are written, it is required that a clear and comprehensible language is used which the consumer can understand. in the event a provision given in the contract is not clear and understandable or has multiple meanings, this provision is construed in favor of the consumer (article 5, para. 4) 32. c) insurance companies are required to adhere to the writing and minimum characteristics size used in all documents pertaining to the insurance contract. additionally, minimum type sizes foreseen differently in the insurance legislation are also reserved. for example, according to car insurances general conditions 27 as set forth in the reasoning of the article, the provision, regulated in the consumer act under the title doorstep selling, has been amended together with its title as “contracts made outside of the business place” and has been harmonized with the directive 2011/83/eu of the european parliament and council on consumer rights of 25/10/2011. 28 regulation on contracts drawn up outside of the business place concerning consumer act article 47 (og 29236 /14.01.2015). 29 principles accepted with this article are studied and attempted to be revealed below under article 10. 30 article 6 of the previous act was penned again. according to the reasoning of the said article, it is expressed that eu directive 93/13/eu dated 5.4.1993 was transposed to domestic law. this provision is also included in the regulation on unfair conditions in consumer contracts (og 29033/17.06.2014) art. 2(2). 31 it should not be overlooked that insurance contracts are actually a general transaction condition and in this sense they are also subject to the procedures, principles and consequences given in code of obligations no 6098 articles 20 to 25. moreover, these articles shall be applied in terms of all insureds, whether a consumer or not. 32 in this sense, article 23 of the code of obligations no 6098 should also be reminded. according to this, if a provision included in general transaction conditions is not clear and understandable or has more than one meaning, it is construed against the draftsman and in favor of the opposite party. 60 ömer özkan, ahmet karayazgan article a.7, the determinations made regarding to insurance coverage pursuant to this article should be written in the policy in lettering of at least type size 14. d) a copy of the contracts should be given to the consumer either on paper or with permanent data register. (article 4, para. 1). insurance companies have the obligation to give policies to the policy owners/insureds as per the turkish commercial act no 6102. the difference brought by the consumer act is that this obligation to give the insurance policy can also be satisfied with “permanent data register”. this can be appraised as an important legal development with regard to the insurance sector. in the article 3, para. 1, item f of the consumer act, the “permanent data register” has been defined as all manner of tools or media, such as short message, electronic mail, internet, disk, cd, dvd, memory card and the like, which enables the information the consumer sends or which is sent to them to be recorded and copied without alterations in a manner to permit examining such information for a reasonable amount of time for its intended purpose and which permits access to such information in true form. e) unfair conditions in the contracts made with the consumers are strictly void. provisions of the contract other than the unfair conditions maintain their validity. in that case, the issuer of the contract may not assert that had the conditions finally deemed void not existed, he would not have made the contract .(article 5, para. 2) f) the unfairness of a contract condition shall be determined according to the time the contract was drawn up with consideration to the quality of the goods or services subject to the contract, the conditions existing during contract drawing up, and the other provisions of the contract or the provisions of another contract to which the unfair conditions relates. (article 5, para. 6) g) if a contract provision has been prepared previously and could not have an effect on the consumer content due to being in the standard contract, it is assumed that that contract condition has not been negotiated with the consumer. if the issuer of the contract claims that a standard condition has been severally negotiated, they are obliged with proving this. if, from the evaluation of the contract as a whole, the conclusion is reached that it is a standard contract, the fact that specific elements of a condition in this contract or a single provision has been negotiated does not prevent the application of this article to the remaining portion of the contract. h) if a contract provision has been prepared previously and could not have an effect on theconsumer content due to being in the standard contract, it is assumed that that contract condition has not been negotiated with the consumer. if the issuer of the contract claims that a standard condition has been severally negotiated, they are obliged with proving this. if, from the evaluation of the contract as a whole, the conclusion is reached that it is a standard contract, the fact that specific elements of a condition in this contract or a single provision has been negotiated does not prevent the application of this article to the remaining portion of the contract. (article 5, para. 3) i) in the event one or several of the conditions required to be included in the contract are not included, the incompleteness does not affect the contract's validity33. this incompleteness is immediately corrected by the issuer of the contract. conditions foreseen in the contract may not be changed to the detriment of the consumer during the contract term. (article 4, para. 2) 34 j) no additional charges may be requested from the consumer for the deeds which they rightfully expect to be made within the scope of the goods or services offered to them and which are among the legal obligations of the issuer of the contract and the costs which the issuer of the contract has made towards his own interests. (article 4, para. 3) 33 according to article 22 of the code of obligations no 6098 to be applied regardless whether the policy owner/insured is a consumer, provisions of the contract other than general transaction conditions deemed not written maintain their validity. in that case, the draftsman may not claim that he would not make the contract wit the other provisions had the conditions deemed not written not existed. 34 again, according to article 24 of the code of obligations no 6098, conditions given in the insurance contract or in a separate contract and which give the draftsman the authority to alter a provision of the contract or bring a new arrangement against the opposite party shall be deemed not written. impacts of consumer law no 6502 on insurance activities: comparing with eu law 61 k) it is requisite that information pertaining to all manner of fees and costs to be requested from the consumer in reference to the contracts regulated in the consumer act, are given to the consumer in printed form on paper as an attachment to the contract. for contracts drawn up via remote communications tools, on the other hand, such information is provided in a manner suitable for the remote communications tool used. proving that such information has been given to the consumer rests with the issuer of the c. (article 4, para. 4) l) for reason of the transactions the consumer has made bills may be issued of a valuable paper nature written only to the name and to be separate for each installment payment. bills issued contrary to the provisions of this paragraph are void from the standpoint of the consumer. (article 4, para. 5) in the event of acting in default of this article, in turn, by the ministry of customs and trade, as per consumer act art. 77.(1) and (2), for those who act in default of the obligations in articles 4 and 5, the administrative fine foreseen in again the same article shall be applied (tl 232 for year 2016) for each transaction or contract determined to be in default 35. 9. defective services on insurance defective service has been regulated in the articles 13 to 16 of the consumer act. it is evident that this article shall also be applied in terms of insurance contracts and services connected to it. however, it is difficult to say that the solution and consequences foreseen in this article (particularly, such as the consumer's optional rights 36 and lapse of time37 in article 15 of the consumer act) are appropriate for and applicable to insurance contracts and the insurance activity. likewise, this difficulty is also in question in article 23 of the insurance act, due to the reference made to this article as to the defective service of the insurance, in this case as well. however, as the beneficiaries opt for the companies' responsibility generally dealing directly with the insurance companies for the defective services of the agency as well, this second part difficulty has not come to the fore too much. however, it is considered that the difficulty as to how the defective service shall be applied in terms of the insurance companies shall come to the fore quite frequently going forward. the solution for this, in turn, shall undoubtedly emerge in the arising disputes or with the consumer jurisdiction or general jurisdiction decisions. in its current form, defective service, in terms of insurance companies, may be in the sale of the insurance product; because according to the article 13, para. 2 of the consumer act, insurance products or services which contain material, legal or economic deficiencies which do not bear the properties informed by the insurance company, given in its internet portal or advertisements and announcements or which reduce or eliminate its value in terms of purpose of utilization or the benefits which the consumer reasonably expects from it shall be deemed defective and shall be subject to the consequences under this article. a point of problem for insurance companies in this respect is the damage processes. at this point, in cases where verbatim indemnity is in question, for example, for car insurance, in cases of poor service performance of the supplied part or of the contracted provider and in fact which are excluded from coverage by forcing, it may come on the agenda in the form of a claim that the correct product was not sold to them. in this sense, established in terms of correct product and its content, informing gains even greater importance. 35 imposing administrative sanction pursuant to the above article shall not impede the proceedings to be carried out by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative / judicial sanctions to be imposed pursuant to the consumer act article 77(20), as per other laws, meaning in particular, the insurance act no 5684 articles 34 and 35. 36 according to article 15, paragraph 1 of the consumer act, in cases where the service is performed with defect, the consumer is free to exercise one of the rights of having the service re-performed, free-of-charge repair of the work generated as the result of the service, deduction from the price procedure rata the defect or backing-down from the contract against the provider. the provider is obliged to satisfy this request which the consumer prefers. 37 according to article 16, paragraph 1 of the consumer act, in the event a longer period is not established in the laws or in the contract between the parties, are responsibility for the defective service is subject to a two-year lapse of time as of the date t service was performed, even if the defect was found later. according to its second paragraph, on the other hand, if the defect has been concealed by gross fault or deceit, lapse of time provisions are not applied. 62 ömer özkan, ahmet karayazgan in such a case of defective service, as well as they may easily request the service, subject to the damage, to be immediately performed [or] back out of the contract with their rights to damages remaining reserved, taking into consideration the lengthiness of the period of limitation, that they may request return of premiums at least in the form of price reduction, during the policy term or at any time afterwards within the period of limitation, becomes probable even if the options are removed. at this point it would be expedient especially with regards to insurance companies that particularly damage processes are reviewed for products directed at consumers and such probabilities are also organized. 10. distance sale of insurance under the consumer laws38 10.1. in european union law the regulation on the distance marketing of financial services, which includes also insurance, is not included in consumer legislation and is regulated by a separate directive. however, in our domestic law, this regulation was addressed as an article in the article 49 of the consumer act 39. additionally this subject has been regulated in the provisions of distance contracts regulation related to financial services (“distance contracts regulation”) published by the ministry of customs and trade 40. the first point which the consumer act diverges from the eu distance marketing directive is the title it uses. “distance marketing of the consumer financial services” in the eu directive it is expressed as “distance contracts related to financial services” in the consumer legislation. according to this, while the consumer legislation is concentrating on the contract, the eu is leaning to the activity in the original of the directive. additionally, while the consumer act defines the distance services and distance contracts in connection with it, the eu directive, emphasizing the financial services directed at the consumer, concentrates on the distance marketing connected to these. also in the insurance legislation “in the regulation relating to the activities to be appraised under insurance, insurance contracts made in favor of the consumer and insurance contracts made from distance (“insurance regulation”) both in the title and in article 9 of the regulation, with the expression “insurance contracts made from distance” it is again seen to be allocated with only the contract. according to article 49 para. 1 of the consumer act and item 4. (1) (b) of the distance contracts regulation, “distance contract relating to financial services is defined as contracts drawn up between the provider and the consumer through the use of remote communications tools within the frame of a system created for the remote marketing of financial services. against this, in the insurance regulation article 4 para. 1 item (f), the “distance contract” is defined as contracts drawn up in written, visual, telephone and electronic environment or by using other communications tools without the parties coming face to face. in terms of individual retirement contracts, as per article 6 paragraph 1 of the regulation on the individual retirement system (“system regulation”) 41, save for employer group retirement contract42, the retirement contract may be drawn up without coming face to face through the company's internet site or call center or the call center 38 in the event of contrariety to the obligations given in article 49 of the consumer act, by the ministry of customs and trade, as per art. 77(1) of the consumer act, for those who act in default the administrative fine foreseen in again the same article shall be applied (tl 200 for 2014) for each transaction or contract determined to be in default. according to aopc 77(2) imposition of administrative sanction according to this act does not prevent the actions to be made pursuant to other laws. 39 additionally, even though it is not directly within the scope of our study, the principles and procedures relating to electronic commerce brought with the act on the regulation of electronic commerce no 6563 (og 29166/5.11.2014) should also not be overlooked. 40 og 29253/31.01.2015. 41 og 28462/9.11.2012 42 employer group retirement contract is a retirement contract signed on the basis of an employment relationship or in favor of the participant between a sponsoring organization and the company and a contribution is paid by the sponsoring organization in the participant's name (article 4, para. 4 of the system regulation). impacts of consumer law no 6502 on insurance activities: comparing with eu law 63 authorized by the company. 43 as per para. 2 of the said article, in distance sale the company informs the person in accordance with the provisions of article 5 and offers a suitable retirement plan proposal. the participant confirms that necessary information relating to the retirement contract, the retirement plan and the system have been given to them and approves the proposal via the call center or electronic signature and thus the retirement contract is made in this manner. contracts issued on the basis of proposals for which the approval process has not been realized do not enter into effect and no collection may be made by the company for those. the company sends the entry information form and proposal form within five business days following the approval proposal to the participant's defined electronic mail address or fax or mail address in line with their preference. on the other hand, in article 2 item (a) of the eu directive no 2002/65/ec the “distance contract” has been defined in much greater detail. according to this, "distance contract" means any contract concerning financial services concluded between a supplier and a consumer under an organized distance sales or service-provision scheme run by the supplier, who, for the purpose of that contract, makes exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded.)44. as shall also be seen from these definitions the definition in our domestic law can not fully overlap as compared to the definition given in the eu acquis. that, in turn, shall undoubtedly present differences in terms of the determination of contract terms to be made based on the definition. 10.2. informing in distance contracts 10.2.1. subject matter and scope of informing. according to the article 49, para. 2 of the consumer act, in distance contracts relating to financial services, it is requisite that the consumer is informed in a clear, understandable manner and appropriate for the communications tools being used, regarding their right to back-down before they declare their will relating to the drawing up of the contract, that they shall come under obligation in the event they give an acceptance declaration, and in other matters the details of which are determined by the ministry of customs and trade. that this informing is being done for a commercial purpose should be clear, and, in cases where voice communication tools are being used, the identity of the provider and the reason for the request for contact should be stated at the onset of the contact.pursuant to the authority given by the article 49, para. 7 of the consumer act, preliminary information has been regulated in article 5 of the distance contracts regulation. this arrangement shall also bring a double-headed arrangement in terms of insurance products; as these matters are regulated in detail in the insurance legislation. in that respect, it would be favorable that the provisions in the insurance legislation on insurance contracts are reserved. in terms of the insurance legislation, the obligation on general informing has been brought in the article 11, para. 3 of the insurance act no 5684, and it has been foreseen that insurance companies and insurance agencies shall inform the policy owner, the beneficiary and the insured, both during the drawn up of the contract and during its continuation and that the matters relating to this are to be regulated by a regulation. in that framework, information regulation has been published by the undersecretariat of treasury.45 also in insurance legislation, there is an obligation to inform in distance sales46. in insurance book of the turkish commercial act no 6102, the “obligation to elucidate” has also 43 article 4, para. 3 of the system regulation, retirement plans and funds not deemed acceptable by any undersecretariat of treasury may not be made subject of distance sales. 44 http://eur-lex.europa.eu/lexuriserv/ 45 information regulation relating to insurance contracts (“information regulation”) og 26684/28.10.2007. 46 principal relevant insurance legislation related to distance sales can be summarized as below: information regulation and circulars no. 2008/12 and 2012/9 connected with it; regulation relating to activities to be considered within the scope of of insurance, insurance contracts made in favor of the consumer and insurance contracts made from a distance (“distance insurance contract regulation”) og 28892/25.04.2014; circular relating to necessary organization and technical infrastructure within the scope of insurance contracts made from a distance (no. 2014/10); sector announcement relating to questions regarding the application of the regulation related to activities to be considered within the scope of of insurance, insurance contracts made in favor of the consumer and insurance contracts made from a distance (2014/22) (“sector announcement 2014/22”); regulation on the principles of application for insurances connected with personal loans (“regulation on insurances connected with personal loans”) og.29294/13.3.2015. http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=celex:32002l0065:en:not 64 ömer özkan, ahmet karayazgan been brought with article 1423, not limited to however, also including distance sales. according to para. 1 of the said article, it is regulated that the insurance company or agency shall notify the policy owner in writing of all information pertaining to the insurance contract to be drawn up, the rights of the insured, the provisions which the insured should particularly take note of, obligations on notifications related to the developments before the insurance contract is drawn up and on the condition that necessary period for review is also allowed and that additionally, as independent from the policy, they shall make public to the insured, in writing, such incidents and developments which may be deemed important in terms of the insurance relationship during the contract term. in the article 9, para. 1 of the insurance regulation, insurance contracts made from distance, either directly or through an insurance agency, have been defined in an indirect way as the contract made by use of all manner of communications tools permitting the parties to come to terms without getting together. following it, in the 1st sentence of para. 4 of the same article, it has emphasized the necessity of informing by providing that provisions of the information regulation shall also be applied regarding insurance contracts made from a distance. on this matter an arrangement was brought in the eu acquis in article 3 of directive no 2002/65/ec. hereunder, before the consumer is bind with a distance contract or an offer, the provider is especially requested to provide information about: application methods for financial service, distance contract, right of withdrawal, correction application for the consumer party to a distance contract, or complaint authorities other than the tribunal. additionally, as per again the same article, in distance communication the commercial purpose is required to be explicitly stated and should be done in an understandable manner. it is especially sought that this communication is done according to goodwill rules in commercial transactions and the regulations made to the member state law regulating the protection of those not granting approval, and of minors. the consumer's acceptance declaration regarding the drawn up of the contract is established or recorded in physical or electronic medium according to the communication tools used. the provider is obliged with the communication of the right to back-down and with taking necessary measures for the establishing or records to be done in physical or electronic medium. in that case, even though one needs to be subject to both of the bodies in the sense of activity law, as the public bodies obliged with executing the two legislations are different, in the sense of contracts law, in a distance sale process in which consumers are involved it shall be needed to apply both legislations together. 10.2.2. manner of informing. according to information regulation article 5, para. 1, as with the insurance contracts made via remote marketing methods by using insurer, telephone, call center, internet and similar communication tools, in cases where the contracting parties' coming face to face physically and making the informing in writing are not in question, the condition on written informing may not be sought. the insurance company is obliged with proving minimum informing has been done. the procedures and principles relating to the nature of the operations included in this scope and the manner of informing to be done have been established by the undersecretariat of treasury with circulars no. 2008/12 and 2012/9 and continue to be established. also in the article 1423, the last sentence of para. 2 of the turkish commercial act, it has been regulated that the proof that the elucidation announcement has been given rests with the insurer. in the article 6 of the insurance regulation preliminary informing is regulated47. this arrangement again shall also bring a double-headed arrangement in terms of 47 according to the article 6 (1), before the consumer states their will for the drawing up of the distance contract relating to the offering of financial services, it is mandatory that they are informed in all matters specified in the first paragraph of article 5, in at least type size according to the communications tool used in a clear, plain, understandable and legible manner by the provider either in writing or with the permanent data register. (2) in the event the distance contract relating to financial services is drawn up via voice communication tools or via an environment where it is drawn up in limited space or time, it is adequate that information given in only the items (c), (ç), (h) and (i) of the first paragraph of article 5 are given in this environment. however, in the event consumer loan contracts are being drawn up from a distance via these tools or environments, it is mandatory that the whole of the preliminary information in its relevant legislation is given a reasonable time in advance of drawing up the contract either in writing or with impacts of consumer law no 6502 on insurance activities: comparing with eu law 65 insurance products as such matters are not regulated in detail in insurance legislation. in this respect keeping the provisions in the insurance legislation reserved regarding insurance contracts without is appropriate. in terms of the insurance legislation, according to insurance regulation article 9, para. 4” in insurance contracts made in electronic medium, that informing is deemed done depends on its being confirmed in electronic medium. however, in cases where the matters forming the basis of informing are published in the internet site of those who shall made the distance insurance contract and the means is provided for such persons who wish to be included in the insurance contract to transfer such information to any electronic medium in their domination area, the obligation to provide information is deemed satisfied.48. in terms of the form of informing, in article 1423, para. 3 of the turkish commercial act no 6102, it has been regulated that the undersecretariat of treasury shall determine the form and content of the consumer elucidating announcement by taking into consideration the regulations of various countries, in particular, of the european union in fact, the undersecretariat of treasury has established these sample forms much before the arrangement in the turkish commercial act, with its circular on the application of the regulation on informing in insurance contracts no 2008/7 as per the authority granted by the insurance act. today, in insurance companies these forms are being used by improving according to the insurance products. these forms are also used in the sales of distance contracts by transfer to the electronic environment. information regarding debts arising from the contract, should be done in accordance with the debts arising from the contract arising from the law applied to distance contracts, provided it is notified to the consumer before the contract. in the light of this regulation, by evaluating the matter along with the regulations found within the scope of insurance legislation improvements should be made in terms of the form of making the informing on the insurance product directed especially at consumers. 10.3. requirement to convey all conditions of the contract in distance contracts according to consumer act article 49, para. 3 and distance contract regulation article 7, para. 1, it is requisite for the provider to convey to the consumer all conditions of the contract and other matters determined by the ministry of customs and trade either on paper or via the “permanent data register”. the time to fulfill this obligation has again been established in the same article. according to this, it shall be satisfied before the consumer directs their will to draw up the contract or, in the event the contract is drawn up by using a “remote communication tool” not suitable for written informing upon the consumer's request, then immediately afterwards. another point which draws attention in this article is that, in terms of the form of informing, as different from the arrangement given in the insurance legislation and the commercial act, the concept of “permanent data register” had been brought. according to the definition in article 3, paragraph (f) of the consumer act, the “permanent data register” has been defined as all manner of tools or media, such as short message, electronic mail, internet, disk, cd, dvd, permanent data register. (3) it should be understandable that the preliminary informing is made for a commercial purpose in accordance with the remote communications tool used. in cases where voice communication tools are used, the provider or its representative is obliged to state in the beginning of the call the identity of the provider and the person making the voice communication, the information related to the connection of this person with the provider and the reason for the request for call. 48 according to the same paragraph, the obligation to give a policy, foreseen in article 1424 of the turkish commercial act, continues also in contracts made over a distance. in cases where the insurance contract is made in electronic environment, provided it conforms to article 1425 of the turkish commercial act, the policy may also be issued in electronic environment in a manner to enable the policy owner to transfer to any electronic medium in their own area of dominance and take an output. in that case, insurance general conditions may also be given by showing a link address. additionally, according to article 9, paragraph 6, in cases where policies are issued in electronic media, the company's obligation to sign the policy shall be satisfied by “electronic signature”. it has been expressed that the “electronic signature” expression referred to in sector announcement 2014/22 corresponds to the “electronic tool” expression given in the article 1526, para. 2 of the turkish commercial act. 66 ömer özkan, ahmet karayazgan memory card and the like, which enables the information the consumer sends or which is sent to them to be recorded and copied without alterations in a manner to permit examining such information for a reasonable amount of time for its intended purpose and which permits access to such information in true form. it should be considered by the insurer to put to practice such tools as a form of notification which can be used in insurance products directed at consumers. 10.4. right to back-down 10.4.1. according to article 49, para. 5 of the consumer act and article 8 para. 1 of the distance contracts regulation, the consumer has the right to back-down from distance contracts related to financial services within fourteen days without showing any reason and without paying penal clause. the provider insurance company and its agency are obliged to prove that the consumer has been informed. as per article 6, para. 1, first sentence of eu directive no 2002/65/ec, member states have foreseen that they ensure the consumer has the right to back-down within 14 days without being subject to penal clause and without requiring to present a reason. as per this regulation of a domestic law it has been aligned with the eu acquis. however, it is seen that the arrangement that it should be extended to 30 days for distance contracts related with life insurance or personal retirement insurance, as per article 6, para. 1, second sentence of eu directive no 2002/65/ec, has not been taken into our domestic law with the consumer legislation. against this, according to article 49, paragraph 5, last sentence of the consumer act and article 8 para. 1, last sentence of the distance contracts regulation, for insurance contracts and contracts relating to individual retirement, on the other hand, it has been ruled that provisions given in other legislation relating to time to back-down which are in favor of the consumer shall also be reserved. on this subject, in article 1489 of turkish commercial act, regardless of whether the policy owner/insured is a consumer, a right and time has been foreseen in terms of life insurances. according to this article, the policy owner in life insurances may back-down from the contract within fifteen days of the insurer notifying them that they can exercise the right to back-down. that the informing has been done is proven by the insurer. lastly, it would be appropriate that the right to back-down, by the insurance companies, this right is clearly written on insurance products and especially on information forms and especially its start is clarified. 10.4.2. start of back-down period. in the consumer act and insurance legislation, the beginning of the right to back-down granted for distance insurance contracts is not clearly defined. in the article 8, para. 2 of the distance contracts regulation, the start of the period for right to back-down shall start on the date the contract is drawn up. however, in the event the date on which all conditions of the contract are given to the consumer on paper or with a permanent data register, the period for right to back-down shall start from the date the consumer has obtained all the conditions of the contract. according to the article 1489 para. 1 of the turkish commercial act no 6102 (insurance book) , regarding life insurances, it is expressed that the policy owner can back-down from the contract within 15 days from the insurer informing them that they can exercise their right to back-down. of no informing was done, the right to back-down shall end one month after the payment of the first premium. according to article 6, para. 1 of the eu directive no 2002/65/ec, the beginning of the period defined for the right to back-down has been regulated in a detailed manner. according to this, the beginning of the period starts either, in cases where the time limit shall start from the date the consumer is informed about the drawing up of the contract, save for those related to life insurance, or, if later than this date, then from the date the consumer has received the information and the general and special conditions of the contract. 10.4.3. exercising the right to back-down. according to article 49, para. 5, sentence 2 of the consumer act and article 9 para. 1 of the distance contracts regulation, it is adequate that the notification that the right to back-down has been exercised is addressed to the provider within this period. the provider is obliged with proving that the consumer has been informed regarding the right to back-down. for insurance contracts and contracts relating to individual retirement, on the other hand, regarding the period for backing-down, provisions given in other legislation which are in favor of the consumer are applied. additionally, in the exercise of the right to back-down, the consumer may, as well as using the form given impacts of consumer law no 6502 on insurance activities: comparing with eu law 67 in the attachment to the distance contracts regulation, also make an explicit statement informing of their decision to back-down. the provider may also offer an option over its internet site for the consumer to be able to complete this form or sent their back-down statement. in the event a right to back-down is offered to the consumer over the internet site, the provider is obliged to immediately communicate to the consumer the information confirming that consumers' requests for backing-down have reached it [the provider] (the article 9, para. 2 of the distance contracts regulation). 10.4.4. cases where the right to back-down may not be used. in the consumer legislation and the turkish commercial act, the cases where the right to back-down may not be used have not been regulated. however, in the eu acquis, in the article 6 para. 1 of the eu directive no 2002/65/ec, these conditions have been listed. the two cases which may be relevant in terms of insurance contracts have been identified as; in item (b) travel and baggage insurances or similar short-term insurance contracts whose term is list 1 month; and contracts which the contracting parties have fully performed with the consumer's explicit request before the consumer exercises their right to back-down given in item (c). however, cases which the consumer may not exercise the right to back-down in the insurance contract have been regulated [in] distance contracts regulation. in this scope, as per the article 13, para. 8, item (b) of the distance contracts regulation provided such provisions given in other legislation which are in favor of the consumer remain reserved, the right to back-down may not be used in travel, baggage insurance policies with a validity period less than one month or similar short duration insurance policies. in this manner, our domestic law has become compatible with the eu acquis. 10.4.5. returning of payments. according to article 49, para. 5 of the consumer act, it has been foreseen that the consumer may back-down from distance contracts related to financial services within the period foreseen without paying penal clause. however, according to the wording of this expression, a deduction apart from the penal clause may become in question. a provision supportive of this has been brought in the article 10, para. 1 of the distance contracts regulation. according to this, it has been regulated that in the event the right to back-down is exercised, charges for service performed pursuant to ancillary contract49 (which can be interpreted as support services in insurance), and, if any, costs paid to a public organization or body and the amounts required to be paid as per the legislation may be requested from the consumer to make a payment. additionally, according to the last sentence of para. 1 of the same article, when the amount required to be paid is compared with the total amount for the service foreseen in the contract, it may not exceed the amount falling to the share of the service which has been performed and also the principle is accepted that it may not be interpreted as a penal clause in any manner. this payment shall be made latest within thirty days from the date the back-down notification has been directed by the consumer. the sanction in the event the right back-down is not realized within the conditions listed above, on the other hand, has been foreseen in the second sentence of para. 1 of again the same article. according to this, in the event the consumer fails to make required returns and payments they are deemed not to have backed-down from the contracts. on the other hand, in article 7, paragraph 2 of eu directive no 2002/65/ec, the obligation of member states has been brought to ensure that in cases where the consumer exercises their right to back-down, they are not subject to making any amount of payment. in paragraph 3 of the same article, in turn, the provider may request the consumer to pay an amount with the estipulation that the provider has duly informed the consumer at the onset. however, unless a prior request of the consumer exists, in the event the performance of the contract has started before the expiry of the backing-down period, the provider may not request any amount. in the face of the existing regulation in our domestic law, it cannot be said that the requirements of the eu acquis are fully satisfied. 49 ancillary contract, according to the article 4, para. 1 of the distance contracts regulation, item (g), in relation with the distance contract relating to financial services; means the contract related to the goods or services provided to the consumer by the seller, provider or a third person in addition to the goods or service subject to the contract. 68 ömer özkan, ahmet karayazgan 10.5. consequences of breach of the obligation to inform 10.5.1. administrative sanctions. a) in the event of acting in default of article 49 of the consumer act, in turn, by the ministry of customs and trade, as per art. 77, paragraph 1 of the act, for those who act contrary to the obligations in article 49 the administrative fine foreseen in again the same article shall be applied (tl 232 for year 2016) for each transaction or contract determined to be in default. imposing administrative sanction as per the above article shall not prevent the proceedings to be made by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative and/or judicial sanctions to be imposed as per other laws, meaning in particular, article 34 and 35 of the insurance act no 5684 pursuant to article 77(20) of the consumer act. b) as per the article 34, para. 1, item (b) of the insurance act no 5684, in the event of failing to adhere to return decisions passed, regulations and communiques issued and other regulations made according to the insurance act by the council of ministers, the ministry to which the undersecretariat of treasury is connected to and the undersecretariat of treasury, in cases where there is no penalty separately foreseen in the insurance act, an administrative fine from one thousand turkish liras to twelve-thousand turkish liras is applied. 10.5.2. contractual consequences. a) insurance legislation according to information regulation article 7, para. 1, without regards to whether the policy owner/insured is a consumer, in the event the obligation to inform is not duly satisfied, if, during the negotiation, drawing up and continuation of the insurance contract, stated obligation to inform has not been duly satisfied or misleading information has been given about the insurer or the information form has not been duly delivered or the information included in the information form have been arranged in a manner contrary to facts and if any one of these situations have been effective for the decision of the policy owner, the policy owner may, as well as termi nating the insurance contract, also request for the compensation of the loss it incurs, if any. b) in the article 1423 of turkish commercial act, in the event the elucidating explanation is not given, if the policy owner has not objected to the making of t he contract within 14 days, the contract is deemed made with the conditions written in the policy. 11. procedures and principles in the consumer act regarding the marketing and sales of insurance services 11.1. announcement and advertisement. as per the article 32, para. 1, last sentence of the insurance act no 5684, the announcements and advertisements have been made subject to the supervision of the advertising board. additionally, with circular no 2007/13 on the announcements and advertisements to be published by insurance and reinsurance companies, published by the undersecretariat of treasury, principles have been established regarding the announcements and advertisements which insurance companies and reinsurance companies shall make, such as, in announcements and advertisements statements and predictions which are contrary to the facts, misleading or deceptive and pejorative or derogatory expressions directed at the insurance sector and insurance companies and reinsurance companies may not be included, even if indirectly; in announcements and advertisements containing comparisons, competitive product or business name may not be stated or expressions or symbols evoking such matters may not be used; subjective expressions and evaluations may not be used which are not approved by official authorities or international organizations and institutions, not relying on figures or data; in the event it is undertaken by the insurance company to make the contract that goods or services shall be provided free of charge by the insurance company under the condition that the insurance contract is made, the type, quantity, rate and conditions for benefiting for the goods or service to be offered are shown clearly and in a manner not causing misunderstanding. above principles are also applicable to all promotional and informative publications which insurance companies and reinsurance companies shall make which bear the characteristics of announcements and advertisements and the publications, documents and formularies used in insurance transactions. with these arrangements in the insurance legislation remaining reserved, consumer act article 61 shall be duly applied, indirectly as per article 32 for those who are not consumers, and directly in any case for policy owners/insureds qualifying as consumers. regulations in the impacts of consumer law no 6502 on insurance activities: comparing with eu law 69 consumer legislation pertaining to announcements and advertisements shall need to be closely followed-up and taken into consideration in implementations. commercial advertisement, as per the consumer act, article 61, paragraph 1, has been defined as announcements of marketing communications nature, in connection with commerce, business, craft or profession, realized by written, visual, audio and similar means on any medium by the advertisers for the purpose of ensuring the sale or leasing of a good or service, informing or persuading those forming the target group. as per the same article, for insurance companies placing advertisements, advertising agencies and media organizations, the following procedures and principles should be taken into consideration also in terms of insurance and insurance contracts50: it is essential that commercial advertisements are consistent with the principles determined by the advertising board, to public morality, public order, and personal rights and are accurate and honest51 (article 61, para. 2). no commercial advertisement may be made which misleads the consumer, or exploits their experience and lack of information, threatens security of lives and property, motivates acts of force and committing a crime, damages public health, exploits the ill, elderly, children and disabled (article 61, para. 3). including names, brands, logos or other differentiating shapes and expressions and trade titles and business names related to goods and services in articles, news, broadcasts and programs without clearly indicating as advertisement and presentation in promotional nature is deemed as covert advertising. it is prohibited to make covert advertising in audible, written and visual form in all manner of communications tools (article 61, paragraph 4). comparative advertisements may be made of competing goods or services which meet the same needs or directed to the same purpose (article 61, para. 5). as per the article 77 (12) of the consumer act, regarding advertisers, advertising agencies and media organizations acting contrary to the obligations stated in said article 61, detain, or, by the same method, correction penalty or administrative fine and where deemed necessary, detain penalty for up to three months are applied. additionally, the advertising board may give these penalties separately or jointly according to the nature of the violation, such as, (for year 2016) an administrative fine of 11.625 turkish liras, if occurred via a television channel broadcasting at local level, 232.508 turkish liras, if occurred via a television channel broadcasting to the general of the country, 58.127 turkish liras, if occurred via the internet, 29.063 turkish liras, if occurred via short message, 5.812 turkish liras, if occurred via other media. the advertising board may apply the administrative fines specified above to up to ten times in the event the violation subject to the administrative proceeding is repeated within one year. 11.2. unfair commercial practices. procedures and principles accepted with article 62 of the consumer act pertaining to unfair commercial practices shall also be applied in terms of the insurance activity and insurance c/product as a consumer transaction52. according to the reasoning of the said article it is stated that in the consumer transaction, all kinds of unfair commercial practices which may affect the decision of the consumer by those across the consumer such as the seller, provider who engages in the commercial practice and that it shall be ensured that this is prevented and the consumers and enabled to made conscious decisions and a purchasing decision which they shall otherwise not give shall be prevented. according to para. 1 of the same article, a commercial practice, in the event it fails to adhere to the requirements of the professional diligence and significantly disrupts or has a possibility of disrupting to a significant degree the goodor service-related economic behavior of the average consumer it reaches out to or of the average member of the group it turns to, it is deemed as an unfair commercial practice53. 50 according to paragraph 8 of the same article, limitations to be brought regarding commercial advertisements and the procedures and principles to be adhered to in such advertisements are established by regulation. 51 according to paragraph 6 of the same article, advertisers are obliged with proving the accuracy of the claims in their commercial advertisements 52 in cases where the unfair commercial practice occurs through advertising, provisions of article 61 of the consumer act are applicable. 53 according to, again the same article and its reasoning, particularly practices of deceptive or aggressive nature are unfair commercial practices. additionally, the unfair commercial practices given in the attachment to the eu directive shall be included in our domestic law with this regulation and such practices shall also be deemed unfair commercial practice. the regulation shall 70 ömer özkan, ahmet karayazgan these types of unfair commercial practices directed at the consumer are prohibited. in the event it is claimed that the commercial practice is unfair, the person engaging in the commercial practice is obliged with proving this practice of theirs is not unfair commercial practice. regarding those acting contrary to the obligations stated in article 62 of the consumer act, cessation of the unfair practice for up to three months or detain sanction or administrative fine (tl 5.182 for year 2016) are applied as per article 77 (13) of the act. the advertising board may impose such penalties separately or together according to the nature of the default. if the administrative fine has been realized in the general of the country a more severe administrative fine (tl 58.127 for year 2016) is applied. 12. sanctions under the consumer legislation it has been foreseen in article 77 et seq. of the consumer act. it should be emphasized that, according to paragraph (2) of the same article, imposing administrative sanction as per the said article shall not prevent the proceedings to be made by the undersecretariat of treasury and/or the prosecutor's office, as the case may be, and the administrative/judicial sanctions to be imposed as per other laws, meaning in particular, article 34 and 35 of the insurance act no 5684. when article 77 of the consumer act is examined, in addition to administrative fines and judicial fines foreseen separately regarding each transaction and application54, there also is a general penalty provision pertaining to cases not listed. according to article 77, paragraph 18 of the consumer act, regarding those not adhering to the obligations, which fall outside of those specified in the article, however, which are brought by this act, and the measures established by the ministry of customs and trade by regulation or communique, the administrative fine foreseen in the said paragraph (from 1.162 turkish liras to 58.127 turkish liras for year 2016) shall be imposed. additionally, in paragraph 19 of the same article, a top limit has been foreseen in terms of the administrative fines to be applied for specific cases. according to this, save for the administrative fines in the eighth, ninth, twelfth, and thirteenth paragraphs of article 77, in cases where the amount of total administration fines applied in one calendar year as of the date the default is established exceeds twenty-five turkish liras, the amount of the total administrative fine, not to be less than this amount and not to exceed one hundred million turkish liras, may not exceed five percent of the annual gross income of the real or legal person subject to the fine, accrued at the fiscal year-end previous to the determination of the default. in the event the previous gross income fails to accrue, the gross income accrued as of the determination date is taken into consideration. in cases where gross incomes are not reported or inaccurately reported, the provision of this item is not applied. for banks, financial organizations giving consumer loans and organizations issuing cards, on the other hand, it may not exceed five in thousandths of the equity capital published in the latest financial statements. it is requisite to pay the administration fines imposed according to the consumer act within one month from their serving. while in article 77 of the consumer act special and in fact severe sanctions are foreseen for some defaults, in paragraph 18 of the same article as they have not regulated in this manner, regarding those not adhering to the obligations brought by the consumer act and the measures determined by the ministry of customs and trade by regulation or by communique, a sanction of administrative fine has been foreseen from one thousand turkish liras to fifty-thousand turkish liras. according to article 78 (1) of the consumer act, the administration sanctions in the second, seventh, eighth, ninth and eleventh paragraphs of article 77 of the said act shall be given by the ministry of customs and trade; on the other hand, for twelfth and thirteenth paragraphs, they shall be given by the advertising board and applied by the ministry of customs and trade. administrative sanctions in other paragraphs, in turn, shall be given by the governorate where the sanctioned person is headquartered. against the administration sanction decisions given according to the consumer act, administrative justice may be appealed to according to the provisions of the code of administrative procedures no 2577. however, the lawsuit in the administration court is opened within thirty days from the day following the service of the procedure. the fact that an annulment suit has been opened in the administrative court does not stop the execution of the decision. additionally establish the procedures and principles relating to the determination of unfair commercial practices and their inspection. 54 administrative fines are firstly, recorded in criminal registry. they are seen in the criminal registry records during the execution of the fine. after the completion of the execution it is taken into the criminal registry archive record. in turn, it is fully deleted with the passing of five years from the date it is taken into the archive. impacts of consumer law no 6502 on insurance activities: comparing with eu law 71 conclusion the consumer act has attempted to adopt the regulations in a manner to also include the insurance activity and the insurance contracts without bringing a sector distinction, to also take into consideration the relevant legislation of the eu and reflect onto our domestic law. however, as experienced in the preparation and acceptance processes of many other legislation, it is fairly difficult to say, in terms of the general of the legislation, that our country's social and lifestyle differences and level is adequately and duly considered. the consumer act, on the other side, by also taking within its scope without adequate and due consideration of the legislative regulations and practices of the insurance activity, which is regulated in a quite detailed and strict manner, has also brought along a difficulty regarding the insurance activity in the forthcoming period in terms of ensuring the harmony of the legislations and correction of differences. especially the fact that the authorities making and executing these two different legislative arrangements are different, shall make the application of insurance activity even more difficult in the application process too, just as it was in the preparation process. even though it can be said that the consumer act should as a rule be applied to the insurance activity and insurance contracts only in the cases where the policy owners/insureds simultaneously match the consumer definition, as it would be difficult for insurance companies to introduce the consumer/non-consumer, policy owner/insured distinction in many insurance branches and/or insurance products relating especially to small risks outside of the large risks, from the documentation which they have used to their marketing-sales processes, in actual fact the consumer legislation shall have a broader field of application than considered in the insurance activity and insurance contracts. it is considered that the most positive development and arrangement regarding the insurance activity in the sense of the consumer act is that at especially the distance sales point, which is becoming increasingly widespread, the means to reach the consumer policy owners/insureds has been provided via the “remote communications tools” and “permanent data register” which were not set down in this clear a manner with the insurance legislation. however, again on this subject, the opinion and approach of the undersecretariat of treasury shall determine the scope and limitation for the insurance companies and brokers to take benefit of this means. for the policy owner/insured qualifying as a consumer it is possible to apply to the consumer jurisdiction in the disputes arising from insurance contracts, within the scope of the amounts and limitation defined in the consumer act. however, as per the nature of the disputes, in the face of them not being possible to be resolved only within the scope of consumer legislation provisions, and special expertise and experience is required, the danger is high for the consumer jurisdiction to make decisions not suitable for the insurance activity and applications and that these impact the sector adversely, and in this framework, to finally create results which would affect the consumer in a more unfavorable manner. however, without doubt, the continuous and rapid changes and variations which life brings (for example, the increase in distance sales such as the internet, call center, or tv), the consumer behavior, needs and inclinations changing, and this in turn, in the field of legislation necessitates new and additional regulations. therefore, despite all our criticism, the consumer legislation, having transposed to our domestic law many positive and needed regulations relating to our protection who shall at one point be in a consumer position, it is necessary to emphasize that it is a positive act in its general sense which contains much improved and detailed regulations as compared to the consumer act no. 4077. 72 ömer özkan, ahmet karayazgan references ekşi̇ nuray, prof., law to be applied to insurance contracts with foreign elements in turkish and european union law, 1st edition january 2012 http://eur-lex.europa.eu/lexuriserv/ http://www.tsb.org.tr/default.aspx www.hazine.gov.tr http://hazine.gov.tr/default.aspx?nsw=trr3vg8kcngodq4jjqvkpw==h7dec+lxbi8=&mid=366&cid=35&n m=647. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 33-45 33 khat production and household welfare among khat growers ethiopia jemal abafita jimma university, ethiopia fikadu gutu bulga jimma university, ethiopia received: 12 june, 2020 accepted: 29 july, 2020 published: 10 dec, 2020 abstract: the main objective of this study was to examine the welfare effects of khat production on households. our finding shows that, khat production was found to be associated with better living conditions; this was not the case with regard to improvements in household income and housing quality. on the other hand, khat growers had generally better food consumption, which could be due to the immedia te but seemingly temporary effect of increasing household income. given the implications of these aspects of food consumption as key elements for food security at household or individual levels, our findings call for maximum caution as to what policy implications should be drawn since inferences from these findings may be misleading. that is, notwithstanding the positive effects in terms of food consumption and hence food security, khat production could have aggregate negative effect on aggregate through reducing crop production and it is trade-off between them. keywords: socio-economic, khat producer, food security 1. introduction 1.1. background of the study ethiopia is the world’s largest producer of khat which has recently become the fastest growing export commodity. the history of domestication and introduction of this crop in ethiopia is not known. according to the folklore, it was first introduced in harar, in the eastern part of ethiopia, from where it spread to rest of the country. in ethiopia, khat is commonly used for stimulation and social recreation (ezekiel, 2010). socially, khat chewers spend long hours on chewing and then even more for recovering from its immediate aftereffect; leading to a number of negative consequences such as absenteeism from work, a barrier to obtaining employment and lack of integration of khat-consuming communities (workineh et al, 2010). at the household level, khat diverts household income – an income that could have otherwise been spent on nutritious food, home improvement, education or other family needs – towards the purchase of khat, which in turn is a likely cause for finance-related problems such as family disputes and even breakdown (ishraq and jiří, 2004). contemporary khat-users report that, khat chewing gives increased energy levels, alertness and confidence, a sense of happiness, better thinking capacity and creativity, facilitation of communication ability, enhanced imaginative ability and the capacity to associate ideas. for some, chewing khat is a means of increasing energy and elevating mood in order to improve work performance (kalix, 1987). unlike the traditional use of khat where consumption is simply for social function and relaxation, khat is playing a very considerable role in the economy of the producer countries such as kenya, eretria, and ethiopia (ezikel, 2010). a large number of people are involved in harvesting, packing, transporting and unloading of the product, which not only serves as a means of livelihood for millions farmers and traders but also enables them lead better lives ( mofed, 2011). jemal abafita & fikadu gutu bulga 34 despite the fact that, about 84% of khat produced in eastern africa is consumed locally, khat export is on a growth path (feyisa and aune, 2003). the increased production and the improved communication network have played a pivotal role in the realization of khat as international commodity for export (anderson et al, 2007). however, the growth of the number of the consumers of khat in uk has raised much concern within the uk government wanting to find out the effects of khat on the chewer. this is indicated in several commissions conducted by the national drug intelligence unit (ndiu, 1990). the first report of its kind found no link between khat and psychosis contrary to later scientific findings which confirm that khat has adverse effects on health and social life (baliant et al., 2009). in eastern africa countries such as kenya, ethiopia and somalia, khat was traditionally used during muslim religious ceremonies and when studying koran, as a natural plant remedy with medical properties and for reducing fatigue while travelling or working (odenwald, 2007). within the muslim countries like yemen and ethiopia, khat consumption is high because all other drugs are forbidden by religious laws while khat is regarded as a gift from god handed over to a monk to enable them pray overnight (patel, 2008). the total export value was 16.6 billion ($211.5 million). somalia was the main export destination with new market opportunities in mozambique among others. gebissa (2004) believes that the shrub khat is misunderstood. a significant majority of eastern african countries consider khat to be an important cash crop. unfortu nately, many medical professionals in various countries, such as united states of america (u.s.a), do not share this view because it is a psychoactive shrub that produces a sense of euphoria when chewed in massive amounts. gebissa (2004) conduct the study and clarify the perceptions regarding to the importance of khat and stated that, most of the people who chew khat are farmers in khat growing areas. they chew it for energy not simply for pleasure. for many people in the eastern part of ethiopia and kenya, the chewing of khat is a mark of identity. however in most other parts of the world, people chew khat for leisure (patel, 2008). the expansion of khat production is not simply due to the result of growing international demand but population growth in khat growing areas. due to pressure on land and diminishing resources, in khat growing countries such as kenyan and ethiopia, farmers in these countries are switching to growing of khat as their chief cash crop (gebissa, 2004). according to feyisa and aune (2003), one of the important reasons for expansion of khat production in ethiopia, is its profitability which is 2.7 times more than that of maize per hectare. khat is also less risky to grow than cereals and coffee because; it is less vulnerable to drought. in kenya, khat production boom has also caused marked changes in traditional agriculture and land use system as well as ecological problem. a good example is the exploitation of scarce water resources for irrigation. this has helped the farmers to become economically selfsufficient and improve their quality of life (world bank, 1999). this is supported by the cargo flights that carry khat from three countries to places such as england, rome, toronto, mogadishu and melbourne (fitzgerald, 2009). in addition, according to hansen (2006), the value of ethiopian khat export to somalia alone was estimated at, us $ 80 million in 2005. 2. motivation of the study the expansion of khat production in the study area(country ethiopia) bring considerable social and economic risks in the longer run as earnings totally depend as the plant is banned in many other countries. the previous studies indicate that, the consumption of this crop generates health problem and reduces the productivity in terms of work efficiency and number of working hours. the productions of khat have also an opportunity cost of losing amount of crop produced while producing khat, which also confirmed from this study result. many scholars indicate that, the opportunity cost of losing amount of crop produced while producing of khat have negative impact for a country like ethiopia where most of the societies are food insecure. these findings of the scholars were in agreement with this study results. khat consumption negatively affects the working capacity of people because they tend to be slow in work, show lethargy, less number of working hours, take frequent rests, spend time chewing the leaves, and are generally more careless and found loitering about aimlessly in the market. development of withdrawal symptoms, comprising heavy and sinking sensation following habit of prolonged consumption of chat seems to surfacing among consumers. the frequency of lethargy, mild depression, slight trembling and recurrent bad dreams prompt them to have second thoughts about its consumption. a serious consideration is that, its use may endanger health, thereby resulting in anorexia leading to malnutrition with subsequent susceptibility to infectious diseases. khat production and household welfare among khat growers ethiopia 35 despite the fact that khats have a significant role and contribution as a means of obtaining foreign currency and income for many households than crop productions and opportunity cost of losing amount of crop produced while producing khat and social and economic loses in the domestic consumers should have to be weighted and studied. therefore, this study recognized those gaps and tried to find evidentiary information about the socio-economic impact of khat from consumer and producer side in order to able to quantify the return from khat in southwest ethiopia, in the case of jimma zone. finally, this study adds some literature on the previous literatures depending on the findings of the study. indeed, the main objective of the study is investigating the positive and negative socio-economic impacts of khat on producers, identifying the effects of khat on smallholder khat producer household’s income, social life participations, consumption and children’s learning effectiveness as well as impact on smallholder khat producer household’s life standard. in conclusion, this study result can be serves as source /input for policy makers to decide the direction (type) of policy they will implement regarding to khat cultivations in the study area as well as in ethiopia. 3. materials and methods 3.1. study area this study was conducted in jimma zone, south western part of ethiopia. according to jimma zone finance and economic development report (2016). jimma zone composed to 18 woredas and hosting total populations of over 3 million. according to united nations development programme (undp) field assessment program conducted and reported by dechasa lemesa august 2001: jimma zone is with an agro-ecological setting of highlands (15%), midlands (67%) and lowlands (18%). the zone is one of the major coffee growing areas of oromia region wellendowed with natural resources contributing significantly to the national economy of the country. the zone reliably receives good rains, ranging from 1200-2800 mm per annum. (dechasa lemesa, 2001). 3.2. data collection because of the nature of this study, mostly this study was used primary data collected by personal interview of the farmers/producers and consumers by using a structured questionnaire administrative through interviewers from all of the study populations and secondary data was collected from agricultural development offices at regional as well as national level, from websites online search and publications of the central statistical authority (csa, 2000) of ethiopia and from other international journals related with our topic. 3.3. sampling methods and sample size determination this mega research project study was undertaken in jimma zones of oromiya regional state. the participants of the study selected using multistage random sampling. first the district in each zone was categorized according to the types of crops they produce. random samples of districts were then selected at the first stage. on the second stage, the peasant associations (pas) grouped in the same way and sampled for the study. at the third stage, the villages were grouped in the same procedure and sampled randomly. finally, the households (farmers) were selected using systematic random sampling procedure. the sampling frame was prepared by discussing with peasant association leaders and finally, 357 sample sizes were selected for this study by using the khothari 2004 formula. 3.4. methods of data analysis the main objective of this study was to assess the impact of producing khat on smallholder khat producer households. to meet this objective, different comparisons were made between the producers and nonproducers. this study defines producers as those who produce khat. if the farmer produces khat greater than 0.5 hectares, that household was considered as khat producer. to assess the impact of producing khat on the educational status of the family, the researchers was used the ratio of children in schools and those who have attended regular schools to the total number of school aged children in the family, expressed as percentage. the ability of the household to feed the family was also seen in terms of the frequency of feeding the children and the adult. the percentage of farmers having corrugated iron sheet roofed houses, the percentage of farmers having separate kitchens other than their living rooms for cooking and the percentage of farmers having separate structure for livestock other than the living room was used to assess the impact of agricultural export products on the housing conditions of the farmers. the strategy used by the farmers to finance the household expenditures at the times of food shortfalls and/or crop failure jemal abafita & fikadu gutu bulga 36 was also another parameter to assess the impact on the food security of the farmers. with this respect, the percentage of farmers using food aid as one of the strategies or the only strategy in times of food shortfalls and crop failure were used. there are different techniques used in assessing an impact. these include the mean test, regression analysis and partial budgeting. the partial budgeting technique is a planning and decision making frame work used to compare the costs and benefits of alternatives faced by a farm business (dalsted and gutierrez, 2004). the nature of the data used for this study, however, does not help us to compute costs and benefits. thus, we used the mean test and regression analyses which are explained as follows. similarly, for a categorical data one of the analyses of interest is finding the proportion of elements belonging to each of the categories. we can also test the difference between two population proportions. the chisquare test of independence and the ztest are used for this purpose. the chisquare test is used to test a twotailed alternative, but the ztest can be used both for one tailed and two tailed alternatives. most of the tests in this study evaluate whether one group is better than the other. thus, the ztest was used for all the tests concerning the differences between two populations’ proportions. 3.4.1. the regression analysis also, the method of data analysis to measure the functional relationship between a quantitative dependent variable and one or more independent variables is the regression analysis. a logistic regression equation of the a dependent variable y on k independent variables x1, x2, …, xk is given by: let yij be the ith khat producer households income, house improvement, living in better house and household consumption status (a binary outcome 1= the households have better income, house improved, living in better house and at better household consumption status, 0=otherwise) living in the jthkebele. so, y represents all explained variables above (household income, house improvement, household living in better house and household consumption status) and explained as follow: 𝑌𝑖𝑗~𝐵𝑒𝑟𝑛𝑜𝑢𝑙𝑙𝑖(𝑃𝑗) 𝑙𝑜𝑔 𝑃𝑗 1−𝑃𝑗 = 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2 + ⋯ + 𝛽𝑘𝑋𝑘……………………………………………………………… (1) where, β1, β2… βk are the parameter to be studied and (x’s) are the explanatory variables the explanatory variables that affect the economic status of the khat producer households are expressed both qualitatively and quantitatively. where the dependent variable is dichotomous, many studies show that probit and logit models are appropriate. since the logit model is simpler in estimation than probit model. so, logistic regression model is preferred to the probit model for this study. in addition, logit model is a more realistic pattern of change in the probability compared to other qualitative dependent variable models like the probit, for two main reasons. first, the odds ratio, which is a measure of the strength and direction of relationship between the two variables, has a special property of not requiring variables to be normally distributed. second, mathematical transformation of the odds ratio is the logit model. this mathematical transformation removes the problem of asymmetry existing in the odds ratio and in turn makes this a superior method (peng et al, 2005). for the construction of the asset index we employed the technique of principal component analysis (pca). the procedure was based on responses to asset ownership questions (yes-no, where yes=1 otherwise 0). factor loadings were estimated and predicted factor loadings generated for each sample respondent. this was standardized so that the standardized values for the whole sample observations become distributed with zero mean and unit variance. such values was gave indications of the status in terms of asset ownership, with larger and/or positive index values indicating rich households and smaller and/or negative values showing poor possession status. 3.4.2. data analysis data was analyzed using stata software package version 14.0 (stata corp 4905 lake way drive college station, texas 77845 usa) for regression analysis. the empirical analysis of the study conducted using both descriptive statistics and logistic regression analysis. various tables generated to describe characteristics of respondents. household and individual-level comparison made in terms of socio-demographic and socio-economic characteristics between khat producer and non-producers. khat production and household welfare among khat growers ethiopia 37 4. result and discussion 4.1. summary statics of the sample respondents more summary statistics on the characteristics of respondents and their households is provided in table 1. accordingly, 52.1% of the respondents are from dedo woreda, with majority (61.62%) of the total sample aged 25 – 38 years and 82.35% male. close to 74% of the respondents were married, most of who belong to the oromo ethnic group comprising 92.43% and the religion of islam representing 94.4% of the sample. the mean household land area ownership among the sampled respondents was 4.13 ha of which 3.53 is covered by different crops. nearly 55% of the respondents come from families who grow or produce khat as a cash crop. about 68.34% own living houses with a mean of 3 rooms. table 1.summary statistics of the sample respondents variable obs mean std. dev. min max marital status (married = 1) 357 0.739496 0.439526 0 1 ethnicity (oromo =1) 357 0.92437 0.264777 0 1 religion (muslim = 1) 357 0.943978 0.230288 0 1 sex of the head (m = 1) 357 0.798319 0.401818 0 1 education of head (none =1) 357 1.952381 0.707485 1 3 livestock (tlu) 357 1.621485 1.082404 0 4.14 participation in social life (y=1) 357 0.672269 0.470045 0 1 own house? (y=1) 357 0.683473 0.465774 0 1 no. of rooms 357 2.817927 1.571485 0 5 electricity (y=1) 357 0.551821 0.498005 0 1 land? (y=1) 357 0.764706 0.424778 0 1 total land area (ha) 273 4.131868 0.825274 3 5 cropped land (ha) 273 3.534799 0.701677 3 5 source: survey study, 2017 4.2. khat production and housing condition to assess the possible relationship between khat production and socioeconomic status, we used housing condition. in particular, we used type of construction material used for house floor. as can be seen in table 2 below, the proportion of the respondents from non-khat growing households are more likely to own better housing (houses with cement floor) than their counterparts from khat growing families and the difference is highly statistically significant (pearson chi2(1) = 50.0976 pr = 0.000). the implication is that, khat production is negatively associated with wellbeing/living standard as measured by housing. table 2.housing conditions by khat growing status not cement floor cement floor total number (no.) percent (%) number (no.) percent (%) non producer 33 16.84 163 83.16 196 khat producer 84 52.17 77 47.83 161 jemal abafita & fikadu gutu bulga 38 total 117 32.77 240 67.23 357 source: survey study, 2017 on the other hand, khat growing households are more likely to have made housing improvement than non-growers during two years period prior to the survey (table 3), with the difference being statistically significant at 1% level (pearson chi2 (1) = 137.44 pr = 0.000). this is probably due to the fact that the housing condition of khat growers is low might cause them invest in housing improvements induced by higher income from sale of hkat. which of the two (supposedly opposite forces/effects) would actually take effect cannot be known from the simple pair-wise analysis presented in here and needs to be determined through multivariate analysis in the next section (econometric analysis). table 3.improvements in housing conditions by khat growing status improvement no improvement total no. % no. % no. % khat producer 164 83.67 32 21.74 196 54.90 not producer 35 16.33 126 78.26 161 45.10 total 199 44.26 158 55.74 357 100 source: survey study, 2017 similarly, khat growers are more likely to own houses with larger number of rooms (mean = 3.34 rooms) than nongrowers (mean = 2.19 rooms), which is statistically significant at 1% (see table 2, pr(|t| > |t|) = 0.0000). table 4.two-sample t test with equal variances on number house rooms by khat growing status source: survey study, 2017 4.3. khat production and food consumption with the exception of chicken, growers are more likely to consume egg, milk and other meat based diet than their non-grower counterparts with statistically significant differences (table 4). diff -1.150399 .1558509 -1.456906 -.8438922 combined 357 2.817927 .0831718 1.571485 2.654357 2.981497 kkat pro 196 3.336735 .0959373 1.343122 3.147527 3.525943 not khat 161 2.186335 .1262223 1.601581 1.937059 2.435612 group obs mean std. err. std. dev. [95% conf. interval] khat production and household welfare among khat growers ethiopia 39 table 5.differences in food consumption (dietary diversity) by khat grower status food item khat growers non-growers difference/chi2(1) test egg (%) 71.43 40.37 34.87*** pearson chi2 milk (%) 83.16 0 246*** chicken (%) 5.10 7.45 0.85 other meat (%) 58.16 24.84 40.00*** overall dietary diversity (no.) 3.18 1.73 -1.45*** t-test *** p<0.01 source: survey study, 2017 there is also a statistically significant difference between the two groups of respondents in terms of overall dietary diversity. in summary, khat production has some positive impacts, while other negative impacts and these findings are only indicative and how exactly are the different factors interact to determine their effect on various outcomes could better be understood through a multivariate econometric approaches discussed in next section. 4.3 results and discussion from the econometrics analysis 4.3.1. the effect of khat production on housing condition as outlined in detail in the methodology part, the outcome variables selected to assess the effect of khat production was housing condition. housing condition is one of the indicators of the status of the socio-economic status among households or individuals. for the purpose of this part of the study, we considered three different measures as indicators for housing condition in line with previous literature. these are: (1)the probability of spending or making housing improvements during the period of 12 months prior to the survey, (2) the probability of having or living in houses with corrugated iron sheet or cement floor, and (3) perceived improvement in household income during the last three years period. thus, using these three variables as dependent/outcome variables, we fitted logistic models. the results are discussed below. 4.3.2. the probability of having housing improvement for the purpose of the regression analysis in this sub-section we constructed asset index using the technique of principal component analysis (pca) as outlined in the methodology part of the previous chapter. the procedure involved estimation of factor loadings generated based on responses to asset ownership questions (yes-no, where yes=1) generated for each sample respondent. these were standardized so that they are distributed with zero mean and unit variance. finally, the resulting variable was used as explanatory variable in our regression models. table 6 presents the estimates of the logistic regression for assessing the effect of khat production on the probability of housing improvement. the results reveal that the probability of having invested in housing improvement decreases with age, while it higher for those who are married, who are khat producers, use credit and saving services, possess more livestock (measured in terms of tlu), and have higher income. the variables marital statuses, livestock, credit access, saving habit and income have a positive and statistically significant effect on the probability of housing improvement. more specifically, married couples are more likely to make housing improvement than their non-married counterparts (probability higher by 78.0%). similarly, an additional 1 tlu of livestock possession is associated with 35.5% increase in the likelihood of housing improvement. likewise, access to credit, monthly saving practice, and increased income would lead to an increased probability of housing improvement by respectively 47.7%, 290.5% and 398.9%. with the exception of livestock a variable, which is significant only at 10% level, the remaining variables were significant at 1% level. on the other, age has a negative effect on the probability of housing improvement. that is, another year of age is associated with a 94.2% lower probability of housing improvement. this result is significant at 1% level. jemal abafita & fikadu gutu bulga 40 table 6.binary logistic estimates for the probability of housing improvement coef. std. err. z p>z [95% conf. interval] age -0.94206 0.20964 -4.49 0.000*** -1.35295 -0.53117 married (y=1) 0.78026 0.290725 2.68 0.007*** 0.210449 1.35007 livestock possession (y=1) 0.354516 0.2015 1.76 0.079* -0.04042 0.74945 save monthly? (y =1) 2.904626 0.501802 5.79 0.000*** 1.921112 3.88814 access to credit (y=1) 0.476673 0.529147 0.90 0.368 -0.56044 1.513782 khat production (y=1) 2.748189 0.411062 6.69 0.000*** 1.942522 3.553856 income 3.989001 1.086254 3.67 0.000*** 1.859981 6.11802 asset index 0.307103 0.702356 0.44 0.662 -1.06949 1.683696 woreda (dedo=1) 0.40371 0.328862 1.23 0.220 -0.24085 1.048268 intercept -3.23197 1.0125 -3.19 0.001*** -5.21643 -1.2475 pseudo r2 0.5140 number of obs 357 note: ***, **, * refer to significance at 1%,5%, and 10% respectively; log likelihood = -119.12351, lr chi2(11) = 251.94, p > chi2 = 0.000 source: survey study, 2017 most importantly, khat producers were found to be more likely to invest in housing improvement that non-producer (the former experiencing a higher probability than the latter by 274.8%) implying that there was significant relationship between khat production and housing improvement. 4.3.4. the probability of having a better house table 7 presents the estimates of the logistic regression for examining the effect of khat production on the probability of owning a house with cement floor. the results indicated that age, livestock possession, saving, and access to credit had a negative and significant effect while khat production didn’t have any significant effect on the probability of having better housing. although the coefficient estimate is positive, there was no difference between khat producers and non-producers in terms of probability of owning a house with cement floor. this finding contradicts with that found in the descriptive analysis results discussed in previous section where we found a negative association between khat production and house floor quality. as the former descriptive method doesn’t allow for controlling other factors that may affect the outcome variable (floor type) other than khat production status, the regression results are more reliable in this regards and thus we base our conclusion based on the regression estimates. consequently, the implication is that khat production doesn’t have any effect on housing status. the study result is in agreement with the study conducted by other scholars. for example the study conducted by habtamu, (2007) stated that, a large number of people are involved in harvesting, packing, transporting and unloading of the product, which is not only the means of livelihood of the millions farmers and traders but also it enables them lead a better live than nonkhat growers. from this statement it is possible to conclude that, one indicators to evaluate the standard of live is house having better house. so households those are producing khat production have positive impact of having better house when compared to non-producers. khat production and household welfare among khat growers ethiopia 41 table 7.binary logistic estimates for the probability of having a better house (cement floor) coef. std. err. z p>z [95% conf. interval] age -2.75975 1.199683 -2.3 0.021** -5.11109 -0.40842 livestock possession (y=1) -2.76744 1.538327 -1.8 0.072* -5.7825 0.24763 married (y=1) -1.05124 2.18763 -0.48 0.631 -5.33892 3.236437 save monthly? (y =1) -12.7382 3.924099 -3.25 0.001*** -20.4292 -5.04705 access to credit (y=1) -8.41992 2.803401 -3 0.003*** -13.9145 -2.92536 khat production (y=1) -2.99223 2.423653 -1.23 0.217 -7.7425 1.758041 woreda (dedo=1) -6.67776 2.767586 -2.41 0.016** -12.1021 -1.25339 intercept 26.73143 8.789983 3.04 0.002*** 9.503379 43.95948 pseudo r2 95.63 number of obs 357 note: ***, **, * refer to significance at 1%,5%, and 10% respectively; log likelihood =-9.857, lr chi2(7) = 431.93, p > chi2 = 0.000 source: survey study, 2017 4.3.4. the probability for improvement in household income with regard to improvement in household income during the last three years period, it would be recalled that the descriptive analysis in the previous section revealed that khat producers are more likely to experience improvements in household income during the last three years. however, after controlling for other factors affecting household income, this seemingly positive effect vanishes as can be seen from the estimated logistic regression results reported in table 8 below. the study result is in agreement with some studies. for example, the study conducted by becker et al., (1973) stated that, as a matter of conclusion drawn from a significant great majority of researchers‟ findings came up with an assumption that, children have no bargain power in the house hold, and parents make decisions regarding their own interest. in this situation parents tend to invest more human capital in children who are deemed to be more intelligent and highly skilled. this is because; the cost of investing in human capital for a more able child is cheaper than that of less able child. more over parents anticipate that children with higher skill levels transfer resources to the siblings which decrease the average cost of parental investment. one indicator to evaluate a social impact is school attendances. so our study finding clearly shows that, khat producer household children/child school attendance was more likely high than non-producers. the result of our finding was in agreement with the other finding. for example, regarding to production expansion conducted by gebissa, (2004) stated, the expansion of khat production is not simply due to the result of growing international demand but population growth in khat growing areas. due to pressure on land and diminishing resources, in khat growing countries such as kenyan and ethiopia, farmers in these countries are switching to growing of khat as their chief cash crop. according to (feyisa and aune, 2003), one of the important reasons for expansion of khat production in ethiopia, is its profitability which is 2.7 times more than that of maize per hectare. khat is also less risky to grow than cereals and coffee because; it is less vulnerable to drought. the stated result shows that, farmers are diverting from producing cash crop products to khat productions. jemal abafita & fikadu gutu bulga 42 the study conducted by gebissa (2008) stated, notes child labor as yet another social problem prompted by khat growing in kenya around mount kenya region and its surroundings. children who fall within the school going age bracket form part of the labor in khat industry, more so in harvesting. even if the study analysis in se parated case, some children do it voluntarily while others are compelled to do so by their parents. in conclusion, the study finding indicate that, households participated in khat production were more likely better in child labor exploitation when compared to non-producers. table 8.binary logistic estimates for the probability of improvements in family income coef. std. err. z p>z [95% conf. interval] age -0.16757 0.472086 -0.35 0.723 -1.09284 0.757705 livestock possession (y=1) 0.012087 0.191623 0.06 0.950 -0.36349 0.387662 married (y=1) -0.19043 0.46377 -0.41 0.681 -1.0994 0.718542 save monthly? (y =1) 2.864627 0.5355 5.35 0.000*** 1.815067 3.914187 access to credit (y=1) -2.1346 0.518911 -4.11 0.000*** -3.15164 -1.11755 khat production (y=1) 0.794096 0.918832 0.86 0.387 -1.00678 2.594974 asset index 1.905177 0.725628 2.63 0.009*** 0.482974 3.327381 woreda 0.217454 0.303827 0.72 0.474 -0.37804 0.812945 intercept -1.28389 0.917762 -1.4 0.162 -3.08267 0.514888 pseudo r2 0.4251 number of obs 357 note: ***, **, * refer to significance at 1%,5%, and 10% respectively; log likelihood =-142.06885, lr chi2(8) = 210.14, p > chi2 = 0.000 source: survey study, 2017 the implication is that, khat production may not be positively associated with income improvements among households in the study areas surveyed. 4.3.5. the effect of khat production on social life (social participation) with regard to the impact of khat production on social participation, the estimates from the logit regression model reported in table 8 below reveal that the probability of participation in social life doesn’t vary with the status of khat production category after controlling for other relevant variables. this finding is in contradiction with what was reported in the descriptive analysis part. the conclusion is thus that khat production doesn’t in any way seem to positively affect sociability in the study area. table 9.binary logistic estimates for the probability of participation in social life coef. std. err. z p>z [95% conf. interval] age 2.437861 1.338366 1.82 0.069** -0.18529 5.06101 livestock possession (y=1) 2.767435 1.538327 1.8 0.072** -0.24763 5.7825 khat production and household welfare among khat growers ethiopia 43 married (y=1) 1.051239 2.18763 0.48 0.631 -3.23644 5.338915 save monthly? (y =1) 12.63808 3.863018 3.27 0.001** 5.066703 20.20945 access to credit (y=1) 8.318535 2.826642 2.94 0.003** 2.778418 13.85865 khat production (y=1) 1.684254 0.247649 6.8 0.000* 1.198872 2.169636 woreda 6.74042 2.830612 2.38 0.017** 1.192521 12.28832 intercept -26.4374 8.782795 -3.01 0.003** -43.6513 -9.22341 pseudo r2 0.9300 number of obs 357 note: ***, **, * refer to significance at 1%,5%, and 10% respectively; log likelihood =-142.06885, lr chi2(8) = 210.14, p > chi2 = 0.000 source: survey study, 2017 5. conclusion and policy implications 5.1. conclusions the main objective of this study was to examine the socioeconomic impact of khat on producers. the specific objectives of this sub-section are divided in to two main objectives, namely economic and social impact. to assess economic impact, we considered various indicators such as improvements in housing conditions, improvement of family income, living in better house and household consumption status. to evaluate social impact, we used social life participation as a proxy. this result indicated that there was no clear cut inference that can be drawn regarding the effect of khat production on the various economic and social outcomes considered in the study. while khat production was found to be positively related to better living condition as measured by housing improvement, it was not the case with regard to improvements in household income and housing quality as measured by type of floor. however, khat producing households were generally found to be better in terms of food consumption (consumption of protein rich food items such as meat, egg and fish as well as in terms of overall dietary diversity. this could be due to the immediate but seemingly temporary effect in terms of increasing income on a temporary basis. given the implication of these aspects of food consumption for food security at household or individual levels, care must be taken as to what policy implication should be drawn as inferences from these findings may be misleading. the reason for this is that despite the positive implication for food consumption and hence food security, khat production could have an aggregate effect of reducing crop production due to the inherent trade-off between khat and crop production. this could lead to fall in food availability at macro/national level, which is a key dimension for food security at national level. the net effect thus could well be negative at different levels including at household level and hence the inferences here should be seen from such perspective. finally, the study found an evidence of better participation in social life among khat producers than non-producers. 5.2. policy implications from empirical analysis of the study, it is to note that the socioeconomic impact of khat was positive impact on producers. from this study results it is possible to forward recommendations depending on the findings, which may be helps as inputs for policy makers. this is because of the fact; khat has two contradictory impacts as discussed under the results of the study. this means the controversial over the impact of khat were still not solved. which means that, the study result indicated that, the number of households who producing khat by reducing land for crop production were increase overtime. this is very difficult for countries like ethiopia, who are working still to satisfy their people food security. in another case household those are produce khat was living in better condition than nonproducer. so, this controversial result over the socio-economic impacts of khat needs more attention than ever. jemal abafita & fikadu gutu bulga 44 references adam k. 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(2002). partial budgeting for agricultural businesses, the pennsylvania state university, college of agriculture workineh g, teferi g, fikru t., (2010). regular khat (catha edulis) chewing is associated with elevated diastolic blood pressure among adults in butajira, ethiopia: a comparative study. bmc public health. 2010 world bank, (1999.ground water legal and policy perspective; world bank.technical paper no. 456.washington d.c; world bank journal of international trade, logistics and law, vol. 6, num. 2, 2020, 137-143 137 applicability of force account approach in procurement of works in tanzania alban dismas mchopa moshi co-operative university, united republic of tanzania received: 04 nov, 2020 accepted: 05 dec, 2020 published: 10 dec, 2020 abstract: force account has emerged to be an important procurement method in public procurement due to its potentials towards improving efficiency and cost reduction. as a result, the government of tanzania directed force account to be given precedence in the procurement of renovations, repairs, rehabilitation and remodelling works. despite the potentials and initiatives undertaken, still there is a dilemma on whether most of the stakeholders understand clearly the concept, procedures and practices associated with force account. in response to the observed ambiguities, the study aimed to examine the existing guidelines on force account and practices and thereafter identify challenges experienced in the implementation of force account. the study was guided by cross-sectional surveys design whereby data was collected using key informant interviews, focus group discussions and documentary review. thereafter, data was analysed using constant comparative approach through coding process used for categorising and comparing qualitative data. findings indicated that the poor performance was attributed by the absence of a standardised force account guideline applicable throughout the country by the respective procuring entities. also, the legal provisions on force account are insufficient for the sake of enforcing best practices. therefore, regulatory authorities should ensure that the newly introduced force account guidelines are enforced accordingly so as to improve effectiveness and efficiency. furthermore, there is a need for continued rigorous trainings on force account undertakings among stakeholders involved in order to continue improving practices and performance. keywords: force account, public procurement, procurement of works, procurement methods, practices. 1. introduction public procurement always must be done efficiently and effectively while complying with principles of good governance and professional etiquette. this in turn restores and maintains trust in the public sector which is critical towards qualifying the legitimacy of public procurement in terms of integrity, fairness and transparency (organisation for economic co-operation and development oecd, 2009). the span of public procurement in tanzania covers the acquisition of goods, works, services (consultancy and non-consultancy) and disposal of public assets by tender. currently, such undertakings are regulated by the public procurement act 2011 (united republic of tanzaniaurt, 2011) and amendments 2016 (united republic of tanzaniaurt, 2016) as well as public procurement regulations of 2013 (united republic of tanzaniaurt, 2013) and 2016. the statutes highlight principles, approaches and methods of public procurement with emphasis on fairness, accountability, fair competition, integrity and transparency in the public procurement undertakings. the regulations (urt 2013 and 2016) have provided a number of procurement methods including tendering, shopping, direct contracting, force account, community participation as well as public private partnerships. however, as provided in section 64 of urt (2016) more preference must always be given on competitive methods (tendering and shopping) in order to enforce transparency and competition in public procurement. hence, unless otherwise, other methods such as force account should be given an upper in order to smoothen the procurement of works whether construction, repairs, rehabilitation, remodelling or renovations. as a result, force account has emerged to be an important procurement method in public procurement since it enables the procuring entity to execute works much faster (efficiency gains); enhance internal capacity of the procuring entity since works are executed and supervised by its own staff; it is cheaper to execute the works in house as compared to contracting out (cost savings) but also alban dismas mchopa 138 works can still be executed conveniently without interrupting regular operations (public procurement and disposal of public assets authority ppda, 2014). therefore, it is becoming much emphasised in the public sector to use force account in implementation of various construction projects to ensure cost-effectiveness and value for money in spending scarce resources (france, 2019). for example, since 2016 the government of tanzania has been providing funds for renovation and remodelling of its building infrastructures using force account as a procurement method (shengeza, 2017). under this method, procuring entities are required to procure all supplies and materials for the project from the suppliers and use of local technical labours for implementation. among the institutions made use of force account were the fifty-four (54) folk development colleges (fdcs) under the ministry of education science and technology (moest). the permanent secretary (moest) in 2018 pointed out that “…force account should be used in the rehabilitation and renovations of fdcs infrastructure since it has proven to be cost effective and efficient towards timely completion of works…” previous works on rehabilitation and renovations of schools’ infrastructure using force account enabled the ministry to save almost tzs 1 billion unlike when the works would have been contracted out (moet, 2018). contracting in public procurement often times is a lengthy, time-consuming process and more costly depending on the nature of procurement (valdovinos & lorick, 2013). force account as an emergent procurement mechanism provides a cushion for lead time optimisation and improvement in service delivery (tailored services) depending on the availability of equipment, materials and supervision within the procuring organisation (mbabazi and mugurusi, 2018). however, despite the observed potentials, still force account model exposes the government to the greatest degree of procurement and supply risk since it cannot pass risk on to any other entity besides itself. also, there are still dilemmas on whether most of the procuring entities (pe) and other stakeholders at large understand clearly the concept, procedures and challenges of force account (france, 2019). similarly, mbabazi and mugurusi (2018) observed that aside from what is currently known from the professional literature, force account mechanism in procurement of works is still a mystery in both theory and practice. thus, empirical literatures suggest a need for more rigorous studies of the existing practices and come up with concretised evidences towards improving performance of force account in procurement of works. in response to the observed ambiguities, the study aimed to examine the existing guidelines on force account and practices in the procurement of works and thereafter identify challenges experienced in the implementation of force account in public procurement. 2. methodology the study was guided by a cross-sectional survey design whereby data was collected at one point in time from a sample selected to represent a larger population of procuring entities. a repeated mini-survey was conducted in 2016 and 2017 to grasp the practices and challenges in the applicability of force account approach. the surveys were done purposely to complement the existing data from the secondary sources. data was collected using key informant interviews (in 2016 and 2017), focus group discussions (in 2016) and documentary review (in 2018 and 2019). the interviews were done with selected procurement officers, headmasters of secondary schools, doctors in charge at health centre/dispensary, ward and village executive officers. the focus group discussions were done with members of school committees as well as health centres/dispensaries committees in the selected wards/villages. documentary review was conducted to collect data from published and grey literatures. grey literatures normally provide data not found within commercially published literature (paez, 2017; pappas and williams, 2011). the surveyed grey literatures helped to reduce publication bias and fostered a balanced picture of available evidence. the articles reviewed included public procurement law and regulations, force account guidelines issued by ministries, public procurement regulatory authority (ppra) and controller auditor general (cag) audit reports, public procurement circulars and guidelines, conference and research papers, and baseline reports. data were analysed using constant comparative approach through coding process used for categorising and comparing qualitative data for analysis purposes as recommended by kolb (2012). the method was not used in the strictest sense, but more as a basis for reflections on the survey data in order to develop proposition(s) that emerged from field data which were then complemented with secondary data. applicability of force account approach in procurement of works in tanzania 139 3. findings and discussions 3.1. guidelines and procedures of force account force account being an alternative procurement method has been captured in regulation 167 of urt (2013) and urt (2016) as well as in the 7th schedule (to qualify the categories of its application). the method is solely used in the procurement of works (mostly medium and minor works) whereby the procuring entity itself or use of public or semi-public agencies or departments concerned using its own personnel and equipment or hired labour to execute the works accordingly. however, prior to decisions on choosing force account the procuring entity has to make cost and benefit analysis in order to determine whether it is cheaper to use force account than to execute the works by contracting out. public procurement and disposal of public assets authority (ppda) (2014) of uganda provides guidelines on making cost analysis in terms of scrutinising personnel cost to be used (using the applicable rates of the procuring entity). the analysis of indirect overheads (costs) using the rates provided by a competent authority should also be done along with equipment and supplies to be used basing on the prevailing market rates. the analyses will enable the procuring entity to make informed decisions before venturing into force account undertakings which may backfire if not well analysed. notwithstanding the preliminary cost analyses, a review of regulation 167 of regulations (urt, 2013) guides procuring entities towards considering the context and milieu of the works through which force account can be applied. the legislation indicates that force account can only be used when the required works are scattered or in remote locations for which qualified construction firms are unlikely to tender at reasonable prices; works are required to be carried out without disrupting ongoing operations; or risks of unavoidable work interruption are better borne by a procuring entity than by a contractor. also, the method is useful when there are emergencies which require a prompt attention; the procuring entity has qualified personnel to carry out and supervise the required works; or the maintenance or construction is part of the routine activity of the procuring entity. thus, the applicability depended much on the circumstances, convenience and/or directives. for example, the ministry of education, science and technology directed force account to be given priority in the procurement of renovations and rehabilitations works in secondary schools and colleges. along with the provisions in the statutes, the ministry of education, science and technology (moest) and the president’s office, regional administration and local government (po-ralg) prepared standardised force account guidelines that are used by institutions, departments and agencies working under the respective ministries. the guidelines have been very instrumental and useful in the rehabilitation and renovations works as well as construction works mainly at the lower local government authorities (llgas) (villages and wards), schools, colleges, hospitals and health centres. the guidelines provide provisions on the basic principles, conditions for using force account, benefits of force account, appointment of committees and their responsibilities, proceedings, approval organs and prohibitions. among others, the guidelines have highlighted a number of prohibited practices including frauds, corruption, collusions and conflict of interests. procurements are supposed to be done competitively, transparently while observing fairness, objectivity and integrity. procedures of force account like any-other procurements, start from procurement plans whereby the procuring entities highlighted the works to be acquired and associated materials and/or services. a review of the plans (annual procurement plans) showed that the plans stipulated the methods to be used to acquire the materials and/or services, budgeted costs and timeframe which were critical towards successful works completion. through plans, the requirements were consolidated (where possible) in order to economise transactions and lead times durin g implementation. force account being a facilitating procurement method, a number of associated methods were used depending on the context, timing and expected outcomes. the methods used included shopping/competitive quotation (reg. 163); mini-competition (reg. 131-(5)); minor value procurement (reg. 165); micro value procurement (reg. 166); and community participation (reg. 168). since force account proceedings are not exceptional from the conventional procurement procedures, project committees were always required to ensure that all the necessary approvals are obtained at every stage of project execution. the approvals were obtained using procedural forms and circular resolutions while observing the jurisdictions of organs as required by section 41 (urt, 2011). also, findings indicate that regular meetings were conducted between committees/organs in order to track works progress and streamline the implementation activities as per action plans. the meetings both on-site and off-site were important to share new ideas that might have alban dismas mchopa 140 resurfaced but also certify the works completed after rigorous inspections. at the lower local governments, engineers and experts from the council (district and/or municipal) were invited in order to certify the works since the llgas and schools had no qualified experts. likewise, record keeping is essential and throughout proceedings the committees/organs are required to keep intact all records pertaining to transactions for verification and auditing. regardless of the achievements made using the guidelines that have streamlined the procedures to be followed by entities falling under the ministries, there are number of shortfalls inherent to the guidelines. a review of the moest guidelines showed that it does not provide details concerning appointment and composition of bids evaluation team as per section 40 of the urt (2011); how the evaluation of bids will be done as well as submission and approval of evaluation report as required by regulation 220 and 231 of the urt (2013) respectively. also, the guideline does not provide the procedure to be followed by the procurement committee in purchasing building materials from the surrounding community of the project and procedure for quality control as observed by the ppra (2019). likewi se, the po-ralg guideline as observed by the ppra (2019) does not adequately qualify the composition procurement committee, goods inspection committee and works committee within the health centres. also, the guideline was not exhaustive on procedures to be followed to acquire local mason, labourers as well as procedures to be followed for procurement of goods and quality control parameters. the provisions provided in the regulations (urt, 2013 and 2016) are also not sufficient towards guiding the procuring entities on the appropriate use of force account. apart from mentioning the conditions of using force account and circumstances the regulations are silent on the proceedings to be followed thereafter. the regulations hardly provide guidance on cost analysis parameters, accountability and quality assurance parameters, performance guarantee parameters and inter-linkage of force account and other procurement methods. the ugandan procurement legislation on force account is a little bit improved as it was amended to come up with separate provisions namely execution of works by force account (2014). the amendments are more exhaustive in terms of making provisions to guide procuring and disposing entities in making thorough cost-benefit analysis so as to determine whether it is cheaper to use force account compared to executing the works by contracting out. also, the provisions guide entities on how to ensure that the works undertaken are properly executed and minimising sloppiness as a result of back-sourcing. 3.2 force account practices in procurement of works the practices of procurements under force account somehow are different depending on the nature of the procuring entity and the guidelines used. it suffices to say the practices were not very much standardised throughout the entities. at the llgas (villages and wards), schools (primary and secondary), and health centres or dispensaries the practices were dependent on committees since they didn’t have a well-informed institutional procurement structure as required by procurement legislation. the aforementioned entities hardly had a well-established procurement management unit (pmu) to manage their daily procurement activities and tender board (tb)to oversee and approve the respective procurements and award of contracts as required by sections 37 and 38 (for pmu) and 31, 33, 35 and 35 (for tb). hence, in absence of the organs, the entities had to follow the guidelines provided by the ministries to appoint committees for overseeing and execute force account procedures without contradicting public procurement legislation. a review of the guidelines indicated that there are three basic committees namely project committee, procurement committee and inspection and acceptance committee. findings from the surveyed entities indicate that the project committee is in-charge of identifying the needs and channelling them to procurement committee, charting out action plans for implementation, supervising all works to be undertaken and prepare project progress reports as well as the final project report. the procurement committee was responsible for managing all procurement activities of the project including preparation of procurement plan, sourcing of sources of materials supply, preparation of solicitation and contract documents, obtaining all the necessary approvals and procuring the required goods and materials in the project. inspection and acceptance committee was responsible for inspecting all delivered goods and materials by suppliers, checking compliance with local purchase order/contract and preparing inspection reports that were among the prerequisites before approving payments. therefore, llgas (villages and wards), schools (primary and secondary), and health centres or dispensaries relied much on the expertise and guidance of experts (officials) from the ministries or local government authorities (lgas). for example, during interviews the procurement officers (at lgas) pointed out that their role is to guide the administrators of schools, health centres/dispensaries, wards and villages to follow the required procurement applicability of force account approach in procurement of works in tanzania 141 procedures. the pmu (at lgas) gave the llgas list of potential local contractors and suppliers who have been screened and prequalified by the government procurement service agency (gpsa). in collaboration with the district engineer(s) they assisted llgas in preparation of bill of quantities (boqs), supervision and certification of works executed. also, at some point the district education officer (deo) and district medical officer (dmo) played the role of reviewing and endorsing the submitted procurement requirements for schools and health centres/dispensaries respectively. other roles played by lgas officers included provision of training and guidance staff and committee members on force account guidelines, procurement planning, and preparation of procedural documents (requisition note, purchase order, quotation documents and minor procurement contracts). on the other side, procuring entities such as colleges which had a well-established procurement institutional structure (as stipulated in part iv of the public procurement act, 2011) their procedures were not necessarily implemented entirely as per ministerial guidelines. through documentary review it was established that the aforesaid entities had the normal procurement governance structures. therefore, the formation of some committees was optional since they had institutional organs to handle functions of some committees effectively unlike in the llgas. the entities had a well-established pmu, tb and user departments to oversee all the procurement transactions and supervising all the respective works during implementation. however, if need be, the entities had options of hiring part time experts from the neighbouring entities or private firms as stipulated in the public procurement act (urt, 2016). therefore, force account procedures and practices in entities with well-established institutional structure were more effective unlike their counterparts who struggled with compliance though not all the time. during focus group discussions with the committees it was realised that some of the members were inadequately knowledgeable of the public procurement proceedings associated with force account but were supposed to oversee the undertakings. mostly there was overreliance on experts available at the lgas and in their absence sometime decisions could hardly be made in the meetings. thus, presence of experts and qualified officials is pivotal which also gave the colleges an upper hand (unlike schools) towards making proper interpretation and applications of ministries guidelines as well as the procurement legislation. further, presence of experts within a reach smoothened force account processes by infusing and/or making compromises with the best professional practices where the guidelines and legislation fall short or contradicted each other. 3.3 flaws and challenges in the implementation of force account as observed by mbabazi and mugurusi (2018), the introduction of the force account mechanism in public procurement; the concept appeared rather alien to most of the practitioners in the surveyed procuring entities in uganda. likewise, in tanzania the findings are not much different from the neighbouring country partly contributed by presence of insufficient and fragmented guidelines as well as provisions on force account undertakings. experience shows that cost and benefit analysis as proposed by ppda (2014) were not thoroughly done prior the decisions to adopt force account as a procurement method for construction, renovation and rehabilitation works. the ppra (2019) observed a number of flaws including weaknesses in quality control for works among which include lack of inspection reports of works done and testing the quality of works done, and quality assurance plan was not prepared. the flaws jeopardised chances of value for money achievement among the respective entities and raises doubts as to whether the works were certified accordingly by the experts. findings also indicate that there is good awareness of force account mechanism as popularised by the ministries but some stakeholders involved particularly at the llgas as committee members are hardly trained on public procurement laws and guidelines. as a result, the guidance and instructions received from lgas and ministry experts seemed too many, not clear and confusing sometimes due to their inability to comprehend. in one of the focus group discussions, a committee member pointed out that “…we were not very well trained on force account proceedings but supposed to oversee projects implemented under the method within our locality, make decisions and ensure effectiveness regardless of our limited knowledge…as a result we are held accountable regardless of our little understanding...” through media it has been witnessed that some committee members in lower local government being questioned without tentative answers about their role to oversee/supervise the projects in their jurisdiction. as a response, the ministries (moest, po-ralg) have taken initiatives to build capacity of committees and officials through trainings on force account. alban dismas mchopa 142 procurement of building materials and/or supplies in some entities was not done properly using the framework agreements (contracts) as required by the urt (2013) since they were among the commonly used items and services (cuis). as noted by ppra (2019), the procedures provided under regulation 131 (4) (b) (urt, 2013) as amended by regulation42 of amendments (urt, 2016) were not followed. the procuring entities were required to conduct mini-competition on prices of required building supplies and materials from at least three suppliers (approved by the respective tb) with framework agreements issued by gpsa. this was supposed to be done prior provision of local purchase order to the lowest priced supplier within the prevailing market prices. compliance with the guidelines and standard documents issued by the ppra was also among the weaknesses observed in the procurement of works using force account mechanism. the audit done by ppra (2019) revealed that solicitation documents used in the procurement of materials were not as per the issued guidelines; the documents missed necessary information relating to the tender; and the evaluation criteria provided in the solicitation document were ambiguous. in some instances, the required approvals as required by the ministerial guidelines, urts (2011, 2013 and 2016) were hardly obtained either from tender board or chief executive officer of the respective procuring entity. the observed incompliance defeat the good intentions of using force account since without compliance it was very likely that there were loopholes for transgressions with implications on cost and efficiency. 4. conclusion and recommendations effective application of force account in procurement of works requires preparedness in terms of resources and careful cost-benefit analysis in order to improve efficiency. thus, the expected outcomes (timely completion, cost optimisation and quality delivery) are not spontaneous but rather achieved through scrupulous processes. the implementation process calls for supervisory organs and committees’ commitment and accountability while avoiding conflicts of interest and collusions. however, the participants require rigorous trainings on force account undertakings in order to continue improving the practices and performance towards achieving value for money. the ministries have taken initiative to training but more is needed particularly at procuring entities without a wellstructured procurement institutional framework to oversee governance and implementation of force account processes. findings indicated that there is poor performance was attributed by the absence of a standardised force account guideline applicable throughout the country by the respective procuring entities. since the ppra has taken the initiatives to prepare the guidelines, it is recommended that once they become effective, adequate trainings and capacity building should be done accordingly so as to improve effectiveness and efficiency. the guidelines in particular will be instrumental for procurement through force account particularly at llgas in order to improve to be effectiveness and efficiency. as a result of incompliance, it is recommended that, there should be a compliance committee (apart from the conventional committees and organs) that will ensure compliance at every stage of the process. the committee members should be those with knowledge or well trained on public procurement and related laws, regulations and guidelines. among others, the committee will be responsible for verifying all payment claims before being approved by the chief executive officer in order to make sure all compliance issues are intact and the submitted claims are genuine to avoid frauds and possible collusions. references france, o. (2019). implementation of force account: concept, procedures, success and challenges. paper presented in the procurement and supplies professionals and technicians board (psptb) annual conference at dodoma from 3rd to 5th december, 2019. kolb, s. (2012). grounded theory and the constant comparative method: valid research strategies for educators. journal of emerging trends in educational research and policy studies, 3 (1), 83-86. mbabazi, f. and mugurusi, g. (2018). adoption of force account mechanism in road maintenance works’ procurements: stakeholders’ opinions in uganda. proceeding of the international public procurement conference held at arusha international conference centre, arusha-tanzania from 8th to 10th august 2018. ministry of education, science and technology (2018). permanent secretary emphasises the use of force account in folk development colleges. retrieved online from http://www.moe.go.tz/sw/component/k2/item/1554katibu-mkuu-akwilapo-asisitiza-matumizi-ya-force-akaunti-kwa-fdcs.html applicability of force account approach in procurement of works in tanzania 143 organisation for economic co-operation and development (2009). principles for integrity in public procurement. retrieved on march,16, 2020 fromhttps://www.oecd.org/gov/ethics/48994520.pdf paez, a. (2017). grey literature: an important resource in systematic reviews. journal of evidence based medicine. 2017:1–8. https://doi.org/10.1111/jebm.12265 pappas, c. and williams, i. (2011). grey literature: its emerging importance. journal of hospital librarianship, 11(3), 228-234. doi: 10.1080/15323269.2011.587100 public procurement and disposal of public assets authority (2014). amendments to the public procurement and disposal of assets law: execution of works by force account. ppda, kampala. public procurement regulatory authority (2019). annual performance evaluation report for the financial year 2018/19. public procurement regulatory authority. satyanarayana, j. (2012). managing transformation: objectives to outcomes. new delhi: phi learning. valdovinos, v. and lorick, h. (2013). getting maintenance work done: in-house or by others. available online athttps://www.wateronline.com/doc/getting-maintenance-work-done-in-house-or-by-others-0001 united republic of tanzania (2011). public procurement act number of 2011. ministry of finance and planning, government printers. united republic of tanzania (2013). public procurement regulations of 2013. ministry of finance and planning, government printers. united republic of tanzania (2016). public procurement act amendments of 2016. ministry of finance and planning, government printers. journal of international trade, logistics and law, vol. 8, num. 2, 2022, 69-77 69 the role of co-operative societies in supply chain of agricultural products: a review of literature baraka israel college of business education, dar es salaam tanzania received: july 30, 2022 accepted: september 22, 2022 published: december 01, 2022 abstract: co-operative societies and the agricultural sector have emerged among the important activities that contribute significantly towards socioeconomic transformation in many countries. generally, the agricultural sector is dominated by smallholder farmers who depend on middlemen in supplying and marketing agricultural products due to the long marketing chain. this paper examines the role of co-operative societies in strengthening operations of the agricultural supply chain through an extensive literature review. the study reviewed and connected co-operatives’ activities with the operational requirements at each node of agricultural supply chain. to have the latest set of data, the study reviewed articles published between 2017-2021 with a focus on co-operative societies and agricultural supply chains. from the literature, the study revealed a significant role of co-operative societies in the supply chain of agricultural products. co-operatives provide operational, technical, financial and support services to agricultural supply chain actors. these include provision of agricultural inputs and loans to farmers, production, processing, transportation, storage and marketing of agricultural products. this study advances the body of knowledge by linking co-operative’s activities with the agricultural supply chain model and offers managerial implications to co-operatives societies, policymakers and agricultural supply chain actors. further research is needed to determine the challenges facing practical integration of co-operatives societies with agricultural supply chain. keywords: co-operative societies, agricultural supply chain, agricultural products 1. introduction the agricultural sector and co-operative movements play notable a role in socio-economic development in many governments and societies. integrating the agriculture sector with co-operatives activities paves the way towards agriculture sector transformation and development through improved access to agricultural inputs and markets, income enhancement and improved access to social services (kumburu and pande, 2020; mhagama et a., 2021). cooperative movements and the agriculture sector create wealth for the government and the public at large by offering employment, reducing poverty and ensuring sustainable food supply and security. evidence shows that about 67% of the global population are employed and depend on agriculture activities for their livelihood sustainability (ilo, 2019; world bank, 2019). moreover, about 80% of global farmers are smallholder farmers who own and operate an average of 1-5 acres and generate about 80% of the world’s food (mchopa et al., 2020; ilo, 2019). similarly, co-operative societies have revealed immersed impact in various sectors of the world’s economy. it is estimated that co-operative societies account for 3 million worldwide and employ about 10% of the global workforce in diverse sectors of the economy (ilo, 2019). the ilo (2019) and karakas (2019) define co-operative societies as autonomous groups of people who voluntarily join together with common purposes and objectives to meet socioeconomic needs and goals through democratically managed and owned associations. on african continents, cooperatives movement started early in the 1920s. the core objective of co-operatives societies on the african continent was to produce and process agricultural cash crops to meet the colonial demand (lyimo, 2012). the movement made a step forward in 1895 after the establishment of the international co-operative alliance (ica). the ica is a non-governmental and independent unit established for the purpose of uniting and serving cooperative societies worldwide. among others, ica provides a forum under which co-operative societies share knowledge, experience, expertise and co-ordinates actions to improve their operations across all sectors of the economy. baraka israel 70 as a result of these efforts, there have been some success stories in various countries pertaining to the co-operatives movement in various sectors of the economy. kenya has recorded up to 22,883 co-operative societies, being one of the countries with the highest number of co-operative societies in africa after nigeria and south africa (otieno, 2019; sdc, 2018). in kenya particular, dairy co-operatives have contributed substantial impact in terms of costeffective, timely delivery and reliable markets among dairy farmers and supply chain actors (bolton, 2019). moreover, experience shows that mali and ethiopia have achieved substantial improvement in the production, processing, distribution and marketing of better-quality cotton and coffee products through agricultural co-operative societies (ilo, 2019; bolton, 2019). co-operative movements have been viewed by policymakers as an important platform for the transformation of various sectors of the economy at local and global levels. the core objectives of supply chain are to ensure delivery of the right quantities and quality of goods or services to the ultimate customers at the possible minimum cost and time. the key objectives of agricultural supply chain extend to increased productivity and continued access to agricultural inputs and outputs at a better price (mhagama et al. 2021; rwekaza, 2018; anania et al. 2020). despite the stated objectives, the agricultural supply chain faces several complexities that impede its efficient operations and realisation of its goals. shirima (2021), hong et al. (2021) and nade (2020) spotted limited access to the markets, agricultural inputs, low productivity and low value of agricultural products as the major contemporary issues along the supply chain of agricultural products. these issues face all agricultural supply chain actors including farmers, processors, distributors and retailers. evidence shows that only 35% of agricultural products have access to reliable markets and about 98% are sold through informal marketing channels. moreover, less than 10% of farmers have access to reliable agricultural inputs and financial services (urt, 2018; world bank, 2019). anania et al. (2020) and msuya (2020) connected the barriers that impede the agricultural supply chain with financial constraints and lack of formal platforms that link and integrate the agricultural supply chain with other sectors of the economy. certainly, there is no clear understanding of the role of co-operative societies in the supply chain of agricultural products among scholars, policymakers and researchers. this creates little understanding of the subject matter. previous studies have focused on discussing and addressing the role of co-operative movements in poverty reduction (hong et al., 2021; kazungu and machimu, 2021; msuya, 2020), co-operatives challenges and benefits (anania et al., 2020; katundu, 2018), functional roles and performance co-operative societies (kumburu and pande 2020; shirima, 2021). the pertinent question in this study is, what role do co-operative societies play in the supply chain of agricultural products? it is from this base; this study enriches the literature by examining the role of different types of co-operative societies in enhancing sustainable operations of the agricultural supply chain. practically, this study provides policy insight in reviewing and re-forming the position co-operative societies in the agricultural supply chain in tanzania’s economic setting. 1.1. trends and types of co-operatives movements in tanzania like in other african countries, the co-operative movement in tanzania started in the 1920s with a similar objective and purpose, that is producing and processing cash crops for export to fulfil colonial demand (lyimo, 2012; anania et al. 2020). to date, the focus of the co-operatives has been diversified from cash crops to food crops and financial co-operatives. until 2021, tanzania had 9,678 co-operative societies operating in various sectors of the economy including in agriculture industry, trade, transport and communication, insurance, fishing, livestock, financial and health services (tcdc, 2021). the common types of co-operatives that are active in tanzania are savings and credits co-operative societies (saccos), agricultural marketing and co-operative societies (amcos), livestock cooperatives, fishing co-operatives, consumer co-operatives, industrial co-operatives, transport co-operatives, service co-operatives and mining co-operatives. table 1 presents the types and trends of co-operative societies for the last five years (2017-2021). saccos and amcos form a substantially large number of co-operative societies in tanzania compared to other types of co-operative societies. the express functions of co-operatives are determined by the objectives and the policies set forth by their members (hong et al., 2021; msuya, 2020). for example, credit co-operatives provide financial services to their members while agricultural co-operatives produce, process, distribute and market agricultural products. the core objective of consumer co-operatives is to purchase higher quality products and services at the least cost on behalf of their member or other customers. nevertheless, transport co-operatives deal with the physical distribution of goods. to ensure sustainable co-operative movements, the tanzania co-operative the role of co-operative societies in supply chain of agricultural products: a review of literature 71 society act (2013) mandates the tanzania co-operative development commission (tcdc) the role to monitor, develop, regulate and promote co-operative societies and their activities in tanzania. table 1: trends of co-operative societies by sector in tanzania types of co-operatives year 2017 2018 2019 2020 2021 saccos 5640 5918 4,770 6,178 3,946 amcos 3403 3413 2105 3,835 4,538 beekeeping 57 56 20 56 57 livestock 214 217 181 238 200 consumer co-operatives 113 137 7 98 67 industry 120 118 11 91 46 housing 27 33 4 31 110 irrigation 80 78 15 82 95 mining 202 208 81 98 186 fishing 86 94 615 121 110 service 179 196 41 121 189 transport 30 24 11 17 22 others 314 361 15 566 112 total 10465 10853 7876 11,532 9,678 source: tanzania co-operative development commission (2021). 1.2. agricultural supply chain supply chain is a set of activities linked upstream and downstream involved in the flow of goods, funds and information from the producer to the ultimate customer (matopolous et al., 2007; zhang et al., 2021). for the purpose of this study, supply chain refers to the network and interconnected activities and parties involved to facilitate efficient flow of agricultural products from the farmers to the end-users. the agricultural supply chain is linked by a network of inputs suppliers, farmers, collectors, processors, wholesalers, distributors, retailers and customers. mostly, the agricultural supply chain is involved by a number of intermediaries acting between the customers and farmers. the agricultural supply chain strives toward delivering the right quality and quantities of the products within the right time and at a reasonable cost from the producer to the ultimate customers (zhang et al., 2021). the need to minimise overall supply chain operational cost, keep customers satisfied and maximise profit along the agricultural supply chain also form an integral part of supply chain objectives. one of the critical problems that impede the express objectives along the supply chain of the agricultural product is the long marketing and distribution channel. basically, farmers depend on supply chain intermediaries in collecting, marketing and distributing agricultural products from the farm to market or to the final consumers. the major deficiencies associated with the use of intermediaries along the supply chain of agricultural products are unfair dealing with farmers, delays in delivery, high supply cost to customers and lack of supply chain control (anania et al., 2020; ilo, 2019). usually, intermediaries purchase agricultural products at very low prices from farmers and sell the same at a higher price to the customers. since many intermediaries are involved, the chain generates less return to farmers and high prices for consumers. heavily depending on intermediaries along the supply chain of agricultural products is connected with farmers’ inability to transport agricultural products from the farm to the market due to long distances and high transport costs (msuya, 2020; nade, 2020; shirima, 2021). inefficient storage facilities, knowledge gaps and financial problems also impede farmers from processing, marketing and distributing agricultural products directly to the customers. knowledge gaps stem from lack of access to market information which is essential for effective operations of agricultural supply chain (otieno, 2019; rwekaza and anania, 2021). baraka israel 72 figure 1: agricultural supply chain network: adopted and modified from matopolous et al. (2007). integrating co-operative activities with agricultural activities reduces intermediaries’ role along the supply chain of agricultural products. this is due to the fact that co-operatives serve the functional role of intermediaries along the agricultural supply chain. supply chain activities, which on the other hand are co-operatives’ activities include the supply of agricultural inputs, production or farming, processing, storage and distribution of agricultural products to the final customers. having the co-operative societies in place helps in eliminating the deficiencies caused by intermediaries and returns the profit accrued along the supply chain back to the members. co-operative societies provide a platform for technical and financial support services and provide access to transportation, agricultural inputs and market information along the supply chain of agricultural products (kingu and ndiege, 2018; shirima, 2021; zhang et al., 2021). 2. methodology there has been a substantial body of knowledge on the subject matter pertaining to operations and the functional role of co-operative societies in various sectors of the economy with little focus on the agricultural supply chain. in a view of this knowledge of the co-operative’s movement, this study conducted an extensive literature review to examine the role of co-operative societies in the supply chain of agricultural products in tanzania’s economic setting. in order to obtain quality and recent data, the study reviewed the most recent research articles published in quality journals in the last five years (2018-2022) with a focus on co-operatives studies in tanzania. grey kind of literatures were not considered. data less than five years after publication are deemed most current and relevant for presentation, discussion and making an inference. it is from this base; twelve (12) articles with a specific focus on cooperatives societies in tanzania context being published in the specified time frame (2018-2022) (see table 2) were retrieved and reviewed. from the reviewed 12 articles, the study managed to spot eleven (11) roles of co-operative societies in the supply chain of agricultural products (see tables 2 and 3). articles reviewed under this study were accessed through google scholar using the advanced search engine. this database was preferred since it is easily accessible and is connected to various research publishers and databases. the keywords used to search and retrieve the articles for review were “co-operatives” or “co-operative societies” or “co-operatives’ role” or “co-operatives’ functions” or “co-operative model” or “co-operative movements” and “supply chain” or “agricultural supply chain” and “tanzania”. the identified eleven (11) co-operatives’ roles were tabulated and analysed using descriptive statistics (frequencies and percentages). each role was counted and assigned a frequency based on its mentions in the articles reviewed. the total frequencies for each role were divided by the total number of reviewed articles (12) before being multiplied by 100% to determine the significant role. the role that scores at least 50% was considered significant in strengthening the operation of the agricultural supply chain (mohammed et al., 2013). input suppliers wholesalers retailers processors stand for distributors/collectors f a r m e r s c u s t o m e r s the role of co-operative societies in supply chain of agricultural products: a review of literature 73 3. findings this study ascertained the role of different types of co-operative societies in fostering an efficient supply chain of agricultural products in tanzania’s context by reviewing different sources of literature. from the reviewed literature, the study revealed multifunctional roles of co-operative societies in the supply chain of agricultural products in urban and rural areas. based on the study focus, the study findings spotted 11 significant roles of co-operative societies in enhancing the efficient supply chain of agricultural products as summarised and presented in tables 2 & 3 and in figure 1. table 2: empirical literature on co-operatives’ role in agricultural supply chain author(s) 1 2 3 4 5 6 7 8 9 10 11 sa i pap map cm i cb s pr c pk g tp d sd t cf s pg s shirima, (2021) √ √ √ √ √ √ √ √ √ rwekaza, (2018). √ √ √ hong et al. (2021) √ √ √ √ √ √ kingu & ndiege, (2018) √ √ √ √ √ kazungu & machimu, (2021) √ √ √ √ √ √ √ √ √ √ rwekaza & anania, (2021) √ √ kumburu & pande, (2020) √ √ √ nade, (2020) √ √ √ √ √ √ √ √ mhagama et al. (2021) √ √ √ √ √ √ √ katundu, (2018) √ √ √ √ msuya, (2020) √ √ √ √ √ √ √ anania et al. (2020) √ √ √ √ √ √ √ √ √ √ legends: sai = supply of agricultural inputs, pap = production of agricultural products, map = marketing of agricultural products, cmi = centre for market information, cbs = capacity building to smallholder farmers, prc = processing of agricultural products, pgs = packaging and storage, tpd = transportation and distribution, sdt = safety during transportation, cfs = credit facilities and financial services and psa = purchasing and selling agency. marketing, transportation and distribution of agricultural products were revealed as the most significant role played by the co-operative societies in the supply of agricultural products. the marketing role of co-operative societies is undertaken by amcos where agricultural products are produced, processed and marketed directly to customers or through wholesalers and retailers in domestic or global markets. in line with this finding, shirima (2021), anania et al. (2020) and mhagama et al. (2021) asserted that amcos solicit markets and links its members to reliable and stable markets. on the other hand, transport co-operatives play a significant role in the supply chain of agricultural products by offering logistics and transportation services. transport co-operatives help in moving agricultural products from the producers to the ultimate customers as one of the important activities of the supply chain (sdc, 2018; msuya, 2020; rwekaza, 2018). with its role, transport co-operatives’ systems enhance the safe and timely delivery of agricultural products along its chain. the study highlighted significant role of co-operative societies in enhancing production and supply of agricultural products. producers’ co-operatives help farmers integrate supply chain activities, pull together their resources and operate jointly in production and supply of the identified agricultural products (kingu and ndiege, 2018; kazungu and machimu, 2021; anania et al. 2020). these will in turn help in meeting the express objectives of agricultural supply chain objectives by reducing production cost, increasing production, members’ income and customer service level. baraka israel 74 table 3: frequencies of co-operatives’ role in the supply chain of agricultural products sn. perceived roles of co-operative societies no. of literature cited the role percent (%) ranking 1 supply of agricultural inputs to smallholders 7 58.30** 4 2 production of agricultural products 8 66.70** 3 3 marketing of agricultural products 9 75.00** 1 4 centre for market information 7 58.30** 4 5 foster capacity building to smallholders 4 33.30 10 6 processing of agricultural products 6 50.00** 5 7 packaging and storage of agricultural products 6 50.00** 5 8 transportation and distribution of goods 9 75.00** 1 9 measures to ensure safety during transportation 3 25.00 11 10 offer credit facilities and financial services to farmers 7 58.30** 4 11 act as purchasing and selling agency 5 42.00 6 legend: ** indicates significant role source: literature review (2022). co-operatives play a significant role in the timely and adequate availability of agricultural inputs to smallholders as one of the express objectives of the agricultural supply chain. this is in line with kazungu and machimu’s (2021) and msuya’s (2020) findings who asserted that co-operatives provide farmers with a better link to agricultural inputs such as seeds, fertilizers and equipment. increased access to agricultural supplies through co-operatives eliminates the deficiencies caused by supply chain intermediaries and guarantees reliable and quality inputs at economic purchasing cost. one of the critical issues that face a traditional supply chain of agricultural products is the problem of information distortion. to uncover this problem, this study revealed and asserts that co-operative societies serve as a hub for market information along the supply chain of agricultural products. in line with shirima (2021), kumburu and pande (2020) and nade’s (2020) findings, this study regards co-operative societies as a modern platform where supply chain information pertaining to sources of agricultural inputs, market opportunities, price and finances are shared among customers, retailers, distributors and producers. the study further revealed a significant role of cooperatives, specifically saccos in offering credit facilities and financial services along the supply chain of agricultural products. msuya (2020) reported saccos as the most significant form of the financial institution available in rural tanzania that provides loans that support smallholder farmers in purchasing agricultural inputs, finance production, transportation and marketing activities of agricultural products. the role of co-operative societies in supply chain of agricultural products: a review of literature 75 figure 2: percentages of co-operatives’ role in the supply chain of agricultural products source: literature review (2022). the study revealed a significant role of co-operative societies in processing and value addition of agricultural products. co-operative societies such as amcos, beekeeping, livestock, industry, mining and fishing produce agricultural products, sort and process them to add value before being packed, stored in a conducive environment and distributed to the customers. this finding concurs with hong’s et al. (2021), kingu and ndiege’s (2018) and anania’s et al. (2020) findings who reported processing, packaging and storage of agricultural products as one of the functional roles undertaken by agricultural and industry co-operatives, which on the other hand are an integral part of supply chain activities. despite being insignificant, the study found that co-operative societies extend training and capacity-building initiatives to agricultural supply chain actors. producers, wholesalers and retailers of agricultural products use co-operative societies to enhance their production and operational capacities, marketing skills and postharvest management techniques through seminars and workshops (shirima, 2021; rwekaza and anania, 2021; nade, 2020). nevertheless, co-operative societies, specifically consumer co-operatives serve an important role in purchasing and selling agricultural products. acting as purchasing and selling agency, consumer co-operatives procure quality goods and services from suppliers at the lowest cost on behalf of customers. by so doing, consumer co-operatives eliminate the exploitation nature of intermediaries along the supply chain of agricultural products, link customers with suppliers and foster timely delivery. 4. conclusion and recommendations this study discussed the role of co-operative societies in the supply chain of agricultural products through an extensive literature review in tanzania’s context. the review spotted different types of co-operative societies that perform different functions in different sectors of the economy. these range from financial co-operatives (saccos), agricultural co-operatives (amcos), transport co-operatives, fishing co-operatives, livestock cooperatives and consumers co-operatives, among others. the study found and concludes that co-operative societies are important platforms with significant roles in the supply chain of agricultural products. co-operative societies perform essential activities along the supply chain of agricultural products towards achieving cost-effective, timely delivery and customer satisfaction. these include production, processing, packaging, storage, distribution, transportation and marketing of supply agricultural products. nevertheless, co-operative societies provide opportunities for smallholder farmers to easily access agricultural inputs, market information, capacity building, 58,30% 66,70% 75% 58,30% 33,30% 50% 50% 75% 25% 58,30% 42% supply of agricultural inputs to smallholders production of agricultural products marketing of agricultural products centre for market information foster capacity building to smallholders processing of agricultural products packaging and storage of agricultural products transportation and distribution of goods take measures to ensure safety during… offers credit facilities and financial services to… act as purchasing and selling agency percentages baraka israel 76 financial loans and facilities. based on the study’s findings, the study recommends the need for practical integration of agricultural sector with co-operative societies. these might include forming horizontal integration between cooperative societies, farmers, wholesalers and retailers. to agricultural extension officers, the study calls for regular training among agricultural supply chain actors on the realised role and the perceived benefits of co-operative societies in the agricultural sector. nevertheless, farmers, wholesalers and retailers can choose to improve supply chain performance by choosing to join their efforts in producing, processing, transporting and marketing agricultural products through co-operative societies. 5. limitations of the study and future research the major limitation of this study is that it is confined only to the role of co-operative societies in the supply chain of agricultural products in tanzania’s context. other factors that affect the supply chain of agricultural products were not addressed. therefore, the findings of this study should neither be generalised elsewhere nor regard other factors than co-operatives in nature. however, further research is needed to address the following issues: (1) determine the challenges facing practical integration of co-operative societies with the agricultural supply chain, (2) address other factors than co-operatives that affect the supply chain of agricultural products and (3) examine the role co-operatives in the supply chain of services. this will enrich the literature on the understanding of different aspects affecting different types of supply chains. references anania, p., rwekaza, c., and bamanyisa, j. (2020). socio-economic benefits of agricultural marketing co-operatives and their challenges: evidence from selected cases in moshi district council, tanzania. rural development and rural studies. 30(1): 97-146. bolton, l. (2019). economic impact of farming cooperatives in east africa. brighton, uk: institute of development studies. hong, z., benjamin, a., and miao, w. (2021). the contribution of co-operative irrigation scheme to poverty reduction in tanzania. journal of integrative agriculture. 20(4): 953–963. ilo, (2019). towards a better understanding of the role of co-operatives in the ready-made garment supply chain. international labour office: geneva, switzerland. lyimo, f. f. (2012). rural cooperation: in the cooperative movement in tanzania. mkuki na nyota publishers ltd. dar es salaam: tanzania. karakas, c. (2019). co-operatives: characteristics, activities, status, challenges. european parliamentary research service: strasbourg, france. katundu, m. (2018). the role of co-operative organizations in tanzania’s industrialization. financing sustainable development in africa. 8(2): 397–420. kazungu, i., and machimu, g. (2021). book review co-operative organisations for rural development: organisational and management aspects. journal of co-operative and business studies. 6(1): 218-222. kingu, d., and ndiege, b. (2018). empowering small-scale dairy farmers through the cooperatives model. journal of co-operative and business studies. 2(1):1-12. kumburu, p., and pande, v. (2020). rural transformation through savings and credit cooperative societies in moshi district, tanzania: the palgrave handbook of agricultural and rural development in africa. palgrave macmillan: cham, denmark. matopolous, a., vlachopoulou, m., manthou, v., and manos, b. (2007). a conceptual framework for supply chain collaboration: empirical evidence from agribusiness food industry. supply chain management: international journal, 12(3),177–186. mchopa, a., jeckoniah, j. n., israel, b. & changalima, i. a. (2020). socio-economic determinants of participation in sunflower value chain among smallholder farmers in iramba district tanzania. east african journal of social and applied sciences, 2(2): 105-114. mhagama, j. k., mmasa, j. j., and ismail, i. j. (2021). marketing services for choice of market channels among sesame smallholder farmers in tanzania: the moderating effect of agricultural marketing cooperative societies. east african journal of social and applied sciences. 3(1). 151-159. the role of co-operative societies in supply chain of agricultural products: a review of literature 77 mohammed, j.a., almsafir, m.k. and alnaser, a.s.m. (2013). the factors that affect ecommerce adoption in small and medium enterprises: a review. australian journal of basic and applied sciences, 7(10): 400412. msuya, r. (2020). savings and credit co-operative societies’ impact on poverty reduction in rural tanzania: the case of mwanza and tabora regions. journal of co-operative and business studies (jcbs). 5(2): 1-7. nade, p. (2020). enabling environment for financial co-operatives in rural tanzania: beyond co-operative principles. journal of co-operative and business studies. 5(2): 8-18. otieno, s. (2019). the role of cooperatives in social and economic development of kenya and actions required to accelerate growth and development of the sector in africa. cooperative alliance of kenya: nairobi, kenya. rwekaza, c., and anania, p. (2021). promoting micro, small and medium business enterprises by integrating the co-operative and cluster development models. journal of cooperative and business studies. 6(1): 1-17. sdc, (2018). draft model by-laws for transport co-operatives. ministry of industry, trade and co-operatives. state department for co-operatives: nairobi, kenya. shirima, v. (2021). performance of primary agricultural marketing co-operatives in rombo district tanzania: application of financial and non-financial measures. journal of cooperative and business studies. 6(2): 2837. tcdc, (2021). co-operative statistical bulletin for the quarter ending september, 2021. the tanzania cooperative development commission: dodoma, tanzania. united republic of tanzania, (2018). 2016/17 annual agriculture sample survey crop and livestock report. ministry of agriculture: dodoma, tanzania. zhang, j., luo, j., and li, j. (2021). agricultural co-operatives participating in supply chain integration in china: a qualitative comparative analysis. plos one. 16(4): 1-19. world bank, (2019). united republic of tanzania: world bank crop production index. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 176-181 176 evaluation of covid-19 pandemic from an economic perspective fulya taşel maltepe university, turkey received: 01 nov, 2020 accepted: 09 dec, 2020 published: 10 dec, 2020 abstract: the aim of this study is to analyze the effects of covid-19 which is classified as a global pandemic by world health organization (who) on march 2020. the novel coronavirüs (covid-19) pandemic affect all the economies and societies in a negative way due to the high rate of spread all over the world. because of the increasing number of infected people, governments are trying to implement some restrictive policies to avoid the spread of the virus. some of these practices may be in the form of regulation of working conditions, urban transportation, lockdowns etc.. the purpose of these restrictive policies is to try to reduce the spread of the virus with social distance applications. during the pandemic process, many economic effects occurred, such as the difficulties in international trade, imbalances in supply and demand, the impact of supply chains and fluctuations in the financial markets. in this study, it is aimed to evaluate the covid-19 pandemic from an economic perspective. keywords: covid-19, pandemic, economics 1. introduction the novel coronavirus (covid-19) outbreak, which began in december 2019 has significantly impacted many countries and economies dramatically. because of the increasing number of infected cases and the speed of spreading to several countries, governments are trying to take preventing actions. to isolate the cases and limit the transmission rate of the virus, governments are implementing a variety of policies and rules. because of the severity of the conditions, governments are trying to balance the policies related with health and economic issues together. global pandemics may have important effects on economic factors. therefore, the potential effects of the pandemics and the actions taken to prevent the spread of the virus should be evaluated multi-dimensional. some of the actions that governments are taken related to social distancing are about the schools, shopping malls, offices, airports and train stations etc. due to the severity of the pandemics, sometimes governments are taking the decision of lockdown. on the other side during the pandemic period, because of the transportation difficulties international trade operations were also affected. therefore, supply and demand imbalances were happened. hence some sectors were affected too much because of the supply chain interruptions. the most important factor to be considered related with the covid-19 is obviously the health of the population and the health industry. on the other hand during the covid-19 pandemic, various costs can come to the fore and may have significant economic impacts. for example, it is possible to list many cost factors such as the effect of the treatment processes of infected people on the health system, decrease in employment productivity, social distancing practices that affect economic activity, the impact on tourism and reduced foreign investment etc. furthermore, many other studies highlight the significant effects of the novel coronavirus (covid-19) on global capital markets. some researches point out the behaviors of the investors and how they reduce their investment intention and risk taking during the pandemic. therefore, global pandemics can have significant effects on economic activities. in this context, many effects of the covid-19 pandemic on both businesses and individuals should be observed from different sides. evaluation of covid-19 pandemic from an economic perspective 177 2. general impact of covid-19 pandemic on economies on the 11th of march 2020, the world health organization declared a global pandemic named covid-19. the cases spread rapidly all over the world. due to the globalization and movement of people the covid-19 pandemic spread itself unprecedented way (filho, 2020). to isolate the cases and limit the transmission rate of the virus governments are implementing a variety of rules and actions (ibn-mohammed et al., 2021). during this period both developed and developing nations are being affected (filho, 2020). in this period, governments face various difficulties in developing the most appropriate solutions for both health and economic policies in the process of combating the covid-19 pandemic. governments have sought a balanced decision between health and economic goals for the covid-19 outbreak. while the implementation of a restrictive policy that prevents the spread of the coronavirus pandemic increases the depth of recession and financial instability, on the other hand, a restrictive measure can be an important factor in achieving the extremely important and fundamental goal of saving human life (wielechowski, et al., 2020). the new coronavirus (covid-19) outbreak has significantly impacted healthcare. the country's economies, many industries, transportation industry and many other areas have been seriously affected. as a result of quarantine practices, the mobility of people has declined drastically, resulting in a weakening of spending power and a stagnant economy. the covid-19 pandemic has caused the economy at the macro level to be the worst global recession since 1930 (shen, et al., 2020). some studies indicated that the global economy is expected to shrink much more for 2020 than the 2008-2009 financial crisis. in addition, as the manufacturing sector is significantly affected on the supply side, this will affect other sectors and cause the supply of goods to decrease. at the same time this situation will cause the demand side to be negatively affected to a great extent and it will lead to a recession (kashyap & raghuvanshi, 2020). 2.1. economic impact global epidemics can have significant effects on economic activities. in this context, many effects of the covid-19 pandemic on both businesses and individuals are observed on national and international scale. there are various researches about the initial effects of the pandemic such as supply and demand, consumption, services, finance and investments. for example, due to the social distance measures taken, there may be a decrease in the consumption and purchasing activities of the individuals. some activities such as tourism may be interrupted during the pandemic period. in addition, activities requiring human interaction, including schools, shopping malls, offices, airports and train stations, may be disrupted. such a situation has caused many people to need internet and internet-based services for communication and interaction, and to continue their work responsibilities from their home (de, pandey, & pal, 2020). covid-19 pandemic can have two effects on both supply and demand sides. during covid-19 pandemic times, companies, especially in the field of consumption, may face changing behaviors of customers and marketing channels. in the early days of the covid-19 period, there was an increase in consumption demand due to stocking. however, with the pandemic, both the dynamics of demand, consumption and purchasing behavior have changed (ceylan, et al., 2020). the global covid-19 pandemic has led to changes in people's behavior. the usage of digital products increased, the physical interaction and mobility is decreased (barouki et al., 2021). to reduce the physical distance, governments sometimes take the decision of lockdown. because of the lockdown decisions and social distancing rules, many of the sectors and industries are affected. for example services sector, travel and tourism industry, catering and leisure affected importantly (ceylan, et al., 2020). during the pandemic period because of the transportation difficulties, international trade operations were affected. so that supply and demand imbalances were happened. hence some sectors were affected too much during covid-19 pandemic. since the demand for products that are needed significantly in daily life conditions is high, the effect can be seen more intense and faster. while the manufacturers of these products may face a sudden increase in demand for such essential products, some businesses could face a significant shortage of raw materials during the pandemic period (paul & chowdhury, 2020). moreover, due to globally interconnected economic relationships, the worldwide pandemic is making supply chains more complex. hence from the economic perspective, there is a great disequilibrium between supply and demand of commodities (ibn-mohammed et al., 2021). fulya taşel 178 also the 1918 pandemic caused labor shortage and labor immobility thus disrupted the economic development and food supply (ben-xi & zhang, 2020). on the other side karlsson et al. stated that the 1918 flu pandemic represents a significant supply shock and has an important effect on labor supply due to its power and randomness (karlsson, et al., 2014). the international labour organization (ilo) stated that, because of the covid-19 pandemic the number of job losses will increase more, compared to the 2008-2009 global financial crises (ilo, 2020). due to the rise in unemployment rate will cause the income reduction of employees and therefore there will be a decrease in the consumption of goods and services (almeida & santos, 2020). therefore it can be said that there are various effects of pandemies for different subjects. the spread of the novel coronavirus (covid-19) in early 2020 has significantly impacted many countries and economies (qiu, jiang, liu, chen, & yuan, 2020). during the covid-19 pandemic period, various costs come to the fore, creating a significant impact on economic context. these costs include the effects and costs of medical treatment of individuals infected by the virus on the health system, the effects of non-epidemic diseases on the health system, the spread of the virus and the costs undertaken to control the epidemic, the decrease in productivity in employment, the economic effects of social distance restrictions, the tourism sector being affected by the epidemic and decrease in investments etc. it is possible to list various cost factors related with different sides (goodell, 2020). imf changed its global economic growth estimation from 3.3% to -3% in its april world economic outlook 2020. this makes the covid-19 pandemic a global economic crisis which was not happened this much since the great depression (ibn-mohammed et al, 2021). in world economic outlook update june 2020 report imf projected the global growth as -4.9% in 2020, which is 1.9 percentage points below the april 2020. during the pandemic period imf is providing financial assistance and debt service relief to member countries who are facing negative economic impact of the covid-19 pandemic (imf, 2020). another important challenge with covid-19 is to balance the reduced economic activity when controlling the spread of the disease. economies are trying to minimize the economic effects of various restrictions and quarantines applied under social distance rules and tries to restore economic activity (barouki et al., 2021). social distancing practices such as the imposition of various restrictions on public transport, decisions for schools and distance education alternatives are examples of attempts to reduce the rate of normal contact between people. economics has a clear role in matching incentives for health and social well-being with macro-level outcomes through micro-level behaviors (fenichel, 2013). each pandemic may have a different structure in itself. for this reason, the policies that can be implemented to control pandemics often differ. in order to take appropriate precautions for the covid-19 pandemic, it is aimed to reduce the spread of the virus by taking measures such as the isolation of individuals and travel restrictions (tisdell, 2020). one of the studies from another dimension of covid-19 is about the students. aucejo et al emphasized that there are various uncertainties in the process that students experience regarding financial and health shocks during the pandemic. students are faced with an increasingly uncertain environment regarding that the pandemic period may have affected their academic performance, educational plans and their academic efforts. in particular, they worry about not being able to complete their studies, having lack of resources, or serious illness (aucejo, et al., 2020). the existence of highly contagious diseases such as covid-19, which has become pandemic, creates serious health and economic problems. the world population is gradually increasing and has become increasingly urbanized. people mostly live in large cities. besides this, the mobility of people in all geographies is also increasing. these factors facilitate the emergence and spread of new infectious diseases (tisdell, 2020). 2.2. financial impact the new coronavirus (covid-19), spread to the world very quickly and had unprecedented effects on daily life and economy. the epidemic has brought public authorities, investors and the whole public realized that natural disasters can cause economic damage on a previously unknown scale. while there are studies on the effects of the pandemic on the stock market and the opportunity to observe the behavior of households spending, there is not much information yet on its impact on the retail industry and its investors (ortmann, pelster, & wengerek, 2020). there are two possible arguments about why investors change their behaviors about their investment decisions. the first one is covid-19 pandemic which can be considered as an external shock that has severe effects on daily life, the second one is it creates anxiety and fear in society and causes uncertainty on economics (ortmann, et al., 2020). besides, uncertainty plays an important role in economic fluctuations (choi, 2020). evaluation of covid-19 pandemic from an economic perspective 179 as the virus began to spread around the world, the impact on governments, public institutions, industries and firms became more prominent, and many countries became inactive due to the closing of borders and lockdowns which results an increased level of uncertainty at both the industry level and the firm level (sharma, et al., 2020). the ones who are more exposed to the covid-19 pandemic, they are more anxious to invest. especially in this period, they are less willing to make risky investments and they have more pessimistic expectations about the economy. therefore, the investors reduce their investment intention and risk taking. due to the uncertainty about the pandemic, news, press articles, expert opinions and media reports show a fragmented image for the future of the economic development and so the optimal investment and portfolio strategies. it is possible to say that covid-19 pandemic caused significant decreases in financial markets worldwide and increased financial market risks (ortmann, et al., 2020). avoiding investment behavior can result from financial anxiety, and in addition to this condition, anxiety can also affect individuals' propensity to take risks (talwar, et al., 2021). for instance, many studies have highlighted the serious impact of the novel coronavirus (covid-19) on global capital markets (qiu, jiang, liu, chen, & yuan, 2020). it led to decreases in stock prices, increase in volatility, decreases in nominal interest rates and contractions in real economic activity, which were reflected in real gdp, especially throughout the world. in addition, the increase in uncertainties regarding the course of the epidemic has led to uncertainties regarding the scale of the epidemic (barro, ursúa, & weng, 2020). some of the researchers considered psychological factors as another factor affecting the financial behavior of individuals. studies conducted in this context have emphasized that psychological factors play a key role in shaping individuals' financial behavior and emphasized the importance of examining these factors comprehensively. in times of pandemic such as covid-19, which has significant effects around the world, financial attitude becomes even more important. on the other hand, examining the investment behavior of retail investors is also among the critical issues (talwar, et al., 2021). 6. conclusions the novel coronavirus (covid-19) outbreak, which began in december 2019 and which is classified as a global pandemic by world health organization (who) on march 2020 has several impacts firstly on health, the health system and many other effects on economic issues. the economic impact of covid-19 may be seen initially on consumption, services, finance and investments. because of the lockdown decisions and social distancing rules many of the sectors and industries are affected. for example, catering, travel, services sector, tourism and leisure are affected importantly. in addition, because that the manufacturing sector is significantly affected on the supply side, this will affect other sectors and cause the supply of goods to decrease. while this situation will cause the demand side to be negatively affected to a great extent, it will lead to a recession. besides international trade and economics are also affected because of the transportation difficulties and supply chain interruptions during the pandemic period. on the other side there are many studies that point out the impact of the novel coronavirus (covid-19) on global capital markets. it led to decreases in stock prices, increase in volatility, decreases in nominal interest rates and contractions in real economic activity, which were reflected in real gdp, especially throughout the world. in addition to its economic threats and impacts, it has also created various opportunities for many different sectors. in particular, it accelerated the digitalization brought by industry 4.0 and created different effects in areas such as e-commerce. in this period, effective supply chain management has become even more prominent. in this manner, for future studies many effects of the covid-19 pandemic on both businesses and individuals should be observed from different sides using empirical analysis. references almeida, f. & santos, j. d., 2020. the effects of covid-19 on job security and unemployment in portugal. international journal of sociology and social policy, 40(9), pp. 995-1003. aucejo, e. m., french, j., araya, m. p. u. & zafar, b., 2020. the impact of covid-19 on student experiences and expectations: evidence from a survey. journal of public economics. doi:https://doi.org/10.1016/j.jpubeco.2020.104271 fulya taşel 180 barouki, r. et al., 2021. the covid-19 pandemic and global environmental change: emerging research needs. environment international. doi:https://doi.org/10.1016/j.envint.2020.106272 barro, r. j., ursúa, j. f. & weng, j., 2020. the coronavirus and the great influenza pandemic: lessons from the “spanish flu” for the coronavirus’s potential effects on mortality and economic activity, nber working paper series. http://www.nber.org/papers/w26866 adresinden alındı ben-xi, l. & zhang, y. y., 2020. impact of the covid-19 pandemic on agricultural exports. journal of integrative agriculture, 19(12), pp. 2937-2945. ceylan, r. f., ozkan, b. & mulazimogullari, e., 2020. historical evidence for economic effects of covid 19. the european journal of health economics. doi:https://doi.org/10.1007/s10198-020-01206-8 choi, s.-y., 2020. industry volatility and economic uncertainty due to the covid-19 pandemic: evidence from wavelet coherence analysis. finance research letters, issue 37. de, r., pandey, n. & pal, a., 2020. impact of digital surge during covid-19 pandemic: a viewpoint on research and practice. international journal of information management, cilt 55. doi:https://doi.org/10.1016/j.ijinfomgt.2020.102171 fenichel, e. p., 2013. economic considerations for social distancing and behavioral based policies during an epidemic. journal of health economics, cilt 32, pp. 440-451. filho, w. l., 2020. covid-19, sustainable development and higher education: towards a recovery path. international journal of sustainability in higher education. doi:doi 10.1108/ijshe-10-2020-0364 goodell, j. w., 2020. covid-19 and finance: agendas for future research. finance research letters, cilt 35. doi:https://doi.org/10.1016/j.frl.2020.101512 ibn-mohammed, t. et al., 2021. a critical analysis of the impacts of covid-19 on the global economy and ecosystems and opportunities for circular economy strategies. resources, conservation & recycling, cilt 164. doi:https://doi.org/10.1016/j.resconrec.2020.105169 ilo, 2020. ilo. 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problem recognition, information search, choosing among alternatives, purchase decision and post-purchase behavior. it’s very important to understand of buying decision process for winning at zmot. the research indicated the effect of zero moment of truth (zmot) on customer purchase decision and delivers an explanatory research on smartphone in turkey. according to google, zmot is new added member for three-step process of stimulus, shelf (fmot) and experience (smot) (2011, google). first moment of truth (fmot) is consumer’s decision moment at shelf which brand to purchase and second moment of truth (smot) is the consumer faces at home whether products deliver on the brand promise defined by p&g (2006, annual report). zmot is the new and powerful step in these days, because consumers are searching online via smartphone or laptop before the purchase decision. in the next section literature review regarding buying decision process, stimuli and moments of truth are discussed. 2. literature review 2.1. buying decision process marketers studied many years to understand consumer buying process and finally it is a categorized as five steps, namely; diagnosis of the problem, seeking details, choosing among alternatives, buying decision and attitudes after the buying. it’s clearly seen that purchase process starts way before actual purchase and has outcomes long afterward (kotler, 2006). sometimes it can be skipped some of process, such as maybe consumer is satisfied with one product furkan bi̇çer 154 and buys it always, so there is no problem recognition or information search but still consumer may write online about the product or tell friends with face to face or via message, that is named word of mouth or/and electronic word of mouth. since it is possible to search online and after purchase to write a blog about the product, buying decision process should be examined prospect of zmot. it can be defined the steps of buying decision process as figure 1. figure 1. the buying decision process (maria, 2014). to achieve playing role at problem recognition phase, demographic factors should be taken into consideration included, age, sex, race, income, race, education status and marital status (kinnear, 1986). there are two types of demand which are primary and secondary. for primary demand, marketers encourage the customer experience the product or service ignoring of the brand they select such as when they first introduced. secondary demand is occurred only if primary demand is existing, and marketers try to convince consumer for best solution which is a specific brand’s product (pearson, 2006). consumers not always make search rationally, especially consumers who have low income make less external search even they will lose more when they made bad purchase compare to the wealthy ones (pearson, 2006). every purchase decision has some risks perceived by customer, in other term, there is a belief that product may has negative consequences. if the product of a brand is unfamiliar to consumer, perceived risk gets higher, so consumers tend to search more in that kind of situation (alexander, 2004). moreover, while each group of the search customers more likely to use many sources of information’(tulin and erdem, 2004). the number of brands which exist on consumer’s top of minds are varies product to product or for one product it varies country to country. for example, according to research, for autos category, american consumers have eight brands their top of minds to evaluation, and canadians have only two brands for average however canadians have seven beer brands in their top of minds while americans have three (hauser, 1990). in consumer’s top of mind there are many brand names and their qualifications and especially most liked one or most hated one. to understand the concept of alternatives evaluation, consumer’s thinking method which also can be seen on marketplace websites, is categorization should be known. according to jim lecinski, a classical zmot process would be like this, searching online for more information about the product, checking other consumers who had the product before, comments about the product and checking for coupons, offers, and discounts (google, 2012). the consumer has judgments and preferences towards different brands through an attribute evaluation procedure (hinsdale, il: dryden, 1973). kotler and keller (2006) expressed that customers assess products and services by incorporating their positive and negative brand beliefs according to significance and the expectancy-value model of attitude formation advances it. according to taylor, j. (1974) since consequences of a buying decision can be seen in the future, at purchasing moment, consumers are forced to decide in other words take risk, and a consumer's decision to adjust, postpone, or avoid a purchase decision is highly affected by perceived risk. those risks are defined by kotler and keller (2004) as: 1. functional risk the product expectation is not satisfied. 2. physical risk-the product may harmful to consumer’s health. 3. financial risk-price of the product is high to its value. the impact of zero moment of truth (zmot) on smartphone buying decision 155 4. social riskthe product can cause shameful by other people. 5. psychological riskthe product can be harmful to mental health well-being of the user. 6. time risk -unsatisfied product can cause an opportunity cost of finding another adequate product. it’s normal to expect that, buyer decision process ends at purchase decision phase. boulding. et al. (1993), spreng and dixon (1992), zeithaml et al. (1993) mentioned that predictive will be suppositions represent customer’s belief about the level of service to occur in consumer’s future contact with the brand. miller (1977) defined the expected standard as normal stems from past incidents with a product from a consumer’s perception of standard product quality. the assumed belief is based on averaged performance what the respondent feels performance will be (miller, 1977, p. 76). woodruff et al. (1983) mentioned those beliefs based on usual experience since they catch the ideal and realistic aspects of expectations. santos and boote (2003) mentioned that as well as attempting to manage prepurchase expectations, marketers should understand the nature of customer’s post-purchase affective states and resultant affective behavior. four post-purchase affective states have been suggested: delight, satisfaction (positive unimportance), acceptance (negative unimportance) and dissatisfaction. 2.2. moments of truth moment of truths are critical moments in which a brand encounter attracts, pleasures or indifferences potential consumers. procter & gamble noticed the crucial importance of three to seven seconds after a customer first encounters a store shelf. for this reason, they described this at the shelf decision moment as the first moment of truth (fmot) (nelson, ellison, 2005). löfgren et al. (2008) noted that at the moment of buying, or the fmot, the aim of the cover is to attract to consumers and works as a silent salesman that assists sell the product. as a marketing term, moment of truth is the incident when customers contact with a service, brand, or product to form an impression about that specific brand, service or product, it’s mentioned by ertemel and başçı (2015), ertemel and köksal (2017) and ertemel and peyk (2018). in the second moment of truth, products are used or consumed. according the löfgren (2005) the fmot is a used for defining consumer’s decision at moment of buying, however the second moment of truth defines the part of the consumption process that deals with use, handling, and actual consumption after purchase. the third moment of truth is that consumer's feedback or reaction towards a brand, product or service, consumer becomes brand advocate and gives back via word of mouth or social media publishing. the third moment is that powerful point where the product experience stimulates an emotion, curiosity, passion, or even anger to talk about the brand. according to moran et. al. (2014), by assisting the sharing of favorable consumer experience at third moment of truth, brands can exploit the network effects of social media marketing to build stronger, more sustainable customer-engagement relationships. figure 2. stimulus and moments of truth (moran et al., 2014). according to lecinski (2011), zmot is that moment when consumers use their laptop, smart phone or some other devices which can connect to internet and start learning about a product or service they are thinking about trying or furkan bi̇çer 156 buying. zmot is the moment when customer is exposed by stimuli, they immediately start searching for information about product or brand online via smartphones, tablets and computers. according to ertemel and başçı (2015), zmot’s primary defining features are:  zmot occurs in online habitat, for example search engines.  it occurs in real time, at any time of day and progressively on the go with smartphones when consumer is exposed by a stimulus. the conversation is occurring between consumers and experts, friends, strangers, brands and the purpose is getting attention by customer. it can be seen in the figure below that one customer’s experiences about product turns out to be another customer’s zmot. figure 3. stimulus, zmot, fmot and smot (lecinski, 2011). 2.3. word of mouth people are exposed massive amount of marketing messages and consumers are exposed these messages via tv channels, radio stations, magazines, newspapers, online advertisements (cakim, 2010). word of mouth is passing of information from person to person using oral communication. there is an argument about word of mouth which is spreading more when customer is dissatisfied or satisfied and anderson (1998) mentioned that extremely dissatisfied customers engage greater word of mouth than high-satisfied customers. marketers should be careful about satisfaction level of consumers but they should be more careful about dissatisfaction level of customers. thanks to internet and technology, word of mouth still active and powerful at online medium. gremler et al. (2004) mentioned that, internet makes possible consumers to share their ideas about products, brands and services, through web-based consumer opinion platforms, and this is how electronic word of mouth (ewom) exist. since internet has developed, consumers can reach unbiased information about product from other consumers and it also enables to consumers can share their experiences and satisfaction level after purchase, so it can be seen that consumers engage with electronic word of mouth both ways which they exploit from it and contribute to it. smartphone market in turkey the impact of zero moment of truth (zmot) on smartphone buying decision 157 turkey’s population is 82.44 million people in 2020. according to research which examined by hootsuite and we are social (2019), 77% of the adults have a smartphone and 84 of them are using internet daily. it can be seen that, there is a big market in turkey and it’s worth to research. 3. research model now consumers can reach information about the product, experiences about the product which has been bought and written comment online about it by another customer and that is happening in very short time thanks to smartphones which connect internet any second. consumers are more active more than ever in buying process. the research examines the effects of zero moment of truth on consumer buying decision in turkey on smartphone products in the following aspects: 1. investigate zero moment of truth (zmot) based on the different demographic variables such as gender, age, marital status, income level, education level etc. 2. analyze zero moment of truth against stimulus and first moment of truth in smartphone sector. 3.1. research methods and limitations in this research, survey questions which can be found on appendix-1, and questions are obtained from similar study which has been studied by google at 2011. in that survey, the first question is asked surveyors whether they bought a new smartphone for last six months or not. if they did not, the survey has ended for them. the survey has delivered online, and 396 surveyors are joined. 155 surveyors said that they did not buy any smartphone in last six months and they did not see other questions so in this research, 241 surveyors completed the whole survey questions and it’s analyzed. the questions are translated turkish before sent to the surveyors from original study which is english. 4. result the results show that zmot is the most important phase among the surveyors and distributions can be found in figure below. figure 4. distribution of stimulus, zmot, fmot and smot according to survey. in zmot phase, distribution of source used by surveyors shown in the figure below. furkan bi̇çer 158 figure 5. distribution of source used in zmot. as it can be seen on the figure 5, most of the surveyors searched online and second place is belonging to word of mouth, they talked with their friends and family about the smartphone while they are in buying decision process. according to the survey results, gender, age and marital status of the surveyors are not affected on zmot process, they have similar attributes, they used sources on zmot with similar rates. the results show that, educational status of the surveyors were affected, according to ratio of the source used in their zmot process. it can be seen on figure 6. according to results, zmot is shown by 50% of the employee, 45% of the student, 40% of unemployed, 38% of private sector, 36% public sector and less zmot percentage belongs to freelance. it can be seen on the figure 7. figure 6. distribution of source used in stimulus, zmot and fmot according to education level. the impact of zero moment of truth (zmot) on smartphone buying decision 159 figure 7. distribution of source used in stimulus, zmot and fmot according to occupation. in order to define, the relationship between participants’ time spent on internet daily with fmot, zmot and stimulus are investigated with using chi-square analysis. the results are shown in the table below. according to chis square test, time spent on the internet has relationship with process of buying decision as stimulus, fmot and zmot. table 1. chi-square analysis results according to time spent on internet at stimulus, zmot and fmot. time spent on internet â stimulus zmot fmot 0-2 hours n 6 6 6 % %33 %33 %33 2-4 hours n 56 56 40 % %37 %37 %26 4-6 hours n 70 71 39 % %39 %39 %22 6-8 hours n 56 62 27 % %39 %43 %19 8+ hours n 29 40 23 % %32 %43 %25 â x^2 p â furkan bi̇çer 160 stimulus 20,654 0,0001 fmot 17,6 0,004 zmot 6,4 0,019 it can be seen on the graph that the distribution of fmot, stimulus and zmot according to time spent on internet. the graph below shows that, stimulus and zmot are increasing with time spent on internet. figure 8. distribution of source used in stimulus, zmot and fmot according to time spent on internet 5. discussion based on the survey results, zero moment of truth is most important phenomenon and step at buying decision process, on smartphone in turkey. according to survey, surveyors who all age groups, whether they are single or married, and whether they are female or male, they distributed with similar rates on zmot phase. but educational status, occupation and daily time spent on internet were affected on distribution of the surveyors engaged with zero moment of truth. 6. conclusion and implications for future research technology and smartphones have developed so usage of internet is also increased with these developments. before, customer’s buying decision process is occurred with stimulus, fmot and smot but there is a new step now which called zmot. now, zmot at least as much as important with other steps. sales are not directly dependent with the performance of sales person and sales are not restricted with time or store, since there is great usage of e-commerce and consumers can reach products, brands whenever they want and stores are open 24 hours in a day. customers are trying to make more smart choices now, and they are using online sources, e-woms more than ever. brands need to be more transparent and must be there all the time while consumers at buying decision process. winning at zmot is the new key of success but it cannot be ignored that stimulus and fmot are still important. after the purchase, there is a moment called third moment of truth, it is defined as customer make comments online or contact with brands directly and it’s open to all other customers for reaching information and experiences. word of mouth was important and it is still important at customers buying decision process but now there is ewom and it’s more powerful and more reachable more than ever. the impact of zero moment of truth (zmot) on smartphone buying decision 161 in this research, it's been analyzed that, the factors affective on customer’s behavior at smartphone buying decision process in turkey. it’s also analyzed that, according to demographic factors, how consumer behavior is affected and which sources are used more in smartphone buying decision process. the research can be developed with running other sectors or other nations, so in that way, it can be comparable with each other, and big picture can be seen more clearly. as a further research idea, how brand loyalty is affected by stimulus, fmot and zmot according to demographic variables. references anderson, e. w. 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(1993).the nature and determinants of customer expectations of service, journal of the academy of marketing science, 21(1), winter, 1-12. appendix – 1: survey questions in english the following survey is designed to analyze how zero moment of truth effects turkish consumers’ smartphonbuying behavior. q1. what is your gender? 1 male 2 female q2. what is your marital statues? 1 married 2 single q3. please specify your age. 1 age 18 ≦ 25 2 age 26 ≦ 34 3 age > 35 ≦ 44 4 age > 45 ≦ 54 q4. what is your educational level? 1 elementary school 2 high school 3 university 4 master 5 phd q5. what is your income status? 1 no income 2 less than 2500tl 3 2500tl less than 5000tl 4 5000tl less than 7500tl 5 7500tl less than 10000tl the impact of zero moment of truth (zmot) on smartphone buying decision 163 6 10000tl and more q6. what is your occupation? 1 student 2 private sector 3 housewife 4 employee 5 other 6 public sector 7 retired 8 self-employment 9 unemployed q7/a. time spent planning a product purchase 1 1 year and more 2 7 months less than 12 months 3 4 months less than 6 months 4 2 months less than 3 months 5 1 month 6 3 weeks 7 2 weeks 8 1 week 9 4 days less than 6 days 1 0 2 days less than 3 days 1 1 1 day 1 2 9 hours less than 12 hours 1 3 4 hours less than 9 hours 1 4 1 hour less than 4 hours 1 5 1 hour 1 6 a few seconds q7/b. time spent on internet daily 1 0-2 hours furkan bi̇çer 164 2 2-4 hours 3 4-6 hours 4 6-8 hours 5 8+ hours q7/c. when did you buy a product like that? 1 never 2 2 years less than 5 years ago 3 1 year less than 2 years ago 4 1 year ago 5 9 months less than 12 months ago 6 3 months less than 9 months ago 7 1 month less than 3 months ago 8 1 month ago 9 1 week less than 4 weeks ago 1 0 1 week ago 1 1 4 days less than 7 days ago 1 2 1 day less than 4 days ago 1 3 1 day ago 1 4 a few hours ago q7/d. on the last occasion, where did you purchase this product? 1 online 2 store stimulus y n 1 noticed advertising while browsing online 2 saw/tried product at the house of a friend/family member 3 this is a brand i grew up with the impact of zero moment of truth (zmot) on smartphone buying decision 165 4 looked at/read magazine advertisements 5 saw an ad on an outdoor billboard 6 read magazine articles/reviews/information 7 saw an ad in a newspaper/newspaper insert 8 read newspaper articles/reviews/information 9 looked up brands/retailers in the yellow pages 1 0 attended a show or event where product were featured 1 1 received mail at home from a brand/manufacturer (e.g., catalogue, brochure) 1 2 received mail at home from a store/retailer (e.g., catalogue, brochure) 1 3 read information in an email received from a brand/manufacturer 1 4 read information in an email received from a retailer/store 1 5 tried a sample/experienced the product at a special event 1 6 heard it discussed on the radio 1 7 saw advertisements on television 1 8 watched a tv show that featured the product zmot – zero moment of truth y n 1 talked with friends/family about the product 2 searched online, used a search engine 3 comparison shopped products online furkan bi̇çer 166 4 sought information from a product brand/manufacturer website 5 read product reviews or endorsements online 6 sought information from a retailer/store website 7 read comments following an article/opinion piece online 8 became a friend/follower/”liked” a brand 9 watched videos about product online 1 0 read/visited a blog that discussed product 1 1 searched the web for information with my mobile phone before shopping 1 2 talked to a customer service representative online 1 3 searched the web for information with my mobile phone in the store 1 4 saw product mentioned on a social networking website like facebook 1 5 received a referral notice from a friend online 1 6 commented on a product mentioned on a social networking website like facebook 1 7 received a coupon or pricing information from someone on a social networking site 1 8 commented on a blog that discussed product 1 9 searched for a coupon with my mobile phone before shopping 2 0 saw an ad/coupon sent to my mobile phone 2 1 looked for coupons on a retailer/store website 2 2 received a text from a brand/manufacturer on my mobile phone 2 3 searched for a coupon with my mobile phone in the store 2 4 looked for coupons on a product brand/manufacturer website 2 5 participated in a chat or discussion online about product 2 6 used my mobile phone to scan 2d barcode/qr code in the store the impact of zero moment of truth (zmot) on smartphone buying decision 167 2 7 read/visited a forum/message board about product 2 8 talked to a customer service rep/salesperson via email 2 9 commented on a forum/message board about product fmot – first moment of truth y n 1 tried a sample/experienced the product in a store 2 talked with a salesperson or associate in the store 3 talked with a customer service representative on the phone 4 looked at the product package in the store 5 read brochure/pamphlet about the product in the store 6 used product coupon i got at the store 7 used computer in the store to look up information on product 8 used a loyalty card/frequent buyer card 9 redeemed a gift card/rewards card smot – second moment of truth y n 1 mentioned it to friends/family 2 mentioned it to a co-worker 3 took a survey 4 wrote a customer review on a website 5 wrote about it on a facebook page 6 posted tweets about it 7 wrote about it in a blog journal of international trade, logistics and law, vol. 1, num. 1, 2015, 9-23 contemporary aspects of european transport policy grzegorz zajac, ph.d. university of information technology and management in rzeszow, poland abstract: the origin of the common transport policy was in 1957. currently the treaty on the functioning of the european union (tfeu) of 2007 signed in lisbon is legally binding concerning the common transport policy of the eu. the dynamic pace of the implementation of the common transport policy the eu was commenced from the beginning of the 1990s’ of the last century. the recognition of the importance and the role of transport for the eu as a whole by the member states has created opportunities for the development of this branch of the economy, which for almost thirty years of the european integration was being marginalized. in contemporary rules about the common transport policy most barriers to its functioning throughout the continent were eliminated. for the eu the trans-european transport networks (ten-t) importance stems also from the fact that it should contribute to the achievement of greater economic and spatial cohesion of the european union. the task of the ten-t network is to increase the technical standardization of individual national networks, improvement of transport infrastructures, access facilitation to infrastructure and fostering better connections between national networks and transport modes. today we can say without hesitation, that there has been huge progress in the implementation of the common transport policy in the eu. codification and harmonization of laws at eu level contributes to the development of specific sectors of transport and strengthens european identity in the world. keywords: european transport policy; transport modes; white paper; ten-t; trans-european transport network 1. introduction: transport is an extremely complex sector, in comparison with other service sectors. basically it is a multiproduct industry, producing differentiated services (both for freight and passengers) by means of different infrastructures (m. ponti, 2013). one of the primary objectives of the european union is the establishment of a single transport market and its continuous and sustainable development. it must be pointed out that white papers issued by the european commission play an important role in setting directions in the field of transport policy. the last white paper was released in 2011. it contains the objectives and strategy of eu transport policy to 2050. an important element of the contemporary dimension of the common transport policy of the eu is the trans-european transport network (tent). its task is to facilitate the access to infrastructure, increasing technical standardisation of individual national networks, improve transport infrastructures and fostering better links between national networks and transport modes. the purpose of this paper is to show the origins and evolution of transport policy of the european union and its modern countenance. it is going to be discussed the most important legislative documents concerning individual modes of transport. an important element will be to analyze the modern challenges and threats as well. 2. general comments on transport policy transport (lat. transportare move, carry) is accompanied the human kind from the beginning, since the migrations of people and trade had been developed in antiquity. the appropriate development of transport in the country is the result of specific economic policy. one of the important elements of the economy of each country is the smooth functioning of transport. therefore, transport policy plays a significant role in the development of each state. transport policy is part of an overall state economic policy, governs the whole matters connected with the various modes of transport, with specific measures and objectives of development that are not limited to the administrative borders of the country. these features are necessary for the existence of a transport policy. 10 grzegorz zajac the transport is divided into many branches: land transport (railway, car), inland waterways transport, maritime transport and air transport. the state must conduct such a policy, which will cover branches used on its territory. for example, there is no need to conduct a railway transport policy in a state, where no railways can be found (the holy see). the state should coordinate the development and operation of transport within individual branches. in general, the goal of transport policy should be the growth and development of different branches of the transport infrastructures, ensure all service providers equal terms and conditions and fair competition and its functioning based on respect and protection of the environment. such rules covering the above mentioned aspects are necessary to ensure the technical safety of the rolling stock and the highest level of provided services, in compliance with international standards. in case of international institutions they can conduct a common transport policy when it becomes the subject of interest of its bodies and when they will issue a variety of decisions in this field (j. burnewicz, 1991). after world war ii, many international and regional organizations were established dealing with issues related to the transport. nevertheless, conducting a common policy in this area at transnational level was announced in the treaty on the functioning of the european union (tfeu) in 1957, formerly named as treaty establishing the european economic community (teec). 3. european union policy and origin of common transportation policy the european union has its roots in the institutionalization of the process of european integration, which was launched at the beginning of the 1950s. of the last century in western europe. the turning point for the development of the transport policy was the creation of the former european economic community under the treaty establishing the european economic community (eec), signed in rome on march, 25th, 1957. by signing the treaty establishing the eec in 1957, it was obvious that relevant provisions for the integration of the transport policy of the member states must be included, at least for two reasons. first, a great importance was paid to this sector of the economy. some realized that in long-term it contributes to an increase in the standard of living of the society. second, the creators of the treaty were aware that transport enables the functioning of the common market, in particular the free movement of goods and people (w. januszkiewicz, e. synowiec, 2004). in has been enshrined in the treaty of rome the creation alongside the common agricultural policy, the common commercial policy, the common rules in the field of competition, also the common transport policy. the term "common policy" means that the european union can autonomously act in issuing regulations or decisions without having to rely on the harmonization of the national legal systems of the member states(c. jung, 1998). however, it is not clearly stated what it would involve, and how it should be shaped. therefore, it was concluded in the treaty of rome the provisions relating to the common transport policy with moderate reservations. the lack of definition when establishing the eec was due to the nature of the legal provisions underlying the establishment of the community. there was no agreement and political good will to create and transfer to this body, common to all member states, the powers of the transport policy. transport markets were strongly controlled by the national authorities and subject to national legal regulations. state authority treated the individual modes of transport, especially aviation, as its national property, which cannot get rid of. in each state there was an individual approach to transport policy. the provisions of the common transport policy were first modified in 1992, when it was the european economic community was transformed into the european community and the european union was created on the basis of the treaty of maastricht. further changes to the ec treaty on the common transport policy were made in the amsterdam treaty of 1997 and the treaty of nice 2001. currently the treaty on the functioning of the european union (tfeu) as a modified version of the former ec treaty of 13 december 2007, signed in lisbon is legally binding, commonly known as the treaty of lisbon (the treaty entered into force on december 1, 2009.). contemporary aspects of european transport policy 11 4. the goals and objectives of common transport policy the european union powers are set out in the treaty on the functioning of the european union (tfeu), in accordance with article 7: the union shall ensure consistency between its policies and activities, taking all of its objectives into account and in accordance with the principle of conferral of powers. transport in the light of article 4 (2) (a) (g) of the treaty is a shared competence between the union and the member states. however, the detailed provisions of the treaty in this respect, leave no doubt that it is the common transport policy. note: title vi: transport; article 90 tfeu: the objectives of the treaties shall, in matters governed by this title, be pursued within the framework of a common transport policy. the dynamic pace of the implementation of the common transport policy the eu was commenced from the beginning of the 1990s’ of the last century. the recognition of the importance and the role of transport for the eu as a whole by the member states has created opportunities for the development of this branch of the economy, which for almost thirty years of the european integration was being marginalized. in contemporary rules about the common transport policy most barriers to its functioning throughout the continent were eliminated. the issue of a large number of legislative acts in different areas, i.e. opening air markets, liberalizing railway and maritime transport, harmonization of aspects of safety, passenger protection, environmental protection and others, results in the actual implementation of the objectives of the common transport policy, initiated in the 1950s. the provision of article 90 of the treaty as a general disposition is a clear signal that the transport issue is one of the focus subjects of one of the common policies of the european union. it has been laid down in the treaty of lisbon, the powers of the union and the member states in the creation of regulations in this field. another article 91 refers to the conditions and the measures to implement by the european parliament and the council shall, acting in accordance with the ordinary legislative procedure, and after consulting the economic and social committee and the committee of the regions in order to implement the common transport policy. these measures are the following: a) common rules applicable to international transport to or from the territory of a member state or passing across the territory of one or more member states, b) the conditions under which non-resident carriers may operate transport services within a member state (i.e. the cabotage), c) measures to improve transport safety d) any other appropriate provisions. when introducing these measures by appropriate authorities, the treaty require to take into account the situation, where their application might seriously affect the standard of living and level of employment in certain regions, as well as on the functioning of the transport infrastructure. article 92 states that, until the provisions referred to in article 91(1) have been laid down, no member state may, unless the council has unanimously adopted a measure granting a derogation, make the various provisions governing the subject on 1 january 1958 or, for acceding states, the date of their accession less favourable in their direct or indirect effect on carriers of other member states as compared with carriers who are nationals of that state. this article concerns the free completion protection. all carriers should be treated without discrimination and rules should be clear to all branches of transport. article 93 provides for public aid to the transport. in general, any form of public aid, in accordance with article 107 (1) of the tfeu, is incompatible with the internal market and should not be applied. however, article 93 provides for en exception, which reads as follows: aids shall be compatible with the treaties if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service. in such case, the public aid should be compatible with article 107 (2) and (3). many forms of transport activities, in fact, bring loss and must be financed from the state budget or local-government budget, which is why they are considered as public services, or security-related issues. 12 grzegorz zajac in a subsequent article 94 any measures taken within the framework of the treaties in respect of transport rates and conditions shall take account of the economic circumstances of carriers. article 95 (1) contains the prohibition of discrimination of carriers operating in the european union: 1. in the case of transport within the union, discrimination which takes the form of carriers charging different rates and imposing different conditions for the carriage of the same goods over the same transport links on grounds of the country of origin or of destination of the goods in question shall be prohibited. therefore, in accordance with the provision set forth in paragraph 2 of this article, the council shall, on a proposal from the commission and after consulting the european parliament and the economic and social committee, lay dow n rules for implementing the provisions of paragraph 1. in order to control the proper implementation of the above mentioned rules, under the paragraph 4, the commission shall investigate any cases of discrimination falling within paragraph 1 and, after consulting any member state concerned, shall take the necessary decisions within the framework of the rules laid down in accordance with the provisions of paragraph 3. in article 96 prohibited imposing by the member state rates and conditions containing any element of support or protection of one or more companies or individual industries, unless it is authorized by the commission. this prohibition shall not apply to competition tariffs. each element of prohibition may by waived by the commission, which takes all necessary action to examine the rates and conditions and the effects of such rates and conditions on competition between the different modes of transport. after this, the commission shall take appropriate decision. article 97 provides that charges or dues in respect of the crossing of frontiers which are charged by a carrier in addition to the transport rates shall not exceed a reasonable level after taking the costs actually incurred thereby into account. member states are obliged to progressively reduce these costs. in this case, the commission has significant powers, as it has the right to make recommendations to the member states on these issues. this is to ensure reasonable prices for transport services and consumer protection in all of the corners of the eu. next article 98 refers only to germany. such a special treatment of the federal republic of germany is due to the fact that the eastern lands joined in 1990 with the western lands and their economic situation is much worse. therefore, the federal republic of germany may take any measures to compensate the economic disadvantages caused by the division of that state. however, the reservation has been made, that after the expiry of five years from the entry into force of the lisbon treaty (i.e. after december 1, 2014) the council, on a proposal from the commission, may decide to repeal this provision. until now, this provision was not repealed. in accordance with article 99 an advisory committee consisting of experts designated by the governments of member states shall be attached to the commission. the commission, whenever it considers it desirable, shall consult the committee on transport matters, without prejudice to the competence of other advisory bodies, for example. economic and social committee. in order to implement this provision, the directorate-general for transport was established within the commission organizational structure. a special attention should be paid to the provisions of article 100. apart from the statement in paragraph that the provisions of this title shall apply to transport by rail, road and inland waterway, special focus is on the provisions of paragraph 2, according to which the european parliament and the council, acting in accordance with the ordinary legislative procedure, may lay down appropriate provisions for sea and air transport. they shall act after consulting the economic and social committee and the committee of the regions. under those provisions, the position of the european parliament in rule-making of air law has been strengthened and it was also established the obligation of consultations of the proposed rules with advisory bodies, such as economic and social committee and committee of regions, which wasn’t previously specified. the previous rules of the treaty of nice gave the council exclusive competence to create the european air and maritime law, and the harmonization of these laws, acting by a qualified majority. it is clear that these two branches of transport do not remain outside of the scope of application of the provisions of the treaty. the court of justice of the european union gave in a 1974 ruling, according to which the provisions of articles 90-99 (previously articles 7079) apply also to maritime and air transport (case, 1974). contemporary aspects of european transport policy 13 5. stages of development of the common transport policy transport policy is based on equal treatment by the member states of any transport modes as well as carriers, registered in another member state. implementation of the objectives of the common transport policy has stalled at a standstill until the mid-1980s. of the last century, despite many solutions to overcome this “crisis” which aimed at commencing the works on creation of a harmonized dimension. for the member states of the former eec it was important the economic integration and common agricultural policy. the issue of the transport policy was marginalised. since january 1, 1958, in transport policy, the focus was on removing internal barriers at borders between member states that blocked off the free movement of people and goods. despite many initiatives have been proposed every few years, not much have been done in this regard. until the mid 80. of the last century only a few legal acts were introduced concerning transport. the reasons lie not only in the system of decision-making bodies of the eec, but also the lack of clearly defined competences of these bodies. it turned out an extremely strong commitment of member states to shape their own transport policies and their reluctance to transfer those powers to the institutions of the former community. a very symbolic year was 1992 for the european union and for the development of common transport policy. from that time the process of liberalization of transport began as well as the beginning of implementation of rules in common transport policy of the european union. the european union has introduced its plans towards common transport policy in white books. until now, there have been three editions: 1992, 2001 and 2011. 5.1. white paper: 1992 development plans were set out in the white paper published by the commission on 2 december 1992, under the title “the future development of the common transport policy – a global approach to the construction of a community framework for sustainable mobility”. it was the first white paper on transport, which showed the state of the transport system in the newly established european union and perspectives for its development. the main task, which was set up in the white paper was the immediate opening of the transport market as fast as possible and autonomy of its development from economic growth. another goal was to link, also, the needs of the environmental movement. the white paper of 1992 by far stressed the importance of road transport, in particular railway transport, and also sea transport. it was about a combination of different transport modes. one of the most important projects to be implemented in the 1990’s were trans-european transport networks – tens. this initiative didn’t come up first in the white book, since the treaty of maastricht of 1992 contained special provisions in this regard. the concept of the construction of the trans-european transport network has encountered some difficulties, mainly with funds. already at the european council meeting in essen in december 1994, there were selected fourteen priority projects to be implemented in the framework of the ten-t’s. in the white paper on transport of 2001 there have been submitted seven projects, which created a total of twenty-one. in july 1996 the european parliament and the council adopted the guidelines for the development of tens for 2010, which relate both to the infrastructure, traffic management systems and navigation systems. it should be noted that in the mid-1990s. it was taken into account the fact that the european union will expand in due time to the east, and therefore, it was necessary to take into account the inclusion in the trans-european transport network also member states of the region. therefore, the process tina (transport infrastrukture needs aqssesment) has been initiated in 1996. the programme of development of transport network until 2025 has been prepared within the framework of this process taking into account the countries of middle and eastern europe. the premise of the tina process were arrangements of the transport conference ii in crete (1994). it was decided to 14 grzegorz zajac create a network of ten multi-modal transport corridors to improve infrastructure investments in the central and eastern europe1. tina network consists of ok. 18. km of roads, more than 20,000. km of railway tracks, 38 airports, 13 sea ports and 49 river ports. the cost of the creation of these networks (or building new missing sections of roads or railway lines) in the period up to 2015 was estimated at 90 bln eur. the realization of the objectives contained in the white paper of 1992 proceeded differently in different sectors. generally, we can positively assess the progress of liberalization of individual transport sectors as well as the growth of union’s legislative acts leading to harmonization of different rules and standards in member states. the goals set up in 1992 have been generally achieved, except for the railway sector. taking into account the air transport it was a significant change, while there was a huge advancement in opening of the market to the free competition by liberalizing this sector of air carriers and airports. it resulted in the vast and dynamic growth of air services and introduction of new low cost carriers who entered the market and gained the market previously designed and governed by traditional carriers. other forms of success in the implementation of common transport policy rules were the release of consumer prices, combined with higher service quality and a wider range of choice. to serious difficulties in the development of the common transport policy include the following:  uneven growth of different means of transport,  congestion on the main roads, railway routes and airports as a result of the imbalance between different modes of transport,  harmful environmental and health factors and a large number of traffic accidents. 5.2. white paper: 2001 the elimination of a variety of barriers, as well as shortcomings in the development of the legal framework relating to the common transport policy was described in the second white paper on transport, which was published almost ten years later, in 2001, entitled “european transport policy for 2010: time to decide”. an important element, in the context of the implementation of the common transport policy by the european union, were the relevant provisions of the "lisbon strategy" adopted by the european council in march 2000 in lisbon. it was the ten-year socio-economic programme, which was to make the eu “the most competitive and dynamic economy in the world”. in regards of transport policy the main focus was put on air and railway transport. in the field of air transport, the priority was the creation of single european sky (ses) which was of great importance for the whole europe and the whole aviation, and an issue of slot allocation at european airports. special legislative package was introduced in 2004 in this regard, which is often called as the „fourth” liberalization package in aviation. later, there were two modifications of it: in 2009 (often referred to as ses ii) and in 2013 (as ses ii plus). it can be also positively accessed the implementation of legislation in regards of slot allocation, which led to an effective airports’ capacity, since the growth in air services led to the „congestion” being more and more unbearable. the commission proposed further liberalization of air transport in other fields. taking into account the railway transport, two legislative packages were introduced: one was about to safeguard railway undertakings providing cargo services the greater availability of infrastructure and determining security requirements at railways. the second includes acts to speed up the opening of the market in rail freight, the creation of a european railway agency (era) and an increase of safety standards (m. pudlak, 2004). first of all, it has been analyzed the current state of implementation of goals set in 1992. huge delays have been noticed in the creation of the trans-european transport networks. there have been proposed solutions involving, i.a., on a better combination of inland waterway routes with rail and sea shipping by sea and river ports, improve passenger transport thanks to the cooperation of airports with high speed railways, and implementation of the intelligent transport systems which will allow to manage network traffic. it has been also announced an extension of 1 transport corridor is a series of transport routes of international importance, in which there are at least two different transport routes with specific technical parameters and with correctly deployed transport interchange. contemporary aspects of european transport policy 15 the above actions to integrate ten-t’s with european transport corridors that run in most of the member states, as adopted in 2004. it has been also planned to incorporate sea shipping and inland waterway transport into the transport system of the union, and their combination would provide competition for road transport (w. rydzkowski, 2003). in the white paper of 2001 there was included many valuable guidelines, which were supposed to assist and stimulate the development of the common transport policy. the new issue was paying an attention to the fact, that all modes of transport need to be treated equally. so far, in fact, there was a practice of promoting of certain sectors, notably railway and road transport. currently, the main stress is put on the sustainable development of all branches. however, in comparison with previous development of the common transport policy projects submitted from time to time by the european commission, a lot of attention for the first time was put on air transport in the white paper of 2001. this sector was recognized highly significant to the economy and a major source of revenue for companies associated with him. despite this, all types of transport are treated equally. you can see this in two aspects. first, the effective competition has been planned to be introduced. in road transport it was announced to strengthen the quality of the implementation of the relevant legal provisions and strengthening of the system of inspections and penalties. it was also planned to modernize and revive the railway transport by optimizing the use of infrastructure and modernization of rolling stock. in case of air transport it was announced the fight against the problem of “air congestion”, to analyze airports’ capacity and their rational use, paying greater attention to protecting the environment and maintaining the proper level of security. second, different means of transport have been connected. it is about the solutions such as: a) providing sea – inland waterway – railways transport connections, b) the launch of the marco polo programme designed to help inter-modal transport operators in starting your own business, c) the creation of a favourable technical conditions, e.g. by standardizing containers. moreover, in the white paper of 2001 it was also mentioned about eliminating. “bottlenecks” in europe. these were different communication barriers that hamper the development of different transport modes. they remained even though the european union has adopted an ambitious policy on the trans-european network. in this regard, it was planned to implement large infrastructure projects (i.e. completing the alpine routes, the strengthening of safety in tunnels) and to take steps towards the creation of a multimodal corridors. a focus has been put on the rights of passengers. it was diagnosed the causes of hazards on the roads, many dramatic situations occurring at airports related to denied boarding, or a cancellation of flights in last minute and it was announced to strengthen the protection of the rights of passengers. another element is also to enhance the safety of travelling. the eu's external relations was an extremely important issue. it was considered that the wider europe with eastern european states which were previously under the soviet political influence must be strengthened in the world arena. to this end it is necessary to speak with a single voice on behalf of the eu as a whole in the different international organizations. signature and entry into force of the treaty on the functioning of the european union in 2009, fills this goal. the white paper also strongly emphasized the role of the single aviation policy and the interaction of the member states in relations with third countries. it was stipulated in 2001 the take-over of greater responsibility by the council and the commission for this particular sector and making greater harmonization of rules, which was done in practice in the subsequent years, both in terms of functional and institutional. 16 grzegorz zajac 5.3. white paper: 2011 over the last years it can be noted the progressive implementation of the various programmes and the relevant legislation in the implementation of the common transport policy. another important message and a plan for the future was the white paper on transport of 2011(white paper on transport, 2011). key elements raised in the white paper are the following: a) the issue of sustainable transport system in europe, b) the development of multimodal transport networks, c) environmental performance of transport and reducing greenhouse gas emissions, d) the application of innovation and technology in the development of transport. the white paper provides a vision of a sustainable and resource efficient transport to 2050 with intermediate objectives to 2030. the focus is on the challenges facing transport in europe in future. the latest white paper of 2011 is different from the previous ones. it doesn’t focus on the achievements of aviation policy, but it presents deepening cooperation to build a single system of aviation law in europe, by emphasizing issues such as: the increase in the mobility of passengers, intermodality of transport sectors (air transport linked to railway transport), new technologies of air traffic management, and environmental issues. it was well assesed the idea of implementation of innovative programs of air traffic management (sesar) that will bring greater capacity at airports, or to reduce the cost of operation of national air navigation centres. far-reaching strategic objectives have been introduced to implement before 2050. a huge improvement, dynamic changes that have occurred in harmonization of aviation rules in europe will require continuous monitoring and improvement in those areas where there are deficiencies or if the provisions are not effective. 6. perspectives and future of common transport policy the european commission introduced a comprehensive strategy of the transport development in 2011 in the next white paper. its purpose is to create a competitive and mobile transport system, which is based on the increased independence of the european union from imported raw materials used in transport, as well as raising the level of his proenvironmental attitude. the perspective of the european single transport area provides for removal of major barriers to the most important areas of operation of transport through:  the launch of the base network transport corridors, which operate on the basis of the competitiveness of the different modes of transport (ten-t network),  not less than 30% of the carriage of goods by road for a distance of over 300 km should be moved to the other means of transport by the year 2030, and more than 50% by 2050,  the combination of all airports’ network which are of special interest to the railway network by 2050 (p. witkowski, 2002). 6.1. road transport the most notable and most common transport service is car transport. when we talk about its role and place in relation to other modes of transport, we have to take into account the size of working time and carriage during the period of at least couple of years (k. bentkowska-senator, 2007). in terms of weight carried of goods, car transport is numerous and very significant in the foreign trade. areas of the continents shall designate a natural space of its application. taking into account the organizational and economic factors for this particular mode of transport, the most reasonable services are for medium and close distance. the popularity of road transport takes inter alia the following factors:  spacious and wide network of roads,  very favourable adjustment of the road network to the location of the cities and production centers,  adjusting modes of transport to almost all types of products, contemporary aspects of european transport policy 17  operating speed which is fast and effective,  short time the carriage due to direct supply (m. fertsch, 2006). the number of companies engaged in transport services in european countries shall be assessed on the tens of thousands or more. road transport is a business for a total of over 500 thousand. companies operating in the european union. huge competition and diversity in the field of services provided by road transport undertakings cause a slight level of fixed charges and own expenditures. the european union has established common road transport market in the following areas: a) rules governing access to the profession and to the market (regulation (ec) no 1071/2009 of the european parliament and of the council of 21 october 2009 establishing common rules concerning the conditions to be complied with to pursue the occupation of road transport operator and repealing council directive 96/26/ec). according to the regulation, operators must fulfill four criteria to access the profession: good repute, financial standing, professional competence, and effective and stable establishment, b) minimal standards for working time, driving time and rest periods (including enforcement and the use of tachograph devices) for professional road transport (directive 2002/15/ec of the european parliament and of the council of 11 march 2002 on the organization of the working time of persons performing mobile road transport activities; regulation (ec) no 561/2006 of the european parliament and of the council of 15 march 2006 on the harmonization of certain social legislation relating to road transport), c) minimum annual vehicle taxes for heavy goods vehicles (above 12 tonnes) directive 2006/38/ec of the european parliament and of the council of 17 may 2006 amending directive 1999/62/ec on the charging of heavy goods vehicles for the use of certain infrastructures, d) common rules for tolls and user charges for heavy goods vehicles. e) harmonization of the maximum weights and dimensions of road vehicles. in order to avoid roads, bridges and tunnels, special rules concerning buses and coaches have been established (directive (eu) 2015/719 of the european parliament and of the council of 29 april 2015 amending council directive 96/53/ec laying down for certain road vehicles circulating within the european union the maximum authorized dimensions in national and international traffic and the maximum authorized weights in international traffic). 6.2. railway transport until recently, in europe, it was believed that rail transport serves as a public service, therefore its services should be a common good, and what that supposed to be as cheap and available. state monopolistic railway undertakings as a result showed deficits forcing the state to transfer sometimes huge sums on their restructuring from central budgets. this involved a fairly low rates for services and a very high and fixed costs. in the european union the key issues was to separate the transport carriage from linear and point infrastructure, which reflected in the organization of rail transport. the adoption of such a model has allowed for the introduction of solutions that rely on the functioning of one company, seeking budgetary resources, responsible for the construction, use and maintenance of point and linear infrastructure, paying for the use of infrastructure, the introduction of competition in the field of providing transport services by rail undertakings, that operate commercially. the european union has significantly improved the implementation of common rail policy in recent years. there are three main issues in this regard: (1) opening of the rail transport market to competition, (2) improving the interoperability and safety of national networks and (3) developing rail transport infrastructure there has been three railway packages liberalizing rail transport. the first package was introduced in 2001. the main principles introduced in this package (three directives) were: a) fair, equal and non-discriminatory access for all train operators licensed in the eu, 18 grzegorz zajac b) the granting of licences, allocation of infrastructure capacity and charging of infrastructure fees must be equal to all train operators registered in the eu, c) freeways open to cabotage, d) freight terminals open for fair, equal and non-discriminatory access to all train, road haulage and waterway operators. the second liberalization package was developed in 2004. it was further liberalization of rail freight services by fully opening this market to competition as from 1 january 2007. additionally, it was introduced the establishment of the european railway agency situated in valenciennes (france) under regulation 881/2004, which was later amended by regulation no 1335/2008 of 2008. the third liberalization package was introduced in 2007. it introduced open access rights for international rail passenger services including cabotage from 2010. the third railway package introduced a european driver licence allowing train drivers to circulate on the entire european network as from 2011). the drivers will have to meet basic requirements concerning their educational level, age, physical and mental health, specific knowledge and practical training of driving skills. what’s more, this package strengthened the rail passengers’ rights under regulation (ec) no 1371/2007 of the european parliament and of the council of 23 october 2007 on rail passengers’ rights and obligations (oj, 2007). however, the european commission introduced in 2013 the fourth package, which is still under the process of public consultations. 6.3. inland waterways transport the european system of international waterways is composed of two subsystems – western-european and southeuropean. to the western subsystem the rhine river connects together a network of waterways of france, germany, switzerland and the netherlands. the rhine river until the basel is available for vessels with a capacity of 2000 tons, and from sea to duisburg – 3 000 tonnes (s. koziarski, 2005). in contrast, the danube creates the backbone of the southern subsystem connecting austria, germany, hungary, slovakia, romania, yugoslavia, bulgaria and ukraine. it is available for the barge of deadweight from 1500-2000 tonnes. these subsystems are connected by the rhine-main-danube canal with a length of 590 km to form one system. (j. neider, 2002). the advantages of inland waterway transport can be a large load capacity of barges and a small impact on the environment. the disadvantages are: low operating speed, the high cost of building and maintaining of artificial linear infrastructure, the navigability of the rivers, the risk of damage to goods that are prone to moisture. there is a large number of shipping companies in inland waterways transport. about 90% of the rolling stock-river barges is owned by the individual owners (p. witkowski, 2002). concerning the inland waterways transport we have the legally binding so-called integrated european action programme for inland waterways (referred to as naiades. currently, the modified version naiades ii which was introduced on september 10, 2013 by the european commission to strengthen inland waterways transport (communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions, 2013). in 2013 it has been introduced a new programme, platina, which is to support the naiades ii initiative. the programme runs until 2020 and is to be implemented by the european commission, the member states and the industry itself. it has received about € 2 million of funding from the commission (http://ec.europa.eu/transport/modes/inland/promotion/index_en.htm, 2015). inland waterways transport i san alternative for other modes of transport, especially for road and rail transport. it is ecologically friendly in terms of both energy consumption and noise and gas emissions. contemporary aspects of european transport policy 19 6.4. air transport the eu's commitment in the harmonization of the provisions is due to its active role on the international scale in a number of areas, including the participation and creation of european standards. european aviation law is alongside the international rules a separate legal system, although it is an important supplement and compatibility with the regime of the chicago convention. an important feature of european aviation law created by the european union is the fact that the member states, to which it applies, have limited ability to create national regulations. european legislation is very wide in this regard and regulates all aspects of aviation activity. european union’s aviation law covers the following issues: a) internal market rules (economic aspects of air carriers and airports activity, the role of a state in market regulation concerning public aid, air navigation), b) air traffic management (including the creation and implementation of single european sky), c) air passengers protection (including passengers with reduced mobility, disabled people), d) safety and security (including “black list” of dangerous air carriers, protection against unlawful interference and illegal acts aiming at aviation), e) environmental protection (issue of aircraft noise and dangerous gas emissions), and f) external relations with third countries and international multilateral and bilateral cooperation (concluding horizontal and global agreements). the challenges facing the air transport are related to the implementation of the initiative of the single european sky (ses) and the solution of the problem of the “air congestion”. the priority issue is the air carrier’s safety and in this regard the “black list” of dangerous airlines was introduced (european parliament and of the council, 2005). all carriers outside europe which do not meet basic european safety requirements are on the list. in 2015 there are almost 300 air carriers all over the world, the majority of them are from africa and eastern asia. currently, the air traffic market within the european union is now totally liberalized. there is a complete freedom of conducting air services. air carriers registered in one member state may perform operations in/to the other without special permission (only after notification) in accordance with regulation (ec) no 1008/2008 of the european parliament and of the council of 24 september 2008 on common rules for the operation of air services in the european union (oj l 293, 31.10.2008, pp. 3—20). are carriers registered in europe (the eu and eea countries, and switzerland) must have equal treatment in every state they operate. airports gained freedom in competition among themselves and their activity is based on free market rules with some exceptions concerning public service obligation. 6.5. maritime transport seaports are multi-functional and very complex transport points. sea ports, taking into account foreign trade transaction can be divided into the following:  trade and transport seaports that are fully prepared to handle the goods; there is a distinction among them due to the categories of goods e.g.: gas terminals, oil terminals, universal terminals,  fishing ports, which are designed to handle fishing and having necessary accessories for this kind of product (p. witkowski, 2002). in maritime transport, the following regulations, inter alia, apply:  council regulation (eec) no 4055/86 of 22 december 1986 applying the principle of freedom to provide services to maritime transport between member states and between member states and third countries, (the regulation gives shipping companies registered in member states of the eu the right to carry passengers or goods by sea between any port of a member state and any port or off-shore installation of another member state or of a non-eu country. any national restrictions which reserved the carriage of goods to vessels flying the national flag are removed by this regulation) (oj l,1986) ,  council regulation (eec) no 4057/86 of 22 december 1986 on unfair pricing practices in maritime transport (this regulation enables the eu to protect shipowners in member states from unfair pricing practices on the part of non-eu ship-owners. the regulation gives the definition of the injury that can be taken into consideration, e.g. a reduction in the ship-owners market share or profits or in employment. it allows compensatory duties to be imposed on foreign ship-owners), (oj l,1986) 20 grzegorz zajac  council regulation (eec) no 4058/86 of 22 december 1986 concerning coordinated action to safeguard free access to cargoes in ocean trades (this regulation applies when action by a non-eu country or by its agents restricts free access to the transport of liner cargoes, bulk cargoes or other cargoes by shipping companies of member states or by ships registered in a member state), (oj l,1986)  directive 2010/65/eu of the european parliament and of the council of 20 october 2010 on reporting formalities for ships arriving in and/or departing from ports of the member states and repealing directive 2002/6/ec (the purpose of this directive is to simplify and harmonize the administrative procedures applied to maritime transport by making the electronic transmission of information standard and by rationalizing reporting formalities) (european parliament and of the council, 2010). 7. the importance and development of the european transport networks in the face of increasing economic integration of the european continent the concept of creation and the expansion of the trans-european transport networks (ten-t), which merge transport systems of member states of the european union in one efficient and coherent pan-european system is gaining steadily in importance (e. kaweckawyrzykowska ,2004). for the eu economy the ten-t importance stems also from the fact that it should contribute to the achievement of greater economic and spatial cohesion of the european union. taking into account the above mentioned facts, the implementation of trans-european transport networks were the priority issues for the eu in the beginning of the 1990. it is expressed in the inclusion into the tfeu new provisions in this regard titled “trans-european transport networks”. the european union was given the competences and instruments to conduct the policy in this in accordance with the treaty provision (e. kaweckawyrzykowska, 2004). in order to achieve the goals of the establishment of trans-european networks, the european union shall, in accordance with article 171 (1) of the tfeu: a) establish a series of guidelines covering the objectives, priorities and broad lines of measures envisaged in the sphere of trans-european networks; these guidelines shall identify projects of common interest b) implement any measures that may prove necessary to ensure the interoperability of the networks, in particular in the field of technical standardization c) support projects of common interest supported by member states, which are identified in the framework of the guidelines referred to in the first indent, particularly through feasibility studies, loan guarantees or interest-rate subsidies; the union may also contribute, through the cohesion fund set up pursuant to article 177, to the financing of specific projects in member states in the area of transport infrastructure the task of the ten-t network is to increase the technical standardization of individual national networks, improvement of transport infrastructures, access facilitation to infrastructure and fostering better connections between national networks and transport modes. the greatest emphasis is put on the need to connect peripheral and island regions with the central regions of the union. the key for the development of ten-t was a decision of the european parliament and of the council no 1692/1996 of 23 july 1996 on the eu's guidelines for the development of the trans-european transport network (european parliament and of the council, 1996). it will consist of rail network, road network, seaport network, airport network, waterways and combined transport network. it is stated in the green paper of 2009, that the comprehensive network comprises altogether: 95 700 km of road links, 106 000 km of railway links (including 32 000 km of high-speed links), 13 000 km of inland waterways, 411 airports and 404 sea ports (ten-t, 2009). the european commission has assigned a budget of the union for the period 2007-2013 for the financing of tent projects amounting to 8 billion eur, more than 1 billion eur per year. this amount is similar in the 2014-2020 financial perspective. contemporary aspects of european transport policy 21 one of the most important priority task is the expansion of the intelligent transport system. as regards intelligent transport systems, ten-t policy has helped in particular to prepare galileo and the single european sky air traffic management research (sesar) − major european projects which, once operational, are expected to make the use of transport infrastructure far more efficient. in order to ensure proper coordination of the work and the sharing and use of resources, as well as finalize an investment within the time limits, it has been established since january, 1st, 2014, innovation & networks executive agency (inea). it is a successor of the former trans-european transport network executive agency (ten-t ea), which was created by the european commission in 2006 to manage the technical and financial implementation of its ten-t programme. the inea main objective is to implement the following eu programmes: a) connecting europe facility a key instrument of the eu to promote growth, jobs and competitiveness through targeted infrastructure investment at european level. is is divided into three sections: cef transport, cef energy, and cef telecom, b) horizon 2020 – it is a research programme in the area of ecology and innovation. it consists of two parts: “smart green and integrated transport”, and “secure, clean and efficient energy”. it is expected that inea will manage a budget of up to €34.1 billion for the new 2014-2020 programmes c) legacy programmes – continuing the implementation of marco polo programme and ten-t. the european commission presented in october 2011, a new concept of the ten-t network, which includes two layers:  the core network – to be created by 2030  the comprehensive network – to be created by 2050. the new core network will remove bottlenecks, upgrade infrastructure and streamline cross border transport operations for passengers and businesses throughout the eu. it will improve connections between different modes of transport and contribute to the eu's climate change objectives. comprehensive network will ensure the availability to all regions and will cover the whole of the european union. these two levels of the eu's transport network will include all modes of transport. in plans for the years 2014-2020 it has been assumed the focus of eu funding for core network, promoting the intelligent networks, completing missing trans-border connections and eliminating bottlenecks. it is estimated that the cost of implementing the first financing phase for the core network for 2014 will cost 250 billion. the core network is to be completed by 2030. (connecting europe, 2011): conclusion transport is closely linked to the functioning of the economic development of the region. it was one of the first areas covered by the common policy of the european union and is the basis for the european integration process. the union has always sought to create a single european transport area on the principles of fair competition. transport is an important element of the functioning of the fundamental principles enshrined in the treaty on the functioning of the european union, i.e. the freedom of movement of persons, goods and services constitute the basis of the internal market of the union. in the original version of the treaty on the functioning of the european union of 1957 (referred to as the treaty establishing the european economic community) the provisions for the implementation of the common transport policy have been contained. decades of inactivity of community bodies were due to the lack of political will of member states to liberalize the transport sector. it was a very difficult task for the states to harmonize the rules, that was associated with a reduction in the impact on the shape of their own country's transport policy. during the "cold war" a strong state control was in pursuit of an economic activity, which severely restricted the development abilities of most transport companies. numerous plans and initiatives published since the 1960s. up to 1980. of the last century included ambitious plans for harmonization of the provisions and pointed to the benefits of the implementation of the common transport policy. however, there was a strong barrier on the side of member states, who accepted the existing fragmentation of transport systems. 22 grzegorz zajac the creation of the european union in 1992 and the new challenges after the collapse of the cold war system has significantly speeded up the development of the common transport policy. in the treaty of lisbon of 2007 there have been important institutional and organizational changes and it has been agreed a clear division of competences between the union and the member states. the common transport policy is now shared competence between the union and its member states, which is clearly expressed in article 4 (2) of the tfeu. the aims and goals of the eu transport policy look sound and consistent (opening up the european market via better transport infrastructure and services) even overcoming strong resistance of vested interests and national egoisms (m. ponti, 2013). although, there are still a lot to change and to improve in all sectors of european transport. today we can say without hesitation, that there has been huge progress in the implementation of the common transport policy in the eu. codification and harmonization of laws at eu level contributes to the development of specific sectors of transport and strengthens european identity in the world. the liberalization process of transport markets in europe should be assessed positively, which strengthens the competitiveness of undertakings and increase quality of service. references k. bentkowska-senator (2007), z. kordel, polski transport samochodowy ładunków, bydgoszcz-gdańsk-warszawa, p. 48. j. burnewicz (1991), transport ewg, warszawa, s.33. communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions, towards quality inland waterway transport naiades ii, brussels 10.09.2013, com (2013) 623 final. european commission web site, http://ec.europa.eu/transport/modes/inland/promotion/index_en.htm, access 1.09.2015. green paper ten-t: a policy review towards a better integrated trans-european transport network at the service of the common transport policy, com (2009) 44, 4.02.2009, p.5. m. fertsch (2006), podstawy logistyki, poznań, p. 83. w. januszkiewicz, e. synowiec, wspólna polityka transportowa i polityka ochrony środowiska, w: e. kaweckawyrzykowska, e. synowiec, (red.), unia europejska, tom i, warszawa 2004, s.244. c. jung, regulacje transportowe w traktacie we, w: j. burnewicz (red.), liberalizacja usług transportowych w ramach jednolitego rynku, łódź 1998, s.48. e. kawecka-wyrzykowska (2004), unia europejska tom 1, warszawa, p. 255 s. koziarski, (2005), transport w europie, opole, pp. 128131. case, marins francais” no 167/73: commission v france, cj eu, 1974, p.359. j. neider, (2002), charakterystyka i znaczenie poszczególnych gałęzi transportu w handlu międzynarodowym, in: t. szczepaniak (ed. ), transport i spedycja w handlu zagranicznym, warszawa, p. 142 m. ponti (et. al.), the european transport policy: its main issues, “case studies on transport policy” 1 (2013), p.61. m. pudlak (2004), wspólna polityka transportowa, inw: w. bokajło, k. dziubko (ed.), unia europejska. leksykon integracji , wrocław, pp.522-523. w. rydzkowski (2003), polityka funkcjonowania transportu, in: w. grzywacz, k. wojewódzka-król, polityka transportowa, gdańsk, pp.341-342. the legal basis for this „black list” is regulation (ec) no 2111/2005 of the european parliament and of the council of 14 december 2005 on the establishment of a community list of air carriers subject to an operating ban within the community and on informing air transport passengers of the identity of the operating air carrier, and repealing article 9 of directive 2004/36/ec, oj, l 344, 27.12.2005, p. 15–22 http://ec.europa.eu/transport/modes/inland/promotion/index_en.htm contemporary aspects of european transport policy 23 directive 2010/65/eu of the european parliament and of the council of 20 october 2010 on reporting formalities for ships arriving in and/or departing from ports of the member states and repealing directive 2002/6/ec, oj, l. 283, 29.10.2010, p. 1., oj l 378 31.12.1986, p. 1-3.., p. 14–20, p. 21–23, oj, l 315, 3.12.2007, p. 14–41 decision no 1692/96/ec of the european parliament and of the council of 23 july 1996 on union’s guidelines for the development of the trans-european transport network, oj l 228, 9.9.1996. transport corridor is a series of transport routes of international importance, in which there are at least two different transport routes with specific technical parameters and with correctly deployed transport interchange white paper on transport (2011): roadmap to a single european transport area – towards a competitive and resource efficient transport system. european commission, com (2011) 144 final, 28.03.2011. p. witkowski (2002), procedury celne i transport w handlu zagranicznym, lublin, pp. 254-255. p. witkowski, procedury…, op. cit., pp. 331-332. p. witkowski, procedury…, op. cit.,., p. 315-316. press release, connecting europe: the new eu core transport network, memo/11/706, brussels, 19.10.2011. http://eur-lex.europa.eu/legal-content/pl/auto/?uri=celex:31996d1692 journal of international trade, logistics and law, vol. 6, num. 2, 2020, 79-89 79 determinants of centralized public procurement effectiveness: evidence from selected ethiopian higher public education institutions kedir yusuf abrahim jimma university, ethiopia ganfure tarekegn jimma university, ethiopia received: 29 sept, 2020 accepted: 01 nov, 2020 published: 10 dec, 2020 abstract: this study focuses on factors affecting centralized procurement system effectiveness in higher ethiopian public educational i nstitutions. to achieve this objective the researchers employed the explanatory research design with a primary data sources from 82 employees through questionnaires and interview in purposively selected of public educational institutions and public property procurement team leaders of pppdsa at federal level. the pearson correlation analysis outcome showed that all explanatory variables were positively influencing the effectiveness of centralized procurement system but at different degree of correlation. the multiple linear regression analysis result of the study also revealed that public policy, control activities and staffs’ educational competency of sampled public education institutions strongly and positively affected centralized procurement system effectiveness at 4.2 percent, 0.01 percent and 0.01 percent respectively. similarly, monitoring and contract management affected the centralized procurement system effectiveness at 0.00.01 and 5.2 percent respectively. therefore, to avoid the return of defect goods, malpractices, high compliance and untimely response of procurement orders, the pppds and sampled ethiopian higher public educational institutions should design very clear procurement planning criteria that fits the national procurement guideline, strong internal control system with good evaluation system. moreover, it also advisable if the sampled ethiopian higher public educational institutions train their staffs that partake in procurement processes and apply a computerized procurement system to support their procurement policies and further improve their overall centralized procurement system effectiveness. keywords: centralized procurement, determinants, effectiveness, regression 1. introduction 1.1. introduction in most countries and particularly in developing countries, the procurement function become one of the decisive and effective socio-economic elements that is able to influence decisions of government, quality of services for customers, honesty of workforces, accountably achieving organizational performance and development goals. procurement is defined as acquiring goods, works and services from outside suppliers and it is expected to reflect public interests and overall development goals in an efficient manner (hartmann et al., 2012). for a decade, public procurement has shown rapid demand changes and it became the showground where huge public resources are abundantly spent. for example; in sub saharan african countries, out of the total public resources, procurement of goods, works and services accounts about 70 percent, in ethiopia accounts more than 60 percent and as a globe it about 20 percent from the total public expenditure(chekol & tehulu, 2014). in another term, as compared to import economic activities, public procurement account for up to 50%-70% of total imports of developing nations (yukins & schnitzer, 2015) and public procurement also represents 18.42% of the world gdp(mahmood, 2013). in this context, governments and government agencies remain the biggest entity that does procurement on a large scale and it is a business that attracts numerous of stakeholders (munyao & moronge, 2017). in ethiopia, according to council of ministers financial regulation no 17/1997 proclamation and ministry of finance and economic kedir yusuf abrahim & ganfure tarekegn 80 development (2007) directives, public procurement and property disposal services have to be centrally performed by public property procurement and disposal service agency. the main objective of this proclamation is to obtain goods, works, consultancy services and other services at the right quality, in the right quantity, from the right sources, at the right time, place and price to achieve organizational objectives. in another term, it was drawn to reduce corruption, increase competitiveness, bringing efficient utilization of government budget and other public resources. even though the rationale for establishment of this agency is theoretically right, practically due to rapid changes of business environment, the competency levels of staffs involved in procurement and procedures of procurement itself the implementation of centralized public procurement system for public organizations have been facing serious challenges. according to schultz & søreide (2008), in centralized procurement there is the possibility of encouraging corruption while it can involve large-scale favoritism. consequently, neither competition encouraged nor will lower price be obtained. a procurement policy defines the approval process for procurement contracts, roles of purchasers, to some extent procuring staffs conduct and operational issues, but it does not show which procurement procedures for which organizational structure, quality of internal communication system and workforce were not included. these pave a way for ineffectiveness procurement especially in public institutions. in 2018 research findings service delivery would significantly get better if procurement activities are decentralized as a result of enhanced participation ((bahl & bird, 2018). therefore, public procurement system and processes are affected both internal and external challenges. 1.2. statement of the problem in a many country that follows centralized public procurement and procurement processes have and will experience many challenges internally and externally. after review of the public procurement administrations in ethiopia,(ndercaj & ringwald, 2014), revealed that deficiency of experienced management and procurement staffs, lack of clearly defined principal oversight, lack of transparency, and unfamiliarity of procurement process with recognized international or organizational arrangement, are the major bottlenecks of ethiopian public procurement performances. to overcome these challenges and improve the public procurement system that substantially impact the growing economy of ethiopia, the federal government of ethiopia procurement and property administration proclamation no 649/2009 and pronounced centralized procurement system than previous decentralized procurement laws and procedures (tolessa, 2016). being following centralized procurement, in ethiopia many public projects works’ performances were extended from one to another year including the great ethiopian renaissance dam due to lack of effective procurement process; inadequacy of skills of procurement staffs, lack of well integrated procurement plans, poor procurement planning and management of the procurement process(damte, 2018 ; bulc ha, 2018). on other way, these implies that ineffectiveness of ethiopian procurement administration model and the effectiveness of responsible institutions pppds. (mugambi, 2019) reviewed the role of central government procurement performance and found out that government agents have no well integrated communication channels with each other and this creates inappropriateness and ineffectiveness in procurement activities. similarly, (hiidensalo, 2016) elucidated that centralized procurement can lead to purchases of semi-standard goods and services as the specification settled by the end users. but, effectiveness of the procurement process is measured through achievement of key performance parameters namely the timeliness, quality and quantity of the purchase (barasa, 2014). due to centralized approach, the ethiopian higher public educational institutions procurement system is characterized by poor procurement planning and pppds’s untimeliness response for procurement orders, not purchase of a right goods, works and services. based on these facts the main aim of this paper is to study the effectiveness of centralized procurement system in ethiopian higher public educational institutions. 1.3. specific objectives of the study  to investigate the effect of procurement policy mechanisms on effectiveness of centralized procurement system  to evaluate the effect of internal control system on effectiveness of centralized procurement system.  to investigate how contract management influence performance of centralized procurement.  to examine how supplier relationship management influence performance of centralized procurement.  to analyse the effect of staff competence on effectiveness of centralized public procurement system.  to analyse the impact of monitoring on performance of centralized public procurement effectiveness determinants of centralized public procurement effectiveness: evidence from selected ethiopian higher public education institutions 81 2. literatures review 2.1. definition procurement and procurement performance public procurement is broadly defined as the acquisition and employment of goods, works and services, of goods, supplies, construction works and services by the public organizations using regional or federal resources such as state budget, domestic and foreign loan (ambe & badenhorst-weiss, 2012). centralized procurement will exist in the situation where procurement is fully centralized when the key decisions on the purchase of goods, works and services (what, how and when) are adopted by the central procurement entity and it is formed with the aim of meeting the procurement needs of an organizations’ divisions’ (thai, 2017). the procurement process does not only deal with the acquisition of goods, services and works but also the complete process from planning to contract management. public procurement practice should be responsive to aspirations to the target society and there is also a need for transparency to enhance openness and clarity on procurement policy and its delivery(amemba et al., 2013). if each public procurement functions are properly it is pivotal for the successes of any organization can reduce transaction costs up to 25 percent (fussell et al., 2006). even though it depends on the its approaches, procurement performance covers a number of quality and quantity-enhancing standards, that diminishes transaction costs, shorten time spent, and the quality and quantity of goods delivered. according to (kakwezi & nyeko, 2010) failure to establish performance of the procurement function can lead to irregular and biased decisions that have high consequences to any public procuring entity. thus, the focus of this study is examining the effects and relationship between procurement performance and its factors. 2.2. approaches of procurement and procurement performance in most countries, the rapid changes of technological way of doing business, poverty reduction and development goals of countries placed pressure on how the procurement has to operate in its internal and external processes and procedures. based on these factors countries including ethiopia has made reforms regarding organizational procurement approaches (centralized or decentralized or hybrid), procurement process, procurement rules, and guidance, internal control policies, and workforce (ouma & ochiri, 2017). according to (brezovnik et al., 2015) centralized public procurement structure important to practice in the situation where there is high degree of uniformity and consistency in all forms of organizations activities. even though a corporate wideframework purchase agreements were preferred in helsinki, (karjalainen, 2011) found that centralized procurement structure has its own drawback like prolonged procurement process, limiting the participation of local suppliers, poor procurement planning, contract management system, lack of transparency and competent procurement staffs become major impediments to the effective centralized procurement system. moreover, centralized procurement is unfortunately an area vulnerable to mismanagement and corruption, lack of adequate needs assessment and poor business cases (basheka, 2008). in ethiopia, according to council of ministers financial regulation no 17/1997 and ministry of finance and economic development (2007), public procurement and property disposal has been centrally performed by public property procurement and disposal service(tesfahun, 2011). even though the rationale for establishment of this agency is theoretically right, practically due to rapid changes of business environment, the competency of staffs involved in procurement and approaches of procurement itself the implementation of centralized public procurement system for public organizations have been facing serious challenges. moreover, the responsible public body, public property procurement and disposal service (pppdsa), has been pragmatic and contented its mandate is questionable due to several reasons and activities involved in procurement processes. in the contrary, decentralized public procurement system encourages responsiveness and it conducts its functions timely based on the demands of target groups or organizational divisions (masiko, 2013). 2.3. challenges in procurement processes and procurement performance procurement commonly involves purchase planning, standards determination, specifications development, supplier research and selection, value analysis, price negotiation, making the purchase, supply contract administration, inventory control and stores, and disposal functions (mesa, 2018). according to (emaru, 2016) established that the main challenges faced by the stakeholders in the procurement process include inadequate understanding of the roles of stakeholders in the procurement process, principles of public procurement, procurement planning and developing statements of requirements. procurement planning and policy entails the identification of what needs to be procured, how the organizations needs can best be met, the scope of the goods, works or services required, what procurement kedir yusuf abrahim & ganfure tarekegn 82 strategies or methods to be deployed, setting the time frames, and the accountability for the full procurement process (thai, 2008). procurement planning is required to consider the current procurement situation functions and the strategic direction in which its condition might change. poor procurement planning has been one of the major stumbling blocks to the economic development of africa and it has been clear that a number of african countries have not paid adequate attention to the proper management of public resources (onyango, 2012). even this day, very limited scientific research has been done to examine the extent to which efforts in procurement planning can contribute to effective public organizations performance (basheka, 2008). control theory states that an internal control is a system built within an organization that encompasses solutions for keeping positive performances, corrective actions and to bring system stability for which it designed for (mohammed, 2018). unethical behavior of contracting groups and staffs involved in procurement processes stimulates fraud and theft of public funds (ferraris et al., 2016). according to (chan et al., 2008) the primary purpose of internal control systems is to provide reliable information about the assets, evidence-based work done on one hand and prevent assets loss and that failure to detect or prevent material error on a timely basis by the system on the other hand. according to ethiopian procurement manual (2009), internal control system includes, activities like record management practice, actual procurement plan, procurement order tracking system, contract enforcement, proper inspection and receiving of purchased goods and services(singh, 2020). thorough ethical conduct is essential to the creation of long-term relationships with suppliers of goods, works and services. since procurement staffs are the representatives of their organization, without considerations of their ethical aspects, it is impossible to claim professional ethical statuses in procurement processes. competencies indicate sufficiency of knowledge and skills that enable to act in a wide variety of situations (morales-sánchez & cabello-medina, 2013). a study done on evaluating the purchasing procedure in ethiopian grain trade enterprise by (assefa, 2006) found that poor quality of grain purchases, suppliers misleading purchasers, continuous price fluctuations, unclear purchasing procedures, no technical specifications for purchasers and incompetent purchasing staff. in kenyan ministry of energy; staff competency procurement planning, resource allocation, and contract management positively affected procurement performance at (kiage, 2013). that is why this study considered procurement planning and policy as one study variable. in public organizations, procurement officials who have the obligatory procurement and supply skills are able to implement and monitor their duties in a knowledgeable, empowered and motivated manner (khadija & kibet, 2015). in public entity, procurement performance is not an end in itself but it is a way to control and monitor the procurement functions for more competitive, and improves delivery of quality of services. the study conducted on the determinants of procurement performance in kenyan ministry of education by stephen gitau (2013) found management style, participants, resource dependency, and technology were common determinants. in ethiopian procurement guidelines 649/2009, commitment to continuous improvement by the supplier, level of trust placed on the suppliers, past performance of the supplier, lead times allowable and quality of goods/service suppliers provides were taken as the most serious factors to be consider while evaluating potential supplier for contract award. supplier selection of ppds as an agent purchaser, might face moral hazard and adverse selection that influences the output of the agent explained by failure to do exactly what the agents appointed to do (hazard (muhunyo & jagongo, 2018). therefore, contract management and supplier relationship highly influence the performances of procurement at central level. 3. methodology 3.1. research design this study focuses on factors affecting centralized procurement effectiveness in higher ethiopian public educational institutions and to achieve this objective the researchers employed the explanatory research design. 3.2. data sources, sampling and sample size the study area were purposively selected and the primary data sources from 82 employees of from property procurement teams, property administration teams, accountants and cashiers of four sampled universities and public property procurement team leaders of pppdsa at federal level were included in this study. the data was collected through questionnaires distributed to all responsible bodies of sampled universities and interviews were conducted with sampled universities procurement team leader and pppds procurement team leader at federal. determinants of centralized public procurement effectiveness: evidence from selected ethiopian higher public education institutions 83 3.3. method of data analysis in order to achieve the designed objective of the study, pearson correlation and a multiple regression analysis tool were used on stata 14 software package. 3.4. model specification ppef = 𝛽0𝑖 + 𝛽1𝑠𝑃𝑟𝑝𝑜𝑙𝑖𝑐𝑦 + 𝛽2𝐼𝑐𝑡𝑟𝑙 + 𝛽3stcpcty + 𝛽4𝑚𝑛𝑡𝑟 + 𝛽5ctmgt + 𝛽6𝑠𝑠𝑟𝑒𝑙𝑛 + ɛ𝑖 table1: description of variables variable definition ppef centralized procurement effectiveness prpolicy procurement planning and policy internctrl internal control activities staffcpcty staffs educational competence monitor procurement process monitoring contmgt contract management ssreln suppliers relationship e error term i ambo, jimma, mettu, and wollega universities source: researchers design, 2019 4. results and discussions hereunder a pearson correlation analysis and a multiple regression model were used to determine the correlation between the procurement effectiveness and explanatory variables and again the influence of each explanatory variable that factors that affect the effectiveness of centralized public procurement system in ethiopian higher public educational institutions were presented as follows; 4.1. pearson correlation analysis the correlation between the procurement effectiveness and explanatory variables were analyzed by pearson correlation and found that all explanatory variables positively influences the effectiveness of procurement system in sampled ethiopian higher public institutions but each variable affects procurement at different degree of correlation. for instance, procurement policy influences procurement system effectiveness at 54.15 percent degree of influence. internal control, staff capacity and monitoring affect the procurement system effectiveness by 74.10, 49.58 and 44.57 percent respectively while contract management and supply relation with the procuring institution affects procurement system effectiveness by 3.53 and 5.68 percent degree of influence respectively. kedir yusuf abrahim & ganfure tarekegn 84 table 2. correlation analysis source: primary data, 2019 these findings indicated that any improvement in procurement policy, internal control, staff capacity, overall monitoring and a proper implementation and enforcement of the contract management system and will contribute a lion share degree of influence to the effectiveness of the procurement practices that improves the overall procurement performance of the sampled higher public institutions. 4.2. regression analysis result before normal regression was regressed, the researchers examined the assumption of the classical linear regression and the result of expected assumption were explained below. 4.2.1. normality of residuals test the normality estimates of kernel density figure above shown the sign of normal distribution of the data and therefore, the residual has not the issue normality problem. 4.2.2. heteroskedasticity of residuals test from the table below of heteroskedasticity of residuals showed total of 0.0014 which was below significance value of 5 percent. therefore, researchers concluded that there is no heteroskedasticity problem in this study. determinants of centralized public procurement effectiveness: evidence from selected ethiopian higher public education institutions 85 cameron & trivedi's decomposition of im-test -------------------------------------------------- source | chi2 df p ---------------------+---------------------------- heteroskedasticity | 48.36 27 0.0070 skewness | 14.21 6 0.0274 kurtosis | 1.38 1 0.2403 ---------------------+---------------------------- total | 63.95 34 0.0014 -------------------------------------------------- 4.2.3 multicollinearity as it shown table above the vif of all independent variables are greater than 0.1 and the mean vif value of all the independent variables are also less than 10 (that is 1.60). therefore, there is no multicollinearity problem among each independent variable. 4.2.4. multiple linear regression analysis result in this study, all explanatory variables were positively correlated with procurement system effectiveness. but which and how a variable is significantly influencing centralized procurement system effectiveness, needs further analysis of inferential statistics analysis. accordingly, a multiple linear regression analysis was employed and the results were presented below. source: stata outcome by researchers, 2019 kedir yusuf abrahim & ganfure tarekegn 86 4.2.4.1. procurement planning and policy a properly designed and implemented procurement policy plays a pivotal role in providing a guiding framework for the effective implementation of procurement processes and practices (njeru et al., 2014). procurement policies are rules and regulations for governing procurement procedures in an organization and it further involves design procurement planning of each public sectors, submit the plan to the centralized public property procurement and disposal service (pppds) within scheduled time, announcing a public auction and appropriately select the bidder, making contract with a bid winner, allowing lead time (if necessary), perform framework procurement and distribute to the public sectors according to their procurement plan. from this one can understand that procurement system is one of the most complicated activity in public sector operation and it further affects the budget plan and final performance of each public institution. in this study to identify to what extent procurement policy or procedure affects effectiveness of the procurement system, the researcher applied a multiple linear regression and found that public policy affects procurement system effectiveness by 0.042 percent. therefore, each sampled higher public educational institution and pppdsa in ethiopia are expected to design and appropriately implement the procurement policy and procedures in a very clear manner. in addition to this, it also advisable that if they apply a computerized procurement system to support their procurement policies and reduce the degree of frauds that might arise at some point. 4.2.4.2. internal control activates and centralized procurement system effectiveness internal control system is the additional important variable incorporated in this study comprising important factors that have an influence on the effectiveness of centralized public procurement practice. according to ethiopian procurement manual (2009), internal control system includes, activities like record management practice, actual procurement plan, procurement order tracking system, contract enforcement, proper inspection and receiving of purchased goods and services. all these segments of activities are highly correlated with competent staffs that perform them and effectiveness of the overall procurement system effectiveness of the sampled higher educational institutions. the final regression result reveals that internal control system and procedures of sampled public educational institutions in ethiopia strongly and positively affects their effectiveness of centralized procurement system at 1 percent significance level (0.000). therefore, to avoid the return of defect goods, high compliance on and untimely response of procurement report, misappropriates and malpractices in procurement system, the pppdsa and sampled ethiopian higher public educational institutions should design strong internal control system with good evaluation system. 4.2.4.3. staff capacity and centralized procurement system effectiveness staff competency is the other variable that was included in this study to analyze the factors that affects public procurement system effectiveness. in ethiopia, public procurement system has not been yet effectively implemented since most of the procurement functions are subjected to manual procedures that are slow, inaccurate and infective. competencies indicate sufficiency of knowledge and skills that enable to act in a wide variety of situations(spencer & spencer, 2008). in procurement perspective, if the staffs are not adequately educated, serious consequences that include breaches of codes of conduct and mal practices may occur (shick, 2003). thus, in public sectors, procurement officials who have the obligatory procurement and supply skills are able to implement and monitor their duties in a knowledgeable and motivated method. the regression result showed that in sampled ethiopia higher public educational institutions and pppds staffs’ capacity positively and significantly affects the procurement system effectiveness at 1 percent (0.000) significance level. therefore, it is advisable if educated and well-experienced well trained staffs are has to be employed and assigned to execute procurement system of the institutions otherwise less experienced staffs are has to be regularly trained about the procurement policy of the country, procurement planning, how stakeholders participate and what procedures should be followed by each public body and how procurement report has to be made. to further reduce the burden of the staffs and improve the performance of a procurement system, it is recommendable if the manual procurement procedures are replaced computerized procurement systems. because computerized procurement system reduces, information asymmetry, equal requirements of procurement criteria among public sectors, reduces the burden of the staffs, and it further demonstrates efficient use time and budget. determinants of centralized public procurement effectiveness: evidence from selected ethiopian higher public education institutions 87 4.2.4.4. contract management and centralized procurement system effectiveness contact management includes different factors corruption, unresponsive bids, ignorance of ppds guidelines, accountability, transparency and relationship between public procurement and property disposal service agency. when public educational institutions procurement teams prepare annual procurement planning and sent to pppdsa, according to public procurement manual, the pppdsa and the public higher education institutions are in contract. since 2009, to avoid corruption and misappropriations, ethiopia has been following a centralized public procurement system for huge amount of procurement. to analyze the impact of procurement contract management on procurement system effectiveness, the researchers applied a multiple regression and found that contract management affected procurement effectiveness of sampled ethiopian higher public educational institutions by 5.2 percent. in another term an improvement in contract management enhances the procurement effectiveness by 6.69 percent. therefore, a sampled budget and procurement teams of sampled ethiopian higher public universities need to improve their contract management efficiently and effectively by combining competent staffs on procurement planning, and budget teams of their respective universities. 4.2.4.5. monitoring and centralized procurement system effectiveness monitoring is the process of continuously evaluating the internal control system and improves or modifies the necessary procedures when it is needed. monitoring covers assessing all components of procurement policies & procedures, procurement contract management, internal control system of the institution under operation, and finally identify the loopholes and recommend the management to take correction actions based on its evaluation findings. accordingly, the overall annual procurement system effectiveness was boosted and contributes to organizational performance. in this study, monitoring is included as one factor and the statistical analysis result displayed that monitoring affected the procurement system effectiveness at 1 percent significance level (0.000). therefore, the sampled ethiopian higher public education institutions ought to have a separate procurement system monitoring team and independent verifiers of the procurement performance based on the annual procurement plan. 5. conclusion and recommendation the pearson correlation analysis between procurement effectiveness of a sampled ethiopian higher public educational institutions and explanatory variables were done and the result showed procurement policy (54.15%), internal control (74.10%), staff capacity (49.58%) monitoring (44.57%) contract management (3.53%) and supply relation (5.68%) were the main factors that affect the procurement effectiveness. these indicates all explanatory variables were positively influencing the effectiveness of procurement system but each variable affects procurement at different degree of correlation. the multiple linear regression analysis result exhibited that public policy affected procurement system effectiveness of the sampled ethiopian higher public educational institution by 0.042 percent. therefore, each sampled higher public educational institution and pppdsa in ethiopia are expected to design and appropriately implement the procurement policy and procedures in a very clear manner. internal control system and procedures of sampled public educational institutions in ethiopia strongly and positively affects their effectiveness of procurement system at 1 percent significance level (0.000). therefore, to avoid the return of defect goods, malpractices, high compliance and untimely response of procurement orders, the pppds and sampled ethiopian higher public educational institutions should design very clear procurement planning criteria that fits the national procurement guideline, strong internal control system with good evaluation system. monitoring affected the procurement system effectiveness at 1 percent significance level (0.000). therefore, the sampled ethiopian higher public education institutions ought to have a separate procurement system monitoring team and independent verifiers of the procurement performance based on the annual procurement plan. an improvement in contract management enhances the procurement effectiveness by 6.69 percent and it was also affected procurement effectiveness of sampled ethiopian higher public educational institutions by 5.2 percent. therefore, a sampled budget and procurement teams of sampled ethiopian higher public universities need to improve their contract management efficiently and effectively by combining competent staffs, procurement planning, and budget teams with procurement teams of pppdsa at central level. moreover, it also advisable that if the sampled ethiopian higher public educational institutions apply a computerized procurement system to support their procurement policies and reduce the degree of frauds that might arise at some point of procurement processes. kedir yusuf abrahim & ganfure tarekegn 88 declarations this research titled ‘factors affecting effectiveness of centralized public 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(2015). gpa accession: lessons learned on the strengths and weaknesses of the wto government procurement agreement. trade l. & dev., 7, 89. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 1-7 1 the application of child adoption (balaku anak) and its legal effects on customary law system of the dayak ngaju tribe study in palangka raya city, central kalimantan province rizki yudha bramantyo kadiri university, indonesia irham rahman kadiri university, indonesia received: nov 30, 2020 accepted: dec 21, 2020 published: june 15, 2021 abstract: the purpose of this research is to find out how the application of children's behavior and its influence on the customary law system of the dayak ngaju tribe. the research method used is qualitative. primary data comes from observations and interviews. meanwhile, secondary data from previous studies were collected to support the findings. the findings reveal that there are differences i n the rule of law between islamic law and positive law and customary law of the dayak ngaju tribe. islamic law regulates inheritance and inheritance rights according to lineage, positive law regulates the return of cases of adoption to civil law, and customary dayak ngaju law recognizes adoption. keywords: child behavior, legal effects, customary law, dayak ngaju 1. introduction central kalimantan is one of the provinces of the republic of indonesia, which is located on the island of kalimantan. the local community or the original inhabitants are the dayak tribe. the dayak tribe itself is divided into several sub-tribes, which are many in number, including dayak ngaju, manyan, bakumpai, ot-danum, ma'nyan, ot-siang, lawangan, katingan and others. in some areas, there are still local dayak tribes who still live with their respective local wisdom and their lives are still very traditional and simple, usually living on the coast of the river, as seen on the coast of the barito river there are dayak ot-olong, dayak penyawung, ot-paridan, and ot-saribas. some of the latter sub-tribes still depend on nature and live closely with local wisdom [1]. many government development programs have been implemented both in infrastructure development (roads and bridges) as well as development in other fields. this has had a significant impact and change in the economic, social and cultural fields as well as the customs of the local community [2]. meanwhile, challenges in economic development are the deprivation of traditional dayak land rights and environmental damage, destructive government policies, and globalization [3]. however, the occurrence of social change cannot be prevented; the pace of the development of the era is accompanied by the pace of development, breaking through the forest, spreading asphalt into roads, opening easy access from one area to another, even in areas that were previously isolated. open access roads make easy access to information and everything, including access to goods and services. the wheels could turn across it, no need for an outboard motor propeller, which was risky, slow, and a long way around the creek. with the opening of land access, new economic opportunities are starting to emerge. shops, stalls, and stalls, restaurants, and so on. realizing that land routes were easier to use and more promising buying and selling opportunities, created a change of profession. the change in the profession in question, from initially depending on the river, as a fisherman, as a keramba farmer, as a seller of water transportation services, moved to land on the side of the road. opening a river food shop, fried fish, grilled fish, and so on [4]. rizki yudha bramantyo & irham rahman 2 social and economic changes are of course led by young people who go to school. awareness of science and the importance of studying at a young age as a provision later in adulthood have made many of the young generations of the dayak ngaju tribe in pahandut district, palangka raya city starts seriously studying and going to school and even studying outside the island up to the level of three strata or doctoral level. prof. eddy leon, m.pd, who is one of the key informants of this study, said that social change would move in line with the community educational background. however, one thing is the culture and values of local wisdom that have not changed much, namely households. family law will not be far from around marriage, adoption, divorce, and inheritance. regarding married life, wise bestari, said advice is still and always given by the elders as provisions for the younger generation to live a happy household life until the end of time. starting from the marriage system, kinship, most of the dayak ngaju people in pahandut district, palangka raya city still apply the indigenous dayak culture noble values. the kinship system of the dayak ngaju people in the pahandut sub-district of palangka raya city is based on the principle of ambilineal descent, which is a kinship system that takes into account the kinship relationship for some people in society through men and for some others, in that society too, through women [4],[5]. traditional ceremonies in central kalimantan are an inseparable link from tattwa which is the core of the hindu kaharingan religious teachings (the original religious tradition of the dayak people) with morals which are rules that should be implemented to achieve goals [6]. the elements of tattwa, ethics, and ceremonies are universal elements of hindu kaharingan teachings that are contained in every ritual carried out by the dayak community, in which elements must be understood and obeyed in an integrated and simultaneous manner and inseparably [7],[8]. one expectation that really is from the marriage event itself is the continuation of offspring or having children as the next generation of the family [9]. however, as the wise words that fortune, mate, and death have been arranged by the most living, so also not all families are blessed with fertility and many children. others have to be patient with not being given offspring. even though children in the ngaju family are proud, especially boys who are believed to be responsible for bringing the spirits of their father and mother to holiness through tiwah ceremonies and so on. then how do the ngaju people respond to this, customary law as a respected and obeyed ancestral heritage provides a solution for child balaku or adoption or child balaku. how does the customary law of the dayak ngaju tribe regulate this, are there legal consequences that arise, especially with inheritance and civil rights. 2. materials and method this research was conducted in field or empirical research, which was analyzed using interactive data analysis methods [10]. data obtained by carrying out observations and in-depth interviews. interview informants were selected based on their closeness to the problem under study, especially the perpetrators themselves, and were developed extensively with the purposive snowball sampling method of informant selection. the research result will be presented in a descriptive narrative in sequential, complete, and show location actual condition. the residence of the ngaju dayak tribe which is the subject of this research is along with the large kahayan river flow. in the great kahayan river, ngaju lives in the downstream area, while in the huku is inhabited by the otdanum sub-tribe. the boundaries of the ngaju people go downstream, usually limited to the village of tumbang miri. if it is continued upstream, it will directly enter the ot-danum sub-tribe (people) area. research for beginner lecturers this time actually took the research area in the banama tingang district, gunung mas regency, and central kalimantan province. due to the covid-19 pandemic, which forced researchers to change the research method from the beginning by going directly to the research location, it was replaced by using media and technology. 3. results and discussion 3.1. balaku anak in dayak ngaju customary law balaku anak in the ngaju language is called balaku anak, where literally balaku means beg or ask and a child means child as the next generation. based on the results of the field findings (the results of interviews with key informants prof. dr. eddy leon, m.si and dr. netto w.s. rahan) told the author that balaku children in the indigenous dayak ngaju tribe were carried out in accordance with customary rules such as, the application of child adoption (balaku anak) and its legal effects on customary law system of the dayak ngaju tribe study in palangka raya city, central kalimantan province 3 3.1.1.disconnect with uluh bakas biological break kinship with biological parents. balaku children in the customary tatahum system of the dayak ngaju tribe will completely sever the relationship between the child and his biological parents. talks between adoptive parents and biological parents are held confidentially and adopted children should not find out. this is done in order to maintain harmony and balance in nature. so that life goes well. 3.1.2. adopted children become biological children of adopted families adopted children will be considered the same as biological children. large families of families who adopt children will be able to consider the adopted child as an appropriate biological child. balaku anak will be carried out in the custom order and rituals of the whole extended family will know about it and obey the agreements formed. in order to maintain harmony, the ngaju dayak tribe will truly consider the adopted child to be their biological child. they will really treat the adopted child as a real child. uncle and aunt, grandfather, and grandmother did the same. it was as if the adopted child was really a biological child. the child also feels the same affection, even biological children (if any) actually adopted siblings will treat the adopted child like siblings. 3.1.3. adopted children receive an inheritance from uluh bakas adopted according to the family agreement underlining the rule that adopted children will be treated truly like real children, in the customary law system of the dayak ngaju people; adopted children will receive an inheritance and a will from the adopted family. this also ensures that the adopted child will not receive the same thing from his biological family. the child's text is completely cut off from his biological family. 3.1.4. balaku anak dayak ngaju customary law system do not correspond based on the narrative of the key informant and supported by additional informants, to maintain harmony, balance and sanctity of traditional ceremonies and rituals as well as to maintain brotherhood and kinship (avoiding accusations of distrust) and also never being taught by ancestors, balaku, the son of the dayak ngaju tribe ever stated in any correspondence. in some families who are living modernly, adopted children are immediately registered on the family card as children. however, in many families who still adhere to customary laws and values strongly, the adopted child is just like that. even so, nowadays all balaku children are usually directly entered into the family card, so the customary leader also acts as a social organizer of the community who will monitor the administrative order of the population of its citizens. 3.2. the balaku model of the ngaju dayak tribe in its implementation, there are several balaku models for the ngaju dayak tribe. in general, it is almost similar to some of the other dayak sub-tribes. the model or form of child behavior that occurred was obtained from the results of observations and in-depth interviews with key informants at the research location. the models are, 3.2.1 balaku is a child because he does not have children one of the dayak tribe in general or ngaju is adopting children because the family is not or has not been blessed with offspring after being married for a long time. balaku children are a solution to having children. the legal consequences of this child's balaku will be discussed in the next chapter with the topic of the legal consequences of balaku, the child of the ngaju dayak tribe. balaku children, because they do not have offspring, are the simplest rule and have two traditional functions. the first is that the adopted child is intended to be the adoptive family childthe second is that the adopted child's presence is expected to be a provocation so that the family has a biological child. as a start so that the wife can get pregnant/pregnant. as explained by prof. dr. eddy leon, m.pd, to the author closed to nuclear families only. this means that the adopted child cannot come from another family, especially from another tribe 3.2.2. balaku children because most children there was a family who lived simply by fishing and salting them and selling them. the family lives a simple and simple life, but the husband and wife are very fertile and are gifted with many children. every year a child is born. rizki yudha bramantyo & irham rahman 4 the mother is so healthy the father is healthy. even so, for the sake of the child's future, so that they can go to school and have a better future, some of the children are given to other families, who want to take care of the ch ild and bear the responsibility for the child until the end of his life. balaku children with this principle are recognized in the customary law system of the dayak ngaju tribe. 3.2.3. balaku children because children are sick in the family the next balaku rule for children is the balaku child which occurs when the child or the baby is continuously sick when cared for by the biological parents. as told by dr. netto rahan, the child is not matched with his biological parents and the balance of the universe is disturbed. so one solution was tried, namely by adopting the child to another family who was still a relative. try being raised by your mother's sister, being raised by your father's brother. in fact, when taken care of by a mother's or father's brother's sister, the child is healed and will be healthy forever. so it is considered that the child is matched with another family, and then for the sake of the child's health and life, the child is adopted by another household that is still a family. 3.2.4. balaku children happen because their birth parents suddenly passed away the kinship system of the indigenous dayak ngaju tribe has noble customary provisions. prioritizing harmony and peace as an approach in solving all forms of social problems. likewise in the maintenance of descendants and future generations. one form of balaku children who are honored to the legal system of the indigenous dayak ngaju tribe is balaku children whose parents suddenly died as a result of a natural disaster or accident. the abandoned child is the responsibility of his extended family, a large family meeting will soon be held to decide who the child is to care for. the tampung tawar ceremony will be held as a sacred part of a series of balinese traditional balinese ceremonies. 3.2.5. childhood behavior occurs because of dreams the customs of the indigenous dayak ngaju tribe are still thick with nuances of spiritualism. the teachings of the ancestors and the nobility of customary norms that are still adhered to until now transform into a beautiful and extraordinary identity when examined from a social science point of view. one of the very interesting values is the occurrence of children's balaku that departs from the dreams seen by prospective adoptive parents. as told by dr. netto rahan was also strengthened by dr. darsan, for example, a husband and wife who never had children, then saw in his dream that he could have a child, as long as he was hooked first by lifting a child from his brother. so based on this dream, the husband and wife consult with the traditional demang and then the child's balaku is realized. then two years after adopting a child, finally the husband and wife became pregnant and had offspring of their biological children. another story is another rule; there is also a husband and wife who dream of having to save a child who is sick in the care of their biological parents. after being complained to demang, then demang with his spiritualism showed the sickly child. long story short, the couple adopted the sick child and the child was able to recover and grow well and be healthy . 3.2.6. child behavior to reconcile conflicts between families huma betang or rumah betang, which is a traditional house of the dayak tribe, is a large and long house that is inhabited by several families who are still of one descent or kinship [11]. then another betang containing another family and so on. another function of the children's balaku as a solution to social problems that arise in everyday life is an effort to reconcile disputing families [12]. for example, family a has a dispute with family b, so be reconciled by custom. two solutions are offered, namely the heads of families a and b raise each other as adopted siblings, or the children of family a are adopted by b then the children of family b are adopted by family a. thus families a and b are brothers with blood, inseparable. 3.3. balaku ceremony for the children of the dayak ngaju tribe the results of the interview with the informant mr. offeny as an observer of dayak culture, the researcher received information that the balinese traditional ceremony of children has the concept of uniting people who are not bloodblooded, into flesh. therefore, the balaku ceremony for children has a high level of purity and sacredness. there are some dayak areas that unite the blood of the prospective adoptive parents with the blood of the prospective the application of child adoption (balaku anak) and its legal effects on customary law system of the dayak ngaju tribe study in palangka raya city, central kalimantan province 5 adopted child in a container, combine them by stirring them, giving them a hardener that comes from rice, after joining them smeared on their faces accompanied by prayers and hopes that god almighty will bless them. 3.4. legal consequences for the implementation of child balaku information obtained from in-depth interviews with prof. dr. eddy leon, m, pd, that dayak customary law does not recognize the differentiation of inheritance rights between boys and girls. unlike the javanese inheritance law which differentiates based on gender, and even differentiates based on birth order, anak mbarep ragil children. dayak customary law places inheritance rights to deliberation and consensus, all forms of parental inheritance are properly preserved and divided based on the results of extended family meetings. in ancient times when the dayak tribe was still living in large betang-betang, a large family meeting was held to divide the inheritance rights, who held the family heirloom, how much of it was and that person was obliged to protect the family heirloom, usually in the form of mandau or pottery [13]. prof. eddy said that usually, all inheritance assets were the same, except that there was a slight difference between children who took care of their parents until they died. usually the child is given more but everything returns to the extended family meeting. as a result of the law, traditionally the child who is being trained is no longer the son of the biological family. by customary law, the child broke his line and turned into a child from a family that bullied me. especially for adopted children, as a result of the law or the consequences of the child's behavior, the child will no longer receive inheritance from his biological parents, and he has the right to inherit from his adoptive parents. he will be considered as a real child and get affection from his siblings. therefore, the balaku child must also be counted as part of the family meeting [14]. 3.5. discussion recognition of habit into law according to state law (positive law), according to austin, is defined as law made by people or institutions that have sovereignty and this recognition is enforced against members of an independent political society. these members of society recognize the sovereignty or supremacy of the person or law-making institutions concerned. thus, according to him, habits will only act as law if the law requires or states explicitly about the enforceability of these habits [15]. the existence of a customary law community and its traditional rights is recognized by the state in accordance with article 18 b paragraph (2) of the 1945 constitution where recognition and respect are given without neglecting the feasibility measures for humanity in accordance with the level of development of the nation's existence. such recognition and respect must not diminish the meaning of indonesia as a country in the form of the unitary state of the republic of indonesia [15]. this provision gives recognition and respect to customary law communities which is a basic concept or pillar of customary law [16]. if we refer to islamic law, the compilation of islamic law (“khi”) does not regulate adoption by single parents. khi only explains the inheritance rights of adopted children. according to khi, what is meant by adopted children are children who in terms of maintenance for their daily lives, education costs, and so on, shift their responsibility from their original parents to their adoptive parents based on a court decision (article 171 letter h islamic law compilation). the indonesian ulema council ("mui") has long been criticizing adoption. the fatwa became one of the results of the mui national working meeting which took place in march 1984. in one point of consideration, the scholars viewed that islam recognizes legal descent (nasab), namely children born from marriage. mui reminded that when adopting (adopting) a child, do not let the child lose his lineage (nasab) with his biological father and mother. because, this is contrary to islamic law. there are many arguments that underlie it, among others, the al-quran surah al-ahzab verses 4-5. it is stated that the prophet muhammad saw said that, "from abu dhar ra he actually heard rasulullah say, “no one acknowledges (self-nationality) is not the real father, while he knows that it is not his father, but he has kufr (bukhari) and muslim)”, in its fatwa, the mui views that adopting a child should not necessarily change their status (nasab) and religion. for example, by pinning the name of the adoptive parent behind the child's name. rasulullah has pointed out. behind his name and do not necessarily change it to the name bin muhammad. meanwhile, if viewed from the positive law in effect in indonesia, adoption by a single parent is possible, provided that the single parent is an indonesian citizen and has received permission from the minister (article 16 of government regulation no.54 of 2007 concerning implementation of appointment child). adoption of children rizki yudha bramantyo & irham rahman 6 by single parents is carried out through child care institutions in accordance with the provisions of article 10 paragraph (2) and paragraph (3) as well as article 30 of the regulation of the minister of social affairs of the republic of indonesia number 110/huk/2009 of 2009 concerning the requirements for adoption of children ("permensos no. 110/2009”). to be able to adopt a child through the child care institution, the person must meet several requirements (article 32 of the minister of social affairs no. 110/2009) as follows: a. physically and mentally healthy, both physically and mentally able to nurture caa; b. have a minimum age of 30 (thirty) years and a maximum of 55 (fifty five) years; c. religion is the same as religion of the adopted child candidate; d. have good character and have never been convicted of a crime; e. do not or do not have children or only have one child; in a state of economic and social capacity; g. obtaining children's consent, for children who have been able to convey their opinions and written permission from the child's parents / guardians; h. make a written statement that adoption is in the best interests of the child, the welfare and protection of the child; i. the existence of social reports from the provincial social agency social workers; j. has cared for a prospective adopted child for at least 6 (six) months, since the care permit was granted; and k. obtaining a license to adopt children from the minister of social affairs to be determined in court. thus according to islamic law, adoption or adoption of a child may not break the lineage of the child with the biological parents; it is just that the child care is transferred to the adoptive parents. here there is a fundamental difference where the dayak customary law completely cuts off the blood relationship of the child with the biological parents to be replaced with a new blood relationship with the parent or adoptive family in the widest possible scope including siblings, in the local tongue the term is a neighbor (serumah betang including aunts and so on). meanwhile, according to positive law in effect in indonesia, adoption does not regulate blood or lineage ties [7]. then the civil element applies in this case and the rights of the child towards their parents including the inheritance will return to the choice of law taken by the family and the parties involved (adoptive parents, adopted children, adopted siblings) apply the pacta sunt servanda principle where the family agreement that is reached on the issue is binding on the parties like a law. disputes that may arise in the future will be settled amicably by the extended family or settled legally in the local district court according to the legal domicile of the parties in accordance with sema no. 2 of 1979 jo sema no. 6 of 1983 and also government regulation no. 54 of 2007 concerning the implementation of adoption of children. the usual procedure in force at the religious courts prior to the birth of law no. 3 of 2006, in filing a child adoption case, the prospective adoptive parents filed a case requesting adoption as is usually a volunteer case (application). in the religious courts it is processed in accordance with the applicable procedural law until a religious court decision is issued. as a reference in the examination procedure and the form of determination of the application for adoption, it is usually guided by sema no. 2 of 1979 jo sema no. 6 of 1983. adoption of children according to general civil law, before a case is submitted to the district court, prospective adoptive parents must first obtain a license to adopt a child (adoption) from the head of the provincial social welfare service. to obtain permission from the head of the provincial social welfare service, prospective adoptive parents, and adopted children have met the requirements as stipulated in the decree of the minister of social ri no.13/huk/1993. 4. conclusion and recommendation the findings of this study are that there are differences in the legal principles of islamic law, positive law and customary law of the dayak ngaju tribe. where it is related to blood relations and kinship, especially the dayak ngaju customary law will cut off kinship with the biological parents to be replaced by adoptive parents. this child also seems to be the biological child of an adopted family. use the name of adoptive father or foster family if any, etc., as if the adopted child is really not an adopted child but a biological child. meanwhile, under sema, indonesia's positive law regulates the return of cases of adoption to civil law in general. the customary laws of the ngaju dayak tribe, especially regarding adoption or balaku anak, are still firmly held today. the high level of education, the high level of welfare did not change their belief in the teachings of these ancestors. as obtained through observations and interviews, prof. key informants. dr. eddy leon, m.pd himself is a child perpetrator where his youngest daughter is a balaku or adopted child. even though he is highly educated, has a modern mindset, and is widely associated as a professor at palangka raya university. rather than that, he still adheres to the teachings of his customary law and enforces all his customary rules regarding the balaku anak. likewise, as stated by dr. netto ws rahan, dr. abdurrahman, dr. john rette are all informants of this research, the application of child adoption (balaku anak) and its legal effects on customary law system of the dayak ngaju tribe study in palangka raya city, central kalimantan province 7 serving as lecturers at palangka raya university. demang darsan, demang ugi from the research location who gave a direct account of the behavior values of children in the dayak tribe. balaku anak in the customary law system of the dayak ngaju tribe is a mechanism for solving social problems. the nuance is sacred, holy, full of life symbols and signs, and oriented to the peace and balance of the universe in the daily life and interactions of the dayak people. in its implementation, there is no need to interfere with other legal systems, including national laws related to population administration or court decisions. this customary law is also referred to as a social solution to problems that arise in everyday social life, especially in terms of perpetuating generations or generations. references mulyoutami, e., rismawan, r., & joshi, l. (2009). local knowledge and management of simpukng (forest gardens) among the dayak people in east kalimantan, indonesia. forest ecology and management, 257(10), 2054-2061. suwarno, 2017. budaya huma betang masyarakat dayak kalimantan tengah dalam globahttps://lingua.soloclcs.org/index.php/lingua/article/download/237/219. akses oktober 2020 bamba, j. (2017). institut dayakologi: the challenges of an information and advocacy centre of dayak culture in kalimantan. in borneo studies in history, society and culture (pp. 313-340). springer, singapore. darmadi, h. (2017). dayak and their daily life. journal of education, teaching and learning, 2(1), 42-46. widen, k. (2017). the rise of dayak identities in central kalimantan. in borneo studies in history, society and culture (pp. 273-282). springer, singapore. qalyubi, i. (2018, july). the duality conception on ngaju dayak thoughts in central kalimantan. in 2018 3rd international conference on education, sports, arts and management engineering (icesame 2018). atlantis press. jarias, s. (2020). values of betang culture as one of the models in realizing better life in indonesia. international journal of management, 11(4). atok, k. (2020). gawai dayak as communication media of dayak people in borneo. medio, 2(1), 26-36. haug, m. (2017). men, women, and environmental change in indonesia: the gendered face of development among the dayak benuaq. austrian journal of south-east asian studies, 10(1), 29-46. bogdan, r., taylor, s. j., & taylor, s. s. (1975). introduction to qualitative research methods: a phenomenological approach to the social sciences. wiley-interscience. karliani, e., lion, e., & sakman, s. (2018, november). huma betang philosophy as the solidarity prototype and ethnic conflict prevention in dayak communities of central kalimantan. in annual civic education conference (acec 2018). atlantis press. suprayitno, s., triyani, t., & pratiwi, p. f. p. (2019). strategy on the national unity and politics agency (kesbangpol) in maintaining ethnicity and religious relations based on huma betang philosophy in central kalimantan. budapest international research and critics institute (birci-journal): humanities and social sciences, 2(4), 229-238. elbaar, e.f., misrita, nursiah, & koroh, d.n. root and impacts of child marriage in dayak dense-populated villages. iosr journal of humanities and social science (iosr-jhss)24(3), pp. 1-6 doi: 10.9790/08372403020106. muzainah, g., & faridh, m. (2019). customary inheritance law acculturation on the meratus dayak community. development and social harmony in southeast asia (icdis) 2019 otje salman soemadiningrat, rekonseptualisasi hukum adat kontemporer, p.t.alumni, bandung 2001 jimly ashiddiqie, konsolidasi naskah uud 1945, penerbit yarsif watampoe, jakarta, 2003 journal of international trade, logistics and law, vol. 2, num. 1, 2016, 9-19 logistics applications on energy supply chain management: turkey model ali saka, (mssc) istanbul commerce university, turkey murat çemberci, (phd) istanbul commerce university, turkey mustafa emre civelek, (phd candidate) istanbul commerce university, turkey abstract: finding necessary resources for energy production geographically, determining the amount of reserve to be found, digging them up, determining distance to market, solutions to transportation issues, creating distribution channels and observing supply demand equilibrium are tasks that are done by supply chain professionals. many different countries along with multinational corporations create a union of forces to overcome while planning these. every corporation in the system is responsible for overcoming a certain stage of these tasks, ho wever delivering these resources and goods happen with the collaboration of logistic sector creating a solution partnership. logistics provide energy supply chains all the required resources, distributing these to a location of function and deliver all these produced goods to required places. in this article, turkey’s involvement to these energy delivery systems is discussed. difficulties of being part of an existing system can only be overcome with mutual agreement for all parties, coming up with alternative solutions. by evaluating its location as a crossing route for petroleum and natural gas market, turkey can take a determinant role in this market while providing sellers with certain benefits. keywords: energy, energy supply, logistics 1. introduction international trade between corporations still continue to our day and 21st century corporations have a distribution network that can sell goods in both domestic and abroad. these delivery networks also known as logistic services are organized by these 3pl distribution firms. with the benefits provided by information technology, people no longer need to go to malls, markets or stores to do shopping to obtain their necessities. people now have the opportunity to get what they need wherever they need as supplying these goods are no longer a problem. concept of electronic trade successfully brought both consumer and producer together without the need for a mediator. from anywhere in turkey, any good that exits in any place on the earth can be ordered within seconds, paid and it can be traced during the delivery. the issue of going around in stores, looking for goods on shelves and comparing a product with others to find the optimal level of price and quality no longer exists. cheapest product now reveals itself to us in comparison to other products on our computer screen. this success, while being dependent on electronics trade, is also dependent on functionality of logistic services. it can even be claimed that, the application of electronic trade being so easy in our day is due to well-planned logistic operation systems. electronic trade and logistic systems also need to be fed by a resource. both electricity which is used to make electronic machines work and petroleum which is used for transportation vehicles are energy sources. almost all devices that are used in sheltering, heating, lighting, production and comfortable life can be operated with energy. actually, all mobilized objects require energy. the subject of this article is to reveal the economic and political 10 ali saka, murat çemberci and mustafa emre civelek struggles to obtain these energy sources that are required for these systems to improve human life in modern times and also reveal the activities that turkey developed in this field. the energy that operates open/close switches or timer systems or motion sensitive devices that make our life easier are no doubt not obtained very comfortably or easily. obtaining these resources, processing, pricing and distributing them for the energy sector requires great investments and is spread around globally with logistic solutions. the reason these establishments are founded is to produce goods and services. energy is the most important common input with the trait of being used in every input. energy is such an important factor that lack of energy can make any system break down if it’s not considered properly during supply chain management with a supply issue. the reason energy is not considered properly is not the fact that it’s viewed as an unimportant input, but the fact that energy suppliers were not able to form a proper distribution logistic network. countries have started to make investments on suppliers and auxiliary energy production systems to prevent production failures and to provide for future term needs that are caused by the lack of energy. the most important energy source is electricity in 21st century. after electricity, petroleum, natural gas and coal can also be counted as important energy sources. %80 of the electricity production is made by power stations that use petroleum, natural gas and coal as primary resource. the other %20 of this energy is produced by renewable energy sources. industrialized countries in west and far east monopolize on creating a technologic infrastructure required for energy production. the energy needed in order for these countries to maintain their dominance is provided by less developed or developing eastern and middle asian countries. these countries have major differences in their economic and political structures and their common political policies are maintained with energy resources required. it’s very difficult to talk about permanent successes in energy market. in cyclical, while there are situations where countries can remain dominant in an energy market, quick fluctuations can occur with it as well. turkey needs to produce realistic policies in order to have a say in energy market. geographically, turkey that holds a geopolitically important location between producing and consuming countries; needs to be involved in this energy supply chain by constructing passageways between these countries being a mutual solution partner to provide security and sustainability. the resource supply system that is fictionalized to provide for turkey’s need for energy relies on importing. turkey does not have the high technology and productive infrastructure to provide for the needs of international market. the most important advantage for turkey is its geographical location, being a bridge between producing and consuming countries. once turkey manages to valuate this advantage which make turkey have a say in energy projects in a good way, it can also boost its power in market. the fact that ottoman empire or other countries managed to maintain its economic and political power relied on holding trade routes under surveillance is a political strategy that should be kept in mind. 2. conceptive environment 2.1. energy turkish linguistic society defines the concept of energy as “the force that appears as heat, light that which exists in matter (türk dil kurumu, 2016). dictionary for turkish scientific terms; “energy is, while one part of it is provided by electricity, petroleum, coal and the other part of it is provided by sources such as wind, water, solar or animals and humans, forces that are mandatory to maintain production (türkçe bilim terimleri sözlüğü, 2011, p.415) makes a conceptual definition like this. the concept of energy is also explained by physicists theoretically aside from dictionaries. einstein claims mass and energy are the same and every matter we are in contact with in the universe is no different than energy and turn physics into something metaphysical by doing so (nordmann, 1959, p. 93). einstein determined that, energy equivalent of mass can be obtained by multiplying the mass of an object with square of light speed. he formulized logistics applications on energy supply chain management: turkey model 11 this remark in his article which he published in 1905 with the name “is the inertia of an object dependent on the amount of energy it holds?” and theorized it by doing so (calaprice, 2005); e = m x c2. functional importance of energy should also be discussed along with defining energy theoretically and conceptually. energy serves the purpose of being a catalyser in a system which it interacts with by changing at least one factor. human kind started this process with its muscle power, animal power, water, wind and biomass and took it to a new phase by making machines which unleashes the power within fossil fuels. during industrial revolution which started in 18th century, first energy resource to turn the cogs was coal. petroleum was discovered in 19th century and used in internal combustible engines, replacing coal as a primary resource for energy. petroleum is easier to extract storage and use compared to coal and gives more efficiency per mass. with these properties, it started to get in competition with coal (çınar & kesici, 2005, p. 166) aside from that, petroleum crisis’s between 1973-1974 and 1978-1979 made it easier to realize the importance of energy in economic development (reddy, 1998). with this crisis, the connection between energy consumption and economic development became clearer (güvenek and alptekin, 2010, p. 175). until petroleum crisis occurred, importance of energy as an input in production was not noticed, and this can be seen as a clear indicator to the fact that energy supply chain is managed very well. accessing energy became as easy as breathing, cheap and widened. in our day, strategic campaigns are made in the field of politics for energy supply which is an irreplaceable part of economic development. providing energy necessity in a secure, cheap, constant way sufficiently is one of the basic principles that define foreign policy of countries (kılıç, 2003, p. 361). 2.2. energy sources in the dictionary of turkish linguistic society the word petroleum is defined as; “unrefined, naturally flammable fat with a dark colour which has a unique scent and a density between .80-.95, consisting of hydrocarbons”. petroleum is the unknown energy source of the sacred fire lit in the temples of fire in the name of hormuz, the fire god in mesopotamia. the word petroleum has taken under record in babylonian tablets with the name of "naptu" around 2000 bc. it has been used as insulation material in the hanging gardens of babylon and it is also known to be used by sumerians and assyrians. petroleum is a meta which gained enough importance to be a subject in the code of hammurabi. in the beginning of the 2nd century the petroleum was used for militaristic purposes by hellenics against roman empire and it is also taken under record of the name "greek fire" in the ottoman archives. after 3000 years of its first record in the 10th century ac in the book professions and countries written by geographer ebu ishak bin muhammed el farsi mentioned petroleum located around baku with the name "nafta". this information is confirmed by famous traveller marco polo in 1272.the ottoman famous traveller evliya çelebi expressed the importance given to petroleum by the state with the following: “the trade of tar and coal tar has been prohibited to foreign merchants and trade of these matters considered as smuggling."(parlar & nebiler, 1996, p. 9-11) the discovery of petroleum in recent history starts with the mention of traveller francis rawdon chesney about the petroleum and mineral deposits located in firat-dicle basin in mesopotamia area. in 1850 's petroleum leaking from underground made available to only usage in fabric saturation.(dinçer, 2016) edwin drake opened first oil-well to reach the source of leaking petroleum in august 27 1859.(cerid, 1965, p. 12) first petroleum refinery facility established by john davison rockefeller in 1870 cleveland, usa to process crude petroleum drained by wells. this enterprise established by rockefeller is called standard oil of ohio. after this brief history of petroleum, it's useful to mention about its direct relationship with economy. according to a final model concluded by a study made in 25 oecd member countries by testing structural and diagnostic aspects and with a research plan; it's precipitated that economic growth determines the energy consumption. (güvenek and alptekin, 2010) 12 ali saka, murat çemberci and mustafa emre civelek leaving a better world to future generations is a problem needs solving in a global aspect by using the resources efficiently in the energy supply chain management. in the report accepted in 1987 by world commission on environment and development(wced) agreed on accomplishing sustainable development model with the keystone of "not ruling out the needs of future generations while compensating todays".(spangenberg, 2000; aksu, 2011) the main point of this model is using the renewable resources and the sustainability of the technology using these resources. (aykal, gümüs, & akça, 2009, p. 78-83)the term sustainability can be made possible by the cooperation in usage of renewable resources and high efficient technology (sevilgen & kiliç, 2013, p. 72). 2.3. energy supply chain establishments can reduce the cost of inventory efficiently by using supply chain management. inventory cost, aside from economic costs of goods in inventory, consists of factors such as storage costs, depreciation, insurance, inventory losses and costs of inventory control. according to a research, costs of keeping inventory holds %25 of goods actual value (christopher, 1998, p.81). corporations use can reduce the unnecessary cost of inventory management by using “mrp-material requirement planning” and “drp-distribution resources planning” techniques. appropriate inventory management can surely regulate a corporation’s balance of expenses. for this added value to appear this supply chain management system must be built well. scm relies on the principle of organizing functions according to customer expectations. according to “pull strategy”, preference and expectations of the customers are directed to supply chain concepts by pulling strategies with the help of sales centres. supply, production and distribution modelling is planned according to this affect. “jitjust in time” aims on operating with zero inventories; models such as “quick response” aims on distributing the final product with the fastest way to the customer and “postponement” are ergonomic methods used in supply chain planning (bowersox & closs, 1996). supply chain management can be founded by merging resources and activities of all rings of a chain (martino & morvillo, 2008, p. 578). this is defined as merging of different activity process with the main business process that starts from the supplier goes until it reaches the customer (stock&lambert, 2001, p. 54; lambert, stock & ellram, 1998, p.504). competition understanding in 21st century is assumed to be the same with competition between different supply chains (robinson, 2003, p. 252). economic development and growth is dependent on secure energy supply chain management (üşümezsoy & şen, 2003, p. 160). secure supply chain management can only be provided with international corporations working together efficiently. an interruption within energy supply can cause economic crisis in countries that operate on supply and demand. these crises’ can spread around the world with a domino effect (usepdg, 2001, p. 170). countries are showing effort to keep a secure market for resources to keep a level of welfare and constant maintenance of production activities. 2.4. connection between development and energy while governments improve their economic development policies, the most important factor is providing the need for energy resource both medium and long term. the reason for this is that, economical profits have become an inseparable part of national interests. until 21st century, various economic models were used in different periods in the world. important factors for these periods are distribution and energy resources used in transportation. firstly, netherlands trading period can be mentioned. this period is where transportation was done by sea using wind power to far countries and colonies. starting and finishing point of international trade happened between harbours. following this, during the period of english trade and industry, railroads were built aside from maritime lines, connecting internal regions between each other with harbours. coal was the primary resource used in transportation at this period. american dominance period followed the english period. aside from maritime lines and railroads, highways were also integrated to create a transportation network in a wide geography. furthermore, airlines carried transportation sector to a new level. this period was named as the “american system” and petroleum was the primary source of energy which is used with internal combustible engines (üşümezsoy & şen, 2003, p. 8). 2.5. sustainability while making plans for development, it’s vital to determine sustainable energy policies. not able to provide for increasing need of energy with the current resources can cause an economic crisis (güvenek and alptekin, 2010, p. logistics applications on energy supply chain management: turkey model 13 190). while doing development plans in 21st century, one should aim for sustainable and secure energy policies instead of energy supplies (satman, 2007, p.6). for this reason, developed countries with the need for energy make policies on countries with energy resource to ensure their supply safety. developed countries use their technological and economic advantage to create pressure on other countries to make their policies happen. by enforcing certain ideas such as globalization, new world order, global warming, international standards, environment and safety protocols, they keep less developed countries with energy resources under pressure. on the other hand, concept of economic consumption activities is also as important as secure energy supplies. an economic consumption activity is a name given to the method that which energy is used the most efficiently. japan is the most efficient country in the world when it comes to consuming energy. when we confirm japan’s energy consumption as one unit per its unit gdp, it would be 1.6 units in eu, 2.7 units in usa, 9 units in china (ata, 2008, p. 88). sustainability appears as a necessary concept for all sectors in 21st century. corporations need to embrace a more sustainable structure by lessening the consumption of fossil fuels, therefore reducing the amount of carbon emission, creating an ecologic sustainable production system. it is assumed to be more beneficial for systems practicality to give priority for technologies related to sustainable energy resources. 3. global energy policies one of the most basic goals of countries economic policies is growth. published rate of growth every year represents improvements on that counties economic and social state. growth means an increased gdp. this increase is directly proportionate to the increase of production output of a country economy. to increase production, input that are used on production should also be increased. basic inputs are capital, raw materials, work force and energy (kibritçioğlu, 1998). in this part energy’s, as one of the most basic factors of economic growth, market prices that are defined by supply and demand policies will be discussed. the reason for this is that, comparing supply and demand amounts will not be sufficient while defining a meaningful balance of expenses. to know the energy market requires more than the knowledge of supply and demand. in our day, owning energy resources, controlling its production, establishing energy and supervising them have become one of the key principles of countries external affairs. it’s no longer a secret that, in many events that occurred in history, usage and control of energy resources has been one of the key motivations (çınar & kesici, 2005, p. 166,167). most powerful countries in global energy market are the ones that are producing and consuming countries. however, in 21st century where logistics also gained a lot of importance, countries that are on transportation routes come into prominence. furthermore, aside from owned energy resources by the country, the fact that transportation of these resources is also a really important factor effecting supply demand balance and market prices is accepted by global firms (bayraç h., 2009, p.135). in planning energy policies, supply demand balance should be determined with analytical methods and should be updated constantly in the direction of political affairs (pamir a., 2006, p.4). energy is a really important factor in both supply and demand when it comes to economic indicators. when it’s considered on supply, energy is a fundamental input when it comes to capitol, workforce and production using raw resources. proven and probable reserves, production costs, transportation costs, economics and politics are what determine the energy supply. factors that affect the energy demand are economic rate of growth, level of welfare, social lifestyle, use of technology and prices (chontanawat et al., 2006; bayraç, 2009, p. 118). increase in energy prices will also affect product prices. this situation can cause an economic recession effecting total demand. especially highways, airways and costs of chemical substance production increase proportionately, causing a raise in inflation. as the ratio of energy consumption increase in economic systems, rise in petroleum prices pressures the inflation proportionately (leblanc & chinn, 2004, p.8; bennett, 2003, p.1). when we look the geopolitical structure of energy, we see that developed countries do not have sufficient energy resources and less developed countries own most of the rich energy resources. important countries in energy diplomacy, in one side usa, eu and china with developed economy, in other side developing countries like russia, saudi arabia, iran, iraq, venezuela, azerbaijan, turkmenistan, kazakhstan, mexico, qatar, kuwait can be given as 14 ali saka, murat çemberci and mustafa emre civelek an example. especially after the cold war, countries that went through political regime changes also had major changes in their external affairs (çınar & kesici, 2005, p.165; kanbal, 2013, p.3). the political view of arabian countries when it comes to petroleum can be expressed like this: “no matter who it is that drop the petroleum prices, it is no ally of arabs and can’t claim to be allied to arabs.” (cerid, 1965, p.68) the old soviet union has a more realistic saying about petroleum: “petroleum is a valuable substance with far more value on its cost of sales. in importing necessary investment goods, best method of payment is petroleum.” (cerid, 1965, p.78) energy prices can come to a real balance point by increasing sustainable energy resources. by increasing efficiency in energy production and reducing the amount consumed, foreign trade deficit can also be decreased. usage of nuclear energy will also provide what is required to organizing market equilibrium with supply demand (üşümezsoy & şen, 2003, p 59, 60). for sustainable economic growth, providing energy supply safety is a must. furthermore, harms of carbon emission to environment health should also be investigated thoroughly. increase of costs by causing environment pollution by using fossil fuels to create energy should also be taken into consideration (dağdemir, 2003, p.33). 3.1. market safety after discussing matters about the importance of energy, what is raw material safety for the market? what are the political stances of countries that belong with the side of supply demand to provide safety for market? answers of these questions can be analysed to understand the concept of market safety. according to üşümezsoy and şen (2003); “safety of energy is providing the required energy with the appropriate price. market safety is a concept that is based on the principles of availability, accessibility and admissibility.” (p.106). according to ediger (2007); “concept of energy security differs based on producing and consuming countries. for demanders, demand security is of utmost importance and for suppliers, its supply safety. market security can be provided on an environment where producers and consumers can balance each other.” (p.5) bayraç revaluates the situation in terms of demand and came up with two comments (2009); “the concept of e nergy security can differ according to how developed a country is. while developed countries think of market security with uninterrupted energy supply, developing countries define market safety as cheap energy price.” (p. 119) these definitions reflect theoretical viewpoints energy market security. we can enlighten this subject furthermore if we talk about explanations where theory and practice come together. in supply planning management, for providing energy security; one should aim to create variable energy resources, increase supply regions, appropriate infrastructure projects must be constructed, putting investments in the right locations for right projects, updating used technologies, giving importance to research and development and increasing information trade and collaboration between the consumer and the producer. reaching these goals can only happen by careful raw resources market safety planning (satman, 2007, p.11). efficiency of energy supply chain can be measured by energy market safety activities. for economic growth, energy resource supply is one of the most important factors. especially in transportation sector; petroleum, heating and electrics sector; with the increase in using natural gas the struggles to sharing energy has also increased. main centre of this struggle is middle asia and middle east axis. an alliance formed between russia-germany-iran and iraq and an alliance formed by usa-uk-israel fights to share the energy resources belonging to this region. the purpose of this struggle is energy market supply safety (üşümezsoy & şen, 2003, p.192). 3.2. applications of energy supply chain in turkey turkey’s vision of energy; by making constant energy demand estimates in middle and long term, is to plan projects to oversee the need for energy by defining the location, model and size of the investment. turkey could increase its power in energy market by being a strategic solution partner and come up with productions of projects that increase the passageways aside from being able to oversee its own demand for energy supply (republic of turkey ministry of external affairs, 2012). in order to make a full membership to european union as a part of 2023 vision, pipelines logistics applications on energy supply chain management: turkey model 15 that provide energy for the union that pass through turkish borders; can increase its political strength and make turkey a strategically important partner (satman, 2007, p.3). in order to reach these goals, analysing global supplies and demands correctly can also carry a great importance aside from national interests. in global economy model where national borders lost its importance, turkey belonging to a supply chain integrated with multinational corporations will serve as a catalyser for turkey to reach its goals. while being parallel to eu laws, the law of petroleum that came into force with the number 6326, law of natural gas that came into force with the number 4646, the law of electricity market with the number 6446 and founding of epdk are formal applications that support these policies (yorkan, 2009, p.35) (ültanır, 1998, s. 169-177). most of the international trade happens through the seaways. this situation increased the traffic load of turkish straits and other passage channels in the world. developments in naval industry provide us with bigger and faster construction of ships. ship owners who would like to make a bigger profit with bigger ships can cause serious dangers in straits because of its geographical and oceanographic structure (akai, 2005). %3,7 of world petroleum trade passes through the turkish straits to reach its actual market. with its energy logistics importance, istanbul and çanakkale straits have a major role to play as it connects russian black sea harbours to the world market, giving turkey an important strategic power (tanap doğalgaz i̇letişim a.ş., 2014). however, using this power for turkey has been restricted by montreux convention. because of turkey’s geographical location, its importance in energy diplomacy also increases. to reach and control certain energy resources, political conflicts between washington, brussels, beijing and moscow still continue (özbağcı, 2012). in this political field, ankara, tehran and baku have become key suppliers to make a strategic partnership. especially moscow monopolizing on raw material pipelines cause a huge threat to energy supply security. for sustainable energy logistics, turkey can create an alternative corridor since it is located on an appropriate geographical location. turkey who carries caspian petroleum to the world market with baku-tbilisiceyhan pipelines, carry an important role in creating an important network with tanap project to carry caspian petroleum to european union. in the new world order, it is possible to define turkey as an energy passageway (kısacık1, 2013). the most important deal turkey has made regarding energy logistics is the pipeline project tanap which is created to carry the natural gas that is extracted from şah sea-2 region of azerbaijan to europe. bp is also a third partner to this project deal between socar corporation belonging to azerbaijan state and botaş corporation belonging to republic of turkey. this pipeline project that will be completed in 2019 is estimated to deliver 60billion m3 natural gas from caspian sea region to europe. this amount is half the amount russia provides with its gazprom corporation to eu (sönmez, 2015). this transportation project that uses turkish lands provides eu with energy supply variety. with this project, turkey’s geographical strategic advantage can be used as a strong political and economic aspect. it is planned to deliver the natural gas that is extracted at azerbaijan’s caspian sea region close to şah sea-2 and natural gas that is produced in southern fields be delivered to europe over turkey as part of transportation regime with trans anatolian natural gas pipeline. tanap, starting from the turkgözü village in posof town around the city of ardahan which is located at turkey-georgia borderline, passing through kars, erzurum, erzincan, bayburt, gümüşhane, giresun, sivas, yozgat, kırşehir, kırıkkale, ankara, eskişehir, bilecik, kütahya, bursa, balıkesir, çanakkale, tekirdağ and edirne and lastly connected to the town of ipsala in greece. it will also feed a couple natural gas distribution networks which are located in eskişehir and thrace region with two exit lines. the pipeline is planned to be 1.850 kilometres long in total (tanap doğalgaz i̇letim a.ş., 2014). turkey published a special writing with the number 4505538 at 11.12.2014 date to the extent of project management for free transportation entrance regimes for tanap. according to this writing; “at any time or sometimes, every participant of the project has the rights to import or export any material, equipment, machine, tool, auxiliary parts, vehicles, supplies and all other goods (not including liquid fuels or oils) related to project activities on his own name or his own account without being subjected to custom duties or restrictions” (ministry of customs and trade, 2014). 16 ali saka, murat çemberci and mustafa emre civelek other international pipelines planned by turkey to maintain an energy supply chain are these: • trans anatolian raw petroleum pipeline (tanap) • burgaz-dedeağaç pipeline • trans thrace pipeline • pan-european petroleum pipeline • albania-hungary-bulgaria pipeline (ambo) • neka-jask petroleum pipeline • trans-caspian pipeline • trans-iran pipeline • middle asian petroleum pipeline (tozar & güzel, 2009, p 9-12). as an indicator showing turkey in the frontlines with energy policies, would be statements and cooperation policies of globally powerful countries about the role turkey is meant to play. usa vice president joseph robinette biden (joe biden), in his visit to turkey in 2014, got involved in the competition for being the energy corridor between turkey-russia-europe. after the published “european energy security strategy” in may and the natural gas outage that happened in ukraine, he indoctrinated europe to reduce their dependability on russia for energy production. to decrease this dependency, he offered a proposal to increase sustainable energy resources and energy saving precautions. by declaring that eu needs to have variable supplies of energy to prevent russia from usi ng energy as an important tool for its external affairs; he also claimed turkey to be a valid partner as an alternative line for energy transfer. these suggestions provided by usa no doubt play a strategic key role for turkey leaving russia inactive by owning baku-tbilisi-ceyhan petroleum and baku-tbilisi-erzurum natural gas pipelines (sönmez, 2015). after these improvements, vladimir putin who visited turkey in 2014 december expressed that the pipeline they will export to europe will pass through turkey. with this project, turkey will have the rights to use %15 of the natural gas that passes through its lands for its own needs. previously, in nabucco project which was decided between europe and russia, turkey’s demand for this was rejected by eu (okumuş, 2015). for countries with raw material reserves, there needs to be proper transportation mods to get these goods to market (yüceer & cerit, 2001, p. 119). it is also very important to maintain a supply chain security and sustainability for importing countries (katinka, 2007; sönmez, 2015). turkey’s strategic policy is to create a logistics network that would connect countries in both sides existing in supply chain. turkey sticks up to the policy of being part of a supply chain planning management by connecting middle east and middle asia who hold %70 of world’s petroleum and natural gas reserves to the energy market (klare, 2004, p. 45; 2009, p. 137; kısacık, 2012). it can be observed that turkish external affairs has always been very pragmatic when it comes to energy. so much that it takes a side against russia politically with the crisis in syria. however, there are serious collaborations with russia when it comes to energy, tourism and economy. akkuyu nuclear plant that is to be built in mersin is going to be constructed by russian authorities. delivering middle asia natural gas with european pipelines is done by the southern flow project which is supported by russia. biggest supplier of natural gas for turkey is russia and russia started to do a %6 discount for natural that it’s selling to turkey (sonmez, 2015). current pipelines that exist in turkey: • kerkük-yumurtalık raw petroleum pipelines • baku-tbilisi-ceyhan raw petroleum pipelines • samsun-ceyhan raw petroleum pipelines • russia-turkey western natural gas pipelines • blue flow natural gas pipelines • azerbaijan-turkey natural gas pipelines • iran-turkey natural gas pipelines • nabucco natural gas pipelines • iraq-turkey natural gas pipelines • egypt-turkey natural gas pipelines • turkmenistan-turkey natural gas pipelines • turkey-greece-italy natural gas pipelines • trans anatolian natural gas pipelines logistics applications on energy supply chain management: turkey model 17 4. conclusion republic of turkey should obtain required raw materials supply for itself and give weight to infrastructure work to create transportation trade routes to deliver goods to third countries. in our day where logistics have become a structure that adds value to product, instead of allowing transportation routes to pass through turkey, by creating transportation systems turning turkey into an energy corridor with proper control will make it more prosperous. a turkey that gets more of an expert in logistics, with its experience and fund of knowledge, can become a global solution partner in world energy supply system by operating in different geographies. for instance, botaş could be a corporation that is looked upon by the world for its pipeline projects. turkish harbours can speed up the flow of energy by improving their intermodal transportation systems. problems and crises also contain solutions that can be turned into opportunities. the important thing is to approach the problem with a solution. the question that awaits an answer is; can turkey to solve the problems in turkey energy supply system? on the other hand, how turkey will supply the energy needed and how it will close the foreign trade deficit that rises with the costs is also in the agenda. common solution to international and national origin energy policies is sustainable energy usage and building of nuclear power plants. turkey has created alternative projects for both sides and put them into practice. first of them is akkuyu nuclear power plant. second one is, by using sustainable energy resources, creating energy production systems. ever since 2000, it has increased its activities on hydraulic energy, wind energy, solar energy, biomass energy and hydrogen energy. to give an example, international studies have begun related to hydrogen, which is considered as the source of energy for the future. first of these was building of international centre of hydrogen energy technologies (ichet) at 23rd october 2003 and was built with a treaty between republic of turkey and united nations industrial development organization (unido). the main purpose of this centre 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(2001). caspian oil exports and their impact upon the tanker fleet. developments in maritime transport and logistic in turkey , 118-134. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 59-66 59 economic impact of the japan–china–usa free trade agreement on japan using both static and dynamic gtap models hirokazu akahori akita prefectural university, japan shun hasegawa hokkaido university, japan daisuke sawauchi hokkaido university, japan yasutaka yamamoto hokkaido university, japan received: sept 21, 2021 accepted: nov 21, 2021 published: dec 01, 2021 abstract: the japanese government has been actively involved in so-called mega free trade agreements (ftas). the purpose of this paper is to measure the potential impact of the japan–china–usa free trade agreement (jcufta) on japan; in particular, on the japanese agricultural sector using static and dynamic gtap models. when tariffs are eliminated between japan, the usa and china, the gdps of the three countries will all increase, but the impact on the gdps of the three countries is less than 1% in both static and dynamic models. the results also show that the total value of agricultural production in japan is expected to decline by more than 10%. keywords: free trade agreement of japan, global trade analysis project, cge jel codes: f15, f17, c68 1. introduction the japanese government has been actively involved in so-called mega free trade agreements (ftas) including the trans-pacific partnership (tpp), the regional comprehensive economic partnership (rcep), and the japan– china–korea fta (kim et al., 2015). several previous empirical studies have sought to measure the potential economic impact of mega ftas that include japan. the potential economic impacts of ftas have been most widely evaluated using numerical simulation with a computable general equilibrium model such as the global trade analysis project (gtap) model. a number of studies have quantified the effects of various japan-inclusive mega ftas using both the static gtap model (e.g., cabinet secretariat of japan, 2013, 2015; akahori et al., 2014, 2017) and the dynamic gtap model (e.g., bhattacharyay and mukhopadhyay, 2015; lee and itakura, 2016). the purpose of this paper is to measure the potential impact of the japan–china–usa free trade agreement (jcufta) on japan and, in particular, on the agricultural sector in japan using numerical simulation with a computable general equilibrium model. several previous studies investigate the economic integration between japan, china and the usa (greaney and lovely, 2009; dean et al., 2009; greaney and li, 2009; todo et al., 2009; ma et al., 2009; yu, 2009; bown and mcculloch, 2009; petri and plummer, 2009). however, apart from kawai and zhai (2009), no previous studies hirokazu akahori, shun hasegawa, daisuke sawauchi & yasutaka yamamoto 60 measure the potential impact of the jcufta using numerical simulation with a computable general equilibrium model. while kawai and zhai (2009) used a ‘static’ computable general equilibrium model, we use not only ‘static’ but also ‘dynamic’ computable general equilibrium models. regarding the sector classification in kawai and zhai’s (2009) model, there is only one, undivided, agricultural sector. our static and dynamic models have a subdivided agricultural sector classification. 2. methodology 2.1. the dynamic gtap model the key feature of the dynamic gtap model, in comparison with the standard static gtap model, is its ability to handle international capital mobilities. more details of the features of the dynamic gtap model are explained in ianchovichina and walmsley (2012). the dynamic gtap model is a recursively dynamic computable general equilibrium model of the world economy that extends the standard static gtap model to include features that improve the treatment of the long run in the model but retains all its other features (ianchovichina and walmsley, 2012). within a recursively solvable discretetime framework, a given database refers to a given time period; a simulation takes the database to the next time period, with simulation results representing changes between the initial period and the next (ianchovichina and walmsley, 2012). figure 1: baseline and policy scenarios. source: itakura (2012) to grasp policy effects using the dynamic gtap model, two types of simulation should be implemented. the first type is baseline simulation, which assumes an economy in which the policy is not implemented. the second type is policy simulation, which assumes an economy in which the policy is implemented. we compare the results of these simulations to evaluate the effects of the policy (figure 1). the baseline scenario contains information on macroeconomic variables. these variables include projections for real gdp, gross investment, capital stocks, population, and total labor force (lee and itakura, 2016). 2.2. data and scenario in this study, we employ the gtap database version 9, which has a 2011 base year and distinguishes 140 countries/regions and 57 sectors. the jcufta simulations focus on the economic impacts, not only on the entire economy but, in particular, on agricultural sector output. for this purpose, the data have been aggregated into nine countries/regions and 25 sectors, as shown in tables 1 and 2. y t time baseline scenario policy scenario policy effect economic impact of the japan–china–usa free trade agreement on japan using both static and dynamic gtap models 61 table 1: regional aggregation. no. aggregated country/region gtap country/region 1 japan japan 2 china china 3 usa united states 4 korea korea 5 asean indonesia, singapore, malaysia, philippines, thailand, viet nam, cambodia, lao people's democratic republic, brunei darussalam, rest of southeast asia 6 anz australia, new zealand 7 rest of north america canada, mexico 8 eu-27 austria, belgium, bulgaria, cyprus, czech republic, denmark, estonia, finland, france, germany, greece, hungary, ireland, italy, latvia, lithuania, luxembourg, malta, netherlands, poland, portugal, romania, slovakia, slovenia, spain, sweden, united kingdom 9 rest of world all the other economies/regions table 2: sector aggregation. no. aggregated sector gtap sector 1 paddy rice paddy rice 2 wheat wheat 3 cereal grains nec1 cereal grains nec 4 vegetables, fruit and nuts vegetables, fruit and nuts 5 oil seeds oil seeds 6 sugar cane, sugar beets sugar cane, sugar beets 7 plant-based fibers plant-based fibers 8 crops nec crops nec 9 bovine cattle, sheep, goats, horses bovine cattle, sheep, goats, horses 10 animal products nec animal products nec 11 raw milk raw milk 12 wool, silkworm cocoons wool, silkworm cocoons 13 bovine cattle meat products bovine cattle meat products 14 meat products meat products 15 vegetable oils and fats vegetable oils and fats 16 dairy products dairy products 17 processed rice processed rice 18 sugar sugar 19 food products nec food products nec 20 beverages and tobacco products beverages and tobacco products 21 forestry, fishing forestry; fishing 22 natural resources coal; oil; gas; mineral nec 23 manufacturing textiles; wearing apparel; leather products; wood products; paper products, publishing; petroleum, coal products; chemical, rubber, plastic products; mineral products nec; ferrous metals; metal nec; metal products; motor vehicles and parts; transport equipment nec; electronic equipment; machinery and equipment nec; manufactures nec hirokazu akahori, shun hasegawa, daisuke sawauchi & yasutaka yamamoto 62 24 transport transport nec; water transport; air transport 25 services electricity; gas manufacture, distribution; water; construction; trade; communication; financial services nec; insurance; business services nec; public administration, defense, education, health; dwellings nec means not elsewhere classified. table 3: initial trilateral tariffs on different sectors. nec means not elsewhere classified. this regional aggregation highlights the importance of japan’s major trading partners in the agricultural and food sectors. the sector aggregation framework was designed to distinguish agricultural sectors important for the present analysis. the aggregated agricultural sector in table 2 includes sectors from no. 1 (paddy rice) to no. 12 (wool, silkworm cocoons), and the food sector includes sectors from no. 13 (bovine cattle meat products) to no. 20 (beverages and tobacco products). sectors japanese tariffs on imports from china (%) japanese tariffs on imports from usa (%) chinese tariffs on imports from japan (%) chinese tariffs on imports from usa (%) usa’s tariffs on imports from japan (%) usa’s tariffs on imports from china (%) paddy rice 410 410 0 0 1 1 wheat 0 19 0 1 2 2 cereal grains nec1 5 8 1 1 0 0 vegetables, fruit and nuts 18 10 19 12 8 1 oil seeds 94 3 6 2 0 0 sugar cane, sugar beets 0 0 0 20 0 0 plant-based fibers 0 0 0 5 0 0 crops nec 4 0 3 8 2 2 bovine cattle, sheep, goats, horses 0 11 10 2 3 0 animal products nec 5 4 9 7 1 0 raw milk 0 0 0 0 0 0 wool, silkworm cocoons 1 28 0 38 2 1 bovine cattle meat products 1 38 20 12 2 2 meat products 10 57 18 10 3 2 vegetable oils and fats 0 2 15 9 0 2 dairy products 25 89 13 6 20 6 processed rice 231 241 0 1 3 4 sugar 28 23 49 50 27 26 food products nec 11 11 13 11 4 3 beverages and tobacco products 5 3 20 6 3 4 forestry, fishing 4 1 8 1 1 1 natural resources 0 0 3 0 0 0 manufacturing 2 1 7 6 1 3 transport 0 0 0 0 0 0 services 0 0 0 0 0 0 economic impact of the japan–china–usa free trade agreement on japan using both static and dynamic gtap models 63 japan’s highest tariffs on imports from china and the usa are levied on paddy rice (410%) (table 3). the only sectors in japan whose tariffs are higher than 100% are paddy rice and processed rice. in contrast, there is no sectors in china and the usa whose tariffs are higher than 100%. to evaluate the effects of the jcufta using the dynamic gtap model, the baseline scenario was first established, showing the path of each of the nine countries/regions over the period 2011–2030. real gdp projections and capital stocks were obtained from fouré et al. (2010). projections for population were taken from the united nations (2015), while those for labor are based on the working-age population (14–65-year-olds). labor is divided into skilled labor and unskilled labor. in the base case scenario, tertiary education is used to estimate skilled labor (walmsley et al., 2000). to evaluate the effects of the jcufta using the static computable general equilibrium model, we use the static version of the gtap model with standard closure (akahori et al., 2017). we applied the same scenario, which assumes the complete removal of all import tariffs, not only on the agricultural sector but also in the nonagricultural sector, for both the static and dynamic gtap models. for the dynamic gtap simulation, we assumed that the jcufta is implemented from 2017, tariffs are uniformly reduced over five years and tariffs on all items are eliminated by 2021. 3. results the impacts on real gdp and the agricultural sector caused by the jcufta are shown in tables 4 and 5. the static gtap simulation model showed the increase in real japanese gdp to be 0.15% (table 4). the increase in real gdp for china and the usa were 0.14% and 0.01%, respectively. the economic gain of a small economy such as japan from an fta with larger economies such as usa and china is larger because the trade dependence of smaller economies on larger economies is larger (kawai and zhai, 2009). table 4: impacts of the jcufta on real gdp (%). real gdp static model dynamic model 2017 2018 2019 2020 2021 2025 2030 japan 0.15 0.03 0.07 0.13 0.21 0.29 0.54 0.82 china 0.14 0.04 0.08 0.13 0.18 0.24 0.40 0.49 usa 0.01 0.00 0.01 0.01 0.02 0.02 0.04 0.03 table 5: impacts of the jcufta on agricultural sector outputs (%). agricultural sector output static model dynamic model 2017 2018 2019 2020 2021 2025 2030 japan –11.27 –1.11 –2.66 –4.79 –7.86 –13.15 –13.76 –14.78 china –0.07 –0.03 –0.07 –0.10 –0.12 –0.08 –0.01 0.04 usa 2.17 0.26 0.60 1.00 1.46 2.01 1.95 1.81 based on the static gtap model, agricultural sector output in japan declined by 11.27%, whereas agricultural sector output in the usa expanded by 2.17% (table 5). on the other hand, the dynamic gtap model suggests that real gdp in 2021, when all import tariffs have been removed, will be 0.29% points higher than the baseline in japan (table 4). real gdp in china and the usa in 2021 will be 0.24% points and 0.02% points higher, respectively, than their baselines. agricultural sector output in japan in 2021 is predicted to decline by 13.15% points compared with the baseline, while in the usa in 2021 it is predicted to increase by 2.01% points compared with the baseline (table 5). hirokazu akahori, shun hasegawa, daisuke sawauchi & yasutaka yamamoto 64 table 6: impacts of jcufta on sector outputs (2030 year % point difference from baseline). sector japan china usa korea asean anz rona eu27 row paddy rice –40.87 1.16 3.15 –0.06 –0.06 –0.93 3.14 0.65 0.06 wheat –31.09 –0.25 –1.97 1.43 1.49 –0.15 0.58 0.56 0.27 cereal grains nec1 –8.08 0.20 1.73 0.87 –0.12 –0.44 0.59 –0.03 –0.03 vegetables, fruit and nuts –1.81 0.09 –0.37 –0.25 0.03 –0.10 1.13 0.21 –0.01 oil seeds –28.91 0.99 –0.60 1.44 0.40 –1.30 –3.94 0.22 –0.34 sugar cane, sugar beets –1.16 0.09 0.05 0.37 –0.03 –0.49 0.09 –0.06 –0.19 plant-based fibers 0.97 –0.59 1.14 2.59 1.05 –0.34 0.66 0.68 0.00 crops nec –6.65 –1.47 –2.02 0.49 0.26 –0.04 0.54 0.04 –0.06 bovine cattle, sheep, goats, horses –15.67 0.09 4.06 –0.47 –0.33 –2.02 0.95 –0.13 –0.13 animal products nec –19.81 –0.36 5.74 –1.26 –0.84 –0.41 –0.76 –0.27 –0.15 raw milk –13.99 –0.33 3.69 –1.81 –0.55 –0.68 –0.04 –0.20 –0.11 wool, silkworm cocoons 1.26 –0.33 111.44 2.15 0.08 0.76 0.10 3.28 –0.10 bovine cattle meat products –18.18 –1.94 4.42 –0.53 0.11 –3.53 –0.51 –0.10 –0.12 meat products –26.21 –2.23 8.98 –1.31 –1.71 0.47 –1.72 –0.33 –0.22 vegetable oils and fats 14.13 –0.34 –0.78 –1.85 0.30 –0.17 0.84 –0.06 –0.22 dairy products –17.65 –0.38 4.36 –1.58 –0.41 –0.84 0.00 –0.23 –0.14 processed rice –28.88 0.79 45.07 –0.79 –0.06 –1.33 –0.21 –0.20 –0.15 sugar –1.26 0.10 –0.06 0.16 0.03 –0.22 0.22 0.00 –0.16 food products nec 0.45 0.22 0.72 –1.46 –0.33 –0.24 –0.08 –0.08 –0.22 beverages and tobacco products 1.13 0.26 0.09 –0.47 –0.22 –0.25 –0.14 –0.08 –0.14 forestry, fishing –0.15 0.14 0.06 –0.37 –0.18 0.02 –0.10 –0.15 –0.10 natural resources –0.09 –0.03 –0.04 0.02 –0.02 –0.03 0.01 –0.02 –0.03 manufacturing 1.23 0.46 0.11 –0.78 –1.02 –0.05 –0.83 –0.36 –0.48 transport –0.37 0.35 0.13 0.69 0.02 –0.19 –0.09 0.33 –0.09 services 0.90 0.45 0.00 –1.15 –0.65 –0.33 –0.51 –0.25 –0.25 nec means not elsewhere classified. table 6 shows that agricultural sectors and food sectors tend to decline in japan: in particular, paddy rice will decline by 40.87% points. in contrast, in the usa, the agricultural and food sectors are likely to expand. the formation of a jcufta contracts the japanese agricultural sector due to reduced import tariffs on the japanese agricultural sector (kawai and zhai, 2009). 4. conclusions in this paper, we measure the potential impact on japan’s economy and, in particular, on its agricultural sector expected to be caused by the japan–china–usa free trade agreement (jcufta) using the standard static and dynamic gtap models. as a result of our analysis, when tariffs are eliminated between japan, the usa and china, the gdps of the three countries will all increase, but the impact on the gdps of the three countries is less than 1% in both static and dynamic models. however, both models show clearly that the value of agricultural production in japan is expected to decline by more than 10%. the following are suggested as future research tasks. first, the effect of nontariff barriers should be taken into account. second, some features of recent trade analysis such as product diversity and firm heterogeneity should be incorporated into the model. economic impact of the japan–china–usa free trade agreement on japan using both static and dynamic gtap 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(2009), “revaluation of the chinese yuan and triad trade: a gravity assessment”, journal of asian economics, 20, 6, 655–668. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 6-15 6 the mediating role of innovation performance on the relationship between entrepreneurship orientation and competitiveness: a research in the export companies şüheda baran i̇stanbul commerceuniversity necla öykü i̇yi̇gün i̇stanbul commerceuniversity received: june 27, 2021 accepted: sept 18, 2021 published: dec 01, 2021 abstract: this study aims to examine the relationship between innovation performance, entrepreneurship orientation, and competitiveness in export companies. the sample comprises 170 employees from export companies. confirmatory factor analysis was used for reliability and validity analysis was performed. the research findings showed that entrepreneurship orientation affects competitiveness significantly and positively. also, competitiveness affects by innovation performance. the correlations between the variables were found statistically significant and mediator effect were analyzed by baron and kenney method and confirmed by sobel test. innovation performance has mediator effect on the relationship between entrepreneurship orientation and competitiveness. keywords: innovation performance, competitiveness, entrepreneurship orientation 1. introduction companies have been more and more involved in issues such as entrepreneurship, and innovation in order to survive in the international market as well as in the national market. entrepreneurship and innovation have become the focal point in order to provide competitive advantage against various services and products offered to the market in the developing and changing world market. entrepreneurship orientation leads to the formation of new business methods and naturally new competitive structures. in addition, the concept of entrepreneurial orientation, which affects competitive advantage, has gained great importance for exporting companies. many researchers have studied entrepreneurial orientation and competitiveness. kiyabo and isaga (2020) concluded that entrepreneurship orientation in smes has a significant and positive impact on competitiveness. zeebare and siron (2017) examined the effect of entrepreneurship orientation on competitive advantage by considering three sub-dimensions. in addition, entrepreneurial orientation and innovation performance help businesses exposed to ever-changing environmental conditions to reach new values. lumpkin and dess (2001), hughes and morgan (2007), drucker has done many studies on entrepreneurship orientation and innovation performance. also, erdil et al. (2018), conducted a study on the effect of innovation performance in exporting firms on competitiveness positively and significantly, and their hypotheses were supported. this study begins with theoretical framework part about entrepreneurship orientation, innovation performance and competitiveness. theoretical framework part is followed by hypothesis development section. after the hypothesis development section, the research technique section explains the measures and samples. the data is analyzed by linear regression analysis and confirmed by sobel test. in the final section, discussions and subsumptions are mentioned, and the study finishes with research recommendations for the future. the mediating role of innovation performance on the relationship between entrepreneurship orientation and competitiveness: a research in the export companies 7 2. theoretical framework 2.1. entrepreneurship orientation there is no single definition of the notion of entrepreneurship in the literature. however, all definitions have one thing in common and this is the evaluation of the opportunities encountered. the concept of entrepreneurship came into use in the early 17th century to refer to people who make contracts with the government by fixing prices. cantillon (1755) defined entrepreneurship as “the business of organizing business and taking the risk of the business for the purpose of making a profit”. kirsner (1973) defined the concept of entrepreneurship as the discovery of opportunities by accurately predicting the imbalances and deficiencies that will occur in the market. the general definitions of entrepreneurship include concepts such as taking risks, not being afraid of failure, innovation and proactivity. since the pioneering work of peterson and berger (1971), the concept of corporate entrepreneurship has become a rapidly developing research topic in the academic field (fiş and wasti, 2009: 131). entrepreneurial orientation appears in the literature as firm-company entrepreneurship, corporate entrepreneurship, and intrapreneurship as concepts that are used interchangeably (altuntaş and dönmez, 2010:51). the concept of entrepreneurial orientation was pioneered by miller's (1983) research on entrepreneurship at the organizational level. this concept was later advanced by covin and slevin (1989, 1990) and developed by lumpkin and dess (1996) and received increasing attention in the academic field (solmaz, 2016: 17-18). lumpkin and dess (1996) stated that there is an approach that values innovation and risky projects in the market, products and services for businesses that have adopted an entrepreneurship orientation (lumpkin and dess, 1996, p. 136). 2.2. innovation performance the concept of innovation has different definitions made by many people. innovation is an innovation process that deals with the use of experience and knowledge in order to create a useful and new product and bring it to the market (luecke, 2008). innovation is the development of ideas that are different and new from others and the use of them to gain an advantage over competitors. the development of a product that is already in the market can be an example of innovation because making an existing product usable as well as a new product is innovation (dam, 2017, pp. 45-48). although the innovation performance of a company is determined within the framework of all innovation-related activities in a company, studies on this subject are mostly based on the product process. innovation performance is evaluated with qualitative and quantitative measurements. qualitative measures cover questions about whether firms engage in an innovation activity, while quantitative measures cover the resources provided for innovation activities (şendoğdu and öztürk, 2013: 104). 2.3. competitiveness there are different academic studies related to the definition of the concept of competitiveness as well as the concept of competition. this concept is defined in various ways depending on different fields and criteria. a common definition that fully explains the competitiveness has not been decided. the world economic forum defines competitiveness as the level of productivity that includes all of the institutions and organizations, policies and production factors that can make growth sustainable in a country (ovalı, 2014). the organization for economic cooperation and development defines competitiveness as under free market settings, a country's ability to develop services and goods that can compete with worldwide competition while also increasing real national income (reinert, 1995). competitiveness is to provide exceptional service and, most importantly, to be perceived from competitors or other organizations in the market with high quality and different products (bal & erkan, 2019). according to landau (1992), competitiveness is defined as achieving a great standard of living and an acceptable growth rate in the country by reaching full employment level or close to full employment without reducing the living standards of the next generation and the growth potential of the country (landau, 1992). şüheda baran & necla öykü i̇yigün 8 3. hypothesis development process and related studies 3.1. entrepreneurship orientation and competitiveness entrepreneurial orientation is of great importance for creating and implementing competitive strategies. for this reason, many researchers have studied entrepreneurial orientation and competitiveness. kiyabo and isaga (2020) concluded that entrepreneurship orientation in smes has a significant and positive effect on competitiveness. zeebare and siron (2017) examined the effect of entrepreneurial orientation on competitive advantage by considering three sub-dimensions (innovation, proactivity, risk taking). as a result of their studies, they concluded that each sub-dimension positively and significantly affects competitive advantage. hypothesis 1: entrepreneurship orientation positively affects competitiveness. 3.2. entrepreneurship orientation and innovation performance entrepreneurial orientation and innovation performance help businesses exposed to ever-changing environmental conditions to reach new values. according to drucker, the entrepreneurial spirit drives innovation. according to guo, the emphasis in the entrepreneurial process is “creating innovation” and “creating change”. lumpkin and dess (2001), hughes and morgan (2007) state that entrepreneurial orientation directly affects organisational innovation and performance. for this reason, good implementation of entrepreneurial orientation will increase the financial and innovative performance of enterprises. for businesses that have adopted an entrepreneurship orientation, there is also an approach that values innovation and risky projects, product and services in the market (i̇şlek and i̇yigün, 2021). hypothesis 2: innovation performance positively affected by entrepreneurship orientation. 3.3. innovation performance and competitiveness porter (1981) stated that companies gain a competitive advantage through innovation. successful innovation can make outer simulation more difficult and allow businesses to better maintain their competitive advantage (garcíamorales et al., 2007). it is known that national competitiveness increases with the improvement of innovation performance. according to ciocanel et al. (2015), developing an innovation performance strategy increases competitiveness. chen et al. (2009) carried out a study claiming that innovation performance will positively and significantly affect competitiveness. in the research, they concluded that innovation performance has a positive and significant effect on competitiveness. also, erdil et al. (2018), conducted a study on the effect of innovation performance in exporting firms on competitiveness positively and significantly, and their hypotheses were supported. hypothesis 3: innovation performance positively affects competitiveness. hypothesis 4: innovation performance has a mediator role in the effect of entrepreneurship orientation on competitiveness. 4. method 4.1. participants and data collection instruments in this study, an online questionnaire was used as a data collection tool. the survey form created via google forms consists of two parts, the statements for company and participant information, and the section where demographic information and scale statements are included. linkedin platform was used in the process of directing the surveys to the participants. surveys were directed to company owners, managers and non-managerial white-collar employees from different companies, and participants from 264 different companies returned. according to gorsuch (1997), the sample size was at least 100 in confirmatory factor analysis; cattell (1978) at least 250; hutcheson and sofroniou (1999) revealed that the sample size should be at least between 150 and 300, and hatcher (1994) revealed that the number of samples should be at least 5 times the number of scales (özden, 2019, p. 94). as a result of the evaluation of all this literature, the sample number was determined as 170 for the questionnaire, which had 28 expressions in total, excluding demographic information. for the entrepreneurship scale developed by li e. al. (2017) and reliability and validity tests completed in turkey by pala (2020) was used. for the innovation performance and competitiveness, the innovation performance scale developed by chen et al. (2009) and competitiveness scale developed by lii and kuo (2016) and both of scales’ reliability and validity tests completed in turkey by erdil et al. (2018) was used. the mediating role of innovation performance on the relationship between entrepreneurship orientation and competitiveness: a research in the export companies 9 4.2. validity and reliability analysis for the entrepreneurship scale developed by li e. al. (2017) and reliability and validity tests completed in turkey by pala (2020) was used. for the innovation performance and competitiveness, the innovation performance scale developed by chen et al. (2009) and competitiveness scale developed by lii and kuo (2016) and both of scales’ reliability and validity tests completed in turkey by erdil et al. (2018) was used. table 1. entrepreneurship orientation scale goodness of fit index source: jöreskog ve sörbom, 1984, meydan ve şeşen, 2011. (as cited in sağlam, 2019) in the entrepreneurship orientation scale, there are 9 items. as a result of the cfa analysis of the entrepreneurship orientation scale, the factor loads of the items vary between 0.578 and 0.913. according to eisen et al. (1979), the factor load of items to a factor must be a minimum of 0.40. because of sixth statement causes deterioration in goodness of fit values, it was removed in analysis. then, analysis was repeated, and goodness-of-fit values are at an acceptable level. table 2. innovation performance scale goodness of fit index source: jöreskog ve sörbom, 1984, meydan ve şeşen, 2011. (as cited in sağlam, 2019) in the innovation performance scale, there are 5 items. as a result of the cfa analysis of the innovation performance scale, the factor loads of the items vary between 0.582 and 0.859. due to the high coefficients between fourth statement and fifth statement’s error terms, covariances were created between these variables. after that, analysis was repeated, and goodness-of-fit values are at an acceptable level. goodness of fit index good fit moderate scale value x2/df ≤3 ≤5 1,85 cfi ≥0,97 ≥0,95 0,97 gfi ≥0,90 0,89-0,85 0,954 agfi ≥0,90 0,89-0,80 0,903 rmsea ≤0,05 0,06-0,08 0,071 goodness of fit index good fit moderate scale value x2/df ≤3 ≤5 1,62 cfi ≥0,97 ≥0,95 0,98 gfi ≥0,90 0,89-0,85 0,99 agfi ≥0,90 0,89-0,80 0,94 rmsea ≤0,05 0,06-0,08 0,06 şüheda baran & necla öykü i̇yigün 10 table 3. competitiveness scale goodness of fit index goodness of fit index good fit moderate scale value x2/df ≤3 ≤4-5 2,06 cfi ≥0,97 ≥0,95 0,97 gfi ≥0,90 0,89-0,85 0,92 agfi ≥0,90 0,89-0,80 0,88 rmsea ≤0,05 0,06-0,08 0,07 source: jöreskog ve sörbom, 1984, meydan ve şeşen, 2011. (as cited in sağlam, 2019) in the competitiveness scale, there are 14 items. as a result of the cfa analysis of competitiveness scale, the factor loads of some items smaller than 0,40. these items were removed from the cfa analysis, and due to the high coefficients between fifth statement and seventh statement’s error terms, covariances were created between these variables. after that, analysis was repeated, and goodness-of-fit values are at an acceptable level. table 4. reliability analysis of variables the reliability of the scales used in the research was examined by the internal consistency method and the cronbach alpha coefficients were calculated. cronbach's alpha coefficient evaluates the reliability of the scale and questions whether the scale expresses a whole showing a homogeneous structure. as the cronbach alpha coefficient approaches 1, its reliability increases. for the scale to be acceptable, the α value must be above 0.70. in table 4, the results of the reliability analysis were given, and all values are found as above the minimum required level of 0.70. 4.3. scale validity test results the cr considers the factor loadings (standardized path coefficients) and error variances of the items in a factor. ave is the criterion of concurrency validity between items representing an implicit structure (gürbüz, 2019). it is suggested that the factors in a cfa model must meet the following conditions in order to be valid (hair, black, bobin, & anderson, 2014). • cr> 0,70 • ave> 0,50 • cr>ave variable name reliability (cronbach α) entrepreneurship orientation 0,837 innovation performance 0,830 competitiveness 0,876 the mediating role of innovation performance on the relationship between entrepreneurship orientation and competitiveness: a research in the export companies 11 table 5. scale validity test results source.: fornell, c. & d. f. larcker (1981) table 5 showing the results of the scale validity test performed after the verification of the factor structures according to the results of the confirmatory factor analysis was examined. convergent validity values (cr) for scale dimensions were 0.70 and above, discriminant validity values (ave) were found to be above 0.50. in this case, scale validity was ensured. 4.4. correlation analysis in this research, by using pearson's correlation analysis technique, as a result of the scales were complied with normal distribution, the relationships between entrepreneurship orientation, innovation performance, and competitiveness were analyzed. the direction and strength of linear relationship can be determined between the variables with the pearson correlation analysis. table 6. correlation analysis if the correlation value between the two variables is between 0.40-0.59, it is interpreted as a moderate relationship, if it is between 0.60-0.79, there is a high-level relationship, and if it is 0.80-1.0, it is interpreted as a very high relationship (şen, 2017). according to this analysis, between entrepreneurship orientation and competitiveness has medium-positive relationship. it is found that there is a high-positive relationship between entrepreneurship orientation and innovation performance. also, there is a medium-positive relationship between innovation performance and competitiveness. 4.5. hypothesis testing according to george and mallery (2012), a kurtosis value between ±1.0 is considered excellent for most psychometric purposes, but a value between ±2.0 is in many cases also acceptable, depending on the particular application. kurtosis and skewness values were calculated for the scales used in this research to provide normality. in this study, the mediating effect of innovation performance in the relationship between entrepreneurship orientation and competitiveness. the baron and kenny (1986) method has been used to measure the mediator effect. the mediation effect is based on certain conditions. these conditions: variables ave cr entrepreneurship orientation 0,581 0,916 innovation performance 0,507 0,836 competitiveness 0,611 0,970 entrepreneurship orientation innovation performance competitiveness entrepreneurship orientation 1 0,732** 0,587** innovation performance 0,732** 1 0,593** competitiveness 0,587** 0,593** 1 *p<0,001 significant şüheda baran & necla öykü i̇yigün 12 1. there should be a statistically significant relationship between the independent variable and the dependent variable, 2. there should be a statistically significant relationship between the independent variable and the mediating variable, 3. there is a statistically significant relationship between the mediator variable and the dependent variable, 4. in the relationship between the independent variable and the dependent variable, when the mediating variable is included in the model, the relationship between the independent variable and the dependent variable should become statistically insignificant (full mediating effect) or the effect of the independent variable on the dependent variable should decrease compared to the previous one (partial mediating effect). table 7. the effect of entrepreneurship orientation on competitiveness model non-standardized standardized β std. error β t sig. constant 2,838 0,178 15,911 0,00* entrepreneurship orientation 0,425 0,045 0,578 9,397 0,00* f= 88,316; p=0.00*; r=0,578 r2=0,344 *p<0,001 competitiveness= 2,838 + 0,425* entrepreneurship orientation+ ε entrepreneurship orientation positively affects competitiveness. table 8. the effect of entrepreneurship orientation on innovation performance model non-standardized standardized β std. error β t sig. constant 1,192 0,208 5,732 0,00* entrepreneurship orientation 0,734 0,052 0,731 13,912 0,00* f= 193,542; p=0.00*; r=0,731 r2=0,535 *p<0,001 innovation performance = 1,192 + 0,734*entrepreneurship orientation + ε entrepreneurship orientation positively affects innovation performance. table 9. the effect of entrepreneurship orientation and innovation performance on competitiveness model β std. error t sig. constant 2,535 0,186 13,569 0,00* innovation performance 0,254 0,063 4,01 0,00* entrepreneurship orientation 0,238 0,063 3,75 0,00* f=56,182; p=0.00*; r=0,632 r2=0,402 *p<0,001 competitiveness = 2,535 + 0,238* entrepreneurship orientation + 0,254* innovation performance + the mediating role of innovation performance on the relationship between entrepreneurship orientation and competitiveness: a research in the export companies 13 table 10. normal theory tests for indirect effect the mediator effect of innovation performance effect std. error z p entrepreneurship orientation--> innovation performance--> competitiveness ,1868 ,0486 3,8469 ,0001 sobel test results can be seen in table 10. the results of the sobel test performed to examine the significance of the mediating effects, the fact that the z coefficients were greater than 1.96. therefore, the mediator role of innovation performance on the effect of entrepreneurship orientation on firm competitiveness is proven. table 11. indirect effect of entrepreneurship orientation on competitiveness effect boot se bootllci bootulci innovation performance 0,1868 0,0672 0,0632 0,3252 the bootstrap confidence intervals were within the relevant intervals indicate that the results are significant. both values are above zero. when the results are examined in terms of mediating effects, it is seen that all steps are realized according to the baron and kenny approach and the effect of the independent variable on the dependent variable decreases when the mediator variable is added, indicating that the mediating effect has a partial mediating role. innovation performance has a mediator role in the effect of entrepreneurship orientation on competitiveness. 5. discussion and conclusion the study results throw that that the mediator role of innovation performance on the effect of entrepreneurship orientation on firm competitiveness is statistically significant. this means that, the relation 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(2017) “international review of management and marketing " the impact of entrepreneurial orientation on competitive advantage moderated by financing support in smes,” international review of management and marketing, 7(1), pp. 43–52. journal of international trade, logistics and law, vol. 2, num. 2, 2016, 97-111 out of scope employees in turkish collective bargaining system (*) mehmet saim aşçı, (phd) university of i̇stanbul medipol, turkey abstract: collective bargaining is the process in which labor unions representing workers on the one hand and employers or employers’ institutions on the other gather and come to the table in order to determine working rules and conditions of both parties and the process to conclude the collective agreement. in article 39 of 6356 numbered law of trade unions and collective labor agreement, issues about benefiting from a collective labor agreement are included. out-of-scope employee concept in industrial relation application refers to people excluded from collective labor agreement regime even though they are able to be member of a labor union, and even they are, as a result of consensus of the parties of collective labor agreement, in other words those to whom collective labor agreement is not applied. exclusion of some workers such as directors, chiefs, engineers and even all office employees which are members or able to be a member of labor unions from the scope of the agreement is an encountered case in the application of collective labor agreements and this issue is regulated through scope articles included in collective labor agreements. the circumstances of out of scope employees cause discussions. key words: collective bargaining, personnel out of scope, labour unions, collective labour agreements 1. development of out of scope employee conception in turkish law entrance of collective labor agreement into the work life under the name of general contract happened through 1926 dated law of obligations. law of obligations regulated collective labor agreement institution only in its two articles with liberal approach. according to article 316 regarding conclusion of the agreement, employers or employer associations could conclude “general contracts” including the issues “concerning service” with labors or employer associations. validity of the contract is stipulated to the condition of being written. duration of the contract could be agreed by parties. however, if a consensus could not be reached upon this issue, the contract could be terminated anytime through a warning notified in a duration of six months after a year. as for article 317, which regulates results of collective labor agreement, it is stated that rules of individual labor agreement conflicting with collective labor agreement would be void and be replaced with the rules of collective labor agreement (gülmez, 1983). collective labor agreement institution, which took place in turkish work life a little bit earlier, could not developed further and find application area (ekin, 1979). undoubtedly, there may be various economic, social and cultural reasons for that. however, one of the main reasons is the lack of unions to transmit individual level of collective labor agreement bargains to a collective level. likewise, ottoman strike law was in force in 1926 and according to this, workers operating in workplaces serving to public were prohibited from establishing unions. although there were not a definite prohibition regarding strikes; law of obligations could not lead to the birth of a common collective bargaining tradition because of lack of right * this article has been generated from the doctoral dissertation of the author under the title of “a research investigating out of scope employee application in turkish collective agreement system and attitudes of workmen regarding the issue”. 98 mehmet saim aşçı to union, which is one of the elements that is meaningful only if they enjoy together, and regulation of collective bargaining issue, which is such a complicated issue, only in two articles, and hence rules were stuck in enactment texts (işıklı, 1976). in this period, although collective labor agreement had an existence in institutional respect, there was not any application of out of scope employee due to there was not any concluded collective labor agreement, and hence to wait for the next period became necessary. article 46 of 1961 constitution recognized right to trade unions, likewise article 47 to right to collective agreement and strike, and 275 numbered law of collective labor agreement, strike and lock-out enacted in 1963 gave an institutional form to collective bargaining. in this institutional structure, autonomy of collective agreement was initially recognized through 1961 constitution and became functional through 1963 dated laws and took its place in social life and legal structure. with the beginning of collective bargaining application in our country in 1960s, it was seen that some provisions about to which workers these agreements shall be applied were included in collective labor agreements and tasks and positions to be excluded from the scope started to be determined. in this sense, the year of 1963 can be accepted as the date on which application area of collective labor agreements were narrowed with respect to individuals and out of scope employee applications were started (can, 1995). since 1963, exclusion of a part of staff was requested by employer in collective labor agreement discussions, and labor unions generally objected this request. however, in spite of these discussions, provisions regarding out of scope employees were included in the great amount of collective labor agreements (i̇nce, 1985). 2. the concept of out of scope employee workers serving in production, management and supervision departments of enterprises, having membership of a trade union or not, generally having high level positions such as manager, assistant manager, chief, lead man, foreman etc. and excluded from benefiting collective labor agreement through union membership or payment of solidarity contributions are called as out of scope employees in application. out of scope employees is a group of staff which cannot benefit from collective labor agreement due to their position, task or titles even though they are members of a union (i̇nce, 1985). although it is accepted that out of scope employee application was kept narrowly with respect to position and a sufficient level was not fallen below with respect to wage and other social rights in the first years of shift to collective bargaining order (şahlanan, 1992); it is a fact that number of workers excluded from the scope increased and a decline was observed with respect to wages and social rights in comparison with workers benefiting from collective labor agreements in next years (çelik, 1980). 2.1. definition and elements of out of scope employees 2.l.1. definition of out of scope employees out of scope employee has been mentioned in collective bargaining law as a concept but any definition has not been made. out of scope employee has only been approached in the sense of benefiting from collective labor agreement and the problem has been dealt with in this scale (reisoğlu, 1983). on the other hand, there is not a legal provision about whether workers are going to be excluded from the scope or not. whereas out of scope employee may be the member of signatory trade union in collective labor agreement in principle, it may not be a member as well. after this short explanation, out of scope employee can be defined as follows: in a workplace or enterprise, exclusion of workers at a certain title or position regardless of they are members of signatory labor union of collective labor agreement or not from the application sphere of collective labor out of scope employees in turkish collective bargaining system 99 agreement is called as exclusion from the scope; and workers to whom collective labor agreement is not applied due to their position are called as out of scope employee (reisoğlu, 1983; i̇nce, 1985) employer representatives to be deemed as employer can be determined as follows according to 6356 numbered law of trade unions and collective labor agreement with respect to collective bargaining law: those managing whole enterprise, those participating collective bargaining as an authorized representative although they do not have authority to manage whole enterprise. employer representatives other than those indicated above can become members of trade unions and benefit from collective labor agreements regardless of their title. this suggestion caused much-discussed out of scope employee problem (i̇nce, 1985). although principle is inclusion of all workers who are serving in the workplace and members of the trade union in the sense of personal scope of collective labor agreement (esener, 1978); in practice, exclusion of some workers such as directors, chiefs, engineers and even all office employees which are members or able to be a member of labor unions from the scope of the agreement is an encountered case in the application of collective labor agreements hence they are left to sphere of service contract (çelik, 1980). therefore, collective labor agreement and adherence principle becomes invalid for a certain amount of members affiliated with that agreement (out of scope employees) as an exception and through the agreement of parties but valid for other (in-scope) members which constitutes a great majority. parties narrow the scope in this manner. a similar case is called as “abstract” or “potential” adherence in german law (çelik, 1980). although adherence maintains through collective labor agreement, this adherence is suspended through agreement power. in practice, it can be observed that in-scope and out of scope employees are discriminated in private sector. for various reasons, employers in private enterprises request some employees serving at important administrative levels to be excluded from personal scope of collective labor agreements. indeed, due to these workers serve under a service contract they also have the title of employee. however, most of the time, these are advisors, engineers, and individuals serving in personnel and accounting departments. according to employers, such kind of individuals should fall out of personal scope of collective labor agreement because of secrets of enterprise that they learn while they do their works. therefore, an out of scope employee group emerges in practice as a result of discussions and bargains carried out between parties and employer can assign their working conditions and wages outside of collective labor agreement. out of scope works are written in the agreement. hence a kind of “staff”, that falls out of the scope, emerges. that staff is not included in the scope of collective agreement whomever is assigned to this position. then, those working at this out of scope position either do not become members of signatory unions or resign from membership if they are or they maintain their membership but they cannot benefit from collective agreement due to falling out of scope. in practice, trade unions contend, negotiate and bargain to include their workers who do not consent with being out of scope into the scope (esener, 1978). moreover, an application to give similar rights to out of scope employees after conclusion of collective agreement is commonly observed. such an application has arisen due to unwelcomed perception of administrative staff as close to employer and employer representative and their distance to participate unions. in addition to that, it is known that this group, which is composed of white collars, does not lean toward unionization. however, after increasing labor force costs in recent years, retreats from giving the same level of rights to out of scope employees following collective bargaining have started. therefore, it can be said that wage 100 mehmet saim aşçı differences between in scope and out of scope employees (especially for lower level administrative employees) increased (koray, 1992). 2.1.2. elements of out of scope employees elements of out of scope employees can be listed as follows (i̇nce, 1985). 1. out of scope employees are individuals who are able to become members of a union in principle. 2. the case of being out of scope arises from position, task or title of these individuals. 3. exclusion of an employee from the scope should be indicated in collective labor agreement. 4. this employee is out of collective labor agreement regime and such kind of people cannot be applied collective labor agreement in principle. such kind of people is dependent upon a service contract or provisions of workplace internal regulation. 2.2. legal discussions on out of scope employees the circumstances of out of scope employees cause discussions (esener, 1978). upon disputes that emerged about this issue, supreme court has decided that individuals excluded from the scope of collective labor agreement cannot benefit from the collective agreement even though they are members of the union.1 due to any further legal regulation has not been placed, court decisions concluded in previous practices and various scientific views maintain their importance (çelik, 2015). 2.2.1. legally affirmative view on out of scope employee application devrim ulucan suggests following ideas in examination of decision of supreme court 9th civil chamber with 6.5.1974 date, 1973/24604 docket and 1974/8465 number (ulucan, i̇hu, tsglk. 6. no.1): i. article 47 of constitution (a. 53 in 1982 constitution) entitled collective labor agreements to workers as an individual right by putting forward the provision of “in their relation with their employers, workers are entitled to bargain collectively and to strike with a view to protecting or improving their economic and social status”. option to exclude such worker who seems owner of right of collective labor agreement in the first view through a provision stipulated in the agreement by the parties can be interpreted as removal of right of collective labor agreement entitled by the constitution to workers. however, legal source of autonomy and power of collective labor agreement entitled to the parties of collective labor agreement is the constitution as well. a new kind of contract, which has an importance and special qualities so as to be protected at the level of constitution, has been generated through right of collective labor agreement entitled to workers. the most distinct feature of this kind of contracts is “its collective character” and its superiority and priority in comparison with other individual contracts. this superiority and priority arise from the fact that normative part of collective labor agreement is an autonomous legal source with objective quality and has the characteristics of a law in the material manner. 1 supreme court .9.c.c. 6.5.1974 d. d. 1973/2460, 1974/8465 no decision and devrim ulucan's examination, i̇hu 1975 tsglk, 6 (no.1); 12.1.1976 d. d.1975/31395, 1976/1000 no decision of the same chamber, journal of supreme court decisions, april 1976, pp.490-49 l.; 16.2.1976 d.d. 1976/1704, 1976/5689 no decision and münir ekonomi's examination, i̇hu 1976; tsglk, 37 (no.2); supreme court .9.c.c. 20.5.1985 d.d. 1985/2546, 1985/5437 no.ii decision, journal of employers, july 1985, pp.17-19.; supreme court assembly of civil chambers 25.4.1986 dated decision, journal of textile employers, february 1987, p.22. out of scope employees in turkish collective bargaining system 101 the intended result through entitling right of collective labor agreement is to provide a legal opportunity to the workers organizing in pursuant to the principle of self-help; to enable them to make agreements about their working conditions in their relation with their employers “to protecting or improving their economic and social status”; to transform presumed formal equality between labor and employer concluding individual contract into a real equality; and hence to break employer’s superiority to a large extent. as it is known, the fact on which the main principle of labor law is based is dependency of the worker to the employer. in order to remove actual superior position of employer and make the worker equal to it, recognition of freedom of association and establishment of protective organizations of workers are necessary. the constitution has bestowed this facility to both workers and employers. while these organizations are regulating working conditions as the parties having equal rights, they set up autonomous legal rules. normative part of a collective labor agreement, which is concluded under the principle of autonomy, must be compulsory with respect to minimum requirements and it must directly have the quality objective law to be able to make workers equal with employer as indicated above. regulation of third parties’ legal relationships by the parties of a collective labor agreement, who are private law bodies, through establishing objective and general laws and their privilege to link individual contracts of the third parties to direct and compulsory rules and their “collective labor agreement power”, “authority to establish rules” (like legislative organ of the state) take its legal validity from the constitution. due to the source of collective labor agreement power is the constitution, lawmaker cannot make changes so as to touch the essence of this right and cannot completely remove this right. utilization of collective labor agreement power indicated in the constitution has been restricted with an aim in the collective agreement autonomy. the aim to drive the parties having the collective agreement power is “to protecting or improving their economic and social status”. the most influential way in achieving this aim with respect to selfhelp principle is organization of workers and to carry out collective labor agreements through these organizations. the constitution has recognized the freedom to establish trade unions and set up many provisions for the purpose of protection of workers. after the assignment of utilization of collective labor agreement right to the labor organizations due to it is necessary for the realization of this right and protection of workers, rights of the actual right owner workers would not be taken away; on the contrary, opportunity for effective utilization of the right would be provided. in this sense, regulation of the collective labor agreement through an additional specific law and determination of parties of collective labor agreement is not in conflict with the constitution. similarly, normative quality of collective labor agreement has been concretized through the law. ii. 275 numbered law of collective labor agreement, strike and lock-out (a.1) determined the parties and the subject of collective labor agreements through the provision of “labor agreement in the sense of this law is a contract concluded between labor organizations and employer organizations or employers so as to conclude service contract and regulate the issues regarding its content and termination”.2 according to this provision, labor organization “representing majority of workers operating in a business line or one or more workplaces” has collective labor agreement power and is able to become collective labor agreement party so as to represent workers as indicated in article 7. 2 parties and subject of a collective labor agreement is included in 6356 numbered law of trade unions and collective labor agreement as follows: "collective labor agreement refers to the agreement concluded between a workers’ trade union and an employers’ trade union, or an employer who is not a member of any union, in order to regulate the matters with regard to the conclusion, content and termination of the employment contracts.” 102 mehmet saim aşçı the party of collective labor agreement power for employers is the organizations which are indicated in article 7 of the same law as well. however, a single employer may also be the party of a collective agreement under certain circumstances with respect to employers.3 in addition to the matters regulating mutual rights and obligations of the parties, application and supervision of the agreement and procedures to be applied for settlement of disputes; “regulation of the matters regarding conclusion, content and termination of service contract” is included in the scope of collective labor agreement power. apart from these provisions indicating normative quality of collective labor agreement, the same law regulated normative quality of the collective labor agreement in details. according to article 3 of the law, “unless otherwise specified in the collective labor agreement, service contracts cannot be in conflict with the collective labor agreement. provisions of the service contract conflicting with collective labor agreement would be replaced with the provisions of collective labor agreement. issues not regulated in the service contract are regulated on the basis of collective labor agreement’s provisions.”4 therefore, quality of normative part of a collective labor agreement, which is entitled in the constitution, and its details are determined in law of collective labor agreement, strike and lock-out in a clearer manner. iii. although collective labor agreement right is a basic right of workers, labor organizations, employer organizations and employers in some cases have the right to use this right. however, it cannot be said that workers have no influence on the usage of this right, single workers underwhelm in the community and are absolutely determined by the organization. utilization of the right is assigned to labor organization on behalf of right owner workers in pursuant to collective quality of the right and the intended aim to be achieved, which is “to protecting or improving their economic and social status”.5 these labor unions must be in compliance with the conditions indicated in the constitution in order to legally use their representation authorities; in other words, they must be established freely, be independent, operate in compliance with democratic principles and participant and resignation from membership must be free. a labour organization having these qualities naturally uses its collective agreement power in favor of workers. the worker who is member of the organization is considered that she/he has accepted collective labor power of the organization due to adopting membership with independent will. moreover, the worker has the chance to exit from collective agreement power of the organization through resigning from the organization. iv. members of the organizations which are the parties of a collective labor agreement are affiliated with the collective labor agreement and are included in application sphere (scope) of the collective labor agreement in principle. 3 6356 numbered law of trade unions and collective labor agreement defines labor and employer organizations having collective labor agreement power and being able to a party of a collective agreement as follows in article 41 with the title of competence: “1. the workers’ trade union representing at least three percent of the workers engaged in a given branch of activity and more than half of the workers employed in the workplace and forty percent of the workers in the enterprise to be covered by the collective labor agreement shall be authorized to conclude a collective labor agreement covering the workplace or enterprise in question. 2. in the case of enterprise collective labor agreements, the workplaces shall be considered as a whole in the calculation of the forty percent majority. 3. if several trade unions have members of forty percent or more in the enterprise, the trade union having the largest number of members shall be authorized to conclude a collective labor agreement. 4. an employers’ trade union shall have the power to conclude a collective labor agreement covering the workplace or workplaces owned by the employers belonging to the union. an employer who is not a member shall have the power to conclude a collective labor agreement covering the workplace or workplaces owned by him. 4 the same provisions are included in article 36 of 6356 numbered law of trade unions and collective labor agreement. 5 constitutional court decision, 2.5.1969, d.1963/337, 1967/31 no, lebib yalkın publisher, aa/ i. item no. 15. out of scope employees in turkish collective bargaining system 103 due to the law is about the members of both parties affiliated through and included in the scope of the collective agreement, it recognized direct and compulsory effect to normative provisions of the agreement. however, it is possible that a collective labor agreement may be valid for only a certain part of those affiliated through this agreement in general. for instances, exclusion of a part of workers from the scope of agreement in a workplace. workers affiliated with collective labor agreement should not be confused with those to whom provisions of the collective labor agreement are not applied, in other words out of scope employees. authority to determine workers affiliated with collective labor agreement has not been given to the parties but these are determined by the law. however, the issue of who are going to be included or not into the scope of a collective labor agreement is in the scope of parties’ competence and is an element of collective agreement power. in practice, exclusion of some workers such as directors, chiefs, engineers and even all office employees which are affiliated with service contract and able to be a member of labor unions from the scope of the agreement is an encountered case in many collective labor agreements. in compliance with the meaning of the concept, if we understand affiliation to a collective labor agreement from the term of affiliation, collective labor agreement in question must be concluded and entered into force for the birth of affiliation. individuals falling into the scope (application sphere) of the same collective labor agreement provisions are those who are affiliated to the collective labor agreement. provisions of the collective labor agreement are not valid for those who are not affiliated. as an ordinary result of that, the case of affiliation to the collective agreement terminates through the termination of collective labor agreement in question. this can be called as “actual” or “concrete” affiliation to a collective labor agreement. however, on the other hand, there may be some other (out of scope) workers or employers to whom provisions of the collective labor agreement are not applied although they are affiliated with collective labor agreement. in that case a “potential” or “abstract” affiliation is the matter, in spite of abstract affiliation worker or employer is out of the scope of collective labor agreement. in conclusion, in pursuant to collective agreement power that parties have, provisions of the collective labor agreement are not applied to individuals that are marked as excluded from the scope of collective labor agreement even though they are members of the union that is a party of the collective labor agreement and hence affiliated with the collective labor agreement. such individuals stay affiliated with legal provisions like those who are not member of the union. münir ekonomi̇ gives following ideas in the examination of supreme court 9th civil chamber decision with 16.2.1976 date, docket 1976/1704, 1976/5689 number (ekonomi, i̇hu. tsglk 37. no2). collective labor agreements, which have the quality of a private law contract, are primarily based on free agreements of the parties and composed through mutual and coherent declarations of intention. after the shift to collective labor agreement order in our country, in addition to provisions regarding collective agreements are going to be applied to which workers, it is observed that some provisions regarding that some workers, especially those taking role in the management of the work and workplace, employer representatives (manager, chief, foreman, lead man etc.) or those performing certain tasks (engineers, a part of office staff) are going to be excluded from the scope of the agreement are added into the provisions in collective labor agreements in practice. the issue of exclusion from the scope, which is decided by the parties after negotiations, was initially objected by trade unions, avail of agreements by union members was discussed and even it was claimed that exclusion from the scope is in conflict with article 53 of the constitution (a. 53 of 1982 constitution). on the others hand, exclusion from the scope has not become a great problem in practice and provisions on this issue have 104 mehmet saim aşçı been included in most of concluded collective labor agreements. it should also be noted that, trade unions sometimes suggested exclusion of senior officials of employer representatives from the scope. ii. according to the view accepted by supreme court and dominant in the doctrine, parties of a collective labor agreement can decide upon exclusion of some workers from the scope of the agreement while determining application sphere of the agreement with respect to people and regulate it in the agreement. similar to the fact that lawmaker can make a restriction in the laws and exclude some people from the application area of the law for certain reasons; agreement parties, which establish autonomous rules of law through normative provisions of collective labor agreement having the quality of a law in material respect, can exclude a part of workers from the scope of the agreement by acting in the same direction. they can freely decide which workers are going to be included and which ones to be excluded. unless there exist some arbitrary discrimination among equals in the exclusion from the scope, there does not exist any conflict with principle of equality and law with respect to the laws that collective labor agreement determines. according to mustafa çenberci̇, (çenberci, 1979); “in out of scope employee application, there is a necessity and maybe even an obligation for both trade unions, i.e. labor organizations, and employers. by considering this point, there does not seem any conflict with the principle of constitutional equality.” devrim ulucan reaches the conclusion of “if there is discrimination between workers from completely different statues and office staff is excluded from the scope, and then there is not any conflict with equal treatment principle. to deal with the issue only on the basis of principle of equality may be faulty. exclusion of some individuals from the scope through collective labor agreement may be beneficial for them as well. in other words, individuals who are going to get wages more than that determined by collective labor agreement are generally excluded from the scope of the collective labor agreement. moreover, while trade unions are excluding someone from the scope, they are under supervision with respect to internal democracy in any case. they cannot easily exclude from the scope, they exclude some individuals by considering that they have opportunity to take higher wages due to they are skilled labors. it should be considered as an authority entitled to the union with respect to its policy.” in his approach to examine the issue with respect to equal treatment principle (ulucan, 1979). according to seza rei̇soglu (reisoğlu, 1986); “collective labor agreement is a private law contract composed in the consequence of free will of the parties. normative quality of majority of the provisions of the agreement does not matter with respect to consider the agreement as a private law contract. just as the other private law contracts, parties are free to assign the scope of the agreement and to exclude some workers from the scope. exclusion of workers operating at listed tasks from the scope is indeed a natural result of the bargaining between parties. exclusion from the scope may be based on many different reasons. for instances, employer may insist on exclusion of some workers performing some certain tasks in order to provide more superior rights than collective agreement”. in clause 2 of article 14 of 274 numbered trade unions law, the provision of “professional associations established in accordance with this law have to comply with parity among their members” is included, and hence, whether some workers who are member of the union shall be excluded from the scope or not was discussed. supreme court clearly accepted that members of the signatory union can be excluded from the scope as well in the last period. according to supreme court, individuals excluded from the scope of collective labor agreement are subjected to provisions of law but not provisions of collective labor agreement in severance pay calculation (9.c.c. 6.5.1974, 24604/8465, employer, october, 1974, p.21; 9.c.c. 16.2. 1976). supreme court maintained the same view in a decision (9.c.c. 30.5.1985, 2546/5437) regarding exclusion of parttime employees from the collective agreement in the new period. affiliation with collective labor agreement is determined by the law. accordingly, each worker who is member of the signatory union is affiliated with the collective labor agreement. however, who are going to be included in the scope of collective labor agreement or not and who shall be excluded can be decided by the parties of the agreement. even, provisions of the agreement are not applied these workers although they are legally affiliated with the agreement due to they are members of the signatory union. out of scope employees in turkish collective bargaining system 105 on the other hand, if some members of the union reach the conclusion that they are not protected, they can resign from the membership while they can also make effort to change the management of the union. moreover, 2821 numbered trade unions law have concluded a new regulation in this sense and have not included a provision stipulating equality among members in article 32 for the activities of trade unions so as to include conclusion of a collective labor agreement. the law accepted the clause of “unions and confederations have to comply with the equality among their members in enabling their activities” for the article 33 regulating social activities of unions and confederations. while parties of the collective agreement accept out of scope articles, they can apply this procedure for only certain positions, and they cannot determine out of scope employees by listing their names. normative provisions of this agreement which is binding for the workers are only suitable for the assignment of general provisions. some positions can be excluded from the scope and all workers operating at this position cannot benefit from the collective labor agreement regardless of they are the members of signatory union or not. benefiting of out of scope employees from the agreement by paying solidarity contribution is not possible as well. supreme court also agrees with the idea (9.c.c. 20.5.1985, 2547/5436). in an event devolved to the supreme court, “it was decided that less material benefit than provided for a certain part of positions and working conditions, unionmember workers, through collective labor agreement or less benefit than total amount corresponding these conditions cannot be entitled. complainant trade union sued employer due to it does not cut solidarity contribution from that staff benefiting from the agreement. employer request the dismissal of the suit due to it does not have to cut solidarity contribution in pursuant to article 9 of 2822 numbered law and article 61 of 2821 numbered law. according to supreme court, the base determined by the collective labor agreement for out of scope employees is a limit measure. other rights are not mentioned and prices of those are determined in individual relationship. due to these employees get their rights through individual agreements rather than collective labor law relations, and hence cut of solidarity contributions from these workers is not compulsory, responsibility of the employer is not a matter. similarly, benefiting of out of scope union-member employees from the agreement by paying solidarity contribution and benefiting from the union cannot be accepted as well. acceptance of benefiting of out of scope employees from the agreement by paying solidarity contribution means the rejection of such authority of the parties. on the other hand, parties cannot exclude only workers who are not members of the union. in that case, the provision of benefiting from the collective labor agreement by paying solidarity contribution without approval of the signatory union will be eliminated.” münir ekonomi̇ also defends compliance of out of scope employees with the law through the idea of “an autonomous sphere has been left to agreement parties to regulate working conditions through concluding a collective labor agreement right in the conclusion. we call it as the collective labor agreement autonomy. while parties agree and determine working conditions within the borders of this autonomy, they establish objective legal rules, these rules that constitute normative part of the agreement bind third parties and has the quality of law in the material meaning. within the current system, parties have the competence to exclude from the scope on the basis of collective labor agreement and power.” (ekonomi, 1979). erol aki also agrees with the idea of that in the case of they are excluded from the scope upon the acceptance of labor organizations after the proposal of employer party to exclude from the scope of the collective labor agreement, individuals serving at high level management position (like manager and chief) as well as qualified technical staff (like engineer, foreman) cannot benefit from the collective labor agreement even though they are members of the union (akı, 1975). in the preamble of a decision (9. c.c. 20.05.1985, 1985/5437) of supreme court 9th civil chamber summarized as “who are going to be included in the scope of collective labor agreement or not and who shall be excluded can be 106 mehmet saim aşçı decided by the parties of the agreement. even, provisions of the agreement are not applied these workers although they are legally affiliated with the agreement due to they are members of the signatory union. payment of different wages, premiums or payments of benefit by employer to the workers because of either objective or subjective qualities, position, importance of the task, working conditions is not in conflict with equal treatment principle”, following ideas are included. “in article 53 of the constitution, right of concluding collective labor agreement between workers and employers to regulate mutual economic and social conditions and working conditions; in article 54, right to strike of workers in the case of dispute while discussing on this agreement; and in article 51, right to establish trade unions of workers and employers in order to protect and develop economic and social rights and benefits in labor relations are regulated. formation, utilization and protection of these rights and freedoms, which are determined in the constitution in general terms, within the borders of general rules of the constitution, scope, contents, conclusion of a collective labor agreement and conditions to benefit from them have been regulated in 6356 numbered law of trade unions and collective labor agreement in more concrete and detailed provisions. provisions in article 25 of 6356 numbered law with the title of guarantee of freedom of trade union include a part of provisions taking its source from the constitution and ensuring positive – negative trade union freedom. relevant proscriptive and protective rules in mentioned article 25 of 6356 numbered law are included in clauses 3 and 4. here, after determination of that employer cannot make any discrimination on account of his membership or non-membership in a trade union or membership in different trade unions during the labor relation as a general rule; it is emphasized that provisions of collective labor agreement on wages, premiums, bonuses and money regarding payments of benefits shall be kept secret. however, some points should be emphasized in order to make clarifications in compliance with their essence. affiliation with a collective labor agreement and assignment of the scope of the collective labor agreement should not be confused. affiliation with collective labor agreement has been determined by the law. accordingly, each worker who is member of the signatory trade union is affiliated with the collective labor agreement. on the other hand, who are going to be included in the scope of collective labor agreement or not and who shall be excluded can be decided by the parties of the agreement. even, provisions of the agreement are not applied these workers although they are legally affiliated with the agreement due to they are members of the signatory union. another important point is that principle of “equal treatment” by employer is not absolutely perceived. it should be accepted that payment of different wages, premiums or payments of benefit by employer to the workers because of either objective or subjective qualities, position, importance of the task, working conditions is not in conflict with equal treatment principle. moreover, differences in the application should not aim to prevent or restrict freedom of trade union that the constitution and the law intends to protect. prevention of the abuse of the right is also essential.” again, according to the idea included in another decision of supreme court 9th civil chamber (20.05.1985, 1985/5436); “out of scope employees get their rights through individual agreements and not collective labor law relations.” another supreme court decision summary on this issue includes following statements (9.c.c. 12.01.1976, 1975/31395). “before determination of whether defendants are included in the scope of the collective labor agreement on the basis of their positions and tasks, to decide upon their avail of collective labor agreement increase is not correct.” in a decision of supreme court assembly of civil chambers (y.h.g.k. 25.4.1986, e985/9-835, k.986/449), following ideas are included: “although membership in a trade union constitutes affiliation principle to benefit from collective labor agreement, exclusion from the scope through the provision in the agreement is the exception of benefiting and out of scope member cannot request the rights arising from the agreement.” devrim ulucan refers to this decision of supreme court assembly of civil chambers and defends the idea of “although it is claimed that exclusion from the scope is in compliance with principle of equality, exclusion from the out of scope employees in turkish collective bargaining system 107 scope of a part of employees due to their special positions and quality of the task they perform is generally accepted in compliance with the law.” (ulucan, 1988). 2.2.2. legally negatory view on out of scope employee application in application of many collective labor agreements, it is observed that workers serving at certain positions are kept out of scope of the collective labor agreement. whether they are the members of the union concluding the collective labor agreement does not matter. according to kemal oğuzman; “it cannot be said that such kind of provision to exclude from the scope, which is claimed to be accepted with the presumption of that employer is going to provide rights better than those provided in the collective labor agreement to out of scope employees due to they are close to the employer thanks to the task they serve, is always beneficial for the workers in question. these workers, who is accepted that they cannot benefit from the concluded collective labor agreement even though they are members of the union, neither can conclude a new collective labor agreement nor benefit from the concluded labor agreement by paying solidarity contribution. therefore, the workers in question cannot benefit from the right to collective labor agreement under the guarantee of the constitution and this arises out of their will” (oğuzman, -). after pointing out that most of the workers excluded from the scope is not the member of trade unions, oğuzman indicates that “such kind of an out-of-scope provision abolish the opportunity of these workers to become members of the unions”. as likely as not, the aim is that; to drive them not to be members of the unions but to cut the constitution off at the same time. constitution recognizes collective labor agreement to the workers and workers can benefit from this right only through unions under the system placed after the decision of constitutional court. when a worker is excluded from the scope, and exempted from the right of concluding collective labor agreement by the union, how can she/he benefit from the right of collective labor agreement? how can she/he utilize the rights such as benefiting from the collective agreement during a collective labor agreement duration, benefit from the right of collective labor agreement which are under the guarantee of the constitution? then, all these rights become hindered. in my opinion, exclusion from the scope in this frame as the main point, which is also interpreted as completely excluding from the collective agreement, becomes in conflict with the constitution. the case changes if and only if it is interpreted as they can benefit from the collective agreement, but regardless of the fact that benefit or not, their opportunity to get some extra rights from the employer thanks to their position and the task they perform are reserved. then, it can be discussed that whether it is valid or not for some other cases.” oğuzman also rejects the ideas of that exclusion from the scope takes its source from collective agreement autonomy and power and suggest that “there are some forefront ones in the system of supreme court with respect to exclusion from the scope and they are workers who are not members of a union. they are completely out of scope. however, if you pay attention being excluded from the scope or not is a fact left to the will of the worker in all given examples. on the other hand, when the union and employer gather and decides exclusion of some workers from the scope, then workers are excluded from the scope involuntarily. accordingly, i agree with the fact that someone can keep itself out of the scope of a collective agreement with its own will or establishment of provisions to enable it by the law and it would not be in conflict with the constitution. then on the contrary, if a provision of law is established that a particular category of workers cannot benefit from collective agreement after a law, they are always out of scope without their will; i wonder whether it is in conflict with the constitution. in my opinion such kind of a law is in conflict with the constitution. in short, we have no doubt about that it is an extremely wrong attitude. now i mean its quality for being normative provision and law does not eliminate its conflict with the constitution. as such kind of a provision of a law becomes in conflict with the constitution, so i keep the opinion of that exclusion of workers from the scope through normative provisions of a collective agreement may become in 108 mehmet saim aşçı conflict with the constitution in the sense of that eliminates right of collective agreement recognized by the constitution to the workers without their will.” (oğuzman, 1988). according to can tuncay; “if the person who is excluded from the scope does not approve that, so this cannot be claimed against this person (tuncay, 1988). because, benefiting from the collective labor agreement is primarily a rule for members of the union. in principle, possessing collective agreement competence of workers in their relations with the employer is a constitutional right. to exclude that becomes invalid. when can it become valid? only if the worker is persuaded to be excluded from the scope. however, then we cannot mention equality here. here, equality principle cannot be based on. where does equality prevail? more precisely, we should perceive from the equality that the rule is that equal treatments to the equals, different treatment to the different ones. in other words, relative equality is the matter not absolute equality. a part of individuals, who are excluded from the scope, are the individuals close to the employer, in other words they have a different situation from the others. therefore, different treatment for those is a matter of course. hence, to claim equality here as a reason, i mean to base the invalidity of exclusion from the scope on the principle of equal treatment is not much correct (tuncay, 1982). here, the reason should be lack of approval. as for approval, it may be that the fact of some individuals are going to be excluded from the scope a collective agreement has been decided in the statue of the trade union. then, the member shall be deemed to approve that while being a member of the union. therefore, exclusion from the scope become valid or exclusion from the scope afterwards may be accepted by the worker openly or tacitly. regulations other than that constitute a conflict with a constitutional right even it is indirect.” nuri çeli̇k says; “since beginning yeas of collective labor agreement order, employers suggested exclusion of individuals that they assume closer to employers and whose mental work is superior to physical work from the scope and trade unions accepted exclusion of such people as long as these people are not their members. in the case of those excluded from the scope want to benefit from the collective labor agreement, it is observed that they are not availed of the agreement by the employer even though they are members of the union. upon the disputes about this issue, supreme court concluded that individuals excluded from the scope of collective labor agreement cannot benefit from the collective agreement even though they are members of the union” (çelik, 1988) about the issue and suggests following ideas: no regulation has been made on validity of agreement provision excluding the worker requesting to benefit from the collective labor agreement from the scope in 6356 numbered law of trade unions and collective labor agreement. however, such kind of a regulation should be deemed void because it would be in conflict with the basis to ensure equality in activities of the union among members (a.26/3) and article 53 of the constitution which entitles all workers to benefit from the collective labor agreement. however, supreme court accepted that union members excluded from the scope of collective labor agreement cannot benefit from the agreement. view of that the issue of who are going to be included in the scope of collective labor agreement has been left to appreciation and authority of the parties and, as a result of collective labor autonomy recognized to the parties, those excluded from the scope cannot from the agreement like the workers who are not the union members even though they are members of the union and will only be affiliated to provision of the law have been suggested by the proponents of supreme court’s idea. the content and limits of autonomy entitled to collective agreement parties are indicated in the constitution and laws. due to application of principle of equality in trade unions law is necessary on the issue that is not solved in the law of collective labor agreement, strike and lock-out, it should be concluded that exclusion of union members from the scope in in conflict with this article and the principle of that all workers under the same conditions can benefit from the collective labor agreement rights as stipulated in the constitution. otherwise, some workers would not be able to benefit from the rights provided by the agreement through the consensus of collective labor agreement parties. due to right to conclude a separate collective labor agreement has not been recognized in our collective agreement system for those excluded from the scope, these workers are debarred from the constitutional rights through the exclusion from the scope (çelik, 2015). moreover, trade unions are made out of scope employees in turkish collective bargaining system 109 autonomous in such a wider aspect to debar their members, who are actual right owners, from the right of collective agreement and a contradictory situation emerges. indeed, prevention of benefiting from the activity of some members by the union that concludes the collective agreement and provide this activity to its members would be contradictory to the legal regulation stipulating provision of equality in services among members by the union. in the doctrine, it is suggested that if there is discrimination between out of scope employees, there may be something in conflict with equal treatment principle, but if there is a discrimination between those from different statues and some certain statues are excluded from the scope, then there may not be conflict with equal treatment principle. however, it should be noted that whereas it is possible to classify members in certain groups through non-arbitrary criteria for trade unions and avail them of the activities in various manners, it cannot be understood that to completely debar some workers from any activities without any rightful reason and in spite of their wishes. collective agreement service is only one of the activities of trade unions among those listed in the law, trade unions have to comply with equality among members in availing of these activities. trade unions treat differently through this application and transgress equality rıles and exclude some workers from the scope” (çelik, 1988). as for turhan esener, he asks the question of “there is also another point that i could not decide on my own: i wonder whether a trade union can say to a worker i do not accept you to the union although it is applied for membership?” and gives the answer of “if a trade union is able to say to the worker i am sorry brother but i do not like your face and i do not accept you to the union, then it can exclude the worker from the scope in the same manner” (esener, 1988). according to turhan esener, generation of a system accepting that a worker excluded from the scope would also be deemed to resign from the signatory union will be beneficial. because membership of a worker in the signatory union and not being able to benefit from the collective labor agreement at the same time is not in compliance with the collective agreement system (esener, 1978). nuri çeli̇k suggest that; “being inspired from german law, due to the view of workers excluded from the scope cannot benefit from the collective agreement just as those who are not members of the trade union and become only affiliated with the provisions of the law as a result of that the issue of who are going to be included or excluded from the scope of collective agreement and is left to the authority of the parties and collective agreement authority recognized the parties, in other words authority to establish rules having the quality of law provisions is not in compliance with the basis and collective agreement types of our country, it does not have enlightening character for us (çelik, 1976). most probably in germany, exclusion of a part of workers from the scope is not the matter for those working at the same statues and in addition to separation into worker and servant (angestellte) of employees (arbeitnehmer) of a workplace in compliance with the legal principles there, only workers or only servants are included in a separate collective agreement and others are excluded from that agreement but included into the scope of other agreements, and even another agreement is concluded for apprentices (lehrlinge). even in german law, other restrictions can be determined in addition to the groups indicated above, for instances it can be decided that an agreement is only valid for male workers of the workplace. on the other hand, in any cases, it should be added that, there, employees who are not included into the scope of an agreement can be included in another one and various agreements having different contents and levels can be concluded with respect to both working conditions (only wages and all working conditions) and application sphere in the sense of place (neighborhood, region, district, country). while the concept of worker to be included in the agreement is single in turkey, types and application of the agreements are similarly quite different from germen law. an exact comparison between these two countries is not possible in this aspect for the reasons mentioned. due to another collective labor agreement right is not recognized to the out of scope employees (çelik, 2015), in that case, some workers become prevented from the rights provided by the agreement although they become members of 110 mehmet saim aşçı the union in order to protect and improve their economic and social rights and benefits as stipulated in the constitution (a.51 and 53) and hence become debarred from their constitutional rights” (çelik, 1976) in his another critique from a different aspect. as it can be seen, legal discussions on out of scope employees include various analysis so as to verify the determination of jakob burckhardt that “to each eye, world of ideas and mentality present a different picture” and completely different results can be reached (burckhardt 1943). 3. conclusion points about benefiting from collective labor agreements have been regulated in article 39 of 6356 numbered law of trade unions and collective labor agreements. however, exclusion of some workers such as directors, chiefs, engineers and even all office employees which are members or able to be a member of labor unions from the scope of the agreement is an encountered case in the application of and this issue is regulated through scope articles included in collective labor agreements. the circumstances of out of scope employees cause discussions. on the one hand of this debate on the application; the view of that the issue of who are going to be included in the scope of a collective labor agreement has been left to appreciation and authority of the parties and as a result of collective agreement autonomy entitled to the parties cannot benefit from the agreement even though they are members of the union just like those not members of the union and they can only be affiliated with legal provisions is suggested. as the opponent view, it is suggested that due to the fact that 6356 numbered law of trade unions and collective labor agreement is in conflict with the principle to provide equality among the members by the union in its activities (a.26/3) and the article 53 of the constitution that entitles all workers to benefit from the collective labor agreement, application of out of scope employees is not justifiable and such kind of settlements should be considered void. according to those supporting this idea, the content and limits of the autonomy recognized to the parties of a collective agreement have been determined by the constitution and laws. otherwise, a part of workers would not be able to benefit from the rights provided by the agreement through the consensus of the parties of regarding collective labor agreement. due to any rights to conclude another collective labor agreement has not been recognized for those excluded from the scope in our collective agreement system, such workers become debarred from their constitutional rights by being excluded from the scope. labor and employer unions criticize or defend the application of out of scope employees for their own reasons. references akı, e. (1975). türk hukukunda toplu i̇ş sözleşmesinden yararlanma. i̇zmir: karaca ofset basımevi. burchardt, j.(1943). die kultur der renaissence in i̇talien, verlag. hallwag berlin. can, m. (1995, february). toplu i̇ş sözleşmesi düzeninde kapsam dışı personelin niteliği. tühi̇s i̇ş hukuku ve i̇ktisat dergisi, 13 (4), 549. çelik, n. (2015). i̇ş hukuku dersleri (28.baskı). i̇stanbul: beta yayınları. çelik, n. (1980). toplu i̇ş sözleşmesinin kişi ve zaman açısından uygulama alanına i̇lişkin başlıca sorunlar, i̇şçi ve i̇şveren i̇lişkilerindeki gelişmeler semineri, i̇stanbul: tühi̇s eğitim organizasyon. çelik, n. .(1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. çelik, n. (1976). i̇ş hukuku ii, kollektif i̇ş hukuku i. sendikalar.i̇stanbul: sermet matbaası. çelik, n. .(1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. çenberci, m.(1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. ekin, n.(1979). endüstri i̇lişkileri. i̇stanbul: elektronik ofset. esener, t. (1978). i̇ş hukuku. ankara: sevinç matbaası. out of scope employees in turkish collective bargaining system 111 esener, t. (1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. gülmez. m. (1983). türkiye’de çalışma i̇lişkileri (1936 öncesi). ankara : todai̇e yayını. işıklı, a. (1976). toplu i̇ş sözleşmeleri ve türkiye ekonomisi i̇çindeki yeri. ankara: ankara üniversitesi basımevi. i̇nce, e. (1985). toplu pazarlık hukuku (c.3, ser.2) i̇stanbul: kazancı hukuk yayınları. koray, m. (1992). endüstri i̇lişkileri.i̇zmir: basisen yayınları. oğuzman. k. (tarih yok). hukuki yönden i̇şçi i̇şveren i̇lişkileri. (4. baskı, c.1). i̇stanbul : yön ajans. oğuzman. k. .(1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. reisoğlu, s. (1986). 2822 sayılı toplu i̇ş sözleşmesi grev ve lokavt kanunu şerhi. ankara: ayyıldız matbaası. reisoğlu. s. (1983). toplu i̇ş sözleşmesinde kapsam dışı kalan personelin hukuki durumu, tahi̇s . c.6. s.1. şahlanan, f. (1992). toplu i̇ş sözleşmesi. i̇stanbul: acar matbaacılık. tuncay, c. (1982). i̇ş hukukunda eşit davranma i̇lkesi.i̇stanbul : yayınlanmamış doçentlik tezi.tuncay, c. .(1979). i̇ş hukuku ve sosyal güvenlik hukuku türk milli komitesi, yargıtayın 1976 yılı i̇ş hukuku kararlarının değerlendirilmesi semineri. i̇stanbul: fakülteler matbaası. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 106-118 106 factors affecting profitability of insurance companies in ethiopia tadese haile wolde jimma university,ethiopia abiy getahun kolech jimma university,ethiopia mengistu deyassa dadi jimma university,ethiopia received: 03 oct, 2020 accepted: 21 nov, 2020 published: 10 dec, 2020 abstract: the study was attempted to examine factors affecting profitability of insurance companies in ethiopia for the period of 2014-2018, employed descriptive research design. the target populations were 17 insurance companies taken by census method. the study employed secondary sources of data from audited financial statement of national bank of ethiopia. the study was used multiple regression models. the regression was run by using random effect model through stata software version 14. the researchers found that the positive and significant relationship between roa and liquidity, capital adequacy, real gdp as well as real effective exchange rate. contrary, roa has negative and significant relation with leverage, underwriting risk, premium growth. besides, roa has positive and insignificant relation with age and size whereas negative and insignificant relation with inflation. thus, insurance industry should give emphasis on liquidity ratio, and capital adequacy ratio to sustain its profitability. keywords: insurance, profitability, return on asset jel classification: g2, g21 and n2 1. introduction insurance is serving as a means of saving money, transferring risk and channel finances in an appropriate way from surplus economic units to deficit economic units so as to support the investment activities in the economy of the country. to perform accordingly the insurance industry is expected to be financially solvent, strong enough to take risks and profitable in its operation. since, profitability is the most important objectives of financial management to maximize the owner’s wealth and profit in determining performance of company (malik, 2011). profitability is defined as the level of returns from profit (boadi etal, 2013). profit is a very important precondition for increasing the competitiveness of a company operating in global market. besides, profit attracts investors and improves the level of solvency, and increases the consumers’ confidence (pjanic etal, 2018). measuring the financial performance of insurance industry is important. in the absence of profit, insurers can’t attract outside capital so as to meet their objectives. the duty of this sector is not only providing the means of saving money and transferring risk but also helps channeling funds from surplus economic units to deficit economic units so as to investment activities in a country can be promoted. the ethiopian economy is highly supported by insurance industry followed from the banking industry (demis, 2016). and there is a lot of complains encountered from the side of investors on the performance of ethiopians insurance .thus, the financial soundness of insurance industry in ethiopia is not a compromising issue and evaluating the factors affect profitability of the industry is highly researchable area. insurer-specific factors significantly affect profitability while macroeconomic indicators like factors affecting profitability of insurance companies in ethiopia 107 gross domestic product and inflation had no significant effect on profitability of insurance firms in philippine (datu, 2016). lee, (2014) investigated the relationship between firm specific factors and macroeconomics on profitability in taiwanese property-liability insurance industry and established that firm specific factors had a significant influence on profitability in both operating ratio and roa models while economic growth rate had a significant influence on profitability in operating ratio model but insignificant influence on profitability in roa model. profitability of general insurance companies in india is affected by both internal factors like; company size, capital adequacy, liquidity ratio and premium growth and by external factors of gdp and inflation rate of the country by using roe as proxy variable to measure profitability of the firm (wondwossen, 2016). according to malik, (2011) investigated some factors that affecting profitability in insurance sectors were internal factors like age, size, volume of capital, and liquidity growth rate. however, others also arguing that there are external factors affecting profitability like gdp, inflation and interest rate in a given country at a national level (daniel and tilahun, 2013) charumathi (2012) defines profitability as the ability of the developing business to utilize its assets in order to generate revenues in an efficient manner. as many researches revealed that companies profitability affecting by both the internal and external variables like working capital management efficiency (jibra etal, 2016); (william, 2012) and (fadzlan, 2009) liquidity ratio, capital adequacy, firm’s growth rate, size of the company and external factors like gdp and inflation. teklit and kaur (2017), asrat and tesfahun (2016), demis (2016), suheyli (2015), hanna (2015), mistire (2015) and hadush (2015) all were studied by using both firm specific factors and macroeconomic variables on profitability of insurance companies, most studies do not address all insurance companies in ethiopia and do not include external factors. thus researchers intend to study this issue. the main objective of the study was to examine factors affecting profitability of insurance industry in ethiopia. specifically, 1. to identify factors that influences profitability of insurance companies. 2. to determine the effect of identified factors on profitability of insurance industry. 3. to show the direction and significant effect of the variables in the study. the following research hypothesis was used for the study h0; three is insignificant relationship between age of the company, size of the company, liquidity ,capital adequacy, leverage, underwriting risk, premium growth, real gdp, real effective exchange rate ,inflation and profitability of insurance companies. 2. data and methods secondary data obtained from financial statements of the companies for the period of 2014-2018 was used for this study. the target populations of the study were all insurance companies registered by nbe and under operation in ethiopia. currently, there are 17 types of insurance companies in operation both publicly and private owned in ethiopia. the researchers employed census sampling technique. census approach enables the researcher to effectively generalize the findings (mark, 2009). the researcher wants to use census method is to eliminates the sampling error or sampling bias and to get accurate data. thus, the researcher used quantitative research approaches to obtain data and discuss the results 2.1. model specification a panel data regression model can be estimated in different ways depending on regression coefficients, and error term. accordingly, the fixed effects model, and the random effects model were widely used models in panel data analysis. the researchers used to select appropriate model by using hausman test. since, the hausman test is used to test or identify appropriate model to be carried out for estimation. on the other hand, it helps in identifying whether fixed effect model is appropriate or random effect model is appropriate. the researchers employed a general model form based on empirical evidence as follow: yit= β0 + βkxit + εit where: yit represents the dependent variables (roa) of insurance i for time period t. β0 is the intercept tadese haile wolde & abiy getahun kolech & mengistu deyassa dadi 108 βk represents the coefficients of the xit variables xit represents the explanatory variables of insurance i for time period t. εit is the error term roait = β0 + β1 agc1 + β2 szc2 + β3lqr3 + β4car4 + β5lvr5 + β6ur6+ β7pg7 + β8gdp8 + β9rer9 +β10inf10 + it where: roa =return on asset ur = underwriting risk agc= age of company pg= premium growth szc=size of company gdp = real gdp growth rate lqr= liquidity ratio rer = real effective exchange rate car = capital adequacy inf = inflation rate lvr = leverage ratio β0 = constant β 1, 2…10 = coefficient it = error term table 1: variables and their measurement no. variables measurement 1 return on asset (roa) 2 age of company (agc) 3 company size (szc) log value of total assets 4 liquidity ratio (lqr) 5 capital adequacy ratio (car) 6 leverage ratio (lvr) 7 underwriting risk (ur) 8 premium growth (pg) 9 real gdp (gdp) 10 real effective exchange rate (rer) annual real effective exchange rate 11 inflation (inf) annual general inflation factors affecting profitability of insurance companies in ethiopia 109 12 it error term sourceprevious studies and own calculations 2.2. method of data analysis the collected data were analyzed through different analysis techniques and the researcher used stata 14 version software. thus, collected data would be analyzed through descriptive analysis, correlation analysis and regression analysis to determine the relationship between dependent and independent the variables. the regression results were also employed to test the study hypotheses. it provides the descriptive analysis of the panel data or variables for the study in collaboration with some important tests such as multi co linearity, heteroscedasticity, and normality of data. the correlation analysis between dependent and independent variables deals the results of the linear regression and data analysis that constitute the main findings of this study. 3. results and discussion this section shows results and discussion after all diagnostic tests on the data associated with insurance companies in ethiopia. 3.1. descriptive analysis this section concerns with the overall summary of all the variables involved in the model aimed to understand their distinct behavior independently through computing their mean value, standard deviation and related statistics whereas the joint behavior of each variable with the rest of the others are also assessed using correlation analysis. this part of the analysis aimed in providing supportive evidences for the econometric model as well as simultaneously checks if there exist unusual values such as out layer in the data. the mean values, standard deviation, the minimum values and the maximum values for each variable under consideration is computed aimed to measure the extent of the deviations (disparities) of the insurance companies under investigation, in terms of their company specific variables. descriptive statistics provides the mean, standard deviation minimum, and maximum values for each variable. this part discusses the implication of the descriptive statistics as reported in the table 2 below. table 2: descriptive statistics variables mean std. deviation min max roa 0.196 0.271 -0.113 0.989 agc 14.47 10 1 43 szc 8.67 0.565 7 10 lqr 1.582 1.161 0.37 5.973 car 0.285 0.133 0.08 0.49 lvr 0.525 0.239 0.051 0.781 ur 0.521 0.256 0.042 0.88 pg 0.118 0.045 0.038 0.21 gdp 0.460 0.477 0.077 1.094 rer 158.28 10.109 140.8 171.9 inf 0.099 0.025 0.075 0.147 source: stata 14 reg (2019) tadese haile wolde & abiy getahun kolech & mengistu deyassa dadi 110 the mean values of all the variables involved in the model are limited within the range of 0.099 to 158.28. the lowest minimum value registered by capital adequacy ratio whiles the highest maximum value by real exchange rate of external factor. the profitability of the companies (roa) on average is estimated to be around 0.196 for insurance industry of ethiopia during the study period and standard deviation of 0.271 implies that there is relatively low variability of the profit in industry with minimum and maximum values ranged from -0.113 up to 0.989. this shows there is a significant difference among insurance industry in ethiopia in terms of their profitability and the most profitable insurance industry among earned was 0.989 of profit after tax for a single birr invested in the assets of the firm with regarding to standard deviation of 0.271 which indicate there is relatively variation from the mean of profit. this implies that insurance companies need to optimize the use of their assets to increase their return on assets. the mean value of age is 14.47 years and the standard deviation of 10 years indicates that there is a variation of companies in terms of their establishment year along with minimum and maximum value ranged from 1 up to 43. the size of the insurance company is measured as logarithmic value of total assets over the period of 2014 to 2018 with the mean value of 8.67 ranging from 7 up to 10 with standard deviation of 0.565. this indicates the size of insurance companies was highly dispersed from its mean value with the standard deviation of 0.565. size of company should be increase to raise profitability of insurance companies in ethiopia through expanding branches which is not opened area. since, branch expansion is the way to have high market share and maximizing profit. therefore, the size of the company is important determinants of profitability of the insurance companies in ethiopia. since, larger size of company has the better profitability. in other word, profitability is likely to increase in size because large insurance companies have greater capacity for dealing with adverse market fluctuations than small insurance companies and have more economies of scale. as increase in total assets forced to establish more branches and the adoption of new technologies enhance an insurer to underwrite more policies which may increase the underwriting profit and the total net profit. similarly the mean value of liquidity ratio was 1.582 and standard deviation of 1.161 with minimum and maximum values of 0.37 and 5.973. standard deviation 1.161 indicates that there is high variation of liquidity ratio among insurance companies in ethiopia. the ethiopian insurance companies should high have liquidity to cover short term obligation or unexpected risk or financial loss of insured’s. capital adequacy ratio on average is 0.285 with min and max value of 0.08 up to 0.49 respectively. the standard deviation of 0.133 indicates that there is relatively low variation of capital adequacy ratio among insurance companies of ethiopia. the mean value of leverage ratio of insurance was 0.522 with range of 0.0513 to 0.827 and standard deviation of 0.247. the average value of underwriting risk was 0.521. this shows the most insurance companies paid 0.521 loss incurred out of the total premium earned per year. the minimum and maximum values of the underwriting risk were 0.042 and 0.88 respectively. the standard deviation of underwriting risk overall deviate was 0.256. this indicates there was relatively low variation in underwriting risk in insurance companies of ethiopia during the study period. the mean value of the premium growth rate as proxy by change in gross written premium was 0.118. this implies that on average, the insurance companies gross pre increased by 0.118 over the study period. while the minimum and maximum values of premium growth were 0.038 and 0.21 respectively. the standard deviation of the premium growth was 0.045. this shows there is low premium growth in study period for the company. the mean value of real gdp growth rate was 0.460 which indicate the average value of real gdp growth rate of the country’s economy was recorded over last five years. the standard deviation of 0.477 indicates there is moderate variation of real gdp growth in the country. the maximum value (1.094) and minimum value (0.077) of rgdp growth rate recorded in study period of 2017 and 2018 respectively. the real exchange rate on average was 158.28 and standard deviation of 10.109 with minimum and maximum values range of 140.8 to 171.9 respectively. the mean score of inflation rate was 0.099 and standard deviation of 0.025 with minimum and maximum value of 0.075 up to 0.147 respectively. 3.2. correlation analysis this section of the study presents the result of pearson correlation analysis of explained and explanatory variables in the model, since the correlation analysis shows only the degree of association. factors affecting profitability of insurance companies in ethiopia 111 pearson’s correlation coefficients are used to determine the strength of the relationship between dependent and independent variables. the pearson correlation scale ranges from -1 to +1, any value greater than zero indicates a positive direct relationship between the two variables, which implies that every increase in the independent variable led to the increase dependent variable whereas, any value less than zero indicates a negative relationship between the two variables, that means that every increase in the independent variable could led to the decrease in dependent variable. the correlation among the variables in the model is computed in order to give a supportive evidence for the relationship between different variables like explanatory variables that are expected to influence the profitability of a firm. generally, when the value of the coefficient is zero, then there is no correlation between two observed variables. the coefficient value of +1.0 indicates that the correlation is complete and positive, while the coefficient -1.0 indicates that the correlation is complete and negative. the correlation coefficients show the extent and direction of the linear relationship between profitability of insurance companies and age, size, liquidity, capital adequacy ratio, leverage, underwriting risk, premium growth, real gdp growth, real exchange rate and inflation. according to pjanic etal, (2013) correlation coefficient indicates the strength of the relationship between the two observed variables. the negative sign implies that the four variables under consideration move to the opposite direction and vice versa. table 3 correlation analysis variables roa agc szc lqr car lvr ur pg gdp rer inf roa 1.000 agc 0.156 1.000 szc 0.300 0.647 1.000 lqr 0.68 -.149 0.075 1.000 car 0.342 0.140 0.343 0.158 1.000 lvr -.746 -.069 -.068 -.744 -.080 1.000 ur -.452 -.319 -.337 -.242 -.069 0.285 1.000 pg -.091 0.067 0.141 -.067 -.137 0.122 -.179 1.000 gdp 0.411 0.058 0.135 0.414 -.009 -.358 -.153 0.435 1.000 rer 0.167 0.112 0.249 0.145 -.003 -.071 -.292 0.508 0.159 1.000 inf 0.251 0.077 -.040 0.249 -.099 -.257 -.316 0.067 0.216 0.074 1.000 source: own computation stata 14 reg (2019) based on above table the correlation test shows roa has positive relationship with age of company, size of company, liquidity ratio, capital adequacy ratio, real gdp growth rate, real effective exchange rate and inflation of the country. liquidity has strongly positive association (0.68) to return on asset whereas age, size, capital adequacy ratio, real gdp growth rate, real exchange rate and inflation of the country have moderate positive association with return on asset. on the other hand, roa is negatively related with leverage, underwriting risk, and premium growth. leverage ratio (-0.746) of the company has strong negative association with profitability of insurance company proxy by roa. underwriting risk has moderate negative correlation with roa whereas; premium growth has weak negative association with profitability of insurance company in ethiopia. tadese haile wolde & abiy getahun kolech & mengistu deyassa dadi 112 3.3. regression analysis the regression analysis examines the relationship between the profitability of insurance industry as a dependent variable and independent variables. regression is actually a statistical technique that predicts the value of a dependent variable based on one or more independent variables. a panel data regression model would be estimated in different ways depending on the assumptions made about the intercept, regression coefficients, and error term. accordingly, the pooled regression model, the fixed effects model, and the random effects model were widely used models in panel data analysis. the researcher used to select appropriate model by using hausman test; random effects model was selected and the most appropriate in the variation of the dependent variable (roa) through the variation of the independent variables. chi2 (10) = 15.35 prob > chi2 = 0.12 according to hausman test result p-value is greater than 5 percent (prob>chi square = 0.12) so, the random effect model was appropriate and the researcher concluded that the random effects estimator was the more efficient model against fixed effect model. thus, the regression analysis was done by using random effect model. the reason to be random effect model for panel data analysis was due to the error term is not systematically correlated with any of the explanatory variables involved in the model or any variation in the error term is subject to chance. this study was used generalized least squares (gls) regression because gls would turn out to be asymptotically more efficient than ols system. table 4. estimated result of random effect model r – sq: within = 0.8749 number of observation = 85 between = 0.4926 wald chi2 (10) = 425.41 factors affecting profitability of insurance companies in ethiopia 113 over all = 0.8518 prob > chi2 = 0.000 table4, presents the findings from the regression results on factors affecting profitability of insurance companies in ethiopia. based on random effect regression result the model was as follow: roait = -1.276+ 0.002agc1 + 0.008szc2 + 0.093lqr3 + 0.345car4–0.202lvr5–0.206ur6–2.968pg7 + 0.173gdp8 +0.010rer9-0.018inf10 the wald chi-square statistics indicated that the calculated value (425.4) is greater than the table value (18.7) at degree of freedom 10 which shows the individual betas significant at 5 percent significant level. on other hand wald chi-square is larger, the p value (0.0) is smaller which ensures that individual estimated coefficients were significant at 5 percent significance level but, they were differing from zero. the profitability of insurance companies in ethiopia was explained by model variables with rsquare of 85%. this indicates 85% of variation in return on asset was explained by explanatory variables of the model and the remaining 15% was explained by other variables which is not included in the model. the factors that influence profitability of insurance industry were identified as age, size, liquidity ratio, capital adequacy ratio, leverage ratio, underwriting risk, premium growth, real gdp, real effective exchange rate, and inflation rate. based on above regression result report shows that age of the company, size of company, liquidity, capital adequacy ratio, real gdp, and real effective exchange rate were positively associated with profitability proxy by return on asset where as leverage ratio, underwriting risk, premium growth, and inflation were negatively direction with return on asset. the age and size of the companies were statistically insignificant and positive effect on profitability of insurance companies in ethiopia while inflation is statistically insignificant and negative effect on roa. the leverage ratio of the company, underwriting risk, and premium growth were negatively related with profitability of the companies and statistically significant at 5 percent significance level. the major findings of this study for hypotheses test were discussed as follow: 3.3.1. age of the company (agc) age of the company is positively related with profitability of insurance companies in ethiopia. this result is in line with theory because the years of operations increases both their experiences in the sector would increase as well as the company is expected to get enough time to conduct research and development so as to increase its market share, adapting environment and customers to increase the company’s profitability. the estimation result of the random effect model reveals that there is a weak positive and insignificant (p value 0.235) relation between profitability and age of the company with the estimated coefficient of 0.0021. this implies when age of company increased by one year, the profitability of insurance company also will be increased by 0.0021 units. this is may be due to experience in operation system; familiar with customers or have high market share to enhance profit. this finding was in line with previous findings of mingizem, (2017); demis, (2016); burca and batrinca, (2014) were found that positive relationship between age and profitability. the current finding was contradict with the findings of aster and meseret, (2016); sambasivam and abate, (2013) found that inverse relation between age and profitability. the researchers conclude that there is weak positive and statistically insignificant effect between age and profitability of insurance companies since it has less effect on profitability of insurance industry in ethiopia through creating strong customer relation with company. accept null hypothesis since there is statistically insignificant relationship between age of company and profitability of insurance industry. 3.3.2. size of the company (szc) size of the company is measured in logarithmic value of total asset of insurance industry which is positively and statistically insignificant (p value 0.804) effect on the profitability of insurance company. the regression result of coefficient 0.0081 implies that one percent increase in the size of the company causes 0.81 percent increase in the profitability. the finding was in line with both theory and expectation supporting the fact that both economies of scale and market power would be built as size increases. thus, the finding was supported by previous findings of burca and batrinca, (2014); lee (2014) in taiwan; wani and showket, (2015); emine (2015) in turkey; datu (2016); bahilu (2016); asrat and tesfahun (2016); ortynski (2016) in kenya; kramaric etal, (2017) in selected central and tadese haile wolde & abiy getahun kolech & mengistu deyassa dadi 114 eastern european countries; aster and meseret, (2017) found that positive relationship between size and profitability proxy roa. this finding was against with the findings of previous literature of mwangi, and murigu, (2015) in kenya; simon, (2016); cudiamat and siy, (2017); mazviona etal, (2017) were found that size has negative impact on profitability of company due to difficulty to manage larger company efficiently and effectively. the researchers conclude that size of the company has less positive effect on profitability insurance industry in ethiopia since larger size insurers had ability to diversify risk rather than generating profit. accept null hypothesis since there is statistically insignificant relationship between size of company and profitability of insurance industry. 3.3.3. liquidity ratio (lqr) liquidity ratio is a measured in terms of current asset and current liability. it shows capability of an insurance company to fulfill their immediate commitment or pay their liabilities to policyholders and other creditors without having liquidate financial assets when they due. good liquidity helps an insurance industry to meet policyholder’s obligations punctually. an insurer’s liquidity was required to satisfy its financial obligations by holding cash and investments were sound, diversified and liquid through operating cash flows. a high degree of liquidity enhances an insurer to meet the unexpected loss or cash requirements without untimely sale of investments which may cause losses due to temporary market conditions. the study found that a positive relationship between liquidity ratio and profitability since, the positive coefficient of 0.0928 with a p-value of 0.000 shows significant relationship at 5% significant level. it means that an increase in liquidity ratio by 1 unit would lead to increase 0.0928 units in profitability proxied by roa of insurance company. this finding is consistent with the previous findings of aster and meseret, (2019); gemachis, (2017); mazviona etal, (2017) found positive relationship between liquidity and return on asset. but, this finding was inconsistent with the findings of hadush, (2015); mwangi, and murigu, (2015); wondwossen, (2016); simon, (2016) found negative relationship between liquidity and return on asset. generally, the researchers conclude that, the increment of liquidity would cause to increase profitability of insurance companies in ethiopia. liquidity ratio indicates an insurer’s ability to settle its current obligations without prematurely selling long term investments or to borrow money. reject null hypothesis since there is statistically significant relationship between liquidity ratio and profitability of insurance industry. 3.3.4. capital adequacy ratio (car) capital adequacy shows soundness of finance or financial strength in insurance companies of ethiopia which is measured as equity over total asset. the capital adequacy ratio and profitability proxy as roa have positive association with coefficient of 0.3447 and statistically significant (p value 0.001) at 5% significance level. this implies capital adequacy ratio increased by 1percent will cause to increase 0.1percent on profitability of insurance company of ethiopia. this indicates the company has more capital adequacy would provide better profitability. this finding is in line with previous studies of aster and meseret, (2019); wondwossen, (2016); sambasivam and ayele, (2013) found that positive relationship between capital adequacy ratio and profitability proxy roa. this finding was contrary with charumathi, 2012 who found negative relation with return on asset. thus, researchers concluded that capital adequacy ratio was major determinants of profitability of insurance companies since, it shows financial strength of company, better ability to attract potential policy holders and able to hold the specified underwriting guidelines. reject null hypothesis since there is statistically significant relationship between capital adequacy ratio and profitability of insurance industry. 3.3.5. leverage ratio (lvr) leverage ratio is measured in total debt divided by total asset. there is a statistically significant and negative relationship between leverage ratio and the profitability of insurance industry in ethiopia at significant level of 5%. according to regression result, the coefficient of leverage was negative (0.2018) and statistically significant (p value 0.016) at 5 percent significant level. when one unit increase in the leverage ratio of the company would cause decrease 0.2018 units in the profitability of insurance industry. this finding has conformity with previous studies like aster and meseret, (2019); demis, (2016); behailu, (2016); simon, (2016); lee, (2014); sambasivam and abate, factors affecting profitability of insurance companies in ethiopia 115 (2013) were found that negative relationship between leverage and return on asset. this finding was contrary with the findings of mwangi, and murigu, (2015) in kenya; gemachis (2017) and mazviona etal (2017) found positive relation between leverage and return on asset. generally, leverage was negatively and statistically significant effect on profitability proxy return on asset. this shows, when leverage of insurance companies increased, the profitability of the industry will move to the opposite direction. on the other hand, company’s assets more financed with leverage made low performance of the company due to lower the capital required for an insurer to operate business and made lower market value thereby reducing the firm’s profit and leading to solvency problem. companies that are highly leveraged may be at risk of bankruptcy if they were unable to make payments on their debt and unable to find new lenders in the future. reject null hypothesis since there is statistically significant relationship between leverage ratio and profitability of insurance industry. 3.3.6. underwriting risk (ur) underwriting risk is the risk of loss and adverse changes in the value of insurance liabilities which occur due to inadequate pricing, inadequate amount of premium written by the companies and lack clear determination in their provisioning. it is measured by loss ratio which measures the productivity of the underwriting activity undertaken in insurance company. underwriting risk is negatively and statistically significance impact on profitability proxy return on asset of insurance company in ethiopia. the regression result shows negative coefficient (-0.2064) and statistically significant at 5 percent since p value (0.000) is less than 5percent. this indicates underwriting risk increased by one percent would cause 2.7 percent decline on profitability proxy return on asset of insurance companies. this finding was consistent with previous findings of aster and meseret, (2019); gemachis, (2017); asrat and tesfahun, (2016); demis, (2016); ullah etal, (2016); suheyli, (2015); mistire, (2015); hadush, (2015); burca and batrinca (2014) and lee, (2014) were found negative and significant relationship between profitability and underwriting risk. but, this study was inconsistent with the findings of mwangi, and murigu, (2015), who found that positive and insignificant relation with return on asset. thus, the researcher concluded that underwriting is negatively affect profitability of insurance company in ethiopia because higher underwriting risk leads the insurers to pay higher unexpected payments or expenses. usually, high underwriting risk implies the premium rates are too low for the level of risk and the company profitability would be endangered. therefore, reducing underwriting risk leads to increase the profitability of insurance firms in ethiopia as result of its negative relationship with return on asset (roa). reject null hypothesis since there is statistically significant relationship between underwriting risk and profitability of insurance industry. 3.3.7. premium growth (pg) premium growth indicates growth in business undertaken by the insurance entity. premium growth rate (pg) has negative and significant (p value 0.0) impact on profitability of the insurance companies with the estimated coefficient of (-0.9686) which was significant at 5% level of significance. the regression implies that one percent increase in the premium growth rate of the company causes 96.86% decrease in the profitability. the finding was consistent with the previous findings of charumathi, (2012) who found negative relationship between premium growth and profitability. contrary, asrat and tesfahun, (2016); demis (2016) were found that positive relationship between premium growth and profitability of insurance company. thus, the researchers conclude that premium growth has negative and significant effect on profitability of insurance industry in ethiopia since; insurers with more premium growth would have low profitability due to its direct relation with risk. reject null hypothesis since there is statistically significant relationship between premium growth rate and profitability of insurance industry. 3.3.8. real gdp growth (gdp) real gdp measures the total monetary value of goods and services at a constant price over a particular period of time. growth rate of gdp reflects economic activity as well as level of economic development and various factors related to the supply and demand for insurance products and services. in short rgdp measure or show the adjusted economy of the country. tadese haile wolde & abiy getahun kolech & mengistu deyassa dadi 116 according to the regression result there is positive association between rgdp and profitability proxy roa with positive coefficient of 0.1726 and statistically significant (p value 0.000) indicates that one percent of real gdp growth rate would cause 17.26 percent increase on return on assets of insurance companies in ethiopia. the current finding is in line with previous findings of asrat and tesfahun, (2016); demis, (2016); wondwossen, (2016); ortynski, (2016) were found positive relationship between gdp and profitability of insurance industry. contrary, aster and meseret, (2019); behailu, (2016); suheyli, (2015); were found that negative relationship between real gross domestic product and profitability of insurance company. thus, the researcher found that real gdp growth rate has positive and statistically significant impact on the profitability of insurance companies in ethiopia. when economy of the country was increased, the society wants also increased towards insurance product. on the other hand economic growth of ethiopia is high, the citizens’ demand for luxury goods, automobile insurance, and home owner insurance would be increased which maximize the profitability of the industry. reject null hypothesis since there is statistically significant relationship between real gdp and profitability of insurance industry. 3.3.9. real effective exchange rate (rer) an increase in rer enhances the relative profitability of the tradable sector causes to increase. the real effective exchange rate has positive and significant relation with profitability with coefficient = 0.0102 and p value =0.001. this indicates when real effective exchange rate increased by 1 unit, the roa also would be increased by 0.1 units. this may be due to encourage investors to invest in many areas and motivate them towards insurance contract. therefore, the researcher concluded that real effective rate is the major determinants of profitability of insurance industry in ethiopia since, it can be used to measure the equilibrium value of a country's currency, identify the underlying factors of a country's trade flow, and analyze the impact that other factors, such as competition and technological changes on a country and ultimately the trade-weighted index. rer show trade capabilities of the country. reject null hypothesis since there is statistically significant relationship between real effective exchange rate and profitability of insurance industry. 3.3.10. inflation (inf) inflation could affect insurance companies’ profitability influencing both their liabilities and assets. inflation increases, claim payments increases and consequently reduce technical result and profitability. the coefficient of inflation was negative (0.0815) and statistically insignificant (p-values 0. 918) which exceeds 5% significance level. the regression result suggested that inflation hasless negative impact onprofitability insurance industry in ethiopia. this result was consistent with the findings of gemachis, (2017); demis, (2016); wondwossen, (2016); kemuma, (2015) in kenya; lee, (2014); were found negative relationship between inflation and profitability proxy by roa. contrary, hadush (2015) found positive relationship between inflation and profitability of the insurance company. generally, the researcher concluded that inflation has negative and insignificant effect on insurance profitability due to the effect on assets and ability to pay its obligation. it also affects the client’s willingness due to weakening their purchasing power which allows entering into contract. accept null hypothesis since there is statistically insignificant relationship between inflation and profitability of insurance industry. 4. conclusions and recommendations from the result of the regression, the researchers found that the positive and significant relationship between roa and liquidity, capital adequacy, real gdp as well as real effective exchange rate. contrary, roa has negative and significant relation with leverage, underwriting risk, premium growth. besides, roa has positive and insignificant relation with age and size whereas negative and insignificant relation with inflation. insurance companies should have sufficient amount of liquidity ratio to discharge its responsibility for the time of accident and cover its short term obligation. however, the liquidity ratio should not be too high or too low so, as to keep companies’ profitability and build public confidence. capital adequacy ratio should be enough to attract investors, and create goodwill to the insurance companies, leverage ratio should be low in insurance company factors affecting profitability of insurance companies in ethiopia 117 because to create good image to the companies. if leverage ratio is high, it is bad for the performance of company since, it creates lack public confidence to customers, and it also may face difficulty to get external equity. premium growth is not necessarily possible way to increase profitability of insurance industry. since premium growth increase, the new customers may not enter into contract. so without customer, it is difficult ensure and sustain profitability of the company. therefore, premium growth should be low because premium growth declines the demand of society towards insurance contract. generally, insurance industry should give emphasis on liquidity ratio, and capital adequacy ratio to sustain its profitability. while, insurance companies should be careful on leverage ratio, underwriting risk, and premium growth to keep its profitability. on the hand policy makers in insurance industry should give attention on the result of negative impact of profitability of insurance companies in order to reverse the negative effect from the companies and sustain its profitability references a.cudiamat and jay, siy, (2017): determinants of profitability in life 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alemu haile jimma university, ethiopia amsalu dachito jimma university, ethiopia received: 01 june, 2020 accepted: 29 july, 2020 published: 10 dec, 2020 abstract: commercial transformation of subsistence agriculture is vital towards transforming the sector, and the economy at large. since agriculture accounts for the dominant role in terms of employment, foreign currency and source of staple food across developing countries, enhancing commercialization of smallholders’ agriculture is compelling policy choice among them. in this paper we examined the effect of rural infrastructure on smallholders’ crop input market participation with reference to jimma zone. censored tobit approach was employed to model the relationships between degree of household market participation from input side and the provision of rural infrastructure. distance to the nearest all-weather-road from the farm area was found important. moreover, provision of rural credit services, communication services and rural market center have been significant contributors. unfortunately, we estimated trivial coefficient for agricultural services in relation to rural commercialization. it seems surprising as various inadequacies in the provision of the services may be involved. the right approach for the future should consider efficiency as well as adequacy of the services being provided. it would be better to reach smallholders’ with necessary hard and soft infrastructures towards realizing multidimensional growth and transformational targets. besides, interventions intensifying rural access to information are vital. keywords: censored tobit, infrastructure, crop input market index, commercialization 1. introduction commercial transformation of subsistence agriculture is an indispensable approach to ensure the transformation of overall economy and realize the leading objective of most developing economies; i.e., industrialization. since the lion share of these countries economy in terms of employment, foreign currency and output is accounted for agricultural sector, economic transformation is hardly possible unless prior transformation is realized from the agriculture (timmer, 1997; pingali and rosegrant, 1995). besides maintaining an overall economic transformation and economic development at large, commercial transformation of subsistence agriculture is also vital towards insuring food security and peoples’ welfare, especially among developing nations. according to romer (1996), commercialization of subsistence agriculture is expected to bring comparative advantages, economies of scale and exchange of knowledge as well as facilitate innovation. these imported technologies and production ideas are further meant to significantly reduce average costs of production among recipient countries, increase gains from international trade and would result in overall economic growth and transformation. romer pointed out that, since it is cheaper to copy knowledge than to create the marginal cost of production is likely to fall with new idea so that the rate of economic convergence would be higher among them (romer, 1994; 1996). thus, the development and advancement of institutions required for commercial transformation of farms across developing countries is an essential, more likely the leading strategy, if economic transformation is to be realized. the development of infrastructure is vital towards enhancing smallholders’ commercialization. provision of rural infrastructure could be viewed as a priori to enhance the market participation of smallholders both from the input minyahil alemu haile & amsalu dachito 20 and output sides. these include rural all-weather roads, communication services, credit services, agricultural extension and the like. in contrast, developing countries are characterized by low or poor provision of the basic necessities for agricultural marketing, and it has been mentioned as among the constraints for the development of the sector among third-world countries (chan et al., 2009; stewart, 2010). theoretically, infrastructure is expected to increase total output in two basic ways: (i) directly, own sectorial contribution to gdp and serving as an input in the production process of other sectors; and (ii) indirectly, nurturing total factor productivity by decreasing transaction and related costs, consequently allowing an efficient use of existing inputs. infrastructure can be described as a complementary element for transformation of subsistence agriculture, and maintaining economic growth (newbery, 2012; rosewell, 2012). asian development bank revealed that road accessibility gives access to market and integrates different market areas, lessens the risks for which the rural poor are often exposed to. pervasive delivery of access to all-weather roads would grant generous benefits, bulk of them going to the poor on average (barrett, 2014). how big is the contribution of rural infrastructure in the development of smallholders’ commercialization from the input side? it is our driving motive in this paper, taking a random draw of households from rural jimma. ethiopia has adopted smallholder agricultural commercialization as a scheme for agricultural transformation and development. extension services, farm input and credit supply have been intensifying ominously to ensure sectorial transformation, while the government is the main actor in the provision of these services. a growing body of researches document that, without significant intervention from the private sector, the public sector alone couldn’t realize efficiency and hence transformation in the agriculture, both in production and commercialization (strasberg et al., 1999; pender and alemu, 2007; pingali 1997). a recent work by g/medhin et al. (2009) revealed that the development of agricultural services contributed significantly to the intensity of farm input adoption, productivity of agriculture and smallholder market participation across different regions of ethiopia. we focus on the analysis of how infrastructure development affect smallholders market participation from the input side only employing household level data from rural jimma. despite the recognized role of agricultural commercialization towards transformation of the sector in particular, and the economy at large, the topic of smallholder commercialization particularly from the input side has remained untouched in domestic literatures. significant research attention examined productivity of the sector. considering distribution is equally important deal if real transformation of the sector is to be tangible. besides, even though the topic is extensively talked in policy oriented scrutiny, the emphasis is inadequate in an evidence-based literature. henceforth, here we aim to pave policy concern to that end. the paper examines the impact of rural infrastructure on smallholders crop input market participation in jimma zone of oromia regional state. 2. methodology 2.1. description of the study area: jimma zone geographically, jimma zone is situated at south-west ethiopia. jimma zone administration is composed of twenty one sub-lower administrative units, locally named, woreda. the total number of human population was reported to surge three million under 516, 321 households in general, according to the official report from culture and tourism department in 2016/17. jimma zone is characterized by an agro-ecological setting of highlands (15%), midlands (67%) and lowlands (18%). it is one among the major coffee growing areas in in ethiopia, even claiming the legal recognition considering self being ‘land of coffee origin’, though remained an issue of debate due to the same claim from other parts of the country. jimma zone consistently receives favorable rains ranging from 1200-2800 mm per annum; this atmosphere is very comfortable to invest in the area of agro-industry as well as investments based on active community participation (undp, 2014). 2.2. the data: type, source, nature we used both primary and secondary data types. primary data were sourced from the individual respondents included in the survey. besides, we obtained secondary data from jimma zone agriculture department, finance and economic development office, and trade departments of the zone and respective woreda offices. the analysis is based on cross-sectional observations of sample smallholder households during 2018/19 production year. rural infrastructure and smallholders commercialization: analysis of crop input market from jimma zone, south-west ethiopia 21 2.3. sampling: size and techniques out of twenty one woredas we arbitrarily selected six: limmu kossa, gomma, manna, omo nada, tiroafeta and setema. each woreda was further divided into sections based on kebele constituents, the lowest administrative unit. random proportionate sample of kebele was selected from each woreda. finally, households were proportionally randomly drawn from each kebele administration. therefore, the sampling procedure has passed through multiple stages. according to official record from jimma zone administration in 2017/18, the respective household size each sample woreda is estimated at; 7,343; 4,540; 4,818; 28,574; 17,442 and 13,469, added to give a total of 76,186 households. the appropriate sample size was determined following noel et al. (2012) indicated below; (for d = 0.05; z =1.96) 𝑛 ≥ 𝑁 1+(𝑁−1)( 2𝑑 𝑧 )2 = 398 the sample was proportionally distributed across six woredas included in the survey. 2.4. data analysis: (a) crop input market participation index a conventional approach in measuring the household commercialization from input side is to take the ratio of the value of crop inputs purchased to the total value of crops produced in a particular production period (see for instance, shively et al, 2009; fao, 2012). we however argue such indexing is inappropriate from the computational as well as conceptual point of views. berhanu and moti have of course gone through their smallholder analysis in line with our indexation of the cimp (details on birhanu and moti, 2010). it is extremely misleading to imagine that every input used comes from some external source. for instance, a typical rural household in ethiopia retains some portion of crops cultivated at a given production season, that would serve as input for the next production season. he or she then fills the likely input gap from external sources in the form of input purchase. in the context of our survey we argue such indexation of crop input commercialization is highly weak. we then considered two aggre gate values to index farmer’s intensity of commercialization from the input side: value of crop inputs purchased and used. our exposition here follows; households’ obtain inputs from two sources; partly from their granary and the rest from market. only the portion obtained from input market well explains the degree of market participation of the householders. following this conceptualization, we index the crop input market participation as the proportion of gross value of purchased inputs from the total value of crop inputs used in annual production. therefore, we hoped our way best indexes the extent to crop input commercialization by smallholder households in jimma zone. it is important to realize also that, a typical household may produce different types of crop, and hence use various combinations of crop inputs. customarily it needs aggregation of values. we first need to value the total inputs used, both internal and external, by each household in annual crop production. internal inputs could be valued at their current market prices. besides, the amount of expenditure household incurred to buy different combination of external inputs in the annual crop production measures the total value of purchased crop inputs. this value can either be reported as final sum or we rather record individual figures and manipulate for aggregation. we expect market information on price and supply of relevant inputs from jimma zone departments for trade and agricultural development. smallholders’ agricultural commercialization from the input side is captured as the proportionate value of all crop inputs purchased to total values of crop inputs used in annual crop production season. consequently, the crop-input market participation (cimp) index to the present study is given by equation below; cimpi = ∑ �̅�𝑟𝐿𝑖𝑘 𝑃𝐾 𝑘=1 ∑ �̅�𝑘𝐿𝑖𝑘 𝑇𝐾 𝑘=1 where, cimp is crop input market participation for i th householder; 𝐿𝑖𝑟 𝑃 is the amount of input k bought each household at an average input price of �̅�𝑟 . 𝐿𝑖𝑘 𝑇 is the total quantity of input r used by each household in annual crop production. minyahil alemu haile & amsalu dachito 22 (b) censored tobit specification the cimp index, the response variable of this particular analysis, is categorical in nature. thus, we will be adapting a discrete choice dependent regression models to estimate the impact of rural infrastructure on smallholder commercialization from the input side. another thing to note is that, we cannot assume every sample observation to involve in the purchase of crop inputs during annual production. its statistical implication follows that, information on the degree of input commercialization for some observation would be missing. it is actually empirical fact in ethiopia to observe a weak or even no participation of most smallholders in crop input markets. few of them used to purchase only crop inputs in case of inadequate reserves from previous harvest season. in case of adequate amount of stocks in their granary, they could no longer participate in the input market to purchase other farm inputs. related to various socio-economic and other technical factors, most smallholders in ethiopia are highly reluctant to adopting farm technologies. a case of fertilizer adoption best explains such phenomenon in the country. an important point here follows is, it makes no sense to expect entire set of information on cimp by all sample observation while modeling its relationship with rural infrastructure. data would be available only for some of the sample observation (households); hence, we have censored observation. this further necessitates estimation of censored regression model to quantify the impact of rural infrastructure on smallholders input market participation. censored tobit is suitable approach to appropriately model such relationships in the context of the present survey. censored tobit could be described as the expression: 𝑦𝑖 ∗ = 𝑥𝑖 ′ +  i yi = 0, if 𝑦𝑖 ∗ ≤ 0 1, if 𝑦𝑖 ∗ > 0 where n is the number of observations, yi is the dependent variable (proportion of crop input purchased by smallholder i in the observation period); xi is a vector of independent variables; is a vector of estimable parameters, xi denotes the scalar product of two vectors, and i is a normally and independently distributed error term with zero mean and constant variance  2, i.e.   n(0,  2). it is assumed to be an implicit, stochastic index (latent variable) equal to yi* which is observed only when positive. our empirical guideline is adapted from taylor et al (2008). we model the relationships using tobit framework accordingly. the model’s likelihood function over zero observation (0) and positive observations (1) can be expressed as; log l = ∑ [𝐼𝑖 𝑎 𝑙𝑜𝑔  ( a− 𝑥𝑖 ′   ) + 𝐼𝑖 𝑏 𝑙𝑜𝑔  ( 𝑥𝑖 ′ − 𝑏  ) + (1 − 𝐼𝑖 𝑎 − 𝐼𝑖 𝑏 ) (𝑙𝑜𝑔 ∅ ( 𝑦𝑖− 𝑥𝑖 ′   ) −𝑁𝑖=1 𝑙𝑜𝑔)] where  (.) and (.), respectively, represent the probability density function (pdf) and the cumulative distribution function of the standard normal distribution; 𝐼𝑖 𝑎 𝑎𝑛𝑑 𝐼𝑖 𝑏 are indicator functions each with: 𝐼𝑖 𝑎 = 1, if yi = a 𝐼𝑖 𝑏 = 1, if yi = b 0, if yi > b 0, if yi > a maximum likelihood (ml) approach for censored regression model is regarded as the tobit model in the present analysis; and ml tobit was analyzed using the software package for stata version 14. the main benefit of using this model is that it produces consistent estimate of standard errors and can easily be used to test statistical significance of the parameters (florens et al, 2007; gujarati, 2004; wooldridge, 2003). cimp is modeled as a function of gender characteristics of the householder (sex), age of hh head (age), education of the householder (educ.), household labor (labor), non-farm income (income), radio-ownership (radio), distance to nearest all-weather rad (road), access to credit (crdt), distance to nearest market (mkt), extension services (ext), livestock (livstk), and market orientation (mktornt) as follows; cimpi = f (sex, age, educ, hh labor, non-farm income, radio, road access, mkt access, credit, ext, livstk, mktornt, ui) rural infrastructure and smallholders commercialization: analysis of crop input market from jimma zone, south-west ethiopia 23 2.5.variables definition and expectations table 1: description of explanatory variables and expected effect variable/attribute variable type variable measurement expectation sex of hh head dummy 1 if household head is male, otherwise 0 +/ age of hh head continuous age of the household head (years) + level of education continuous formal education of the household head (years of schooling) + mkt distance continuous amount of land under cultivation of farm household household labor continuous number of active family members working on the family farm (aged 15–60yrs) + non-farm income continuous total income earned from non-farm activities in the production year + radio ownership dummy 1 if a household owns and 0 otherwise + road distance continuous distance in kilometers from the nearest all-weather road extension services dummy 1 if a household involved in extension services the last year, and 0 otherwise + access to credit continuous amount in birr of financial loan previous year + livestock dummy 1 if a household also produce tropical livestock and 0 otherwise + market orientation dummy 1 if the farmer’s production is more of market oriented, and 0 otherwise + 3. results and discussion 3.1. descriptive information here we present the descriptive statistics of variables used in the estimation of censored tobit, and highlight the implication with each figure. table 2: descriptive information of the variables entered the tobit regression variables obs. mean std. dev. min. max. crop input market participation index 398 10.29 14.694 0 87 value of crop inputs used (etb) 398 1234.215 725.245 0 4751.34 value of crop inputs purchased (etb) 398 253.106 521.214 0 3137.45 age of the household head 398 46.82 11.814 26 82 household labor supply 398 5.00 1.953 1 9 non-farm income (1 = exists) 398 0.713 0.453 0 1 radio ownership (1 = owns) 398 0.50 0.501 0 1 distance to nearest all-weather road 398 4.39 5.131 0.1 8.5 distance to nearest market place 398 4.24 5.899 0.02 9.8 agricultural ext. (1= consulted last year) 398 0.93 0.257 0 1 livestock production (1 = producing) 398 0.90 0.293 0 1 market orientation (1 = oriented) 398 0.91 0.282 0 1 size of credit previous year 398 3714.27 1008.021 0 8000 education (years of schooling) 398 3.45 4.760 0 12 source: (own survey, 2018/19) an average crop input market participation index is about 11 percent signifying low participation rate in the study area. the computed average index for crop input market participation by smallholder farming is 10.29, while the minimum and maximum indexes area 0 and 87 percentages, respectively. this huge difference implies considerable variability across individual farmers with regard to their status in involving in the crop input markets as purchasers. overall, the calculated mean index shows the lowest degree of crop input market participation by the smallholder minyahil alemu haile & amsalu dachito 24 farmers around jimma zone. this can farther be confirmed from the maximum and minimum values of crop inputs applied in the annual crop production, both from the external and internal sources. the average value of crop input used for annual crop production is estimated at 1,234.215 birr, of which about 253.106 birr come from external markets in the form of purchased inputs. that is, on average value of about 20.51 per cent only is purchased input in the production of annual crop production in the study area, indicating a very low proportion of purchased crop inputs. these figures are obvious to ethiopian agriculture, since most smallholder farmers rely more on the use of internal resources as own family labor, seeds reserves from previous harvest year for current production, home based composts and the like. only relatively advanced farmers purchase improved seeds, chemical fertilizers on demand, and other sophisticated farm technologies. however, the proportion of purchased inputs appears to be very low, since majority are reluctant to purchase crop inputs considerably due to economic and technical as well as institutional reasons. the average household labor supply is about 5 persons per head, with a minimum of 1 and maximum of 9 workers each case, indicating moderate availability of workers actively serving own farm irrespective of to what extent the quality of labor supply is. generally speaking, labor quality can be noted out in reference to the average years of schooling which is suggested to be about 3 years. however, the computed average years of school enrolment is very low compared to the country’s minimum standard for basic education. thus, the household labor supply though moderate in quantity, is less efficient due to inadequate education. about 155 (38.94 percent) of the household in the study area is headed by female, indicating the paramount role of women in managing the household and making farming as well as marketing decisions. though the proportion is less compared to their male counterparts, still the revealed share is considerable. about 93 percent households in the sample involved in agricultural extension programs the previous year, indicating that they are better aware on the likely positive effect of general knowledge for farming practices. besides, the agricultural service providers are effective in reaching more households, though the estimated impact of extension service on smallholder commercialization was insignificant. this may, in turn, be due to service inefficiency, service inadequacy, or even inadequate factors from the users’ side (barrett, 2014; sourovi et al, 2012; mtigwe et al, 2013). this particular finding implies that, it is service quality that matters more in enhancing the commercial transformation of subsistence agriculture. 3.2. inferential analysis: censored tobit estimation before we run regression on censored tobit, we examined the validity and reliability conditions and none of them was suggested invalid. below is the stata 14 front page display for our regression for the censored tobit: table 3: factors affecting smallholders’ crop input market participation explanatory variables coef. prob. sex of household head (female = 1) -0.0470501 0.036 age of household head -0.0018209 0.174 education of household head 0.0214895 0.000 active household farm labor 0.0668203 0.000 non-farm income 0.2302946 0.000 radio ownership (1= ownership) 0.0461459 0.042 distance from nearest all-weather road -0.0374712 0.000 agricultural extension (1=if consulted) 0.0213435 0.859 livestock production (1 = produce) -0.0102509 0.870 orientation (1 = cash crop, 0 = non-cash) 0.1208748 0.108 amount of financial credit previous year (etb) 0.0000594 0.000 distance from nearest town (market center) -0.0328414 0.000 number of obs. = 380 lr chi2(12) = 872.49 (0.000) source: own survey, 2018/19 rural infrastructure and smallholders commercialization: analysis of crop input market from jimma zone, south-west ethiopia 25 evident from table 3 significant and relevant role of infrastructure services to intensifying smallholder commercialization. we see that, household participation in yearly crop inputs purchase market is influenced by household heads’ gender and education, family labor supply, participation in off-farm activities, market orientation, access to all-weather road, and access to finance. with exception to ambiguities in some variables, all others have expected signs. distance to nearest all-weather road lessens smallholder farmers’ participation into the crop input market as buyer, due to its role in increasing transportation and related transactions costs. the left censored tobit model estimation results in table 3 confirm that, for every km distance in the households’ settlement area from the nearest all-weather roads, the household participation into the crop input market detracts on average by about 0.034 (0.000), which is found to be strongly significant response from the market side. being far from the main road has negative effect on crop input market participation since transportation costs are likely to complement access to road. distance from the transport facility, due to its unfavorable effect on decision of farm, influences producers consent to purchase farm inputs, and hinders them from involving into the market. very large distance from the main road is likely associated with higher transport costs, which in turn, potentially reduces the efficiency of farm operation. inefficient farm operations tend to be highly sensitive to potential risks involved, and farmers become reluctant of making risky decisions. as a result, the farmers’ production will be limited to home consumption and their participation into the market, both as sellers and buyers, will be very low (janvry, 1995; rosegrant, 1995; janvry et al, 2003). as expected, distance to the nearest physical market center from the farmer’s settlement area detracts the household participation into the crop input markets as a buyer, since production decisions are highly determined by access to marketing signals. an additional kilometer distance to the nearest market area reduces the households crop input market participation by an average factor of 0.33(table 3); and that, the suggested market participation response was strongly significant too. rational firms make efficiency analysis, both from production and distribution segments. large distance to market center is more likely associated with higher transactional and distribution costs, which in turn, are reflected by higher product prices. this all has an important implication with the demand aspect of the market to the firm, and the welfare issue from the society. as the farmer’s location is highly distant from the nearest market center, its participation into the crop market will be very low, as more distances are meant to increase the transport costs that would be borne to move the products to the market center. a firm may become reluctant of producing marketable goods fearing these and related firm-specific (subjective) costs, that could potentially influence its competitiveness in the markets. firms with lower transport costs may charge lower prices and vice versa. as the production falls, firm’s decision to purchase farm inputs will also fall, and hence its participation into the crop input market is low. therefore, access to markets has an important implication with the smallholder farmer crop input market participation as a purchaser. loan services are also crucial for smallholder firms participating in the crop input markets as purchasers, since enhanced financial resources would have important implication with the farmers’ purchasing power and buying decision. other things constant, more financial resources are expected to increase the quantity and quality of inputs purchased (goletti, 2015; gebremedhin and jaleta, 2010; egbetokun and monona, 2012). we put a caustion here that, farmer’s buying decisions are not absolutely expounded by their fanacial competency, rather that, productions are subject to different natural as well as environmental shocks. assuming normal stable system, buying decisions are positively interrelated with financial capacities; therefore, as firm’s buy more inputs, their participation improves significantly. finance is the most persecutor of ethiopian agriculture. rural households get cash only during hasrvest period, which in turn is to be consumed entirely, due to inadequate skills of resource utilization. thus, they lack money to buy external farm inputs to complement internal resources. provision of credit access together with agricultural extension services and enterprenuerial skills would be vital towards enhancing rural development. business and marketing information being provided thru radio channels for the study area were advocated effective. evident from table 3 is the equitably significant and positive coefficient demonstrating the differential effect of owning radio on the households’ participation into the crop input markets as buyers. other things held constant, radio owners’ involvement into the market mentioned is 0.046 times better than those who do not own, and the computed difference was economically eloquent. households who own radio can access marketing information from different radio channels transmitted around the study area, of which the three come from the national radio service (ethiopian radio services), fm 98.1 (fana broadcasting corporation jimma center), and jimma university community based radio services. these radio services provide regular marketing informations such as prices, minyahil alemu haile & amsalu dachito 26 innovations, demand and supply conditions as well as other relevant issues. access to the prevailing timely marketing informations is crucial to analyze the general business environment and improving the forecasting efficiency for the firms (janvry, 1995; hossain, 2007; sourovi et al, 2012; williamson, 1991). this particular finding validates theories favoring the relevance of information symettry for market efficiency. as it can be seen above, household heads’ education is significantly associated with household involvement in crop market as a purchaser. besides, education is found to positively associate to households’ market participation from the input side. note that, this positive association between the two variables is expected (ele et al, 2013; chirwa, 2012; g/medhin and jaleta, 2010). with education peoples’ analytical skill improves (chirwa, 2012), forecasts appear to be near to perfect (barrett, 2014), technical and allocative efficiencies are enhanced (chirwa, 2012; barrett, 2014). an implication therefore follows that, the household’s participation to crop input commercialization as a buyer improves with better education, due to its positive impulses of which a little is as suggested by the above authors. actively available family labor is significantly linked with household involvement as a purchaser in the crop input market. for every additional active family labor supply, the household’s degree of market involvement improves on average by a rate of 0.067 (table 3), which as indicated is a substantial contribution. this finding is more likely, especially to ethiopia, where family labor is complementing external input. due to the primitive technology in the ethiopian agriculture, farm practices are based mostly on family labor, which in turn, is unskilled and less trained (g/medhin and jaleta, 2010; getnet et al, 2013; goshu et al, 2012; pender, 2007). citrus paribus, an additional person to a particular family’s farm plot is expected to advance the family’s degree of input commercialization, on average by about 6 per cent. besides, an individual person’s contribution in reference to family stands has been suggested economically meaningful too. 3.3. hard versus soft infrastructures: comparative statistics we do have basically two forms of investments with reference to agriculture (ulimwengu et al, 2009; porto et al, 2011; egbetokun and monona, 2012). these include investments for agriculture and investments in agriculture. while hard infrastructures constitute investments for agriculture, as for example, investments in rural roads, telecommunication, rural health and etc, soft infrastructures constitute investments in agriculture; like r&d, agricultural extension services, irrigation projects, policies related to product distribution, etc. some authors claim that investments in hard infrastructure (roads, communication and energy supply) are necessary, but not sufficient for effective market amalgamation. they further attest for the stipulation of soft infrastructure as key not only to the lessening of costs, but also to the provision of quality products. still some others favor more investments in hard infrastructures with reference to rural development and smallholder commercialization as well. table 4: left censored tobit estimates: hard versus soft infrastructures for cimp explanatory variables coef. prob. distance from nearest all-weather roads -0.0374712 0.000 agricultural extension 0.0213435 0.859 source: (own survey, 2018/19) while distance to nearest all-weather road from the smallholders settlement area is proxy to hard infrastructure (as it is potential candidate to investments for agriculture in most literatures), soft infrastructure has been represented by agricultural extension services. according to information in table 4, the estimated coefficient for distance to allweather roads being -0.0374712 (0.000) is negative and considerable from the statistical point of view. it demonstrates that, access to road has meaningful implication with smallholders’ decision to participate in the crop market from the input side. a negative association between road access and market participation describes that, smallholders far from the rural road are less likely to participate in the crop input market as buyers and vice versa. thus, households’ degree of commercialization varies inversely with their distance in kilometers from the nearest rural all-weather road. the positive impulse from road accessibility goes to smallholder commercialization in a number of ways. access to road gives increases access to markets, integrates different market areas, alleviates risks for which the rural poor are often exposed to, and improves welfare arising from enhanced access to basic social services (asdb, 2103; kassa et al, 2013; pingali, 2012). rural infrastructure and smallholders commercialization: analysis of crop input market from jimma zone, south-west ethiopia 27 unfortunately, the coefficient for agricultural extension service is insignificant, implying that the service being actually provided in jimma zone is not effective, or didn’t hit the target. yet, it doesn’t necessarily imply that agricultural extension services are irrelevant to rural development, but the estimated insignificant coefficient may be due to inadequacy of the service, which may in turn be due to lack of adequate knowledge among service providers, low farmers’ awareness, time and condition aspects of the service provision. generally, efficient rural development services are argued to improve the production as well as managerial skills, which in turn more productions. as a result, more production demand more input usage and allows farmers to purchase more external farm inputs. despite its suggested positive impulse, we estimated the insignificant impact of soft infrastructures on smallholder commercialization from the input side. 4. conclusion and policy implications enhanced market for agriculture is crucial in ensuring the development needs of, particularly emerging economies, like ethiopia. commercial transformation of smallholder farming involves decisions based on market signals. decisions regarding market signals are made in accordance with firm’s production being market oriented. however, market orientation is not an end, but a necessary approach in the commercialization of agriculture. crucial thing is on the farmers active participation in both the input and output markets for agriculture. distance to the nearest allweather road from the household settlement area was found to be a significant deterrent to smallholder participation to crop input markets as purchasers, due to its implication to high transportation costs for shipping the goods and services to reach users. this finding suggest for improved provision of transport facilities, including rural roads, for enhanced commercial transformation of the sector in the study area. other things constant, input demand are directly related to the firms productive capacity, which in turn is influenced by availability of necessary infrastructures. transport facilities are among the basic prerequisites in farm decisions. due its important implication with increased transport costs, distance to the nearest market place is also a significant constraint to smallholder participation to crop input market as a buyer, implying also that enhanced access to markets, both inputs and output, enhanced the smallholder participation into the crop input market as well as commercial transformation of the sector. the effects of both distances (market and all-weather road) are reflected via their important implication with the cost of transportation. therefore, improved access to transport facilities would automatically solve the inadequate impulses from road and market accesses. it is necessary to look for alternative transportation that is efficient in serving the rural people. agricultural extension appears ineffective despite its conventional expectation. due to its anticipated role in maintaining the attitude of commercialization among the smallholder farmers, extension services are expected to enable commercialization through easing of farmer-buyer linkages. the irrelevant effect of extension service calls for an effective and successful intervention to improve those extension services among the rural people in order to realize all of its positive impulses towards improving the smallholder crop input market participation in the study area. the differential effect of being radio owner was suggested favorable due to its important implication to information source. interventions intensifying rural access to information are vital. references barrett (2014), “smallholder market participation: concepts and evidence from eastern and southern africa”, food policy, 299–317. chan c., forwood d., roper h, and sayers c. (2009), “public infrastructure financing: international perspective”, staff working paper for productivity commission chirwa and matita (2012), “from subsistence to smallholder commercial farming in malawi: a case of nasfam commercialization initiatives”, brighton, uk, working paper egbetokun and monona (2012), “determinants of farmers’ participation in food market in ogun state”, global journal of science frontier research agriculture and veterinary sciences, 12(1) eskola (2005), “commercialization and poverty in tanzania: household-level analysis”, discussion paper, department of economics, university of copenhagen, copenhagen gebremedhin and jaleta (2010), “commercialization of smallholders: is market participation enough?”, joint 3rd of aaae and 48th aeasa conference, cape town, south africa minyahil alemu haile & amsalu dachito 28 gebremedhin b., jaleta m. and hoekstra d. (2009), “smallholders, institutional services and commercial transformation in ethiopia”, agricultural economics, 40(s) goletti (2015), “agricultural commercialization, value chains and poverty reduction, making markets world better for the poor”, discussion paper, asiandevelopment bank. goshu, kassa, ketema (2012), “measuring smallholder commercialization decision and interaction in ethiopia”, journal of economics and sustainable development, vol. 3, gujarati (2004), “basic econometrics”, 4th edition, tata mc-graw-hill publishing company limited, new delhi, india. newbery d. (2012), “energy and infrastructure”, working paper, lse growth commission. pender j. and alemu d. (2007), “determinants of smallholder commercialization of food crops: theory and evidence from ethiopia”, policy paper, ifpri, washington d.c. pingali and rosegrant (1995), “agricultural commercialization and diversification: process and polices” food policy, vol. 20, no. 3. romer p. (1994), “new goods, old theory and the welfare cost of trade restrictions” journal of development economics, 43(1) rosewell b. (2010), “planning curses: how to deliver long-term investment in infrastructure”, working series, january 2010 schively c. (2007), “understanding the nimby and lulu phenomena”, journal of planning literature, pp. 255266. stewart j. (2010), ‘’uk national infrastructure plan 2010”, working papers, european investment bank strasberg j, yamano t, jayne s, nyoro j, strauss j. and karanja d. (1999), “effects of agricultural commercialization on food crop input use and productivity in kenya”, working papers no. 71. michigan university, usa timmer c. (1997), “farmers and markets: the political economy of new paradigms”, american journal of agricultural economics, 79(2) vakis, sadoulet and janvry (2003), “measuring transactions costs from observed behavior: market choices in peru”, working paper, california university. williamson (1991), "comparative economic organization: the analysis of discrete structural alternatives.”, administrative science quarterly wooldridge j., (2003), “introductory econometrics: a modern approach”, mason, ohio: south-western. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 22-29 22 the relationship between financial literacy and finance education: a resarch for university students of the sütlüce region ömer aydin istanbul commerce university, turkey okşan ki̇bri̇tçi̇ artar istanbul commerce university, turkey received: augt 09, 2021 accepted: oct 18, 2021 published: dec 01, 2021 abstract: financial literacy is a feature that has been stripped of privilege and has become a necessity in today's society. when proliferation of financial markets, the increase in the variety of financial instruments, the use of internet technologies in financial markets, and that bank clients have started to execute their transactions through online channels instead of the face-to-face branch visits are taken into consideration, the need for financial literacy can be recognized more clearly. today, the most basic way to develop financial literacy is through education in this field. in this context, either individuals will catch up with the recent developments through their own research efforts or they will receive education from relevant external institutions.this study, which investigated the effect of financial education on financial literacy, the students from the finance and economics departments of the universities located in sütlüce, istanbul were compared with the students who did not receive such education. the study was conducted over 110 students. while 77 percent of these students received education in economic and financial fields, 23 percent did not. our analyses showed that students who received economics and finance education displayed higher average financial management and accounting capability, financial literacy sub-dimensions, compared to ones who did not have these educations. on the other hand, the financial calculation success levels of respondents were found inadequate with respect to the significantly large size of the group who received financial education. only 1.8% of the participants were able to successfully answer all of the questions. keywords: financial literacy, financial education, financial management, accounting ability 1. introduction beginning of emerging and development of capital markets could be dated back chronologically as early as the industrial revolution. along this period, countries have tended to make money from their accumulated capital instead of from their manufacturing owing to expansion production and consequent accumulation of capital in their hand. hence, global lending and crediting mechanisms have been commissioned over the time. this approach has gained wider range in parallel with the flourishing finance industry accompanied with capabilities introduced by advancing technological tools which have enabled each member of society from individuals to institutions to execute financial operations. as these financial operations could be classified under banking and investment operations in general, they could be considered under two main practices of deposit account and loans in banking sector and subsequent operations. yet, there are wide variety of product range lies on the finance and investment wing and significant portion of society could make gains from these products. however, there is no always gains in the markets and it is possible to mention losses that could exceed the gains due to the associated risks. managing assets and making profit in financial markets require knowledge, experience and even competency in certain aspects. for instance, stock markets and operations in these markets could be some of these aspects of financial markets. within the limits of technology and internet available in our contemporary time, individuals have gained capability to invest for even all size budgets for substantial variety of investment instruments. such that, an the relationship between financial literacy and finance education: a resarch for university students of the sütlüce region 23 infrastructure enabling making investment in any market in any country from all around the world has been established; and both institutional and personal savings have been channeled to these markets. however, at this point, prospect investors, especially individuals, are required to be well informed about their target investment products, markets and countries. otherwise, they are prone to future losses. another financial issue could be given as management of current investment budget. individuals need capacity to manage their current resources to sustain their lives, make investment or borrowing. these resources are composed of monthly or annual incomes. overall incomes from various resources such as salary, rental income and interest earnings constitute individuals’ monthly and annual incomes. in this regard, management capability is crucial to maintain balance between income and expenditure since these expenditure and investments would be compensated with aforesaid resources. level of this management capability is positively correlated with levels of the investment or financial activities need to be managed. otherwise, disrupted markets in both micro and macro levels would invite financial crises. in this context, personal knowledge level about the financial operations is simply described as financial literacy. remund (2010) describes financial literacy as the best personal managing capacity to sustain individual financial status by taking variable economic conditions which may fluctuate as a result of various circumstances into account to interpret necessary financial concepts accurately for more efficient short term decisions and for long term financial planning. from another point of angle, schagen and lines (1996) imply that financial literacy occurs around three fundamental characteristics of financial planning, problem solving and making financial decisions. researchers emphasize that financial literate persons first need to comprehend fundamental concepts of money management. moreover, they are required to be informed about operations of financial institution, service and systems as well as efficient handling of financial issues. financial literacy refers having basic knowledge about financial operations when having intention to use them. moreover, among the indicators of financial literacy, there are interest rate, (simple interest rate, compound interest rate, default interest rate, contractual interest rate etc.), currency rate (real rate, cross rate, volatile rate etc.), inflation rate, stock equities, and government bond as well as their functions. briefly, financial literacy could be described as capability of making financial planning for different financial circumstances and variables. financial education refers the education given by the various departments of universities such as economy, finance and business administration to build comprehensive financial knowledge and even to raise their graduates as the actors of financial markets. the difference of an individual who received financial education from a financial literate person is having superior level of knowledge as well as capability to have role in financial markets. more precisely, this is the expectation from the individuals who receive financial education. employees actively employed within the scope of institutions and corporations such as banking systems, markets, financial companies are the one who received financial education. nevertheless, educational content and methods sometimes could not be practiced appropriately mostly due to the reasons caused by learners and expected outcomes may not be acquired. based on this theory, the present study aimed to investigate the hypothesis of “financial literacy levels of university students who receive financial education are higher than the ones who does not receive financial education”. in this regard, a survey study was conducted on the university students from the higher education institution located in sütlüce county of istanbul city. collected survey data was analyzed in line with the objectives of the hypothesis test 2. description and indicators of financial literacy from the widest scope, financial literacy is regarded as a concept used to indicate that an individual’s knowledge level about financial services and products and their capability to use this knowledge to make the most accurate decisions. yet there is no consensual description of financial literacy, it could be seen that almost all of these point out the same characteristics. one the descriptions in the relevant literature, noctorn et al. (1992) describe financial literacy as “capability of individuals to make sensible assessments and to make effective decisions when they are managing their personal funds consciously” (rep. by goel and khanna, 2013: 339). different perspectives adopted by the various studies in this field have resulted in variety in descriptions available in the literature. such that this term differs from one country to another. while “financial adequacy” is adopted in ömer aydin & okşan ki̇bri̇tçi̇ artar 24 canada and the great britain, "financial literacy" is used in australia, “financial awareness” in the us and turkey by various researchers (dağdelen 2017:3). the most evident correlation of financial literacy is with the financial decisions about acquisition and management of necessary finance for sustention of daily life; and it could be briefly stated as the knowledge for utility of financial instruments. from this fundamental approach, it is possible to state that financial literacy is capability to use these instruments and this capability is fundamental indicator for a financial literate individual. in this case, personal saving methods, their way of transforming savings into investment, way of management of their investments and their methods of using financial resources are regarded as indicators of financial literacy. personal adequacy in these aspects has become substantially important in our contemporary world (lusardi, 2008: 14). when it is considered that frequent financial volatilities and economic crises are encountered in today’s world, it is undeniable that financial safety of individuals has gained greater importance. furthermore, individual need for protection and development of financial assets have gained importance as well for sustaining personal life standard. in this regard, while the most important factors required to protect and develop financial assets are financial instruments, they cannot be employed by individuals with the same convenience and mostly they require personal expertise and capabilities. otherwise, these instruments may yield momentarily losses for individuals instead of profits. making investment in financial instruments based on unreliable information constitutes deliberate danger and results in economic losses from the social perspective (temizel, 2010). when aforesaid and other reasons are taken into consideration, it is possible to state that it is necessary that individuals could develop their competency on these instruments and this competency could be considered in terms of financial literacy. from these explanations, it could be inferred that financial literacy is capability to practice financial knowledge rather than only having plane knowledge. in other words, financial literate individuals are regarded as persons who know how to make investment, could evaluate financial indicators and establish healthy communication with service providers. reyes (2006:82) suggests that individuals with low level of financial literacy do not only cause troubles on their own, they also cause problems in financial system. as a foundation of his theory, the author indicates that investors with missing financial information would experience bankruptcy and liquation action as a result of their losses, which cause problems in financial industry. on the basis of the report on financial literacy to be submitted to the us presidential administration, capability indicators expected from the individuals or institutions with financial literacy are given below by the designated reporting committee (bayram, 2010: 14):  sustention of cash flow,  prioritization of resources with respect to certain needs and preparing expenditure plans,  accumulation of funds against emergency situations,  making accurate decisions with home owning or leasing,  recognition of and determining financial risks,  taking measures against financial frauds,  making investment with basic investment tools by observing the balance between risk and return  making retirement plans. these indicators refer knowledge domains contained by the financial literacy at the same time. these domains include the instruments needed for financial sustention and development of individuals in terms of investment as these investments in which aforesaid instruments were utilized are regarded as indicators for financial literacy level. 3. financial education and its benefits financial education oriented on training of individuals about competent usage of financial product and services contains acquisition of capabilities such as making accurate financial decisions, making planning, or assessment of applied plan. individuals receiving financial education are not expected to be an expert in finance world. however, subject to the content of the organized education, this situation would contribute development of financial competency at different levels. on the other hand, educated individuals would gain vigorous knowledge helpful for the financial decisions for themselves or for their families along their life. they also would display more safe and efficient behaviors with their consumption, investment and saving decisions. moreover, these educations enhance individuals’ investment competency for financial instruments. the relationship between financial literacy and finance education: a resarch for university students of the sütlüce region 25 due to its meaning, the “education” phenomenon is an action to transfer details and practical issues of a certain subject to human beings. in this sense, financial education would not remain limited with teaching narrow scope of teaching names of investment tools to learners. this education also ensures learners to comprehend how to use these tools. individuals who do not have financial education would not take any action with financial instruments because they even learn about conceptual details of these instruments, they lack of practical capabilities to take further action or their actions would result in failures. on the other hand, since educated investors are competent on how to assess all gained knowledge for investment purposes, they could exhibit more effective behavior and acquire more positive results. yet, making investment with financial assets that have been saved along individuals’ lives is somehow regarded among the vital objectives and their significance could be viewed in this way. in this context, any mistaken decision that could be made with them would result in loss or shortage of life-long savings, which could cause economic and psychologic harms with individuals. when this situation is evaluated from the social context, it is possible to mention economic damage made to the national economy. accordingly, financial education displays significance in terms of both individual and society (özçam, 2006: 2). in an article published by the economist in 2008, which concerned with financial education, an approach reflecting assessments made based on the mortgage crises and correlating experienced developments with financial illiteracy could be seen: “financial education helps to recognize the relationship between financial risk and return, to establish balance between income and expenditure through budgeting, to make saving and investment by families for their futures, to have better education for children of families, and to make better financial decisions. consumers would be conscious about how to satisfy their needs and thus they contribute efficient function of economy. this would help to develop competitive environment in financial markets so that new services and products could be supplied to the markets. during the mortgage crisis in the us, it was revealed that majority of mortgage credit users were not aware that their monthly payments would be increased in parallel with the increasing interest rates afterwards the crisis. therefore, financial illiteracy is considered greater problem for developed countries surprisingly rather than developing ones. studies conducted in the us also suggest that individuals sustaining credit card debts are not aware that they would pay higher interest rate if they do not pay timely payments to their outstanding balance.” (the economist, 2008). when current studies are taken into consideration, 40-50% of individuals who received investment education or selfeducated through documents are found to make retirement plan for the future (blau and vanderhei, 2000: 85). moreover, it is seen that educated individuals develop their knowledge levels about asset returns and they make more detailed amendments in their preferred contribution-based retirement plans. additionally, it is seen that employers who help their employees to have financial education contribute welfare of their employees and accordingly they enhance loyalty, efficiency and productivity of their employees (maki, 2001: 2). schug and hagedorn (2005) studied the effect of financial education program on saving and investment capability of learners; and reported that education yields positive impact on these both actions. on the other hand, it is necessary to determine that how such education given during childhood period would be effective for adults. providing financial education through various methods with respect to age and qualification of learners is crucially important to ensure success of the such efforts. gökmen (2012:49) considers financial education as a mean to fight against underground economy. hence, the harm of the underground economy toward the economic system and society could be prevented and muscles of financial institutions could be strengthened in this fight. any resulting aggrievement of this situation could be eliminated and social unity, welfare and peace could be established. 4. the relationship between financial education and financial literacy studies concerning description and benefits of financial education report personal achievements of this education as that enabling them to be more competent individuals in financial area and transforming them into more capable individuals in their financial actions. thus, financial literacy levels of individuals are structured and developed as they gain better capability in financial system to make more robust investments. on the other hand, they acquire legal information about financial system so that they avoid any potential legal sanction. financial education is also important issue in terms of acquiring minimum financial culture by individuals. individuals having education in this way would gain knowledge and training on investment, saving, borrowing, and debt management, credit, insurance, and legal rights. ömer aydin & okşan ki̇bri̇tçi̇ artar 26 according to hogarth and hilgert (2002: 1-7) individuals who had financial education are found to be knowledgeable on asset management, banking, insurance, tax, credit and investment. besides having fundamental knowledge on money and asset management subjects, individuals having this education could be capable of making plans in line with financial code of conducts. özçam (2006) reports the personal characteristics gained through financial education as below: “…investor education includes not only teaching theoretical knowledge to individuals such as financial markets, financial institutions and investment tools, but also comprehension, assessment of these knowledge and developing capacity to practice them. individuals who do not receive this education would not exhibit behavior patterns required by financial information even they are provided to them. on the other hand, individuals who receive financial education could be able to assess significance and impacts of information flow as well as responsive decisions and precautions. moreover, the profit obtained from the businesses done after a certain financial education and the way of handling this income play significant role in welfare of individuals. when it is considered the fact that economical resources accumulated through borrowing or saving for years could be disappeared in a second as a result of mistaken investment decisions, the delicate role of investor education played in welfare development of individuals could be well recognized.” on the basis of the approach of the researcher, financial education would provide both fundamental financial information to individuals as well as teach them how to use this knowledge practically. inherently, this financial education and financial literacy concepts could be regarded as two proximate concepts. financial education enables individuals to comprehend financial terminology as well as get acquainted with financial instruments and learn how to access them. furthermore, they gain capability to make better decisions so as to protect themselves from the adverse consequences of mistaken decisions by developing their knowledge about decision making criterions. 5. empirical study 5.1. research method in the present study, it was aimed to compare financial literacy levels of university students through sample group. in this sense, a descriptive research method was adopted. to that end, a survey method was employed to compare financial literacy levels of two student groups based on the collected survey data. within the scope of the study, totally 168 students were distributed survey forms, and they were explained about the process. since survey was applied in 2020 pandemic period, it was not possible to reach greater population. collected survey forms were examined so that missing or false forms were to be excluded from the further analysis. hence, totally 110 accurate forms were included in the survey study. data collection tool employed in the study was structured within the scope of the study under title of “determination of financial literacy level: a case study on freelance accountants and financial advisors in aydın city” conducted by dağdelen (2017); and its validity and reliability analysis was conducted. the scale was composed of 35 questions in two sections. in the first section, there were 29 items constructed 5-scale likert model in order to measure financial literacy levels of respondents. in the second section, there were 6 multiple-selective questions to evaluate financial operation capabilities and knowledge levels of respondents within the scope of financial literacy levels. there was only one correct answer for each of these questions in the second section. the researcher examined the scale with single dimension and evaluated the correlations among variables based on the total scores from 35 questions. moreover, overall reliability coefficient of the scale was reported as α= .749. in this study, the scale was considered with two dimensions. twenty-nine items with five-point likert style were employed to evaluate financial literacy; the rest of 6 questions were for assessing financial math adequacy. each correct answer given to each of these six questions increase 1 point the total score while wrong answers has no impact. thus, the maximum score a respondent could get was 6 and the lowest score was 0. this scale was assessed in three groups of low, medium and high. if respondent’s total score was in the range of 0-2, it was low while 3-4 corresponded to medium; 5-6 was high group. additionally, factor analysis was conducted on the scale comprised of 29 items with 5-point likert structure; and two-dimensional structure was determined, which were “accounting capability” and “financial management”. the relationship between financial literacy and finance education: a resarch for university students of the sütlüce region 27 5.2. findings characteristics of sampling group were exhibited in table 1 below. additionally, obtained research findings were exhibited in table 2 and 3. table 1: demographical characteristics of respondents (n=110) demographic variables n % gender bay 50 45.5 bayan 60 54.5 age groups 18-27 age 30 27.3 28-33 age 51 46.4 34 and older 29 26.4 degree bachelor 84 76.4 graduate 26 23.6 year 1st year 8 7.3 2nd year 6 5.3 3rd year 8 7.3 4th year 36 32.7 graduated 52 47.3 received economy education? yes 85 77.3 no 25 22.7 monthly income 0-3000 tl 28 25.5 3.001-4.000 tl 35 31.8 4.001-5.000 tl 47 42.7 accommodation family 77 70.0 private dorm or flat 29 26.4 public dorm 4 3.6 financial calculation capability low 49 44.5 medium 59 53.6 high 2 1.8 according to table 1, 54.5% of respondents were female and the rest was male. in terms of age distribution of respondents, 27.3% was in group of 18-27; 46.4% was in 28-33; 26.4% was in 34 and older. study degrees of respondents were also asked in the survey and 76.4% of them were found to be at bachelor degree level while the rest 23.6% were at graduate degree level study. in terms of distribution of respondents with respect to their years at their universities, 7.3% was at their freshmen year; 5.3% was sophomore; 7.3% was third-year; 32.7% was at senior level; and 47.3% was graduate. from the economic/financial education perspective, 77.3% of respondents received economy/financial education; and the rest 22.7% did not receive. from the income level distribution of respondents, 25.5% was in group of 0-3.000 tl; 31.8% was in 3.001-4.000 tl; and majority 42.7% was in 4.001-5.000 tl. in terms of accommodation of respondents, it was found that 70% of respondents were staying with their families; 26.4% was in private dormitory or leased apartment flats; and 3.6% was in public dormitories. regarding the financial calculation capacity of respondents, they were asked 6 questions. based on the total scoring scheme, financial calculation capability of 44.5% of respondents were found to be low level; 53.6% was medium level; and 1.8% was high level. these findings suggested that respondents’ financial calculation capacity was not adequate. according to whether the respondents had education either on economy or finance, their accounting capability average scores were compared and obtained findings were exhibited in table 2. according to these results, significant difference was seen in terms of accounting capability between the respondents who had economy-finance education and the ones who had not. hence, it was inferred that accounting capabilities of students who declared ömer aydin & okşan ki̇bri̇tçi̇ artar 28 they had received education was found to be superior than the ones who declared otherwise. in other words, it could be said that student who received economy/finance education were able to reflect their education to their daily life. table 2: the relationship between accounting capability and receiving economy education received economy education? n ave. t p accounting capability yes 85 4.8791 4.264 .009 no 25 3.4022 p<,05 the other financial literacy dimension was financial management. when average scores of respondents who received economy and financial education compared to the ones who did not, similar result was found with the accounting management case. table 3 below exhibits the analysis results. according to these findings based on average scores, a significant statistical difference was determined between the group who received economy/finance education and who did not in terms of financial management capability. it is possible to suggest that this difference was in the favor of the group who received economy / finance education. table 3: the relationship between financial management capability and receiving economy education received economy education? n ave. t p financial management capability yes 85 4.2706 2.887 .003 no 25 3.4900 p<.05 6. result financial literacy has gained significant importance for today’s daily life along with evolving technological infrastructure and increasing financial instrument variety. in general, financial literacy represents knowledge level about economic and financial issues such as budget management, resources management and assignment, accumulation of financial resource. in the field study conducted on 110 students, it was revealed that receiving accounting education was an advantage in terms of financial literacy. as a result of the variance comparisons conducted with respect to demographic variables (gender, age group, whether continuing to education or not, monthly income and life style), it was seen that these variables did not make significant difference in terms of financial literacy level. although there are some studies indicating similar results in the literature (yıldız, 2019; yücel, 2017), there are other studies reporting that financial literacy levels of men are higher than women since men are considered to have greater responsibility for family livelihood in the society and consequently they are more concerned with financial subjects (tosun, 2016; er and taylan, 2017; erkılıç, 2019). moreover, on the basis of accounting capability, one of the financial literacy indicators in the center of this study, average accounting capability scores of students who received economy and financial education was found to be comparably higher than the other student who did not receive that education. thus, it was possible to suggest that economy and financial education could enhance accounting capability of students. additionally, findings related with the financial management were in similar characteristic with accounting capacity. average financial management scores of respondents differed significantly with respect to whether they received economy/financial education. average scores of the students who received economy/finance education were found to be higher in comparison with the ones who did not. thus, it was concluded that economy / finance education increased respondents’ financial literacy levels. another notable point found in this study was that even though 77% of respondents received economy/finance education, only 1.8% of respondents’ financial calculation capability was at high level while 44.5% was low and 53.6% at medium level. in consideration of these calculation capability levels, economy / financial education was effective on financial literacy but this effect occurred within the scope of different parameters. yet, high level of financial calculation capacity was only determined with 1.8% of the sampling group even though 77% received the relationship between financial literacy and finance education: a resarch for university students of the sütlüce region 29 economy / financial education. this finding was suggested as potential subject of future researches within the scope of various parameters. references bayram, s. seçil (2010), finansal okuryazarlık ve para yönetimi davranışları: anadolu üniversitesi öğrencileri üzerine uygulama, yayınlanmamış yüksek lisans tezi, anadolu üniversitesi sosyal bilimler enstitüsü. bernheim, d.b., garrett, daniel m. ve maki d. m.; (2001), “education and savings: the long-term effects of high school financial curriculum mandates’’, journal of 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(2006).yatırımcı eğitimi: dünya uygulamaları ve türkiye i̇çin öneriler. ankara: sermaye piyasası araştırma raporu. remund, d. l. (2010). financial literacy explicated: the case for a clearer definition in an increasingly complex economy. the journal of consumer affairs. 44(2),276-295. reyes, r. (2006). the psychological meanings of money. doctorate thesis, usa:alliant international univercity. schagen, s. ve lines, a. (1996). financial literacy in adult life. national foundation for educational research.the national foundation for educational research. schug, m. c., ve hagedorn, e.a. (2005). the money savvy pig goes to the big city: testing the effectiveness of an economics curriculum for young children. the social studies, 96(2), 68-71. the economist .(2008). financial literacy: getting it right on the money. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 52-60 52 economic impact of fair-trade certification on small-scale coffee producers in ethiopia fikadu gutu bulga jimma university, ethiopia wondaferahu mulugeta demissie jimma university, ethiopia sisay tolla whakeshum jimma university, ethiopia received: may 02, 2020 accepted: may 22, 2020 published: june 01, 2020 abstract: exporting attracts attention as an international sales activity, which has been studied by the country’s economic managements, firm in ethiopia coffee production is one of the most important sectors of livelihood, and the largest portion of coffee production comes from smallholder farmers. small-scale coffee farmers producing for fair-trade market outlets are commonly considered to benefit from enhanced prices and established market channels. nevertheless, some empirical studies are validating this conception adversely. this study, consequently, tried to assess the impact of fair-trade certification on the economy of small-scale coffee producers using both descrip-tive and econometrics techniques for the selected 383 respondents in jimma zone of south west ethiopia. according to the finding of the study; educational level, status of household head, fair-trade membership position, market and infrastructure access variables are statisti-cally significant and determine income of smallholder coffee farmers positively. logistic regression result indicates that, the coefficient (or parameter estimate) for the variable fair-trade membership position is 3.383. this means that for every one-unit increase in fair-trade membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all other independent variables constant. therefore, leeway of fair-trade certification ought to be reflected as one of poverty and susceptibility reduction implements among economic strategists and practitioners. keywords: fair-trade certification, coffee, economic impact, ethiopia 1. introduction coffee is a global commodity with trade networks spreading wide-reaching. international exchange markets in new york and london largely determine coffee prices, making it diffi-cult for producing countries, except for major producers such as brazil and vietnam, to influence world price formation. the international nature of coffee marketing and sales directly exposes coffee producers in developing countries to international price fluctuations (kodama, 2007). according to fair-trade foundation (2012), fair-trade certification is the preeminent solution to increase the socioeconomic benefits of producer and cooperative union, environmental protection at regional and national level development. furthermore, by increasing the productivity and benefit of coffee producing regions/area either by direct international sales through eliminating the middle man who makes higher profit at the expense of farmers and/or by promoting sustainability standards and fair-trade certifications which assurance their price and allow them to get social premium in order to enhance local infrastructures and make them better social and environmental responsibility. the practice hints them the best beneficiary and they will operate sustainably in the global market according to their effort. alternatively, fair-trade was created in order to regulate the market and bring more advantages to the coffee producers in exporting countries. the organization aims to create an equitable and stable economic impact of fair-trade certification on small-scale coffee producers in ethiopia 53 trading system by establishing a fair price for goods and direct mar-ket access for farmers. it guarantees prices to cover the coffee producers’ costs of produc-tion, which in turn enables improvement of their livelihood: the overall aim being social and economic development of the community. the magnitudes and values of fair-trade certification for coffee producers and their organizations have been analysed in numerous studies. thorough case studies from coffee cooperatives in costa rica (ronchi, 2002), nicaragua (bacon, 2005) and mexico (jaffee, 2014) confirm that fair-trade certification reinforced producer organizations and advocate that fair-trade tenets improved returns to smallholder coffee makers, positively affected their eminence of life and reinforced the power of local organizations. additional lessons revealed that fair-trade arrangements enhanced the welfare of small-scale coffee producers and their families, primarily due to enhanced access to credit services and outer funds, and above through training and refining product organization (murray et al., 2006). in ethiopia coffee has been utilized as a drink and food for numerous hundred, if not thou-sands, of years. henceforth, ethiopia can be reflected as the natural and cultural home of coffee. nowadays, an estimated 525,000 hectares (5,250 km2) of coffee are engrained in ethiopia; nonetheless the tangible area is most likely in excess of 20,000 km2. coffee deliv-ers ethiopia with its furthermost noteworthy agricultural commodity, backing around one quarter of its entire export retributions (minten et al., 2014). in the context of fair-trade certification, ethiopian government ratified the cooperative proclamation no. 147/1998 that identified clear goals, objectives and also their authorities (fdre, 2008). from the federal democratic republic of ethiopia (fdre) proclamation, it is possible to understand how the government wants to support a more advantageous legal background for the formation of ethiopian cooperatives. the main goals of proclamations were to include socio-economic and other motives that require joint actions for attaining a common target. however, the extent to which the cooperatives in ethiopia have been able to attain these goals has not been adequately analyzed. in addition, the actual extent of the cooperative movement is unknown and not assessed and valuated in general sequence. for that reason, this study collected basic evidences from 383 respondents to assess economic impacts of fair-trade certification on smallholders coffee producers which are members of cooperative union in ethiopia. indeed, the main objective of this study was to analyze the economic impact of fair-trade certification among smallholder coffee producers in case of jimma zone of south west ethiopia using both descriptive and econometrics techniques. and the result of the study revealed that educational level, status of household head, fair-trade membership position, market and infrastructure access variables manage income of smallholder coffee planters positively. 2. methods of the study 2.1. sources and type of data this study was conducted based on both primary and secondary data. the primary data were collected by face to face interviews using structured questionnaire. the questionnaire included both closed and open ended questions. the closed-ended questions were used to collect background information about the respondent. it covered the personal information, institutional (cooperative union), economic, social structure, and regional infrastructure development. secondary sources were included unpublished and published materials about fair-trade certification activities. 2.2. study design and period a cross-sectional study design was employed to look for socio-economic impact of fair-trade certification on small household coffee producers and cooperative unions. from each selected coffee cooperative union, the researchers selected ten primary coffee producer cooperatives for this study, which means five of them are fair-trade certified and the others are none. the non-certified are sellected based on various comparability factors, including similarity on infrastructure availability, communication facilities and other socio-economic characteristics, such as topography, accessibility and presence of other development programs. all farmers including respondents are residing in the selected cooprative village were consitituted as the study population. the study was conducted from september 2016 to end of june 2017. fikadu gutu bulga & wondaferahu mulugeta demissie & sisay tolla whakeshum 54 2.3. sample size determination and sampling techniques multi-stage sampling techniques were employed to determine sample size. the researchers applied lottery method to select certified and non-certified from each selected cooperative unions from four selected coffee cooperative unions in ethiopia. after researchers determined total sample of cooperatives from both certified and non-certified; the selection criteria of farmers was based on the membership registry book of each cooperative. the sample size was determined by the following formula (noel, et al, 2012). where, is the total population, is the required sample size, margin of error, is the confidence level. and n=383 for total population (n) =8934. 2.4. data analysis data were coded, checked for completeness and entered into a computer. then, coded data were analysed using stata software package version 13.0 for regression analysis. the empirical analysis of this study was conducted using both descriptive statistics and logistic regression analysis. assessing the impact of fair-trade certification on increasing farmer’s income at household level of respondents and cooperative union requires adjustments to control for differences between membership and non-membership to evaluate the economic impact. the impact of fairtrade certification on respondents was assessed based on the independent variables indicated below. the variables used in regression are respondent age, total farmland, membership status of fair-trade certificate, amount of coffee land, households’ headship status. the functional relationship between the probabilities of income increment impact at household level and explanatory variables are specified as: let yij be the ith farmers response for component indicate income increasing status (a binary outcome, 1= alone, 0=otherwise) for small household farmers in the jth cooperative. 𝑙𝑜𝑔 𝑃𝑗 1−𝑃𝑗 = 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2 + ⋯+ 𝛽𝑘𝑋𝑘……………………………………………….. (2) where is the population proportion of income increment mainly at household level in the jth cooperative, ith farmers response for the components index of economic impact of fair-trade certification, are households socioeconomic characteristics of the study subjects or independent variables and are their associated regression coefficients or parameter to be studied. to analyse studies that involve qualitative choice, especially to evaluate dichotomous variables most studies employed logit and probit model. the logit and probit formulations are quite comparable, for this study logit model has got advantage over probit in the analysis of dichotomous outcome variable in that, it is extremely flexible and easily used model from mathematical point of view (hosmer et al.,2013). finally, the question of income increment at household level is expressed in dichotomous form. thus, a farmer whose income is increased is assigned a value of 1, otherwise 0. 3. result and discussions 3.1. economic impact of fair-trade certification on small-holder coffee producers and cooperatives according to the result of the table 3.1 below, fair-trade certification status has improved annual income of the certified small household coffee producer farmers. interviews were conducted with a total of 383 small household coffee producers farmers involved in this study. as it has shown in the table, of those 383 producers, 116 (30.3%) belonged to a fair-trade certified cooperatives, while 267(59.7%) were from non-members as it has indicated from the study survey, nearly most of respondents reported as they have an average 0.5hector of coffee farm and respond that their income increases since the last three years. within these cooperatives both fair trade certified and noncertified, the size of individual coffee farms varied between 0.5 and 4.5hector; nearly (4) 4.6% of the coffee farmers had more than 4.5 hector of coffee farms. based on the information, out of total coffee producers 170(44.4%) respond that their income increases while the remaining 213(54.6%) were report that their annual income was not increasing in the last three harvest-ing year ......................................................................................................(1) economic impact of fair-trade certification on small-scale coffee producers in ethiopia 55 table 3. 1. percentage distribution of farmers’ income status from coffee (n=383) characteristics is there any change in your annual income from coffee production in recent years? yes no total variables responses number % number % numbe r % educational level of household head no education 36 9.4 172 44.9 208 54.3 read and write 134 35 41 10.7 175 45.7 total 170 44.4 213 55.6 383 100 fair-trade certificate membership status yes 110 28.7 6 1.6 116 30.3 no 60 15.7 207 54 267 59.7 total 170 44.4 213 55.6 383 100 household headship status female 8 2.1 77 20.1 85 22.2 male 162 42.3 136 35.5 298 77.8 total 170 44.4 213 55.6 383 100 credit opportunity yes 56 14.6 52 13.6 108 28.2 no 114 29.8 161 42 275 79.8 total 170 44.4 135 55.6 383 100 access to market yes 155 40.5 25 6.5 180 47 no 15 3.9 188 49.1 203 53 total 170 44.4 213 55.6 383 100 source: study survey 2017 similarly, only 6(1.6%) certified cooperative members replied that income were not increas-ing; while 207(54%) from non-certified member of coffee cooperative reported that their annual income was not increasing in the last three years. this shows that there was a differ-ence between those certified and non-certified cooperatives in terms of income. even if there is a remarkable difference between fair-trade certified and non-certified members of coffee producer cooperatives regarding to their income; the coverage of fair-trade certificate mem-bership status is still very low when compared to the numbers of household coffee producers in the study area. of total respondents or households, 108 (28.2%) reported that they have gotten credit opportunity and 275(79.8%) of them were reported that, otherwise. producing coffee is not enough for farmers; the case is very worth for small household coffee producer in developing countries. because they produce coffee with many challenges and also with many hopes of income for their household. next issue to production of coffee was market access. according to the respondents, 180(47%) said that the access to market was good and 203(53%) were reported that, access to market is not easy for them. 3.1.1. relationship between credit opportunity and fair-trade certification finance is a weapon to eradicate poverty. the case of finance is more sensitive in the case of developing country than that of developed ones. credit opportunity or access to finance is an essential tool of growth and productivity. credit-worthy cooperatives and unions can act as intermediaries for their member farmers because they give members access when formal credit lending institutions do not exist sufficiently. as it has shown in the table 3.1.1 below, only 12(10.3%) respondents from certified cooperative members responded no for credit facility though 114(89.7%) have got such access. providing credit to member coffee farmers in small-scale cooperatives who are often structurally or institutionally prevented from accessing it has proved hugely successful in a variety of domains. not only coopera-tive and or obliged to provide credit facility to their members but also the cooperative or the union themselves should get pre-financing from buyers to cover harvesting and other costs since credit provision is enshrined in the fair-trade relationship with their member. fikadu gutu bulga & wondaferahu mulugeta demissie & sisay tolla whakeshum 56 our finding is in agreement with the study conducted by many scholars. for example, in a study by mendez et al. (2010) of 469 coffee producers in central america and mexico, fair-trade farmers had higher reported access to credit (42%) than conventional coffee farmers (34%). this could be related to the fact that the fair-trade social premium finances credit funds that are run by cooperatives to make credit available to producers (ibid.p.2) and ruben et al (2009)). these funds are particularly useful in so far as banks often fail to provide credit to small-scale producers in most of developing countries like ethiopia. table 3.1.1 relationship between credit opportunity and fair-trade membership status (n=383) responses fair-trade membership status total characteristics no yes credit opportunity no number 203 72 275 percent within credit opportunit y 73.8 26.2 100 percent of total 53 18.8 71.8 yes number 64 44 108 percent within credit opportunit y 59.3 40.7 100 percent of total 16.7 11.5 28.2 total number 267 116 383 percent within credit opportunit y 69.7 30.3 100 total percent of total sample 69.7 30.3 100 source: survey study, 2017 our finding was in agreement with the study conducted by murray et al (2006). the study result of murray et al., (2003), shows that, some cooperatives in mexico have taken a slice of the fair-trade premium and invested it in small, cooperatives administered credit funds that can be accessed by members for small emergencies. it is possible to conclude that ac-cess to credit gives farmers increased opportunities for productivity investments and helps them avoid predatory lending at exorbitant rates. and also, there is a remarkable differences between fair-trade certified cooperative and non-certified. demand for coffee is higher when it was the product of fair-trade certified members of cooperative than non-certified. 3.2. logistic regression results 3.2.1. the economic impact of fair -trade certificate on smallholder coffee producer farmers according to the result of table 3.2.1, the coefficient (or parameter estimate) for the varia-ble educational level status of household head is 1.681. this means that for a one-unit in-crease in education level, we expect a 1.681 increase in the log-odds of the income incre-ment, holding all other independent variables constant. the coefficient (or parameter esti-mate) for the variable fair-trade membership status is 3.383 this means that for every one-unit economic impact of fair-trade certification on small-scale coffee producers in ethiopia 57 increase in fair trade membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all other independent variables constant. the coefficient (or parameter estimate) for the variable market access is 3.49. this indicates that for every one-unit increase in market access, it is expected that a 3.49 increase in the log-odds of the in-come increment, keeping all other independent variables constant. and the result shows that, the probability of income augmentation has a direct relationship with explanatory variables. the coefficient (or parameter estimate) for the variable of infrastructure access to farmers is 0.727. this means that households those have a better infrastructural access, we expect a 0.727 increase in the log-odds of the income increment, holding all other independent vari-ables constant. table 3.2.1: binary logistic regression result (n=383) source: study survey, 2017 generally, our finding is in agreement with the study conducted in other countries or there is similar income growth reported from other studies. a separate study in nicaragua found that farmers averaged $0.56/lb of coffee sold through a cooperative linked with the fair-trade certified organic market, compared to $0.40/lb for their conventional market counterparts (bacon, 2008). fair-trade-associated cooperative farmers in costa rica received incomes that were 39% higher on average than farmers not involved with fair-trade (ibid.p.2). also our finding is in agreement with the study conducted by many other scholars. for example, the study conducted by mendez et al. (2010) shows that, within a sample of 469 coffee producers in central america and mexico for the 2003/2004 harvest, the researchers constructed an average price measure using farm gate prices received from different markets (organic, certified fair-trade, and conventional) weighted by the percentage of the harvest sold at that price to reflect the prices that farmers obtain at the farm gate. the authors find that fairtrade certified farmers received $0.17 more per pound of coffee sold while fair-trade/organic certified farmers received $0.38 more per pound of coffee sold compared to non-certified farmers. 3.2. fair-trade certification impact on infrastructure development in the study area the coefficient (or parameter estimate) for the variable fair-trade membership status is 0.751. this shows that for every one-unit increase in fair-trade membership, we expect a 0.751 increase in the log-odds of the infrastructure dependent variable coefficient standard error (r) z p> |z| age of household head (continuous) -0.002 0.0214 -0.13 0.900 household educational level (continuous) 1.681 0.477 3.58 0.000 dummy, fair-trade membership status(1=member) 3.383 0.672 5.03 0.000 dummy, hh headship (1=male) 0.875 0.583 1.50 0.134 family size (1= <5) 0.002 0.079 0.02 0.983 total land size (continuous) 0.132 0.179 0.74 0.461 total land for coffee (continuous) -0.427 0.302 -0.14 0.887 coffee production amount in kg (continuous) 0.601 0.541 1.11 0.266 dummy, market access (1=yes) 3.490 0.511 6.83 0.000 dummy, infrastructures access (1=yes) 0.727 0.324 2.24 0.025 constant -11.074 1.174 -2.63 0.000 fikadu gutu bulga & wondaferahu mulugeta demissie & sisay tolla whakeshum 58 development, keeping all other independ-ent variables constant. one objectives of fair-trade certification is related to development of infrastructure. this infrastructure is funded from what we call social premium. the social premium has typically been invested in other funds for community projects or to enhance the capacities of the cooperatives, unions and its members. surprisingly, most of farmers from non-certified cooperative member have the information that those fair-trade certified cooperatives have got fair-trade premium each year and they shared the social projects equally which has been built by the premium. as mention at the first line of this paragraph, fair-trade certification program touch its goal by using income/payment from social premi-um. for example, according to kenter coffee producer cooperative union, 32 water pumps were built by the union for the surrounding community. in addition, the cooperative union also built one library in bilida kebele. for more details, see the following figure. figure 3.2. local infrastructure built by kenter coffee producer farmers’ cooperative un-ion 4. conclusion and policy implications 4.1. conclusion the core of the research design was a cross-sectional based survey focused to identify the impact of fair-trade certification on the income of small-scale coffee producers. this study was adopted a combination of research tools, both quantitative and qualitative. this in-volved a long paper-based questionnaire applied to stratified random samples within the research sites and interviews with fairtrade members and non-members of fair-trade in accordance with a set of analytical criteria, so as to allow for more detailed and different kinds of evidence. according to this study result, income increment and infrastructural development impacts of fair-trade certification is significant and positive, hence paving attention for the importance of fair-trade certification. conferring to the output of the study, fair-trade certification has a direct and significant impact on economies of small household coffee farmers and also plays great role in the development of infrastructures of the study area. also, fair-trade has improved the life of fair-trade certified cooperative member farmers than non-certified coffee producers. this guarantees the growth of the cooperative and also made the coopera-tive to be competent and sustainable coffee supplier to the international market. logistic regression result indicates that, the coefficient (or parameter estimate) for the variable fair-trade membership status is 3.383. this means that for every one-unit increase in fair-trade membership, we expect a 3.383 increase in the log-odds of the income increment, keeping all other independent economic impact of fair-trade certification on small-scale coffee producers in ethiopia 59 variables constant. in addition, the coefficient (or parameter estimate) for the variable educational level status of household head is 1.681. the coefficient (or parame-ter estimate) for the variable market access is 3.49, keeping all other independent variables constant. the result shows that the probability of income increment has a direct relationship with explanatory variables. also, the coefficient (or parameter estimate) for the variable of infrastructure access to farmers is 0.727. this means that households those have a better infrastructural access, we expect a 0.727 increase in the log-odds of the income increment, holding all other independent variables constant. also, this study finding shows that, the coverage of fair-trade certificate membership status is still very low when compared to the numbers of household coffee producers in the study area. 4.2 policy implications based on the finding of the research, the researchers forward the following policy implica-tion for optimal exploitation of fair-trade certification, which will make smallholders farmers more beneficiary: fair-trade certification as a trade license has a promising result regarding to economic and infrastructural development advantages to small-scale coffee farmers in particular and the community in general. this particular research study result also shows that fair-trade certifi-cation has a great impact on small scale coffee farmer wellbeing in changing the livelihood of destitute coffee farmers and also improved the development infrastructures of communi-ty. therefore, fair-trade certification should be considered as one of development riding forces and instruments among policy makers. regardless of the substantial impact of fair-trade certification, study revealed that the cov-erage of fair-trade certification was very low. hence, main stakeholders such as government, nongovernment organization, coffee producers and buyers ought to work deeply to envel-op wide community as much as possible. market access and credit opportunity matters the success of lifting poor small-scale farmers out of poverty. therefore, financial bodies like formal and informal credit and saving institutions, market makers should further get in touch with small scale coffee farms. educational level status has a positive and significant impact on the income of smallholder coffee farmers. so, government and ngos should focus how to increase farmer’s access to functional adult literacy program. references bacon, c., 2005. confronting the coffee crisis: can fair trade, organic, and specialty coffees reduce small-scale farmer vulnerability in northern nicaragua?. world development, 33(3), pp.497-511. bacon, c.m., ernesto mendez, v., gómez, m.e.f., stuart, d. and flores, s.r.d., 2008. are sustainable coffee certifications enough to secure farmer livelihoods? the millenium development goals and nicaragua's fair trade cooperatives. globalizations, 5(2), pp.259-274. fair trade foundation, 2012. commodity briefing report on fair trade and coffee federal cooperative agency. cooperative-annual magazine – june 2007, federal cooperative agency, addis ababa. federal democratic republic of ethiopia (fdre), 2008. coffee quality control and marketing proclamation, addis ababa hosmer jr, d.w., lemeshow, s. and sturdivant, r.x., 2013. applied logistic regression (vol. 398). john wiley & sons. jaffee, d., 2014. brewing justice: fair trade coffee, sustainability, and surviv-al. univ of california press. kodama, y., 2007. new role of cooperatives in ethiopia: the case of ethiopian coffee farm-ers cooperatives. méndez, v.e., bacon, c.m., olson, m., petchers, s., herrador, d., carranza, c., trujillo, l., guadarrama-zugasti, c., cordon, a. and mendoza, a., 2010. effects of fair trade and organic certifications on small-scale coffee farmer households in central america and mex-ico. renewable agriculture and food systems, 25(3), pp.236251. minten, b., tamru, s., kuma, t. and nyarko, y., 2014. structure and performance of ethi-opia s coffee export sector (vol. 66). intl food policy res inst. murray, d.l., raynolds, l.t. and taylor, p.l., 2006. the future of fair trade coffee: di-lemmas facing latin america's small-scale producers. development in practice, 16(02), pp.179-192. fikadu gutu bulga & wondaferahu mulugeta demissie & sisay tolla whakeshum 60 noel veraverbeke, yilma tefera, legesse negash, zeytun gashaw, belay birlie, 2012. notes for the course principles of statistical inference. north-south-south project in biostatistics series, belgium. ronchi, l., 2002. the impact of fair trade on producers and their organizations: a case study with coocafé in costa rica. policy research unit. sussex: university of sussex. ruben, r., clercx, l., cepeda, d. and de hoop, t., 2008. fair trade impact of banana pro-duction in el guabo association, ecuador: a production function analysis. the impact of fair trade. wageningen academic publishers, wageningen, the netherlands, pp.155-167. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 92-100 developing strategy evaluation method via strategic control system based risk assessment emin başar baylan, (phd) istanbul commerce university, turkey received: feb. 19, 2018 accepted: april. 12, 2018 published: june 1, 2018 abstract: in strategic planning process, strategy alternatives have to be evaluated properly to select best one to achieve strategic goals. during the evaluation process strategy alternatives are compared and measured according to their probable performance on their related strategic target. risk, cost, feasibility, effect on performance target and implementation time are the main parameters which reflect performance of strategy. in this study, risk aspect is analyzed with a consecutive approach while evaluating a particular strategy in terms of the effect on performance targets. after this analysis, strategic control model based strategy evaluation technique is developed to assess the risk level of particular strategy and it is illustrated by an application. 1. introduction strategic management process has four parts. strategic planning is the first part which contains vision, swot analysis, corporate values, strategic goals, strategic targets, performance targets. technically, these statements are determined by strategic planning team which consists of top and medium level managers. second step is constructing organization structure which is capable to implement strategic plan. organization design process involves coordinating the relationship between human and human, human and work, work and work. organizational structure and hierarchy is edited according to work and human relationships. third step is implementing the selected strategies by motivating the edited corporate organization. last step of strategic management process is strategic control which is maintained to make assessment about performance of selected strategies. this control system provides a dashboard that represents attitude of strategies performing. according to observation of control process, sometimes process strategies should be abandoned or should be improved or should be passed to another. in literature, it is seen that strategy selection process is maintained by comparing strategy alternatives with each other according to their aspects. generally, these measurement parameters are consistency, consonance, advantage and feasibility(rumelt,1993). • consistency: strategies have to be fit with other strategic plan parameters. strategic plan has hierarchic structure. it includes vision statement, strategic goals, and strategic targets. selected strategies must not contradict with these macro decisions. otherwise strategies do not help achieving the vision of foundation. • consonance: analysis part of strategic plan uses the information of internal and external environment of foundation. swot analysis is made according to these information. however; after the strategic plan made, internal and external environment condition go on to change. therefore, strategies are to selected among flexible ones. namely, strategies must reply environmental changes. • advantage: strategies are developed to gain benefit for company. the term “benefit” means in this terminology is gaining competitive advantage while reaching the vision of plan. strategies have to be useful for foundations(rumelt,1993). in strategic planning context, control of reaching strategic targets (whether or not) is made by performance indicators and their reference values. technically, strategies are also evaluated according to these items. table 1 relation between strategic target, strategy alternatives and performance targets developing strategy evaluation method via strategic control system based risk assesment 93 strategic target strategy alternative 1 strategy alternative 2 strategy alternative 3 performance target 1 performance target 2 performance target 3 performance target 4 actually, strategic control procedure and strategy evaluation for selection process have a theoretical link because in strategy selection process, experts try to predict the future impact of strategy alternatives on performance indicators. while this prediction process, expert’s makes intuitive forward strategic control. they foresight every future aspect of strategic plan parameters. for example; once a strategy is selected for a strategic target, it means that it’s the best alternative for related strategic target according to current situation (which is easier to make comment). when it comes to future situation, things may go harder. because strategy risks become to be active in the future. technically, these risks could be named as strategy input risks, strategy implementation process risks, strategy output risk(mirze,2010). on the other hand, with the beginning of this century strategy multi-criteria decision methods are begun to use for strategy assessment process. first application is using ahp (analytic hierarchic process) which is a multi-criteria decision making method for strategy selection. they construct a hybrid method by combing swot analysis and ahp method(kajanus and others, 2003). they applied this method to tourism management. in 2005, this method is used for chemical industry to make decision about which product to invest. first they make a proper swot analysis and according to that they evaluate their alternative product to invest on(taşkın and güneri, 2005). in 2007, osuna and aranda examine interaction between ahp and swot analysis. they investigate for different combinations to create a novel mathematical method. they perform their mathematical model to a medical service firm(osuna and aranda, 2007). ahp method can be only used for hierarchical models. in fact, in real life multi-criteria decision models are sometimes need to be constructed as network structure. in 2007, yüksel and dağdeviren develop a network structure decision model the prioritize swot factors and strategies of a textile firm(yüksel and dağdeviren, 2007). figure 1. (a) the hierarchical representation of the swot model. (b) the network representation of the swot model(yüksel and dağdeviren, 2007). 94 emin başar baylan topsis method is another multi-criteria decision making method. it has more analytic view then ahp and anp methods. in 2011, iranian researchers construct a decision model which combines fuzzy topsis method and swot analysis. in their approach, they first apply swot analysis then they evaluate swot information and strategy information by topsis method. this method do not use pairwise comparisons, so that provides a quantitative decision support(ghorbani and others, 2011). iranian mining industry is analyzed by researchers. they use swot-anp hybrid method. with this method they asses six strategies(fouladgar and others, 2011). those methods above are analytic strategy assessment methods but they are not related with strategic control approach or risk integrated model. in this article, a novel strategy evaluation method is proposed which integrates strategic control concept and risk assessment with decision tree method. 2. development of risk control based strategy evaluation method during strategy selection process, strategy alternatives are evaluated according to their important aspects. these are implementation time, cost, feasibility and risk. strategy risk is a very distinguishing factor because it influences other aspects (zavadskas and turskis, 2017). if risks occur about particular strategy, implementation time might delay, cost of strategy might increase and also feasibility of strategy could be endanger. for this reason, in this study strategy risks are considered while implementing strategy evaluation. for a particular strategy risks occur at three circumstance. first, risks may occur before performing the strategy. these problems are about materials, technological and human resources which is needed to implement the strategy. namely, these are strategy input risks. second level risks are strategy process risks. occasionally, strategy inputs contains no risk but while implementation process problems may occur. sources of these risks are misunderstanding of strategy, lack of motivation and knowledge, poor method usage ability. third level risks are strategy output risks (siddique and shadbolt, 2016). these risks can only be observed after implementation process. strategy input risks and strategy implementation risks directly influence this type of risks. as a formal definition, strategy output risks are the probability not reaching performance targets. in some conditions, actually, it is impossible to eliminate this type of risks. because environmental factors continues to change during strategic plan implementation, this causes lack of achieving performance targets. these targets also indicates level of success. figure 2. strategy control process in the proposed method, strategic control system is integrated with risk assessment. this integration process is conducted with decision tree method. decision tree is a model which represents conditional probabilities of successive events. it illustrates the probabilities in a tree form. the prior probabilities are in the first column and conditional probabilities are located in the second column(if there is more, it can go further from second column). these are inputs of decision tree model. multiplying each probability in the first column by a probability in the strategic control simultaneous control backward control forward control strategy implementation timeline developing strategy evaluation method via strategic control system based risk assesment 95 second column and results are written in the third column. each joint probability become the numerator in the calculation of the corresponding posterior probability in the fourth column. cumulating the joint probabilities with the same finding provides the denominator for each posterior probability with this finding(hillier and lieberman, 2015). figure 3 decision tree diagram example (hillier and lieberman, 2015) in this novel strategy evaluation process, decision tree is used to create link concept between strategic control and strategy risk. strategy control phases are assumed as probability columns of model. first column is forward control, second column is simultaneous process control and the third column is backward control. probability risks which are emerged by control processes are probability inputs of decision tree model. to apply this method properly, strategy input risks, strategy process risks and performance targets of related strategic targets are to listed. their risk occurrence probability is derived by a decision tree. after all, their effects on performance targets are calculated. table 2 strategy risks relations in strategy implementation process strategy input risk 1 strategy process risk 1 performance target 1 performance target 2 strategy process risk 2 performance target 1 performance target 2 strategy input risk 2 strategy process risk 1 performance target 1 performance target 2 strategy process risk 2 performance target 1 performance target 2 according to table, if no strategy input risk and strategy process risk occur, selected strategy make reach the foundation to the desired performance targets. on the other hand, input risks may trigger process risks and also process risks trigger risk of not reaching performance targets. at the end of strategy implementation process desired performance targets are influenced by precedence risks. decision tree method provides benefit us at that point. oil (0.25) fss,given oil(0.2) 0.25(0.6)=0.15 oil and gas 0.15/0.3=0.5 oil,given fss uss,given oil(0.4) 0.25(0.4)=0.1 oil and uss 0.1/0.7=0.14 oil,given uss dry (0.75) fss,given dry(0.2) 0.75(0.2)=0.6 dry and fss 0.15/0.3=0.5 dry,given fss uss, given dry(0.8) 0.75(0.8)=0.6 dry and uss 0.6/0.7=0.86 dry,given uss 96 emin başar baylan figure 4. link between strategy level, strategy input risk, strategy process risk and performance targets this evaluation process can be conduct for each strategy which must be evaluated. ∑ 𝑃(𝑆𝐼𝑅𝑖) = 1𝑛𝑖=1 ∑ ∑ 𝑃(𝑆𝑃𝑅𝑖𝑗) = 1 𝑚 𝑗=1 𝑛 𝑖=1 p(sir) and p(spr) are probability values of risks that might occur. table 3. strategy risk calculations of method strategy input risk 1 p(sir1) strategy process risk 1 p(sir1) x p(spr11) performance target 1 p(sir1) x p(spr11) x p(pt111) performance target 2 p(sir1) x p(spr11) x p(pt112) performance target 3 p(sir1) x p(spr11) x p(pt113) performance target k p(sir1) x p(spr11) x p(pt11k) strategy process risk m p(sir1) x p(spr1m) performance target 1 p(sir1) x p(spr1m) x p(pt1m1) performance target 2 p(sir1) x p(spr1m) x p(pt1m2) performance target 3 p(sir1) x p(spr1m) x p(pt1m3) performance target k p(sir1) x p(spr1m) x p(pt1mk) strategy input risk n strategy process risk 1 performance target 1 p(sirn) x p(sprn1) x p(ptn11) strategy process risk strategy input risks strategy level evaluated strategy strategy input risk 1 probability of occurance strategy process risk1 performance target 1 performance target 2 performance target k strategy pocess risk2 strategy process risk m strategy input risk 2 probability of occurance strategy input risk n probability of occurance developing strategy evaluation method via strategic control system based risk assesment 97 p(sirn)… p(sirn) x p(sprn1) performance target 2 p(sirn) x p(sprn1) x p(ptn12) performance target 3 p(sirn) x p(sprn1) x p(ptn13) performance target k p(sirn) x p(sprn1) x p(ptn1k) strategy process risk m p(sirn) x p(sprnm) performance target 1 p(sirn) x p(sprnm) x p(ptnm1) performance target 2 p(sirn) x p(sprnm) x p(ptnm2) performance target 3 p(sirn) x p(sprnm) x p(ptnm3) performance target k p(sirn) x p(sprnm) x p(ptnmk) 3. application of risk control based strategy evaluation method karaca elektrik is a company which produce power generators. they have continuous production system. they suffer from some quality problems which are sourced from level of employee ability. therefore, they tend to increase know-how level of their employees and technicians. they think of two strategy alternatives. one is establishing an employee training program and the other is recruiting new technicians and employees. to evaluate two strategy alternatives they perform risk control based strategy evaluation method. each strategy has own strategy input risks and strategy process risks. with their risks, both strategy contribute performance target at different levels. if they conduct “employee and technician training strategy” they may have some problems about finding a good trainer. besides that; due to work intensity some employees and technicians might not have properly participate the training program. during the training period; there is a probability that production rate may decrease. technically it causes stock outs. effectiveness of training is another risk. normally, at the end of training program, employees and technicians have to come the desired level. these risk have negative effects on reaching performance targets. second strategy alternative has also risks. recruiting well-educated technicians and employees requires big amount of financial resource. financing these new personnel may cause some financial risks. before hiring new personnel, skills of prospective personnel must be clearly defined. also it has to be make sure that there are some people outside who can fit these requirements. namely, there is a risk that nobody or insufficient people apply for these jobs. after hiring new personnel, two different risk may occur, one is likelihood of not adapting the new job and other one is likelihood of not adapting the older personnel. risks of second strategy also have effect on reaching performance target. table 4. risk analysis of "employee and technician training strategy" " e m p lo y e e a n d t e c h n ic ia n t ra in in g s tr a te g y " strategy input risk 1 p(sir1) =0.4 probability of employing the insufficient trainer for education program strategy process risk 1 p(sir1) x p(spr11) 0.4 x 0.3 = 0.12 when strategy input risk1 occurs, probability of decreasing production rate during training program continuing. performance target 1 p(sir1) x p(spr11) x p(pt111) 0.4 x 0.3 x 0.9 =0.108 reduction of weekly produced scrap rate to 1% performance target 2 p(sir1) x p(spr11) x p(pt112) 0.4 x 0.3 x 0.6 =0.072 10% reduction in production time per lot performance target 3 0.4 x 0.3 x 0.7 =0.084 p(sir1) x p(spr11) x p(pt113) 10% reduction in machine failures strategy process risk 2 p(sir1) x p(spr12) 0.4 x 0.7 = 0.28 performance target 1 p(sir1) x p(spr1m) x p(pt121) 0.4 x 0.7 x 0.5 =0.14 reduction of weekly produced scrap rate to 1% 98 emin başar baylan when strategy input risk1 occurs, probability of getting not enough knowledge by workers and technicians performance target 2 p(sir1) x p(spr1m) x p(pt122) 0.4 x 0.7 x 0.8 = 0.224 10% reduction in production time per lot performance target 3 0.4 x 0.7 x 0.7 = 0.196 p(sir1) x p(spr1m) x p(pt123) 10% reduction in machine failures strategy input risk 2 p(sir2)=0.6 probability of insufficient participation of personnel to training program. (that may occur because of workload.) strategy process risk 1 p(sir2) x p(spr21) 0.6 x 0.15 = 0.09 when strategy input risk 2 occurs, probability of decreasing production rate. performance target 1 p(sirn) x p(sprn1) x p(pt211) 0.6 x 0.15 x 0.7 =0.063 reduction of weekly produced scrap rate to 1% performance target 2 p(sirn) x p(sprn1) x p(pt212) 0.6 x 0.15 x 0.9 =0.081 10% reduction in production time per lot performance target 3 p(sirn) x p(sprn1) x p(pt213) 0.6 x 0.15 x 0.4 =0.036 10% reduction in machine failures strategy process risk 2 p(sir2) x p(spr22) 0.6 x 0.85 = 0.51 when strategy input risk2 occurs, probability of getting not enough knowledge by workers and technicians performance target 1 p(sirn) x p(sprnm) x p(pt221) 0.6 x 0.85 x 0.6 =0.306 reduction of weekly produced scrap rate to 1% performance target 2 p(sirn) x p(sprnm) x p(pt222) 0.6 x 0.85 x 0.7 =0.357 10% reduction in production time per lot performance target 3 p(sirn) x p(sprnm) x p(pt223) 0.6 x 0.85 x 0.7 =0.357 10% reduction in machine failures table 5. risk analysis of "employee and technician training strategy" “ r e c ru it in g n e w w e ll -e d u c a te d t e c h n ,c ,a n s a n d e m p lo y e e s st ra te g y ” strategy input risk 1 p(sir1) = 0.7 probability of not having enough financial resource to employ new personnel strategy process risk 1 p(sir1) x p(spr11) 0.7 x 0.7 =0.49 when strategy input risk1 occurs, probability of having not enough adaption to older personnel performance target 1 p(sir1) x p(spr11) x p(pt111) 0.3 x 0.7 x 0.8 =0.168 reduction of weekly produced scrap rate to 1% performance target 2 p(sir1) x p(spr11) x p(pt112) 0.3 x 0.7 x 0.7 = 0.147 10% reduction in production time per lot performance target 3 p(sir1) x p(spr11) x p(pt113) 0.3 x 0.7 x 0.7 =0.147 10% reduction in machine failures strategy process risk 2 p(sir1) x p(spr12) 0.7 x 0.3 =0.21 when strategy input risk 1 occurs, probability of having not enough adaption to their new job performance target 1 p(sir1) x p(spr1m) x p(pt121) 0.3 x 0.3 x 0.7 =0.063 reduction of weekly produced scrap rate to 1% performance target 2 p(sir1) x p(spr1m) x p(pt122) 0.3 x 0.3 x 0.6 = 0.054 10% reduction in production time per lot developing strategy evaluation method via strategic control system based risk assesment 99 performance target 3 p(sir1) x p(spr1m) x p(pt123) 0.3 x 0.3 x 0.7= 0.063 10% reduction in machine failures strategy input risk 2 p(sir2)= 0.3 probability of missdetermining qualifications of new staff strategy process risk 1 p(sir2) x p(spr21) 0.3 x 0.2 =0.06 when strategy input risk 2 occurs, probability of having not enough adaption to older personnel performance target 1 p(sirn) x p(sprn1) x p(pt211) 0.1 x 0.1 x 0.7 =0.003 reduction of weekly produced scrap rate to 1% performance target 2 p(sirn) x p(sprn1) x p(pt212) 0.1 x 0.1 x 0.7 =0.007 10% reduction in production time per lot performance target 3 p(sirn) x p(sprn1) x p(pt213) 0.1 x 0.1 x 0.6 =0.006 10% reduction in machine failures strategy process risk 2 p(sir2) x p(spr22) 0.3 x 0.8 =0.24 when strategy input risk2 occurs, probability of having not enough adaption to their new job performance target 1 p(sirn) x p(sprnm) x p(pt221) 0.3 x 0.6 x 0.7 =0.126 reduction of weekly produced scrap rate to 1% performance target 2 p(sirn) x p(sprnm) x p(pt222) 0.3 x 0.6 x 0.7 =0.126 10% reduction in production time per lot performance target 3 p(sirn) x p(sprnm) x p(pt223) 0.3 x 0.6 x 0.6 =0.108 10% reduction in machine failures 4. results and conclusion in application part of article, two different strategies processed with risk control based strategy evaluation method. it is observed that each three different performance targets has different probability of occurrence. when probability of occurrence performance targets are added up, first strategy (employee and technicians training strategy) allows totally 61.7% probability for “reduction of weekly produced scrap rate to 1%” performance target, allows totally 73.4% probability for “10% reduction in production time per lot” performance target and allows 67.3% probability for “10% reduction in machine failures” performance target. second strategy alternative which is “recruiting new well-educated technicians and employees strategy” has less performance according to foresight of experts and rules of the novel method. this strategy alternative allows totally 36% probability for “reduction of weekly produced scrap rate to 1%” performance target, allows totally 33.4% probability for “10% reduction in production time per lot” performance target and allows totally 32.4% probability for “10% reduction in machine failures” performance target. when results are examined, it is obvious that “employee and technicians training strategy” is better choice for reaching performance targets. this method can be applied various types of industries or different types of strategy selection problems. for future investigations, researchers can add cost aspect to 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(2011). a new methodology for prioritizing mining strategies. international journal of innovation, management and technology, 2(4), 342–347. http://doi.org/http://dx.doi.org/10.7763/ijimt.2011.v2.156. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 118-129 118 the impact of trust in leaders on organizational citizenship behavior of employees öznur gülen ertosun i̇stanbul medipol university, turkey mehmet saim aşçi i̇stanbul medipol university, turkey received: april 30, 2021 accepted: june 04, 2021 published: june 15, 2021 abstract: the positive impact of organizational citizenship behavior on individual and organizational outputs has been studied extensively in recent years. this study aims to examine the importance and impact of trust in leaders on increasing the organizational citizenship behaviors. the population of the study is the while-collar employees of the organized industrial zones (oiz) of the marmara region. the data collected with the participation of 320 employees shows us that except for the dimension of sportsmanship; altruism, civil virtue, conscientiousness, and courtesy-based organizational citizenship behaviors are highly correlated with trust in the leader. according to the regression analysis, civil virtue is found to be the organizational behavior dimension most affected by the trust in the leader. keywords: leadership, organizational citizenship behavior, trust jel codes: d23, l29, m54, m19 1. introduction regarding leaders as a hero of some kind of corporate legend is actually quite appropriate positioning. for they are the ones who motivate the organizational community to go to places they can never dream of going otherwise. they are the ones who have the power to change employee behaviors and transform organizations with their concrete results. leadership is one of the most important competitive priorities an organization can have. thus, it is no surprise that most of the research on management focus on the qualifications of successful leadership (maccoby, 2004: 77). leaders must be equipped with unique and extraordinary competencies and the capacity to attract audiences to be able to lead. leaders differ from managers in that they can influence members of the organization and harmonize their efforts with the goals of the organization while the latter draw their power from their hierarchical position (hersey et al., 2007: 90). leadership is the human factor that brings together a group and motivates it towards shared goals. the motivational impact of a leader is like the chemical that transforms the pupa in a cocoon into a magnificent butterfly with all its potential and beauty. leadership is what turns potential into a reality (davis, 1988: 141). an effective leader can ensure the participation of the members in organizational activities by ensuring that they voluntarily exceed their formal role definitions even in non-obligatory conditions. this phenomenon of voluntarily taking an extra role is considered "organizational citizenship". inspiring the organizational citizenship role among the members of the organization requires the leader to be seen as competent, qualified, trustworthy, inspiring, and visionary by the members and to prioritize goals and ideas instead of assuming simply displaying authoritarian attitudes (antonini, 2000: 30). in this case, members of the organizations can even see their leaders better -more clever, kinder, more charismaticthan they actually are. members tend to interpret the attitudes of their leaders more favorably and take more risks than they normally would upon their request even if they have suspicions of their motivations (maccoby, 2004: 81). the impact of trust in leaders on organizational citizenship behavior of employees 119 leaders who can understand the feelings of the members of the organization and have the expressive ability to resonate with them (goleman, 2007: 199) can influence the feelings of the members intensively and integrate them into their own motivations. and this inspires members to emulate and strive to be like the leaders (bass, 1985: 34). members of the organization adopt the exemplary behaviors of the leader and practice them voluntarily (conger et al., 2000: 749). the interaction between the organizational community and the leaders has been studied by researchers under the title of “leader-member exchange". according to the leader-member exchange theory, several personal relations based on social interaction are also formed between the leader and the members of the organization despite their formal relations. in order to build such a relationship, both parties must offer something that they find valuable to the other party, and this exchange must be regarded as fair or equal by the parties (graen and scandura, 1987: 183). leader-member exchange theory is based on the work of graen et al. (graen, 1976; danserau et al. 1975). studies in this field have continued to develop in two main areas as the people-oriented leadership model and the leader-member exchange model (schriesheim et al., 1999). with his work on reciprocity, gouldner (1960) made significant contributions to explaining the relationship between leader-member exchange and perceived organizational support. accordingly, reciprocity has two fundamental dynamics. the first is the principle that people who receive help respond with help, and the other is the principle of not harming the person helping. according to gouldner, reciprocal relations carry ordinary social relations to a higher level and the reciprocal function shows its effect when the leader or organizational member makes a positive contribution to the other party. people do not settle with only fulfilling the role expected from an organization member and feel the need to display behaviors to be beneficial to the organization by exceeding this expectation framework. this need constitutes one of the main motives of organizational citizenship behavior (rhoades, 2002: 719; wayne, et al., 1997: 87 and gerstner and day, 1997: 834). 2. theoretical framework 2.1. organizational citizenship in today's increasingly competitive environment, organizations need their members to voluntarily assume roles beyond the ones defined in their job descriptions to be successful. an organization in which only the organizational tasks determined as required by the formal organization are fulfilled is deemed to have a weak social structure (katz, 1964: 132). the efforts of the members to exhibit extra role behaviors voluntarily are called organizational citizenship (kaufmann et al., 2001: 436). organizational citizenship can be defined as the "voluntary behaviors of the members of the organization, which contribute to the effective and efficient fulfillment of the functions of the organization as a whole, without worrying about formal rewards" (organ, 1988: 3-4). the essence of the concept of organizational citizenship behavior lies in the positive behaviors and societal contributions of individuals living in a country beyond their civic consciousness and obligations arising from the legal legislation. given that this attitude can also be inspired in the organizational environment, such understanding and attitudes of individuals who display positive behaviors are found to be important in achieving organizational goals (çelik, 2007: 75). organizational citizenship behavior is closely related to work satisfaction, motivation level, morale, and organizational commitment of the organization members. the level of organizational commitment is influenced by factors such as age, fee and additional payments such as premiums, bonuses, dividends etc., employee's experience and seniority in the workplace, the sense of trust aroused by the management in the members of the organization, occupational safety conditions, ergonomic conditions in the workplace, training and development facilities and supports offered to the members (zafar, 2006: 42). the stronger the organizational citizenship bonds of the members, the higher their individual performances increase. positive developments in individual performances play an important role in achieving organizational goals (özdevecioğlu, 2003: 118-119). the gains that organizational citizenship behaviors provide to the organization can be listed as follows (gürbüz, 2006: 58):  ensuring the sustainability of organizational performance,  increasing organizational and individual efficiency,  contributing to coordination between individuals and groups within the organization,  strengthening the sense of commitment of experienced employees to the organization, öznur gülen ertosun& mehmet saim aşçi 120  facilitating the organization's adaptation to the environment. organizational citizenship behavior is entirely based on the individual choices of the organizational community. in a formal organizational structure, however, members are not expected to display such behavior. for this reason, it does not have any sanctionary equivalent. the organizational community displays positive behaviors beyond the formally defined expectations with their own free will and makes efforts to provide positive and non-obligatory contributions without any expectation of reward (deluga, 1994: 318). organizational citizenship behavior has five dimensions: altruism, courtesy, conscientiousness, sportsmanship, and civil virtue (börü and güneşer, 2006, 45). altruism includes the behaviors of help and cooperation among the organizational community in the process of fulfilling their organizational tasks or in the face of difficulties encountered in any challenging situation. such behavior can be displayed to the members of the organization as well as people outside the organization such as customers or suppliers. the "altruistic" behavior displayed to people outside the organization can have a positive impact on their feelings and opinions towards the organization. courtesy is the behavior of informing other individuals who may be affected by the decisions, words, and actions of the members of the organization. behaviors such as providing detailed information to the relevant persons and not neglecting to make the necessary reminders, sharing information on the meetings they have attended and the negotiations they have carried out fall under this dimension. conscientiousness is defined as behaviors displayed beyond the basic role behaviors expected from a member. going to work even when one has a reasonable excuse such as sickness and continuing the work without taking a break, when necessary, can fall under the conscientiousness dimension of organizational citizenship. avoiding making complaints frequently and tolerating the challenges arising from the nature of the work environment constitute the dimension of sportsmanship. civil virtue, on the other hand, refers to participatory behaviors that are sincerely interested in things required by the organizational policy. organizational community behaviors such as regular attendance to meetings, reading the correspondences made via organizational communication sources, making constructive contributions to discussions on the organizational development, and expressing their opinions sincerely and explicitly are regarded as positive organizational citizenship behaviors in terms of civil virtue (organ, 1988: 17). 2.2. discovering organizational needs and ensuring participation leaders must be aware that the organizational community will have complex needs to live a humane and healthy life and to perform efficiently in the workplace. people will do what they do best if they are motivated by that, and the motivational process is based on a response that will satisfy their individual needs. leaders should also consider the informal structure of the organization, given that organizational activities are influenced by human nature as well as the formal design and structure of the organization. for both individuals and groups will participate in the organizational activities more actively when their needs are met. leaders who actually make a difference are those that know a secure job or financial motivations are not enough to keep the organizational community satisfied and design the works and human relations in a way to increase the contributions of members to achieving goals and targets under conditions that inspire personal development. in this way, they will be able to harmonize the needs of the organization and the needs of its members. leaders integrate the needs of individuals and the organization by creating "enriched" and motivating tasks through transforming work organizations and bureaucratic structures with their leadership styles that allow the organizational community to use their creativity and self-control skills. they add meaning to the work of the members by giving them as much autonomy as possible and expanding their responsibilities. thus, by allowing members to feel more useful and important, they try to overcome the limits of narrow, authoritarian, and inhumane styles of management. in all these efforts, they are aware of the fact that human and technical needs are actually interdependent and need to be balanced (morgan, 1998: 46-51). successful leaders also ensure the participation of the organizational community to create opportunities for teamwork in order to increase the level of success of their organizations. well-managed participation makes a very important contribution to the acceptance of change and the formation of a favorable team spirit. what we mean by participation here is "the mental and emotional inclusion of people in a group environment that encourages them to contribute to and share responsibility for group goals." the participant is not only included with their work but with their whole being. it would be a great mistake to aim to include the individual only with their work. with the proper management of participation, the organizational community is both motivated to participate and provided the opportunity to use their own initiatives and creativity in achieving organizational goals. employees see their leaders the impact of trust in leaders on organizational citizenship behavior of employees 121 as pioneers who give their support and contribution to the organization under such conditions, and they feel ready to work with them. the organizational community's trust in the leader will inspire team spirit and a sense of responsibility among them, leading to responsible organizational citizenship instead of irresponsible, machine-like behaviors (davis, 1988: 183187). 2.3. organizational trust and trust in leader relationship many researchers in various fields such as sociology, anthropology, history, economics, and psychology have been shifting their focus on the concept of trust in their studies (manogram et al, 1994: 251). the reason why trust attracts the attention of various disciplines and is used as the subject of their studies is its significant function in the formation and execution of social relations. trust functions as a necessary basic element for all interactions, from ordinary daily relationships to strong commitment relationships that individuals establish with their leader or the organization they are a member of (misztal, 2013: 123). giving people the opportunity to be able to live and work together, trust is the main facilitator of all social activities. as sadly shown by the failed attempts to resolve the conflicts between nations, religious or ethnic groups throughout history, trust has a fundamental role in conflicts. as john l. locke emphasizes in his book the de-voicing of society, trust is the foundation of human society (locke, 1998: 110). trust is like the air that we breathe, the foundation of all activities; so much so that charles fried, the famous legal scientist from harvard, describes it as by saying, "there comes a point where we no longer seek it to achieve something else, we seek it for its own sake" (cohen and prusak, 2001: 50-51). organizational trust is an employee's perceptions of organizational support, the belief that their manager is honest and will keep their words (mishra and morissey, 1990). "people in the organizational trapeze only do that expected somersault only when they believe that there is a strong and supportive pair of hands on the other side to hold them" (ghoshal and barlett; 1998: 93). organizational trust is a phenomenon that is influenced by the rules, values, beliefs, emotions, behaviors that exist in an organization and forms the basis of internal communication. intense social bonds facilitate other useful ways of building reputation, which are essential foundations of trust in an intricate society (putnam, 2000: 21). some studies conclude that trust in the manager has a positive effect on organizational commitment, decreases labor turnover rate, and decreases absenteeism (laschinger et al. 2000: 422; albert and travaglione, 2003: 83), and it has a positive impact on organizational commitment and job satisfaction (cho and park, 2011: 567). organizational citizenship behaviors of the members depend on the visionary, inspiring attitude of the leader, commitment to ideas and objectives rather than mere authority, as well as members' acceptance of the leader as trustworthy and competent (antonini, 2000: 31). leaders with high self-confidence who use non-verbal communication methods successfully, display the vision of the organization with an exciting clarity, and have the influence and power that members seek, can build trust (house, 1992:9). fair, trustworthy, reasonable, and consistent behaviors of leaders also get disseminated within the organization. the organizational community's high respect for leaders who exhibit such behaviors has a positive impact on their job satisfaction, efficiency, and organizational citizenship (conger et al., 2000: 759). leaders are inevitably cultural architects, whether they want it or not (perkins and wilson, 1999: 74). they need to determine the goals and directions of their organizations. they also need to harmonize these goals and directions throughout the entire organizational system, ensure the organization's commitment to shared goals (farkas and wetlaufer, 1999:141-142). organizations are like automobiles. they cannot go anywhere on their own, they need the human factor to operate. and not any human, but the right human. the effectiveness of an organization's individuals in leadership positions determines how the organizational "machine" will perform. some people are so effective in their work that they leave so little to the leader to make them better in what they do. and others are really a hopeless case that there is almost nothing to do to improve their effectiveness. however, the majority of the population falls somewhere between these two extreme ends. these people do their job as required and go with the flow; they look up to their leaders to determine the direction, pace, and duration of the flow. they need guidance and recommendation about where to go and how to go there (vries, 2007: 19-20). and we can learn the following lessons from the methods that leaders, the elite of the organization, use to determine the performance of the organizational "machine" (drucker, 1999: 4-6):  they treat the members of the organization based on their strengths,  they demand high standards but give people freedom and responsibility to do their jobs, öznur gülen ertosun& mehmet saim aşçi 122  while seeing performance evaluation as an integral part of the job, they adopt a definite and honest attitude in practice,  they are aware that the most effective way to learn is to teach others,  they can command respect even when they are not necessarily loved. another distinguishing aspect of leadership is the ability to persuade the organizational community to strive towards the determined goals. from time to time, leadership requires staying in the background without putting any pressure on the group, letting the others speak, remaining calm, showing hesitation, and delaying decisions in cases of opposition. competent leaders create competent employees, leading to better outcomes. a leader's primary responsibility is to stimulate the organizational community towards meaningful goals. members need to have positive feelings about the goals worth fighting for, their opportunities, and the leader's capabilities. without common goals, everybody can be led astray in different directions. without a common understanding, disorganization will arise. leaders often feel that members of the organization need to grasp the meaning of their work without being told to, so they fail to seize the opportunity to set meaningful goals. as a result, the organization can be led astray in a different direction than it should go. such negative and dysfunctional actions damp down the desire for cooperation in the organization, even leading to the disintegration of the organization (davis, 1988: 141-147). research has shown that setting goals effectively yields positive results. this approach was once used to encourage truck drivers to carry loads close to the legal carrying limit of their trucks. with the "do your best" instruction, about 60% of the legal loading limit was carried by trucks; but after the objectives were determined clearly and effectively, this rate reached a level that slightly exceeded 90% of the legal carrying capacity. and it was maintained for 12 months, as long as the work continued. truck drivers adopted and maintained this behavior, believing that they had achieved a sense of achievement even though they did not receive any rewards for more production, but only feel appreciated (latham and baldes, 1975:1975: 122-124; latham and yukl, 1975: 824-845). the leader's job is to create value and expectations for the organizational community. to achieve that, organizational goals are harmonized with individual goals. leaders stimulate the motivation of the members to reach the goals through various incentive practices. they also structure the way to reach these goals and manage expectations in order to show the members these ways. what they do, in other words, is to facilitate the process by removing the barriers on the way to the goal. leaders help the organizational community to do a better job and achieve success. thus, they increase motivation and satisfaction by clarifying the way to the goals with their behaviors, increasing the level of reaching the goals of the organizational community. since the ways to reach the goal become clear, the organizational community feels the support of the leader's emphasis on the task. in addition, more social support and thoughtful behaviors provide social satisfaction for members and facilitate the ways to reach their goals (davis, 1988: 148-149). the information society of today works based on knowledge and interdependence, which makes it necessary for people to use their imagination and intelligence in the shared effort. peter drucker points that out when he says, “organizations are no longer built on the basis of coercion, but on the basis of trust” (drucker, 2005: 105). what is needed here is commitment, and commitment cannot be achieved without trust (cohen and prusak, 2001: 78). the theoretical research summarized above also supports the idea that trust in a leader is one of the most important antecedents of organizational citizenship behaviors. the following hypotheses were formed to be tested in the study to examine this relationship in depth and empirically. the conceptual model of the study is given in the figure 1. h1: there is a statistically significant relationship between the trust in leader and organizational citizenship behavior of the employees. h2: trust in the leader has a statistically positive impact on the organizational citizenship behavior of employees. trust in the leader organizational citizenship behavior the impact of trust in leaders on organizational citizenship behavior of employees 123 figure 1: conceptual model 3. methodology an empirical study based on quantitative and immediate data according to the scope was designed to test the hypotheses based on the literature. the analyzes within the scope of the study were made with the ibm spss 25 package program. 3.1. data collection method and measurement tools the questionnaire form created in the study consists of three main parts. the first part consists of 11 questions including the sector of the companies in the sample, the number of employees, the year of establishment, and the demographic information of the employees (age, gender, education level, position, department, seniority, total employment time, working time in their department). the second part consists of the 6-question trust in leaders scale created to measure employees' trust in their leaders and the third part consists of 5-dimensional organizational citizenship behaviors developed by organ (1988), which are frequently used in the literature. 24-item sentences were adapted to turkish from the studies of podsakoff et al. (1990) with the translation-back translation method and kuk views. questions in the questionnaire were rated on a 5-point likert scale (1= strongly disagree, 5= strongly agree). 3.2. sample selection and demographic the population of the research is the companies operating in the manufacturing industry (textile, machinery, packaging, chemistry, food, electricity, automotive sub-industry) in various industrial zones (istanbul deri oiz, tuzla oiz, i̇kitelli oiz, bursa oiz, gebze oiz) of the marmara region. to obtain the sample, an information email containing the purpose of the study was sent to the companies through the contact information obtained from the oiz web pages. the data was collected by hand during working hours from the companies that agreed to take part. the employees selected in the sample had at least 1-year seniority and that they were from medium (72.2%) and large (27.8%) scale companies according to kosgeb (min. 50 according to the number of employees) criteria. the aim was to obtain around 20% of data from each company in proportion to the size of the company. a high number of questionnaires were sent to company officials for the purpose; however, only 320 of the responses were deemed valid according to the criteria. in addition, 17.2% of the companies in the sample had been operating in the sector for 0-5 years, 27.2% between 11-15 years, 30.3% between 16-30 years, and the remaining 25.3% had been operating in the sector for more than 30 years. demographic findings of the employees are summarized in table 1 below. whether the differences between the demographic characteristics of the employees indicate a statistically significant difference in organizational citizenship behaviors were evaluated by independent groups t-test and anova test, and no statistically significant difference was found. in other words, the demographic characteristics mentioned here were not the determining criteria for organizational citizenship behavior. table 1: demographic characteristics of employees variable criterion / valid rate (%) variable criterion / valid rate (%) age of the employee <20: 11.4 20-30: 20.7 31-40: 25.2 41-50: 17.1 >50: 25.6 educational level primary education: 48.7 high school: 33.7 college: 9.5 undergraduate: 6.6 graduate: 1.5 gender female: 20.4 male: 79.6 position worker: 61.2 office worker: 8.1 öznur gülen ertosun& mehmet saim aşçi 124 foreman / head: 18.5 mid-level manager: 11.2 top level manager: 1.2 seniority 1-2 years: 35.1 2-5 years: 34.3 6-10 years: 15.9 11-20 years: 13.5 21+ years: 1.2 department r & d: 1.2 hr: 2.8 quality: 5.2 purchasing: 1.2 sales: 4.0 accounting: 4.0 production: 67.5 other: 14.1 total tenure 1-2 years: 7.0 2-5 years: 16.3 6-10 years: 21.8 11-20 years: 36.2 21+ years: 18.7 time worked in the same department min: 1 year max: 35 years average: 8.82 years 4. analysis and findings to test the validity of the measurement tools, explanatory factor analysis with varimax rotation was conducted and kmo=0.811 (p=0.00) was calculated; 6 factors were formed consistent with the original dimensions. the eigenvalues of all items were greater than 1, and the total variance was 59.301%. the trust in the leaders scale is onedimensional and expressed in the study with the same name. the organizational citizenship behavior scale was referred to in the same way as in the literature: altruism, civil virtue, conscientiousness, sportsmanship, and courtesy. table 2: explanatory factor analysis trust in the leader (l) courtesy (c) altruism (a) sportsmanship (s) conscientiousness (co) civil virtue (cv) l3 .868 l1 .835 l4 .804 l2 .791 l5 .455 c2 .709 c1 .701 c3 .687 c4 .616 the impact of trust in leaders on organizational citizenship behavior of employees 125 c5 .601 a104 .787 a103 .783 a107 .677 a106 .566 s2 .754 s3 .740 s4 .685 s1 .647 s5 .493 co4 .763 co5 .751 co3 .608 cv2 .729 cv1 .613 cv4 .531 cv3 .529 cronbach's alpha coefficients were calculated to test the reliability of the scales, and all of the factors were found to be in the statistically significant value range. the mean and standard deviation values of all variables and the correlation coefficients between the variables were calculated. the following table (table 3) summarizes the relevant scores. table 3: mean, standard deviation, and correlation coefficients mean s.d. 1 2 3 4 5 6 1. trust in the leader 5.1241 1.42242 (.849) .198** .204** .003 .235** .412** 2. courtesy 6.0602 .87184 .198** (.780) .545** -.162** .508** .358** 3. altruism 6.0377 .88338 .204** .545** (.801) -.081 .309** .355** 4. sportsmanship 2.7745 1.28829 .003 -.162** -.081 (.712) .085 5. conscientiousness 6.0363 1.07802 .235** .508** .309** -.180** (.730) .374** 6. civil virtue 5.3031 1.09692 .412** .358** .355** .085 -.180** (.652) ** correlation is significant at the 0.01 level. () cronbach’s alpha coefficients s.d.= standard deviation according to the findings, no statistically significant correlation was found between trust in the leader and sportsmanship. no significant relationship was found either between sportsmanship, altruism, and civil virtue dimensions. correlation coefficients with other organizational citizenship behavior dimensions were, on the other öznur gülen ertosun& mehmet saim aşçi 126 hand, statistically significant. the dimension that had the strongest correlation with trust in the leader was civil virtue. accordingly, our sub-hypotheses, "h1a: there is a significant relationship between trust in the leader and courtesy of the employee; h1b: there is a significant relationship between trust in the leader and altruism of the employee; h1d: there is a significant relationship between trust in the leader and the conscientiousness of the employee; h1e: there is a significant relationship between trust in the leader and the civil virtue behavior of the employee," were accepted. however, "h1c: there is a significant relationship between trust in the leader and the sportsmanship behavior of the employee" was rejected. since significant results could not be obtained with the correlation analysis, a regression analysis was performed to test the h2 hypotheses for the variables other than the causal relationship of the sportsmanship dimension with trust in the leader, and its results are summarized in table 4 below. table 4: regression analysis dependent variables std. beta coefficients model summary courtesy .198* f= 10.930 r2= .039 dw= 1.860 altruism .204* f= 12.219 r2= .042 dw= 1.983 conscientiousness .235** f= 16.430 r2= .055 dw= 2.036 civil virtue .412** f= 56.791 r2= .170 dw= 2.011 independent variable: trust in leader **p<0.01; *p<0.05 dw: durbin watson the findings reveal that all dimensions of organizational citizenship behavior expressed in table 5 indicate a significant causality. however, the coefficients show that the dimension that is most affected by the trust in the leader is the civil virtue behavior. as a result, our sub-hypotheses "h2a: trust in the leader has a positive impact on the courtesy of the employee; h2b: trust in the leader has a positive impact on the altruism of the employee; h2d: trust in the leader has a positive impact on the conscientiousness of the employee; h2e: trust in the leader has a positive impact on the civil virtue behavior of the employee." were accepted but "h2c: trust in the leader has a positive impact on the sportsmanship of the employee." was rejected on the correlation stage. figure 2: final model note: the dashed line indicates a statistically insignificant relationship while the straight line indicates a statistically significant relationship. trust in the leader sportsmanship courtesy altruism conscientiousness civil virtue the impact of trust in leaders on organizational citizenship behavior of employees 127 5. conclusion and recommendations it is frequently supported by empirical studies that organizational citizenship behavior is an important determinant in terms of employee's commitment to the organization and contribution to desired outputs (e.g., yen & niehoff, 2004; gautam et al., 2005). the theoretical evidence that organizational citizenship behavior can be increased with especially the support of the leader is given in the relevant chapters of the study (cohen & prusak, 2001). in addition, changes in today's working conditions have led to questions about leadership and organizational commitment. this strong evidence in the literature and the changing working life form the foundation for us to focus on the problematic of which dimensions of organizational citizenship behaviors of employees are important determinants of trust in the leader, and we have obtained significant findings for 4 of the 5 basic dimensions as a result of the analyzes. these findings are consistent with studies conducted using different methods in the literature (e.g., deluga, 1995; appelbaum et al., 2004). however, the main reason why the sportsmanship dimension was not affected by trust behavior in this study is likely to be because it is less relevant to work-related activities compared to other dimensions and is more related to positive atmosphere and personality traits in the organization. this study shows that trust in the leader has a positive impact on taking more responsibilities and participation in work-related activities. the findings of this study show that leaders have a critical role in creating an atmosphere of trust in order to create or reinforce the employee profile needed especially in today's conditions. accordingly, we suggest that decisionmakers, who are determinant in both human resources practices and organizational culture with the changes in the employee profile and working style, should consider this connection when reviewing the expectations of the employees from the organization and the management assumptions in their activities. in addition, it will contribute to the practitioners taking action on this issue if they go one step further and determine what the necessary antecedents will be for the leader to build trust. the most important limitation of the study is that it only presents findings of the white-collar employee groups in the manufacturing sector of the industrial zones in the marmara region. we believe that targeting employees from the service sector and comparing the employees in different sectors/positions in future studies will make a significant contribution to the literature. references albrecht, s., & travaglione, a. 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(2004). organizational citizenship behaviors and organizational effectiveness: examining relationships in taiwanese banks. journal of applied social psychology, 34(8), 1617-1637. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 44-52 44 fueling relational energy? proposing psycap and humor as potential antescendents medina braha international business college mitrovica, kosova received: augt 16, 2021 accepted: oct 27, 2021 published: dec 01, 2021 abstract: this study investigates relational energy within work context from the angle of potential ways to increase it and its associated benefits. starting from two main streams of positivity at work, pos and pob, and based upon interaction ritual theory, social contagion theory, and conservation of resources theory, this work proposes psycap and humor as two prospective means of achieving this goal. in other words, it argues psycap and positive humor can positively impact the relational energy between an individual’s supervisors, followers, or coworker and herself, which in turn, can have various benefits for organizational members’ wellbeing and performance, including during the covid-19 setbacks. keywords: relational energy, psychological capital, humor, covid-19. acknowledgement: this paper reflects part of the broader phd research (braha, 2021) representing an obligation for fulfilling graduation requirements. the initial research provides an integrated model of two antecedents and two descendants of relational energy, while the current work focuses only on the first part summarized as per the journal’s writing guidelines. 1. introduction the core idea illustrated in this study is to identify means for increasing relational energy within organizations as well as benefits deriving from it. two constructs are proposed as potential antecedents, namely psychological capital (psycap) and positive humor. the scientific reasoning supporting this relationship is based on interaction ritual theory, social contagion theory, conservation of resources theory, positive organizational scholarship (pos), and positive organizational behavior (pob). to the author’s knowledge it is an original postulation since no other work has suggested such a correlation before, which is both theoretically (here and in braha (2021)) illuminated and empirically (braha, 2021) evidenced. initially, positivity in work context, focusing on pos and pob is discussed. then, all three constructs – relational energy, psycap, and humor – are elaborated. following that, the model is postulated and supported. finally, conclusions, contributions (including potential benefits during covid-19 lockdowns), limitations, and recommendations for future research are provided. 2. positivity at work – positive organizational scholarship and positive organizational behavior this analysis reflects positivity within organizational settings which originates from positive psychology (seligman & csikszentmihalyi, 2000). most works in social and natural sciences emphasize adverse occurrences and search solutions for returning to a normal state. positive to negative state ratio in psychology publications is 14 to 1 (myers, 2000) and a similar trend is also in research related to organizational studies (luthans, et al., 2015). as a result, scholars regard it necessary concentrating on investigations on how to move beyond the normal so as to flourish and achieve extraordinary performance, i.e. focus on positive deviance. this implies discovering positive settings within fueling relational energy? proposing psycap and humor as potential antescendents 45 organizations and ways for advancing them in order to excel. however, scholars do not diminish the importance of studying negative events and neither consider positive and negative deviance as opposite ends of the same continuum; they rather argue those represent separate continuums with distinct outputs, principles, and antecedents needing independent investigation (luthans, et al., 2015). positivity approach within disciplines of management and organizational studies is primarily reflected in positive organizational scholarship (pos) and positive organizational behavior (pob). the former is argued to represent a “movement in organizational science that focuses on the dynamics leading to exceptional individual and organizational performance such as developing human strength, producing resilience and restoration, and fostering vitality” (cameron & caza, 2004, p. 731). the latter represents “the study and application of positively oriented human resources strengths and psychological capacities that can be measured, developed, and effectively managed for performance improvement in today’s workplace” (luthans, 2002, p. 59). here constructs from both streams are combined with the fundamental focus being the advancement of relational energy at work and maximization of its benefits for employee, team, unit, management, and organizational performance. 3. relational energy human energy is regarded socially contagious (baker, et al., 2003; cross, et al., 2003; dutton, 2003; cameron, 2013; owens, et al., 2016) and a source of individual and organizational excellence (dutton, 2003) and thriving (fritz, et al., 2011). organizational energy is an amplified synergy derived from individual human energies which stimulates innovation, productivity, and readiness to change (bruch & kunz, 2013). positive energy develops high-quality relationships, which in turn, generate more positive energy, spreading out the cycle of generation and transmission of both (dutton, 2003). social interactions as an energy resource affect people’s engagement and performance (baker, et al., 2003; cross, et al., 2003; dutton, 2003; cole, et al., 2012; owens, et al., 2016). positive relationships positively correlate with mental sharpness, memory, post-surgery recovery, fast learning, and job performance, while negatively relate to sickness, depression, discomfort and pain (seppälä & cameron, 2015). positive followers’ perception about their relationship with the leader appears energizing what influences the former to engage in more creative work (atwater & carmeli, 2009). very importantly, positive outcomes are merely a result of what one invest in such an interaction rather than what one receives from it (brown, et al., 2003). as a separate manifestation compared to physical, psychological (mental) and emotional energies, relational energy does not get depleted when utilized; in contrary, it is expected to grow the more it is used (cameron, 2012; cameron, 2013). drawing from interaction ritual theory, social contagion theory, and conservation of resources theory, owens et al. (2016) define relational energy as “a heightened level of psychological resourcefulness generated from interpersonal interactions that enhances one’s capacity to do work” (p. 37). example of it benefits include: highquality relationships (liebhart & faullant, 2014), job engagement (amah, 2016; owens, et al., 2016; amah & sese, 2018), job performance (owens, et al., 2016), and handling consequences of work-family conflict (amah, 2016). relational energy also mediates several valuable relationships: work passion transmission from leader to follower (weng, et al., 2020), workplace friendship on greater interpersonal citizenship (xiao, et al., 2020), servant leadership on high quality mentoring relationship (amah, 2017), positive and negative impact of authentic leadership on deep and surface acting respectively (wang & xie, 2020), employee service engagement behavior on customer service engagement behavior (liang, et al., 2020), spiritual leadership on job performance (yang, et al., 2017), leader humility on follower task performance (wang, et al., 2018), and underlying similarity on relationship quality (liebhart & faullant, 2014). together with compassion and shared vision, it affects perceived relational climate (boyatzis & rochford, 2020). conversely, it moderates the disadvantageous effect of emotional labor, which in turn improves cognitive flexibility (baruah & reddy, 2018). within organizations, energizers stimulate knowledge transfer (casciaro & lobo, 2008), are more optimistic, thoughtful, reliable, selfless and expose to others elevation, motivation, uplifting, and vitality (cameron, 2012), are higher performers, enhance others’ performance, and are 3 times more present in above-average performing organization (baker, et al., 2003), influence team success (cross, et al., 2003), and team and organizational performance (cole, et al., 2012). energizing interactions appear beneficial for health, well-being and nature of those interactions (heaphy & dutton, 2008). finally, there is some emerging evidence (chadee, et al., 2021) of relational energy’s importance in dealing with the adverse effects of covid-19 lockdowns. corona quarantine periods created situations where digital connectivity medina braha 46 resulted detrimental on work behavior since it led to self-control exhaustion, what in turn, implied work disengagement. chadee et al. (2021) conclude that relational energy transmitted through online communication moderates this detrimental impact and strongly encourage relational energy online enhancing practices. 4. psychological capital in appraising existing and future staff, organizations are primarily concerned with human capital and social capital the value of which could be time-dependent (luthans, et al., 2015). in contrast, psychological capital (psycap) is argued to go beyond those in the sense that it aids people advancing from the actual self to the potential self/collective selves (avey, et al., 2011; luthans, et al., 2015; luthans & youssef-morgan, 2017). psycap is correlated with lots of positive outcomes, from physical to organizational benefits. examples of those include life satisfaction (bockorny & youssef-morgan, 2019) job performance, organizational commitment, organizational citizenship, psychological wellbeing, reduces stress, turnover, cynicism, and anxiety (avey, et al., 2011), multifold return on investment (luthans, et al., 2015), emotional labor, job satisfaction and reduced burnout (cheung, et al., 2011), creativity (yu, et al., 2019), and reduced turnover intentions (siu, et al., 2015), innovation (novitasari, et al., 2020), and work engagement (zuberbühler, et al., 2021). there is initial evidence that psycap too can be utilized in handling covid-19 related implications. pathak & joshi (2020) find small hotel owners’ psycap creating hope and optimism among their staff during the corona lockdowns. daraba et al. (2021) conclude psycap mediates the positive impact of leader authenticity on job performance while working from home during covid-19. harahsheh et al. (2021) find psycap playing an intermediate role in the process of transformational leadership positively affecting effective decision making. furthermore, turliuc & candel (2021) show significant impact of psycap during quarantine in terms of greater life satisfaction and lower depression and anxiety of organizational members. similarly, alat et al. (2021) provide evidence for psycap acting as a psychological resource in significantly protecting people from mental health deterioration during the covid-19 lockdowns. finally, maykrantz et al. (2021) find psycap stimulating health-protective behaviors such as keeping social distance, wearing a mask, and washing hands. 5. humor humor is integrated in the analysis as a construct associated with both physical benefits and social and organizational positive outcomes. important to note, not all kinds of humor are considered having positive implications. therefore, there are distinctions of humor most notably illustrated by martin et al.’s (2003) humor styles, i.e. affiliative, selfenhancing, self-defeating, and aggressive. nevertheless, in current paper humor implies only the positive type that generates positivity during social interactions. humor’s advantages rely on different aspects. examples include, group effectiveness (romero & pescosolido, 2008), innovative thinking, social cohesion, and rapport building stimulated by managers’ humor’s creative energy (holmes & marra, 2006), increased trust (lynch, 2002), improved communication, creativity and enthusiasm, brightened and more enduring workplace (sathyanarayana, 2007), stronger individual connections (cooper, 2008), job satisfaction, affective commitment, and organizational pride (mesmer-magnus, et al., 2018), employee engagement (guenter, et al., 2013), innovative behavior (johari, et al., 2021), persistent behavior (cheng & wang, 2014), employee effectiveness (gostik & christopher, 2008), as well as reduction of tension (duncan, et al., 1990), stress (martin & lefcourt, 1983), blood pressure (martin, et al., 1993), burnout and work withdrawal (mesmer-magnus, et al., 2012). similar to relational energy and psycap, humor’s benefits arise too during corona quarantine. andrew & thomas (2021) show that people with dominant self-enhancing and affiliative humor perceive less stress and hopelessness related to corona, and as such, engage in more protective behaviors. they found exactly the opposite for people with dominant self-defeating and aggressive humor. similarly, canestrari, et al. (2021) find that healthcare workers with more humor-based coping strategies experienced not as much of pandemic-related stress in their work as compared to their colleagues with less humor-based coping strategies. fueling relational energy? proposing psycap and humor as potential antescendents 47 6. proposing the model the model proposed postulates that people with higher levels of psycap tend to energize more and people that use more positive humor tend to have the same impact too. in addition, people higher in both psycap and humor tend to have synergized energizing levels. energizers have more psycap related qualities as compared to de-energizers. the former are optimistic (cameron, 2012), see new and realistic possibilities (cross, et al., 2003), create hope to others (cross, et al., 2003), and follow through (cameron, 2013), while the latter see primarily roadblocks (cross, et al., 2003) and are frequently critical (cameron, 2013). these traits appear compatible with the hope, efficacy, resilience, and optimism dimensions of psycap. on the other hand, people with higher levels of psycap tend to positively impact private and workplace social relationships (story, et al., 2013) something that relates to a relational energy state. furthermore, psycap appears having a contagious influence in terms of increased followers’ optimism and hope (pathak & joshi, 2020), affected by leader’s psycap. further evidence illustrates leader’s psycap raising team’s psycap and vice versa (story, et al., 2013). this kind of impact can be elucidated through social contagion theory. luthans & youssef-morgan (2017) call for research in exploring this mostly uncharted contagious aspect of psycap, particularly, in determining mechanisms through which positivity and psycap spread top-down, bottom-up, or horizontally. as potential explanation this paper argues the increase of relational energy that psycap creates illustrates the above referred contagious facet. consequently, building upon interaction ritual theory and social contagion theory and referring to psycap characteristics detected at energizers, it is postulated here that psycap positively affects relational energy. higher use of positive humor creates and perceives high-quality connections (dutton, 2003), plays a role in passing interactions (cooper & sosik, 2012), raises positivity among user and receiver of humor (cann, et al., 2009), facilitates social relationships (cooper, 2008), improves communnication (sathyanarayana, 2007), creates social cohesion and solidarity as well as builds rapport and emphasizes collegiality (holmes & marra, 2006), and reduces tension (duncan, et al., 1990). these implications of humor can be argued to convey a higher relational energy state. important for this analysis is that humor is also regarded from the positive psychology outlook (seligman & csikszentmihalyi, 2000). further, it is also investigated under the lens of pos (cooper & sosik, 2012) and endorsed in creating and sustaining positive energy (cameron, 2013), building high-quality relationships (dutton, 2003), and raise positivity (cann, et al., 2009). utilization of humor as an energizing tool is also suggested in cross et al. (2003). another perspective of relating humor with relational energy is the conservation of resources theory. considering humor aids in recuperation from stressful occurrences, cheng and wang (2014) suggest it has potential to reload work-related resources. on the other hand, relational energy as an organizational resource grows in energizing relationships, but gets depleted within de-energizing ones, wile humor was illustrated to positively impact positive (i.e. energizing) interactions. on this basis, cheng & wang’s statement can be interpreted as covering relational energy as well. to sum up, humor at work is shown to be correlated with creating positive emotions and positive energy, building and maintaining high-quality relationships, and reloading exhausted energy when performing tasks. accordingly, building upon the construct of positive emotions and on theories of interaction rituals and conservation of resources, humor too is postulated as an antecedent of relational energy. finally, it is noteworthy highlighting the relationship between psycap and humor as well. to start with, both psycap and positive humor appear to create positive emotions (avey, et al., 2008; cheng & wang, 2014) which are very often reflected in relational energy too (mcdaniel, 2011). likewise, scholars argue humor has features in common with psycap such as optimism (kuiper & martin, 1998) and found significant positive correlation between the two constructs (hughes, 2008). in line with that, cooper & sosik (2012) strongly advise future research on this relationship. on this basis, it is here postulated that the combination of psycap and humor has a synergic impact on relational energy. considering all the above, the postulated hypotheses and model are presented below. hypothesis 1: there is significant positive impact of psycap on relational energy. hypothesis 2: there is significant positive impact of positive humor on relational energy. hypothesis 3: there is significant increased joint positive impact of psycap and positive humor on relational energy. medina braha 48 figure 1. proposed model on the correlation of psycap and positive humor on relational energy 7. conclusions and contributions this paper argues there are potential means – advancing psycap and positive humor – for increasing relational energy and all above mentioned benefits of energizing relationships within organizations. it also suggests that the joint impact of advancing both these antecedents synergizes. this new insight represents an additional helping tool for managers in terms of better knowledge about generating, maintaining, and growing relational energy of themselves and among their staff. this insight is also valid at individual level, i.e. manager, employee or business partner could build higher quality collaborations by advancing her own positive energizing influence as well as by choosing, whenever possible, more or less frequent interactions with energizers and de-energizers respectively (aiming interactions that reflect higher levels of relational energy). for instance, people could work on advancing some or all psycap elements and positive humor as well as identifying others with similar features as preferred collaborators. likewise, the contribution also rests in organizations’ attempts for greater effectiveness. when training and/or stimulating employees for advancing their psycap or positive humor, besides numerous individual advantages arising from each, organizations also benefit from advanced relational energy and its associated positive implications as highlighted above. moreover, this study illustrates some emerging evidence regarding positive implications of all three constructs of the postulated model on handling adverse effects related to covid-19 lockdowns. its contribution relies also on providing useful awareness on the possibility for intervening in these constructs, individually or combined, in withstanding corona quarantine consequences as well as of potential future epidemics, pandemics, or other health crises. this work advances relational energy research in two major ways: regarding each individual employee as potential engine of relational energy rather than concentrating only on management as possible performer of this role; and endorsing greater attention to how to advance relational energy with the attempt of multiplying its outcomes, rather than focusing merely on what positive effects relational energy has. nevertheless, the understudied and greatly unexplored field of relational energy is recognized and in no way is it here argued the descendants part to be less investigated. however, this analysis only emphasizes the essential need and tremendous potential to contribute to the relational energy’s descendent research by proliferating research efforts also on its antecedents’ side. fueling relational energy? proposing psycap and humor as potential antescendents 49 to the author’s knowledge, this analysis represents one of the very few exploring relational energy antecedents, and it is considered one of the pioneers in studying those not from only a focused leader-member approach. instead, it generalizes to all vertical and horizontal interactions within organizations. moreover, it is the first to announce psycap and humor as antecedents of relational energy. additionally, the model proposed here includes variables from pos and pob what is considered a contribution to the intensification of researches that link these two streams of positivity within organizational settings. finally, this study is also argued to progress literature on theory of organizations and management, particularly in positivity, energy, social networks, motivation, social and psychological capital, and humor. 8. limitations and future research this study provides a theoretical reasoning for two new antecedents of relational energy. future research could test this postulation empirically across different 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sampling was applied to reach the target population and regression and correlation considered to analyze the results. the finding revealed that, factors such as cooperative management, members’ participation, marketing information, financial resource and infrastructure access were found to be the determinant factors affecting agricultural output marketing performance. hence, to solve noncompliance of agricultural cooperatives output marketing performance the cooperative union should be maintaining cooperative management, members’ participation, marketing information, financial resource, infrastructure access, and providing social services to the general public. keywords: agricultural cooperatives, determinants, marketing supply chain, output 1. introduction a cooperative is an autonomous association of persons united voluntarily to meet their economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprize. cooperatives, as economic enterprizes as self-help organizations, play a meaningful role in up lifting the socio-economic conditions of their members, and their local communities (ata, 2014). the prime objective of cooperative is to solve problems that individuals failed to address independently. in view of that, cooperatives are involving in output marketing activities, credit provision and providing other services to the members. but the insufficient performance of agricultural output marketing in the country has a major barrier in boosting agricultural sector and the overall economy (moa, 2012). in africa, cooperatives are omnipresent and represent a significant part of the private sector in most african countries. during colonial period, cooperatives in africa were used by the colonial powers as a strategic tool to group rural producers into clusters, so that essential export commodities such as coffee, cocoa and cotton, could be collected more cost-effectively. after independence, the governments of the now sovereign states accorded an essential role to cooperatives, in particular for the development of rural areas (ilo, 2008). in ethiopia, cooperatives have a long history particularly in the form of traditional collective action organizations, such as work groups (jiges, wonfels, debos), rotating savings and credit associations (iqubs), and burial societies (idirs), which are still very much present in different areas (bernard et al., 2010). in ethiopia, the number of agricultural cooperatives has been increasing rapidly and they play a major role in providing farmers with inputs while ensuring members’ social cohesion and economic empowerment (moa et al, 2012). however, according to emana (2009) the functionality of cooperatives was constrained by shortages of skilled human resources (especially in cooperative business development), due to high staff turnover and repeated structural adjustment of the cooperative promotion agencies. debebe alemu kebede & mesfin lemma 24 in addition, cooperatives also encounter technical skills constraints and capital shortages, which hinder the attainment of objectives. lack of skills in cooperative development is also attributed the allocation of cooperative professionals to other sectors and replacing them with people who have no cooperative background, which affect the performance of cooperatives. moreover, according to jemal (2008), stiff competition, hangover the past and luck of commitment, globalization, and government attitude towards subsidy are the major challenges of cooperative societies in ethiopia. furthermore, yemane (2010) pointed out that embezzlement, limitation in the capacity of management committee or board of directors, lack of capital, unhealthy competition from private traders, absence of education, and training and lack of physical resources are the main challenges of the performance of agricultural cooperatives. according to union office documents (2019) agricultural cooperatives societies are incompetent to collect and to sale members’ products well during harvesting season with fair price and down payment, then members’ sale their product to venders. therefore, members are not benefited from their produce and affected by market fluctuation. cooperative members do not trust the cooperative societies due to lack of monitoring activities of cooperative management/boards members. most members are not voluntary to serve their cooperative as members of management committee and others committee members. in addition, management committee uses the resource out of the objective’s rules and regulations of cooperatives. they do not know about ownership right of members. they do not serve members equally and fairly based on the by-law and they also do not prepare report about actual performance to general assembly. in general, agricultural cooperative societies are incapable to give expected service to their members and the surrounding community. the service rendered by cooperatives is seasonal and it is limited to somehow on input distribution (adisu, 2011). in addition to this some of the critical problems facing cooperative societies are lack of financial resources, lack of market information, poor members’ participation, and infrastructural access problems (dawit, 2005). therefore, the study is planned to identify and evaluate the determinants of marketing supply chain of agricultural cooperatives output in ethiopia (a case of jimma zone cooperative union). the study is going to achieve the following objectives specifically to examine the effect of cooperative management on agricultural cooperatives output marketing performance. to investigate the effect of poor member participation on agricultural cooperatives output marketing performance. to assess the effect of marketing information on agricultural cooperatives output marketing performance. to identify the effect of financial resources on agricultural cooperative output marketing performance. to evaluate the effect of infrastructural access factor on the output marketing performance of agricultural cooperatives. 2. research conceptual frame work fig.1 conceptual frame work cooperative management factors:  commitment  management skills  transparency and accountability  duties and responsibility  decision making members’ participation factors:  participation  awareness  loyalty  satisfaction  experience marketing supply chain of agricultural cooperatives output  sales growth  marketing cost reduction  bargaining power  carrying for others infrastructural access factors  transportation service  storage facilities  telephone  access to electricity  service access to electricity  marketing information factors:  market information  market access  linkage  price  promotion financial resources factors  access to loans  credit service  equity capital  network  working capital determinants of marketing supply chain of agricultural cooperatives output in ethiopia 25 2.1. research hypothesis h1: cooperative management factor has significant effect on the performance of agricultural output marketing h2: members’ participation factor has significant effect on the performance of agricultural output marketing. h3 marketing information factor has significant effect on the performance of agricultural output marketing. h4: financial resource factor has significant effect on the performance agricultural output marketing. h5: infrastructure factor has significant effect on sales volume of agricultural output marketing. 2.2. empirical models this part presents methods of statistical analysis of relationships between two variables. the relationship between variables lies at the heart of empirical reviews of the study. in this study there are two types of variables. regressing the dependent variable over independent variables help to know the impact of each independent variables on the dependent variable. moreover, the significance of each of the independent variables will be determined based on their p-values. according to the coefficients of each of the independent variables, determinants of marketing supply chain of agricultural cooperatives output will be determined as follows. based on the above information, the empirical model will be: y= β 0+β 1 x1+β 2 x2+β 3 x3+β 4 x4+β 5 x5+ ε where; β0= constant et = error term β i= coefficients of regression for the independent variables independent variable xi (for i = 1, 2, 3, 4, 5) cooperative management factors=x1 members’ participation factors = x2 marketing information factors= x3 financial resource factors= x4 infrastructure access factors= x5 dependent variables, y= marketing supply chain of agricultural cooperatives output 3. research methods the study was focused on finding about union perception towards marketing supply chain of agricultural cooperative output. so, cause and effect relationship are required to be conducted. therefore, causal research design was applied. the target population of this was jimma zone cooperative unions and in order to get representative number of agricultural cooperative members, a multi-stage sampling technique was used to generate the required primary data. the study used primary data that could be collected through self-designed questionnaires. the collected data was encoded and tabulated in ms excel and ibm spss software. the data was analysed through descriptive and inferential statistics. since the study focused on mean, standard deviation, multivariate analysis and multiple regression analysis were used. also, while conducting this study qualitative research validation and reliability will be checked. creswell (2013) consider “validation” in qualitative research to be an attempt to assess the “accuracy” of the findings, as best described by the researcher and the participants. internal validity refers to correct mapping of the phenomenon with findings. this is through triangulation which is make use of multiple and different sources, methods, investigators, and theories to provide corroborating evidence. so, result of the study is evaluated through collaborating evidence from different sources to shed light on perspective. further, prolonged engagement and persistent observation in the field will takes place to check for misinformation that stems from distortions introduced by the researcher or informants. external validity refers to generalizability of findings. to assure the generalizability of the study the researcher will collect the information from target population which is interdependent group systematically as it describes the detail of the participants or setting under study using strong action verbs, and quotes. reliability will be assured through asking question of the same concept. all necessary requirements were considered will collecting the data. the debebe alemu kebede & mesfin lemma 26 research results discussed, analyzed and reported without actually side with the participants on issues that emanated from spending considerable time with them. additionally, cronbach's alpha used to check reliability (see table 1). 4. results and discussions this section presents the analysis, discussion and inferences made on the basis of the responses obtained. all the data were coded and entered in to spss version 20.0 and inferences were made based on the statistical results. the research instrument used in the study was survey questionnaire. for the descriptive analysis the mean, mode and standard deviation values of each variable were constructed (see table 2) and discussed accordingly. cooperative management affected the effective implementation of marketing supply chain of agricultural cooperative output in unions. the use of cooperative management in the union has not been effectively implemented since most of the responses were subjected to the mode value of 2.2 (higher side of disagree) and standard deviation is less than 1 that is 0.5596. hence responses indicated the opinion of the respondents towards nearly disagrees and less deviated. also, members participation affected the effective implementation of marketing supply chain of agricultural cooperative output union. the use of members participation in the union has not been effectively implemented since most of the responses were subjected to the mode value of 2.25(higher side of disagree) and standard deviation is less than 1 meant it is 0.6074. most the responses indicate the opinion of the respondents towards nearly disagrees and less deviated. additionally, marketing information has the impact on effective implementation of marketing supply chain of agricultural cooperative output union. the use of marketing information in the union has not been effectively implemented since most of the responses were subjected to the mode value of 2(disagree) and standard deviation is less than 1(0.6210). responses indicated the opinion of the respondents towards exactly disagrees and less deviated. further, financial resource affected the better implementation of marketing supply chain of agricultural cooperative output union. the use of financial resource in the union has not been effectively implemented since most of the responses were subjected to the mode value of 2(disagree) and standard deviation is less than 1(0.6738). responses indicated the opinion of the respondents towards exactly disagrees and less deviated. furthermore, infrastructure access affected the effective implementation of marketing supply chain of agricultural cooperative output union. the use of infrastructure access in the union has not been effectively implemented since most of the responses were subjected to the mode value of 2.3(higher side of disagree) and standard deviation is less than 1 that is 0.5027. hence responses indicated the opinion of the respondents towards nearly disagrees and less deviated. marketing supply chain of agricultural cooperative output has good relationship or impact relationship with all five independent variables in the study. since it has also the responses were subjected to the mode (mean) value of 2.25 (2.506) (higher side of disagree) and standard deviation is less than 1(0.7136). responses indicate the opinion of the respondents towards nearly disagrees and less deviated. the mean values of each variable were in the range between 2.397 and 2.506 (see table 2). this indicated that most target respondents were chosen more towards higher side of disagree or lower side of neutral. the highest mean (2.506) falls under dependent variable marketing supply chain of agricultural cooperative output (y) whereas the lowest mean (2.397) falls under members’ participation (x2). also, the mean values of both dependent (y) and independent(x) variables were in the range between 2.397 and 2.506. this indicates that most target respondents were chosen more towards higher side of disagree from the centre in the scale. this indicates there are better intervariables explanatory issues (one depends up on the other) for both dependent and independent variables. therefore, it led the researcher to use the inferential statistical test of the data. 5. regression analysis the regression analysis was conducted to know by how much the independent variable explains the dependent variable. before we go to in detail of multiple regression assumption of multivariate normal distribution, independence of errors, and equality of variance were first tested. this study involves a relatively large sample (230 members) and therefore, the central limit theorem could be applied and hence there is no question on normality of the data. two major methods were utilized in order to determine the presence of multicollinearity among independent variables in this study. these methodologies involved calculation of both a tolerance test and variance determinants of marketing supply chain of agricultural cooperatives output in ethiopia 27 inflation factor (vif) (kleinbaum & klein, 2002). the results of these analyzes are shows as all predictors vif is below 10 and none of the tolerance levels is < or equal to .01. multicollinearity was not a concern with this data set as confirmed by the main effect regression models. according to andy field (2009) the acceptable durbin – watson range is between 1.5 and 2.5. in this analysis durbin – watson values are ranges from 1.823 to 2.133, which are between the acceptable ranges, show that there were no auto correlation problems in the data used in this research. thus, the measures selected for assessing independent variables in this study do not reach levels indicate of multicollinearity. therefore, regression analysis of predictors and dependent variables was conducted and the results of the regression analysis are presented as following section. the study further applied regression analysis to establish the statistically significance relationship between the independent variables notably, cooperative management, members’ participation, marketing information, financial resource and infrastructure access on the dependent variable which was marketing supply chain of agricultural cooperative output summarized (see table 3) and discussed below accordingly. the regression model summary shows (r) the correlation between dependent variable (marketing supply chain of agricultural cooperative output) and independent variables (cooperative management, members’ participation, marketing information, financial resource and infrastructure access). hence, r of 0.898 represents a situation in which the strong correlation of independent variables with dependent variable (see table 3). coefficient of determination or correlation coefficient squared (r2) tells that how much of the variance in marketing supply chain of agricultural cooperative output is expressed by the regression model from sample of 230 respondents and which measures the amount of marketing supply chain of agricultural cooperative output predictors (cooperative management, members’ participation, marketing information, financial resource and infrastructure access) which each factors were shared the relation each other. the square of correlation coefficient of each factors’ share is 80.70% of marketing supply chain of agricultural cooperative output predictors (see table 3). therefore, the researcher found that (cooperative management, members’ participation, marketing information, financial resource and infrastructure access) shared 80.70% of marketing supply chain of agricultural cooperative output at coperative uunion in jimma zone. this means that 19.30% of the marketing supply chain of agricultural cooperative output predictors cannot be explained by these predicting variables (cooperative management, members’ participation, marketing information, financial resource and infrastructure access) factors alone. therefore, there must be also other variables which were not included in this study which have an influence on marketing supply chain of agricultural cooperative output in the study area. the adjusted (r2) value indicates the loss of predictive power or shrinkage, the adjusted value tells us how much variance in the marketing supply chain of agricultural cooperative output would be accounted for if the model had been derived from which the population that the sample was taken for this study. the adjusted r2 gives some idea of how well our model generalizes and ideally its value to be the same, or very close to, the value of r2. the difference for the model summary was small (the difference between the values is (0.807 −0.802) = .0.005 (about 0.5 %) (see table 3). this shrinkage (loss of the prediction) means that if the model was derived from the population rather than a sample it would account for approximately 0.5 % less variance in the output marketing performance) by identified predictors (cooperative management, members’ participation, marketing information, financial resource and infrastructure access). therefore, the regression model resulted in significantly better prediction of the dependent variable (marketing supply chain of agricultural cooperative output) in this study. additionally, analysis of variances was tested (see table 4) and the f ratio is used to assess the overall fitness of the regression model. f value, 187.017 is large by a small significant p-value of <0.0001(0.000) which is less than 0.05. this indicates that the marketing supply chain of agricultural cooperative output (dv) was predictable by cooperative management, members’ participation, marketing information, financial resource and infrastructure access (ivs). in other words, the regression model was considered as good fit. 5.1. regression model result for beta coefficients which indicated the coefficient of the independent variables to express the explanation of the impact of each independent variable on dependent variable marketing supply chain of agricultural cooperative output tested (see table 5) and described below accordingly. debebe alemu kebede & mesfin lemma 28 the regression coefficient β represent the change in the outcome resulting from a unit change in the predictor and that if predictors (independent variables) are having significant impacts to predict the outcome (dependent variable) then this β should be different from 0 and big in relation to its standard error. the t-statistics can be derived to test whether a β-value is significantly different from 0. the t-tests measures whether the predictor is making a significant contribution to the model or not. therefore, the t-test associated with a β-value is significant if the value of sig. is less than 0.05(given) then the predictor is making a significant contribution to the model. the p-value is less than 0.05 for all the independent variables. thus, it indicates that the 5 independent variables are significant predictors of marketing supply chain of agricultural cooperative output (dependent variable). therefore, the β is different from 0 and the researcher found that the predictor variables make a significant contribution in predicting marketing supply chain of agricultural cooperative output were cooperative management(x1) β1 = 0.179, members’ participation(x2) β2 = 0.017, marketing information(x3) β3=0.217, financial resource(x4) β4=0.192 and infrastructure access(x5) β5=0.678. therefore, variables are statistically significant to predict the marketing supply chain of agricultural cooperative output at cooperative union in jimma zone. each of the beta values has an associated standard error indicating to what extent these values would vary acros s different samples and then standard errors are used to determine whether or not the β-value differs significantly from zero (see table 5). to express the impact and relationship of independent variables on the dependent variable (marketing supply chain of agricultural cooperative output), the regression function is as follows: y= β0+ β1x1+ β2x2+ β3x3+ β4x4+ β5x5+e y=-0.624+ 0.179x1+ 0.017x2+ 0.217x3+ 0.192x4 + 0.678x5+0.317 the β values tells to what extent each predictor affects the outcome if the effects of all other predictors are held constant. the linear equation above indicates that there is a positive relationship between the above predictors and marketing supply chain of agricultural cooperative output. this can be explained as for every better implementation of infrastructure access, marketing information, financial resource, cooperative management and members’ participation would improve the marketing supply chain of agricultural cooperative output at ccooperative union in jimma zone by 67.80%, 21.70%, 19.20%, 17.90% and 1.70%respectively. in addition, the effectiveness of each independent variable in affecting the dependent variable is determined by the standardized coefficients beta value. from the table above it is found that infrastructure access (β = 0.678) is the most influential factor followed by marketing information (β = 0.217), financial resource(β = 0.192), cooperative management(β = 0.179) and members’ participation(β = 0.017) was the least influential factor in determining marketing supply chain of agricultural cooperative output at cooperative union in jimma zone. 5.2. testing research hypothesis the five independent variables (cooperative management, members’ participation, marketing information, financial resource and infrastructure access) of the study were correlated with the dependent variable marketing supply chain of agricultural cooperative output at cooperative union in jimma zone whereby h1, h2, h3, h4 and h5 were supported by this research model. hypothesis of the study was tested and stated with significant level of the hypotheses (see table 6). four the research hypotheses were accepted because the four independent variables and dependent variables are significantly correlated at p-values<0.05 for h1, h3, h4 and h5. in other round one hypothesis was rejected because the members’ participation independent variables and dependent variables is not significantly correlated at p-values/0.828>0.05 for h2. 6. conclusions and recommendations the findings reveled that cooperative management has a significant influence on marketing supply chain of agricultural cooperative output at cooperative union. increasing strong commitment to implement management duties and responsibilities by applied cooperatives laws by a unit would increase the levels of effectiveness of marketing supply chain of agricultural cooperative output. the study further showed marketing supply chain of agricultural cooperative output related issues like defined awareness, knowledge and skill to manage, assigning transparent and accountable committee, participatory decision making in marketing performance developments and determinants of marketing supply chain of agricultural cooperatives output in ethiopia 29 equity in the management of marketing supply chain of agricultural cooperative output to solve the identified problem in the zone. also, marketing information has a significant influence based on the model. adequate levels of marketing information like creating appropriate linkages, providing clear and competitive price and utilization of media resources in cooperative union would have a significance improvements or impact on marketing supply chain of agricultural cooperative output. further, financial resource had a significant influence on marketing supply chain of agricultural cooperative output. providing adequate access to members loan, creating proper network with financial resource, utilizing working capital efficiency and keeping record /documentation system in financial institution would highly improve the levels of marketing supply chain of agricultural cooperative output. furthermore, it was identified that the impact of infrastructure access on marketing supply chain of agricultural cooperative output cooperative union. improving levels of infrastructure access issues like using adequate storage, providing transportation service and accessing communication service by a unit would increase the levels of effectiveness of marketing supply chain of agricultural cooperative output. the recommendation provided based on the result of the study is: the managing bodies of cooperative union should improve the use of cooperative management the issues like strong commitment to implement duties/responsibilities, awareness, skill and skill to manage cooperative union activities, providing transportation and accountable committee, making participatory and adequate decision relationship to avoid which have direct impact on marketing supply chain of agricultural cooperative output cooperative union. the management of cooperative union in jimma zone should use adequate marketing information by providing clear and competitive price, creating appropriate linkage, utilization of media resource and equity in opportunity of publics and efficient use of marketing supply chain of agricultural cooperative output. the management of cooperative union in jimma zone should apply adequate financial resource by providing adequate access to members loan, creating proper network with financial institutions, utilization of working capital efficiency and keeping financial records/documentation system of marketing supply chain of agricultural cooperative output. finally, the management of cooperative union in jimma zone should identify the exact and appropriate infrastructure access by applying the issues like exact level and size of storage, providing adequate transportation services and accessing good communication procedures to solve marketing supply chain of agricultural cooperative output problems. appendixes table 1: reliability test results source: own survey, 2020 table 2: descriptive analysis of constructed variables variables n mean std dev mode minimum maximum cooperative management (x1) 230 2.478 0.5596 2.2 1.20 4 members’ participation (x2) 230 2.397 0.6074 2.25 1.25 4 marketing information (x3) 230 2.42 0.6210 2 1.00 5 financial resource (x4) 230 2.45 0.6738 2 1.40 5 infrastructure access (x5) 230 2.436 0.5027 2.3 1.30 3.8 marketing supply chain of cooperative output(y) 230 2.506 0.7136 2.25 1.25 4 source: own survey, 2020 variables construct cronbach's alpha dv agricultural cooperative output marketing performance 0.891 x1 cooperative management 0.966 x2 members’ participation 0.927 x3 marketing information 0.910 x4 financial resource 0.938 x5 infrastructure access 0.896 debebe alemu kebede & mesfin lemma 30 table 3: model summary r r square adjusted r square std. error of the estimate 0.898 0.807 0.802 0.317 source: (own survey, 2020) table 4: anova model sum of squares df mean square f sig. regression 94.079 5 18.816 187.017 0.000 residual 22.537 224 0.101 total 116.615 229 source :own survey,2020 a. dependent variable: marketing supply chain of agricultural cooperative output b. predictors: five independent variables table 5: regression model result for beta coefficients model unstandardized coefficients standardized coefficients t (calculated p-values) sig. b std. error beta (constant) -0.624 0.110 -5.671 0.000 x1 0.179 0.068 0.140 2.643 0.009 x2 0.017 0.079 0.015 0.218 0.828 x3 0.217 0.073 0.189 2.974 0.003 x4 0.192 0.058 0.181 3.323 0.001 x5 0.678 0.106 0.477 6.368 0.000 source: own survey, 2020 table 6: tests of the hypotheses h y p o th e si s hypotheses types g iv e n p -v a lu e (sig) calculated p-value comparison conditions h1 cooperative management factor has significant effect on the performance of agricultural output marketing 0 .0 5 0.009 0.009<0.05 h 1 is a c c e p te d determinants of marketing supply chain of agricultural cooperatives output in ethiopia 31 h2 members’ participation factor has significant effect on the performance of agricultural output marketing 0 .0 5 0.828 0.828>0.05 h 2 is r e je c te d h3 marketing information factor has significant effect on the performance of agricultural output marketing 0 .0 5 0.003 0.003<0.05 h 3 is a c c e p te d h4 financial resource factor has significant effect on the performance of agricultural output marketing 0 .0 5 0.001 0.001<0.05 h 4 is a c c e p te d h5 infrastructure access factor has significant effect on the performance of agricultural output marketing 0 .0 5 0.000 0.000<0.05 h 5 is a c c e p te d source: (own survey, 2020) references addis w., 2011. the role of multipurpose cooperatives in the supply chain of wheat in gedeb-hasasa wereda, oromia regional state, ethiopia. m.a thesis, mekelle university, ethiopia. agricultural transformation agency (ata), 2014. transforming agriculture in ethiopia annual report2013/2014. addis ababa, 54. alemu t., 2011. the role of agricultural marketing cooperatives in reducing rural poverity: the case of yirgachefe and sidama-elto cooperative union in snnpr state. bernard, t., d. spielman, alemmayehu seyoum and eleni gabre-madhin , 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study on health tourism, the rising value in services exports of turkey fatih özer istanbul commerce university, turkey figen yildirim istanbul commerce university, turkey received: august 11, 2022 accepted: september 25, 2022 published: december 01, 2022 abstract: after import substitution policies in the 1980s türkiye, which implemented an export-led growth model in foreign trade, has made important strides in balancing the current account deficit in goods trade after the 2000s with services exports led by tourism and transportation services. in particular, serious developments have been achieved since 2012 with various steps and support mechanisms taken to increase the foreign exchange revenues obtained from service trade and to make them sustainable. the fact that health tourism, which is considered a sub-branch of tourism activities, is one of the leading sectors that benefit from supports as a foreign exchange earning activity, is considered to be an indicator of the importance of this issue. turkey, with its health system infrastructure equipped with modern medical devices and experienced / competent health personnel, has given a relatively successful exam under pandemic conditions and has reinforced its image as an assertive and important destination in terms of health tourism. within the scope of the author's doctoral thesis on service export and health tourism, the findings obtained from the focus group discussions on the strengths and weaknesses of turkey's health tourism, the steps to be taken towards branding and the future trends are summarized in this study and it is aimed to shed light on the future studies on this subject. keywords: services sector, services export, health services, health tourism 1. introduction the decisions taken by the 43rd government on january 24, 1980 have been a turning point for the turkish economy. with the decisions taken, turkey started to follow policies that prioritize liberalization and pursue an export-based growth strategy instead of import-substituting industrial policies. with the acceleration of foreign trade and export movements after those dates, serious developments were also observed in the turkish industry. analyzing the foreign trade data of turkey in 2021 which is obtained from the central bank of the republic of turkey (cbrt); it is seen that the total export of agricultural, industrial and mining (goods) products is us$ 224.69 billion, while the exports of the services sector are us$ 58.15 billion in the same period. it is also observed that the import of goods in 2021 is us$ 253.98 billion, and the imports of the services sector are us$ 31.6 billion. while turkey has a foreign trade deficit of approximately us$ 29.28 billion in goods trade, it has a foreign trade surplus of approximately us$ 26.55 billion in services trade. the services sector has a very important place in the turkish economy, as in all developed countries' economies. according to the data received from the turkish statistical institute (tuik) for 2021, the services sector has 61.5% share of turkey’s gross domestic product (gdp) and contributes 55.3% to the country's employment. these data clearly reveal the importance of the services sector, not only with the foreign trade surplus it provides to the turkish economy, but also with its contribution to the gdp and employment rates. the fact that human mobility has come to a standstill with the effect of the pandemic has brought the services related to tourism and travel, which are the flagships of turkey's service trade and exports, to a stagnation point as well, and in 2020 turkey's services exports decreased by approximately 44%, amounting to us$ 35.4 billion. fatih özer & figen yildirim 92 the central bank of the republic of turkey (cbrt) with the rise in vaccination coverage rates and other measures taken in 2021, the effects of the pandemic started to decrease and turkey's services exports again entered an increasing trend while amounting to us$ 58.1 billion. the sub-fractions of the realized services exports are as follows; table 1. the central bank of the republic of turkey (cbrt) services exports 2020 2021 change (%) passenger transportation services 3.377 7.672 127,18 freight transportation and logistics services 9.482 12.210 28,77 port management and ground services 3.421 5.067 48,11 travel related services (tourism + education + healthcare) 10.220 20.827 103,79 software and it services 2.092 2.576 23,14 entertainment and cultural services 179 548 206,15 construction business and technical consultancy services 339 561 65,49 manufacturing services on physical inputs owned by others 284 261 -8,10 maintenance and repair services 1.174 1.467 24,96 insurance and pension services 970 2.758 184,33 36,18 40,85 43,23 58,87 62,29 55,49 46,33 53,48 58,63 62,74 35,43 58,15 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 services exports (billion us$) services exports a study on health tourism, the rising value in services exports of turkey 93 financial services 374 588 57,22 intellectual property rights usage fees 220 228 3,64 other services 2.930 3.069 4,74 official services 367 321 -12,53 total services exports (million us$) 35.429 58.153 64,14 as can be seen from the table, travel services (tourism) continued to be the leader of turkey's services exports both during the impacts of the pandemic supervene and in 2021 when these effects were getting reduced. health tourism is an important services sector component within travel services along with educational services. according to the data of the turkish statistical institute (tuik), the number of tourists who preferred turkey for treatment in the last 10 months of 2021 was 370.335, while the income obtained from these visits was us$ 704.261 thousand dollars. according to the data of the ministry of health, the number of foreign patients who visited the country in the 10-month period was recorded as 718.164. however, it is considered that the statistics presented by tuik on health tourism revenues do not show the full number of patients since they are determined through surveys conducted at border gates. with the studies carried out under the leadership of the ministry of trade, it is aimed to attract more health tourists and generate more income. in this way, it is aimed to increase the share of turkey in the health tourism pie. (turizm günlüğü, 2022) although different data are announced by various institutions for health tourism with different measurement techniques, there is no clear data on the number of health tourists and the income obtained from them. studies continue to be conducted by the ministry of trade, ministry of health and tuik in order to measure health tourism data in a better way. when the studies are completed, it will be easier to make analysis and forecastings for the sector, to be more accurate in giving investment decisions for the sector, and to find resources for scientific research. 2. health tourism tourism, which is an important source of income for the economy of many countries, has been called “smokeless industry” in turkey for a long time owing to the significant foreign exchange inflow. health tourism, which is a subcomponent of tourism and which provides much higher returns compared to normal tourism activities, has become one of the favorite topics in the economic literature, especially in the last 20 years. tourism can be defined as the individual's moving out of the place of her/his residence, moving between places, using the products and services of these places or taking a temporary vacation (gülmez, 2012). according to the united nations world tourism organization (unwto) definition from 1993 tourism means; “the activities carried out by a person traveling for a certain period of time to a place other than her/his usual environment for the purpose of an activity, and through these activities an income is left to the visited place”. these travels can be for many different reasons such as: leisure, recreation and vacation; visiting relatives and friends; job and profession; health treatment; pilgrimages or faith (tengilimoğlu, 2020). as can be clearly seen from this definition; travelling done on therapeutic terms is a tourism activity in general. the very first definition of health tourism, or in other words, medical tourism was made in 1987 as; a country's making international efforts for attractingt tourists towards to its own health services, facilities and touristic opportunities by marketing. (goodrich & goodrich, 1987) health tourism can be broadly defined as people going from their place of residence to another place to be treated for health reasons. (şener & taşkın, 2013) the ministry of health, turkey's most important and prior public authority on health, defined health tourism in its study which was prepared in 2011 as; "planned travel from the place of residence to another place for any reason to receive health care" and in this study, those who make this trip are called as "health tourists". ” (t.c. sağlık bakanlığı, 2011). according to the definition of the ministry of culture and tourism (2018), health tourism is used for the purpose of improving the physical well-being of the person travelling to spas or other health centers for therapeutic purposes, or fatih özer & figen yildirim 94 aesthetic surgery operations, organ transplantation, dental treatment, physical therapy, rehabilitation, etc. and allowing health institutions to grow by using the international patient potential. health tourism can also be defined as going to another country for a temporary period to be treated in order to regain health. a person who goes to another country for treatment and health care is called a health tourist. expensive health services in the country of residence, long waiting times for the treatment, insufficient technology and treatment opportunities, the desire to take a vacation during the treatment, adverse climatic conditions in the country of residence and thus needing to live in a country with a hot climate to recover are among the important reasons of the development and growth of health tourism (aslanova, 2013). since the ancient times, people have travelled for various reasons. despite the limited transportation opportunities, the thermal springs in various parts of anatolia have been among the places frequently visited for health and healing. the increase in transportation opportunities with the help of developing technology in recent years has shortened travel times and made it more comfortable, making it easier for people in need to become health tourists. it is difficult to understand how the health tourists make their choice. patients are motivated by different stimulations such as being cost-favorable, having short waiting time, quality and diversity of health services, high technological equipment and treatment methods, procedures, inadequate or non-existent insurance in their own countries, being ethical, cultural proximity, norms, religion, food, and being able to take advantage of holidays (mathijsen, 2019). indeed, it is possible to say that there are many factors in the formation of health tourism. among the leading factors for people there are, them not wanting the healthcare service or operation they receive to come out; wanting to be treated in countries where technological opportunities and physician quality are better; wanting to evaluate various travel and holiday opportunities along with the treatment; wanting to get quality service than their own country with cheaper opportunities and preferring places with thermal springs. the health tourism market has the highest growth rate in the world tourism industry (taleghani, et al., 2011). today, many people carry out health tourism activities by going out of their countries to get a better quality health service at more affordable costs by eliminating the waiting time problem. health tourism; in terms of the added value it creates, employment and foreign exchange income, it has become one of the sectors that has made significant progress in the turkish economy in the last 20 years. turkey, which has become the health center of the middle east in recent years, targets 2 million patients and 20 billion dollars income in 2023. (turizm günlügü 2, 2022) more than 30 countries in asia, africa and eastern europe are active in the field of health tourism. asian countries are the first to come to mind in this field and have made their name known to the world. thailand, singapore, malaysia, india and the philippines are the most preferred countries by health tourists. there is a flow of health tourists mostly from the united states, canada and western european countries to turkey, asian and latin american countries due to the reasons mentioned above. (hopkins, et al., 2010). health tourism also contributes to many sectors with its expanding volume and potential. turkey has important transportation advantages due to its geography. the fact that different climates can be experienced in different regions at the same time increases tourism options, making it a relatively advantageous and attractive destination for health tourism. well-trained/competent human resources, diagnosis and treatment centers equipped with modern technological infrastructure and their prevalence stand out as factors that reinforce the advantages of health tourism. the volume and effects of health tourism, which creates significant added value for many sectors are growing day by day. in addition to the benefits listed above, turkey has various advantages in terms of medical tourism, wellness and thermal tourism, third age and disabled tourism. in this context, it would be useful to examine how much turkey can utilize its current potential and to what extent it can do it in the future. 3. research 3.1. the aim of the research determining the strengths and weaknesses of turkey in health tourism as being a popular topic of recent times, and making decisions about the steps to be taken to turn these weaknesses into advantages by public and nongovernmental organizations, educational institutions and the private sector, and as the next step of these efforts; creating a proposal set that will shed light on the whole industry by taking the opinions of the sectoral actors on a study on health tourism, the rising value in services exports of turkey 95 future trends and branding are among the primary objectives of this research. in addition, following the establishment of the general directorate of international service trade, and the general secretariat of the services exporters' association (hib), after the state supports that started in 2012 during the ministry of economy, helped the companies benefiting from the supports through hib to identify the problems they faced and to benefit the sector more effectively and quickly from these supports. 3.2. the significance of the research although there are various researches on health tourism, which have been carried out before to examine the strengths and weaknesses of the sector on a regional or national basis, no research on the future trends of the sector, the subject of state supports that contribute to the strengthening of the sector and the need and perception of branding has been encountered in the literature. therefore, it is considered that this study, which includes a wide variety of sub-branches and a relatively broad range of health tourism, can shed light on the future studies in the sector and become an academic source. with this study, it will be possible to predict the future of the sector through making a situation assesment. moreover, it will be possible to evaluate the demands of the sector in terms of the elements of supports given to companies. 3.3. the method of the research this study was based on the focus group interview method. focus group interviews are a qualitative data collection method that has been used frequently in researches in recent years. this method, which is also frequently used in market researches, is widely used in social sciences studies as an initial research method. although it is commonly exercised together with one-on-one interviews and surveys in social sciences, this method is actually one of the most systematic data collection methods. (çokluk, et al., 2011). considering this research as a preliminary study on this subject, focus group interviews are considered to be an appropriate method. with focus group interviews, it is possible to obtain important information by evaluating different perspectives and opinions on the researched subject. 3.4. the focus group meetings within the scope of the research, 5 focus group meetings were organized with at least 6 participants who are competent enough to make decisions, on 5 different dates within a period of approximately 4 months between november 22, 2021 – march 10, 2022, and the subject was discussed with a wide audience that would cover all aspects of health tourism, or in other words, healthcare services exports and every aspect has been addressed. four of the focus group meetings, three in istanbul and one in antalya, were physically held in a u-table arrangement, allowing the participants to interact with each other. the fifth and last meeting was held through the zoom program in a digital platform all focus group discussions were moderated by the same person and thus it was aimed to ensure the integrity of the process. questions of the focus group meetings 1. what are the advantages (price, location, etc.) of turkey compared to other countries in terms of health tourism? 2. what are the disadvantages in terms of health tourism? 3. what can be done to increase the brand value of health tourism? 4. what are the future trends in health tourism? what will we be talking about 20 years from now on? 5. what are your thoughts on the supports given by the ministry of trade for health tourism? the interviews were completed by asking questions within the framework of a topic integrity. 3.5. findings related to focus group meetings the first two focus group meetings were held in istanbul with the participation of big-sized hospital groups and the second focus group meeting with the participation of the officials of medium-sized hospitals and medical centers. after the warm-up question about the definition of health tourism, the questions within the scope of the study were asked and the following findings were obtained from these authorities in summary. fatih özer & figen yildirim 96 advantages quality of health services in turkey, fast access opportunities, short waiting times, affordable costs, trained/competent human resources, advanced technological equipment and infrastructure, istanbul brand, state supports, international accreditation, service quality, agility of the private sector, the establishment of hib, the success of the turkish health system in the pandemic process. disadvantages deteriorated political relations with countries, lack of standardization of service providers in the sector, lack of supervision, lack of coordination and as a result, different practices experienced in the sectoral sense, restriction of physicians from working in private hospitals since 2008, lack of multilingual staff, increasing brand value increasing the service quality, not using the price advantage factor that threatens branding, creating a common brand for health tourism of turkey such as “turkish healthcare”, “heal in turkey” etc, providing medical education to foreign students in turkey., creating a global strategy and acting in coordination the government to work together with the private sector, the sector's participation in international activities with a common language and strategy, inspecting the health tourism agencies. establishing of a quality control authority in turkey to be carried out in line with international quality standards. future trends institutional marriages, increase in mergings, turkey's upgrading in health tourism, third age tourism, wellness tourism, increase in telemedicine applications, methods such as online consultation, cloud examination system, , increase in enriched services, accelerated increase in geriatrics and elderly health homes a study on health tourism, the rising value in services exports of turkey 97 state supports the length of support file review periods, dissatisfaction with delays in support repayments, support for all foreign activities, informing foreign representatives and trade attachés about the support mechanisms, speeding up the processes, satisfaction with the patient-road support, in summary, the following findings were obtained in the focus group meetings with health tourism intermediary institutions and agencies; advantages turkey's hotel management experience and quality, having a culture of hospitality and competency for the elements of the services sectors, the availability of economically suitable conditions and the number of preparations and applications for treatments, the geographical location of the country and easy transportation opportunities, the abundance of tourism factors, technological healthcare infrastructure and fast supply of supplies, affordable treatment costs compared to competitors. disadvantages lack of coordination between institutions, lack of qualified workforce and human resources, scarcity of people who can speak the language, problems with permission to employ foreign personel. increasing brand value creating a joint promotional act which is similar to the sea-sand-sun promotion used in tourism, emphasizing turkey being the quality health tourism destination more than its price advantage, giving importance to inspections in order to prevent bad practices, having a strategy of communication and country promotion the increase in applications for beautification and rejuvenation after the pandemic, completely artificial intelligence-based, language-free, chat bot and crm fatih özer & figen yildirim 98 future trends supported consultation applications, the spread of telemedicine applications, innovations and developments in health tourism where many surgeries can be performed remotely with the help of technology and people do not even travel to another health tourism destination, “remote health tourism” as an innovative title and term. state supports organizing an expo for healthcare services sector in the target countries by hib, supporting seo, google ads etc. for digital promotions, providing patient-road support for healthcare agencies as well, creating encouraging and facilitating methods for health tourism agency services, adding health tourism intermediary institutions to the turquality legislation, including health tourism intermediary institutions in all studies in the field of health tourism, accelerating file review processes and reimbursements, expanding the scope of supports. in summary, the following findings were obtained from other focus group interview participants (dental, eye, ivf treatment centers, hair and aesthetic centers, etc.) excluding hospitals, medical centers and health tourism intermediary institutions. advantages turkey's experience and competence in the tourism and services sectors, price advantage and the geographical location of the country, transportation opportunities, turkey's being a country that can offer all the sub-components of health tourism at the same time, turkey's success during and after the pandemic, state supports, quality technical infrastructure, market potential within a 3-4 hour flight distance to turkey and the absence of a serious competitor country around these markets. disadvantages applications specific to some types of treatment (for example, not giving the service of ivf treatment to unmarried couples), general visa procedures for health a study on health tourism, the rising value in services exports of turkey 99 tourists, malpractice problems in turkey, quotas applied to health tourism investors. increasing brand value putting the emphasis not on the price advantage but on quality, reliable and high technology service for brand positioning, cooperation with digital platforms and tv series-film industry in communication channels, using pr companies and foreign statesmen and celebrities who received medical treatment in turkey in news doing promotion of turkey’s health tourism brand in international fairs, using the "heal in turkey" health portal as an effective channel. future trends having a similar shift from china to turkey in health tourism as it happened in logistics sector after the pandemic, health centers equipped to allow remote applications, increased digitalization and virtual applications. state supports actions in adding new support items to the legislation, complication insurance as a very important element for health tourism, regulations for including both foreign language and vocational training programs related to the problem of lack of qualified human resources 4. conclusion although there are many disadvantageous situations and many problems experienced in the sector, turkey continues to progress both in services exports and in health tourism, which is a sub-component of services exports, and to increase the foreign exchange inputs it provides in this regard. as the leading representatives of the sector also stated during the meetings; having experienced and competent physicians and human resources, diagnosis and treatment centers equipped with the latest technology, the prevalence of these centers throughout turkey, and the absence or relatively few waiting times, hotel management experience dating back for years, the genetic heritage of the turkish people’s characteristic of hospitality and competency in services sectors, and the advantages of transferring these to the health system are important factors that highlighting turkey in health tourism. having a big potential of health tourism and mass of people who can be health tourists within a 4-hour flight distance to turkey, a flight network that can bring this potential to turkey with direct flights and turkey being one of the most preferred destinations in the tourism sector in the world have made turkey a notable attraction center in health tourism. offering relatively economical treatment opportunities in many branches; especially aesthetics, fatih özer & figen yildirim 100 dental treatments, thermal and wellness opportunities in comparison with western countries, having many tourism and travel opportunities such as history, culture, gastronomy, sea-sand-sun and faith tourism, and the fact that turkey offers options in all sub-branches under health tourism are the factors that make turkey stand out in the field of health tourism. the political environment and the negativities between countries create serious disadvantages for the sector. however, staff who do not speak the language, weak links in the health tourism chain, problems that may occur in the reception and transfer of the patient, transactions and bad practices by incompetent, unsupervised persons and institutions, which are called under the counter, cause both creating a bad experience and serious damage to the perception of the country and the sector the fact that the health tourism sector is of interest to many ministries (ministry of health, ministry of tourism, ministry of trade, etc.) sometimes brings along coordination problems. for this reason, the need for a supraministerial coordination and orchestration of the sector is frequently expressed both in the focus group meetings held within the scope of this study and in various workshops and meetings held regarding the sectors. even solving this issue alone will enable the sector to progress much faster. there is a need for branding of the sector and the creation of a turkish brand for health tourism. in this regard, initiatives have been taken by the ministry of trade to create a “heal in turkey” brand and to continue these efforts through a portal. with the new ministry of trade support package, which was published in the official gazette on april 20, 2022, the expenditures to be made for the portal were included in the scope of 100% support for 5 years. the number of organizations with jci accreditation is increasing every year and certain quality standards are becoming widespread in the sector and brand awareness is increasing. while this trend continues, it is of great importance to execute inspections to prevent people and organizations under the counter. within the scope of this study, it is predicted that turkey will make a name for itself as one of the leading countries in health tourism and its potential to become a pioneer in the world will be realized in terms of future trends in health tourism and what will be discussed in the future. although telemedicine applications become widespread, assistants and diagnostic applications developed with artificial intelligence and crm applications, remote surgeries with technological developments and opportunities are discussed, it is considered that the future projections cannot be predicted much today due to the rapid progress of technology. even though the establishment of the general directorate of international service trade, the establishment of hib and its transformation into a separate secretariat general are considered positive in terms of state supports, since the length of file review periods and support repayments take a long time, turkey cannot benefit as desired or expected from the support mechanisms which it gains an advantage over its competitors in the world. extending state supports that are gladdening the sector such as patient-road support for all sector players and increasing support elements like employment supports, etc. will also pave the way for the sector. making the support legislation simpler will also accelerate the support processes and contribute to the elimination of the sector's problems related to waiting. due to the role of services exports in meeting the country's current account deficit and its impact and contribution to the acceleration of the economy in general, it is seen that the political will attaches special importance to the services sector, which has not been taken into account for many years. entrepreneurs and sector players who are aware of this special importance and support continue their initiatives to increase the sector and its exports. the number of hib healthcare services sector members, which was around 400 at the end of 2021, has exceeded 650 as of july (anon., 2022). the number of institutions with health tourism authorization certificates, which constitute the potential participants of the study, increased from 1676 to 2392. the number of companies benefiting from support for health tourism increased by 50% compared to the previous year and continues to increase. the number of companies in the turquality and brand support program has also doubled in 4 years. in the light of all these data and findings, turkey continues on its way rapidly by turning the advantages that it has in health tourism, into opportunities. with the new support program declared by the ministry of trade, important opportunities have been conducted in order to realize the potential of the sector players. in order to accelerate the branding process of the sector, cooperation and coordination are needed. with coordination and regulations that will prevent brain drain, which is a serious threat to the sector, the sector will be ready for the world leadership in health tourism. a study on health tourism, the rising value in services exports of turkey 101 references anon., 2022. hi̇b hakkında. 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[çevrimiçi] available at: https://www.e-unwto.org/doi/epdf/10.18111/9789284420858 journal of international trade, logistics and law, vol. 5, num. 1, 2019, 21-27 21 application of blockchain technology in the supply chain management process: case studies sabri öz, (phd) istanbul commerce university, turkey hüseyin emre gören istanbul commerce university, turkey received: feb 26, 2019 accepted: april 14, 2019 published: june 15, 2019 abstract with the development of technology, new approaches have been used in industry, agriculture and services sector. the remaining sectors in technological factors remain behind in competition. within the 7r of logistics, each area is disadvantaged. in order to turn these negative conditions into a positive situation in all three sectors, the futuristic approaches should be closely monitored by all sector and corporate managers. in this study, we focus on the use of blockchain technology, which is a relatively new concept and used in limited areas, in the supply chain management process. in the first part, both the supply chain and the blockchain technology are conceptually expressed and introduced. in the last section, examples are included and evaluations are expressed. the study is in the form of case studies and observations review. keywords: supply chain, blockchain, supply chain management, tekno logistics. 1. supply chain management and blockchain in this section, basic concepts are briefly mentioned. when supply chain management is considered as a process, how blockchain technology will contribute to this process and what kind of interactions are explained in the next section. 1.1 definitions of supply chain management supply chain is defined by the council of supply chain management professionals (cscmp) as; supply chain management is responsible for the planning and management of resources, including procurement of resources, the transformation of these resources into products and all logistics management activities, as well as the cooperation with suppliers, intermediaries, third-party service providers and finally channel partners involved in this process. and coordination process[1] from the main source of supply chain management, side sources, ie side suppliers, and ultimately end-user groups, there are at least three studies. what is important is the management of the flow between stages. three-way flow (source to end-user, inverse and bidirectional) flowing material and money in the opposite one another, document, feedback, work orders, etc. the information is bi-directional. supply chain management is a set of functions of controlling money and goods flow using process management knowledge. 1.2 the process of supply chain management supply chain management encompasses all actions ranging from strategic-level actions of firms involved in the effective integration of suppliers, producers and distribution centers into tactical and operational-level actions. [2] 22 sabri öz & hüseyin emre gören 22 quality-oriented enterprises depend on their understanding of supply chain management processes and their ability to design these processes accurately and rationally. supply chain management is a process-oriented strategy and targets high quality at low cost. therefore, the processes that constitute the supply chain management have a critical importance for business success. [3] supply chain management processes are considered as eight processes defined by the members of the global supply chain forum. [4] customer relations management customer service management demand management order processing production flow management supplier relationship management product development and commercialization returns management 1.3 blockchain technology blockchain, also called blockchain technology, is an encrypted filing system that essentially ensures that the data block in a network environment is monitored, validated and permanently recorded by all users who have been granted access to that network, and stored permanently in a decentralized non-invariant distributed database. [8] figure 1: blockchain process source: crosby, 2016 2. the relations between blockchain and supply chain management income outside of the finance field, the block-chain studies have started to be experimentally in the recent past and the related studies continue to be concentrated day by day. block chain applications are not only in financial fields application of blockchain technology in the supply chain management process 23 23 but also in supply chain, energy, food and agriculture. thanks to the traceability, transparency and reliability features of blockchain's main backbone, efforts to ensure integration and transformation with other fields of work continue under the leadership of globally renowned firms. the supply chain is in the forefront among many activities to be transformed by blockchain. the use of internet-ofthings (iot) applications tends to affect supply chain management (scm). thanks to the internet of things (iot), radio frequency identification (rfid) tags, sensors, barcodes, gps tags and chips, the location of products, packages and shipping containers is traceable at every step. this technology enables advanced, real-time tracking of products from their initial output. [5] to use blockchain technology, facilitates the effective and hence effective measurement of revenue and performance through the supply chain processes that play a key role. when the input tracking data is processed in the registry of a blockchain, they cannot be modified. other suppliers in the chain can track shipments, deliveries and progress. in this way, the trust between the suppliers is established through the block chain. by eliminating intermediaries, efficiency can be increased and costs can be reduced. individual suppliers can perform their own checks and balances in real time [6]. new technologies offer promising opportunities for improvement across the supply chain. the use of a block chain in the supply chain has the potential to improve the transparency and traceability of the supply chain and reduce administrative costs [9] measurement of supply chain management performance is usually defined fort he sake of followings: cost speed reliability risk reduction sustainability flexibility [7]. all these performance metrics provide significant benefits in the qualitative transformations of the processes of the above-mentioned supply chain management processes.. 2.1. case studies of supply chain processes system interaction and transformation of blockchain and supply chain management processes will be explained with the observed case studies. at the end of the relevant sampling, the correlation between the supply chain performance measures and the supply chain processes will be scheduled. 2.1.1 blockchain application at maersk & ibm the danish freight forwarder, maersk, is the world's largest container carrier, accounting for 18% to 20% of the market [10] maersk is a high profile example of a company that successfully tests block chain applications in international logistics. maersk uses this method for the gps positions, temperatures and other data of the containers it transports all over the world. maersk has been looking for a better solution for tracking the speed of the loading and unloading operations, as well as the tracking of ships and hence transported containers. in 2014, they began to evaluate the situation with the delivery of fresh fruits and roses from east africa to europe. [11] containers were loaded to the ship in a very short period of time, but the documents needed to move the ship were exposed to waiting days. for this designated container, close to 30 people, such as customs, tax officials and health checkers, have been requested and approved. [10] in this process, the products in the container could be damaged. transport fee up to customs and so on. document costs were incurred. fraud is a common situation in the global supply chain system. in this process, tricks on the container billets can be made illegally copied and criminal objects can be placed in the container. ibm and maersk, in september 2016, created a concept (poc) document following a flower-loaded container from kenya's mombasa port to the netherlands / rotterdam. the cost of shipping in the poc was $ 2,000 and the 24 sabri öz & hüseyin emre gören 24 documentation was calculated as approximately $ 300 (15% of the cargo value) [10] and the poc was considered a success. maersk and ibm followed the system to track anans loaded containers from colombia and mandarin oranges from california [12]. then in february 2017, a pilot project started with schneider electric's empty containers in france lyon. then the factory was filled with empty container goods and sent to rotterdam. in rotterdam, the container was loaded onto a maersk line ship and moved to newark harbor in the usa. the number of agencies involved in the pilot is an idea of the complexity of international transport. institutions include the dutch customs administration, the us department of internal security science and technology, and the us customs and border protection. [10] figure 2: shipping flow source: maersk application, web saite. shipping information line it provides end-to-end supply chain visibility of all actors involved in global shipping in order to change ship events in real time in a safe and seamless way. paperless trade it digitizes and automates document filing for the import and export of goods by ensuring end-users secure, documented and stamped documents across national and organizational boundaries. currently, ibm and maersk have announced that they launched a joint venture in january 2018 with the use of block chain technology to launch more efficient and safe methods for carrying out global trade. 2.1.2 modum case the swiss entrepreneurship firm modum collaborated with the university of zurich to design a system for the safe distribution of pharmacochemical drugs. to ensure availability, most drugs should be transported under full temperature, humidity and light conditions. the sensors associated with the mode continuously measure these conditions on the drugs being transported. in the current system, cargoes include multiple handling and many paperwork, which can also be changed. [13] in the eu, with a recent regulatory change known as the good delivery practice for medicinal products for human use (gdp 2013 / c 343/01), companies must report any deviations in temperature or other conditions in the affected recipients as well as in the dispensers. today, the only way to comply with the new regulations is to use refrigerated trucks, which is an important part of the cold chain distribution. these trucks are usually four to eight times more expensive than normal logistics services. however, 60% of the 200 million-year shipment in the eu does not include temperature-sensitive products. in this case, $ 3 billion a year is spent for unnecessary cooling [14]. application of blockchain technology in the supply chain management process 25 25 figure 3: the documents of the transportation principles for medicine source: european commission for the best practice (gdp 2013 / c 343/01) as reported, the drugs have three temperature categories that need to be stored: cold (-20 ° c), cool (2 ° ° c) and room temperature (15 ° ilaç25 ° c). my mode is focused on the transportation of the so-called room temperature. medical supplies that do not require cooling are monitored by a modum sensor to monitor the temperatures of the drugs. this means that the cold chain truck is not necessary. when the drug reaches the target, the data is transferred to the ethereum block chain. [14] compares the smart contract with the legal requirements. if all the necessary conditions are met, the product is put on the market. if the temperature and other monitored conditions deviate significantly from the legal requirements, a deviation is reported to the sender and the receiver. modum first pilot project was held in june 2016 [14] 2.1.3 intel's marine supply chain tracking application in april 2017, intel released a public demo explaining how the marine supply chain could be monitored using the open source sawtooth code base. in order to ensure that all subsidiaries comply with food storage requirements, the ürün ocean to table du project aims to increase the accuracy and accuracy of marine traceability. [15] the data of four trading transactions started to be tracked via https://provenance.sawtooth.me/# . in this process, iot telemetric information and temperature information of the portion of the sea products to the marketer were related to the system. [15] like marine products in this case, iot sensors can be added to telemetry parameters such as location, temperature, humidity, regional motion, product shock, etc., for monitoring of any nutrients delivered to another person for supply. the end-user can access a complete record of information so that the system can ensure that the information is accurate and complete. 26 sabri öz & hüseyin emre gören 26 figure 4: intel’s marine supply chain transaction 2.2. roles of blockchain in reaching various strategic supply chain goals in supply chain management, there are several mechanisms to reduce costs in block chain applications. however, the transport / courier system carrying documents such as classical paper-based processes and air courier costs can be left out of the chain.[5] as a result of paper-free studies and related special digital contracts, the speed within the system is higher than the traditional supply chain. as in the case of maersk, blockchain shows that all documents for shipping containers can be fully digitized and containers can be traced. the modum example clearly shows us that it is possible to allocate the right amount of resources in order to perform shipping and other activities in the blockchain. [5] in intel's work on seafood, transparency reveals confidence across the supply chain. automation in the chain saves time and operating costs. as a result, sellers and consumers know what they buy and what they pay for. another important issue in the applications of block chain is to verify sustainability. as a remarkable development, consumers are increasingly concerned about the source of food and beverages. blockchain can relieve consumers' concerns about the source of food and beverages by making indicators of sustainability more measurable and more meaningful. [5] finally, using the block chain, a higher degree of flexibility can be achieved in the supply chain. flexibility can be defined as the ability of the supply chain to varying competition for timely and cost-effective supply of products and services. [16] 3. conclusion it is observed that the cases of blockchain technology are important applications in the new period and era. this technology, which is pioneered by the financial sector, has already been able to move into practice in very few areas. the practices carried out in successful areas in the finance sector have been a light of hope for other sectors. a supply chain management has been defined as a process that lasts up to the end user in the use of raw materials in nature. in this process, it is seen that some logistic groups adopt the blockchain logic as a different network. cost, traceability, and in particular safety factors make it possible to increase blockchain utilization across the sector. as can be seen from the examples given, it has been observed that the basic principles of block chain logistics will be used not only in transporting institutions but also in all stages of agriculture industry and service sector. in order to avoid the competitive advantage of the new generation of technologies and competition, the advantages of blockchain technology are worth not to be kept waiting. in this respect, it is necessary to measure the efficiency and effectiveness of the service sector in the establishment of blockchain applications, how to use human resources, and how to manage trained operators with regard to blockchain application of blockchain technology in the supply chain management process 27 27 references [01] professionals, c. o. (2011). supply chain and logistics terms-glossary. http://www.cscmp.org. adresinden alındı [02] çemberci, m. (2011). tedari̇k zi̇nci̇ri̇ yöneti̇mi̇ performansinin göstergeleri̇ ve fi̇rma performansi üzeri̇ne etki̇leri̇: kavramsal model öneri̇si̇. kocaeli. [03] öztürk, d. (2016). tedarik zinciri yönetimi süreçlerini etkileyen faktörler. uluslararası sosyal ve ekonomik bilimler dergisi, 6(1), 17-24. [04] croxton, k. l. (2001). the supply chain management processes. the international journal of logistics management, 12(2), 13-32. [05] kshetri, n. (2018). blockchain's roles in meeting key supply chain management objectives. international journal of information management(39), 80-89. [06] koetsier, j. (2017). blockchain beyond bitcoin: how blockchain will transform business in 3 to 5 years. http://www.inc.com: https://www.inc.com/john-koetsier adresinden alındı [07] purba rao, d. h. (2005). do green supply chains lead to competitiveness and economic performance? international journal of operations & production management, 25(9), 898-916. [08] kayıkçı, y. (2018, 04 01). blockchain teknolojisi nedir ve lojistiği nasıl etkileyecek? http://www.yesillojistikciler.com: http://www.yesillojistikciler.com/haber/blockchain-teknolojisi-nedir-velojistigi-nasil-etkileyecek-15475.html adresinden alındı [09] stephen laaper, w. y. (2017). deloitte. 04 04, 2018 tarihinde www2.deloitte.com: https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html adresinden alındı [10] groenfeldt, t. (2017, 03 05). ibm and maersk apply blockchain to container shipping. 04 05, 2018 tarihinde www.forbes.com: https://www.forbes.com/sites/tomgroenfeldt/2017/03/05/ibm-and-maersk-applyblockchain-to-container-shipping/#274b9c953f05 adresinden alındı [11] bajpai, p. (2017, 03 06). how ibm and maersk will use the blockchain to change the shipping industry. 04 05, 2018 tarihinde https://www.nasdaq.com: https://www.nasdaq.com/article/how-ibm-and-maersk-will-usethe-blockchain-to-change-the-shipping-industry-cm756797 adresinden alındı [12] nathaniel popper, s. l. (2017, 03 04). blockchain: a better way to track pork chops, bonds, bad peanut butter? 04 05, 2018 tarihinde https://www.nytimes.com: https://www.nytimes.com/2017/03/04/business/dealbook/blockchain-ibm-bitcoin.html adresinden alındı [13] allen, m. (2017, 03 09). how blockchain could soon affect everyday lives. 04 06, 2018 tarihinde http://www.swissinfo.ch: http://www.swissinfo.ch/eng/joining-the-blocks_how-blockchain-could-soon-affecteveryday-lives/43003266 adresinden alındı [14] campbell, r. (2016, 11 12). modum.io's tempurature-tracking blockchain solution wins accolades at kickstarter accelerator 2016. 03 06, 2018 tarihinde https://bitcoinmagazine.com: https://bitcoinmagazine.com/articles/modum-io-s-tempurature-tracking-blockchain-solution-wins-accolades-atkickstarter-accelerator-1479162773/ adresinden alındı [15] castillo, m. d. (2017, 04 6). intel demos seafood tracking on sawtooth lake blockchain. 04 06, 2018 tarihinde https://www.coindesk.com: https://www.coindesk.com/intel-demos-seafood-tracking-sawtooth-lakeblockchain/ adresinden alındı [16] swafford, p. g. (2000). a model of global supply chain agility and its impact on competitive performance. proceedings of the 31st national dsi meeting, (s. 1037-1039). [17] wee, v. (2018, 03 16). apl, ab inbev, accenture, kuehne + nagel successfully test blockchain for shipments. 04 06, 2018 tarihinde http://www.seatrade-maritime.com: http://www.seatrademaritime.com/news/europe/apl-ab-inbev-accenture-kuehne-nagel-successfully-test-blochchain-for-beershipments.html adresinden alındı. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 44-53 44 liquidity and profitability analysis in the palestinian banking sector mohammed zaineldeen istanbul commerce university, turkey received: may. 12, 2018 accepted: may. 30, 2018 published: june 1, 2018 abstract: this study aims to examine the relation between liquidity and profitability in the palestinian banking sector to contribute t o the development of the financial sector. the relation between liquidity and profitability between the years 2010-2016 was examined by using normal distribution test, anova, t test and f test. regression was performed with spss 24.0 program. as a result, there is the existence of a positive and meaningful relation between return on assets (roa) and return on equity (roe) and monetary liquidity ratio, there is a negative and significant relation between return on assets (roa) and return on equity (roe) and loan to deposit ratio (ltd). keywords: liquidity, profitability, the palestinian banking sector. 1. introduction palestine is different from other countries because it is under israeli occupation. israel is benefiting from all sources, including financial resources in palestine. the palestinian banks have played an important role in influencing financial policies to serve the palestinians financially and to diversify the national economy and the available financial resources. the banking sector in all countries as a sector perform an important function in the development of the financial system and it is working to improve the quality of service and profit maximization. for this reason, the banking sector is affected by various factors such as long-term and short-term credits. they support a balance between the amount of liquidity available and the profitability in order to fulfill the bank's obligations. the liquidity indicators and profitability ratios of the banks used in the study were tested empirically. the financial activity of the palestinian banking sector and its components has been analyzed. 2. literature kenaan (2002) examined the effect of liquidity and profitability in jordan's commercial banks during 1985-1999 period. as a result, it is concluded that there is a statistically significant negative relation between the liquidity ratio and the return on equity and that there is a positive relation between the equity portfolio profitability ratio and the securities portfolio. ebu zaiter's (2006) study, the factors affecting the profitability of commercial banks operating in palestine examined the profitability of commercial banks operating in palestine and the indicators used to measure them. it is concluded that there is a statistically significant correlation between the return rate of assets and the return on equity. there is also a significant relation between the cash and the profitability ratio measured by the profitability ratios of assets. . nuri's (2009) study, the profitability of banks was evaluated using liquidity indicators. conducted a comparative study between two banks in iraq during 1997-2001 period. the most important result is that the liquidity indicators of both banks are weak and insignificant on the banking profit indices, but the liquidity is an index other than the legal reserves. liquidity and profitability analysis in the palestinian banking sector 45 bordeleau & graham (2010) study, the effect of liquidity on the profitability of the bank was examined for the banks of canada and usa between 1997 and 2009, as a result, the existence of a non-linear relation that increases the profitability of banks with certain liquid assets and the fact that raising the liquidity of assets to a certain level is contrary to the profitability of the banks. wambu (2013) studied the relation between the profitability and liquidity of commercial banks in kenya between 2008-2012. as a result, it is having a positive relation between liquidity and profitability, and have found that liquidity is one of the determinant of the profitability of commercial banks. lartey, antwz & boadi (2013) studied the relation between banks' liquidity and profitability in ghana between 2005 and 2010, the existence of a weak positive relation between the liquidity and profitability in listed banks in study. alshatti (2014) studied the impact of liquidity management on profitability in jordan's commercial banks for the period (2005-2012). empirical results show that the rapid increase in the rate of existing mutual funds leads to an increase in profitability, and an increase in the ratio of capital and liquid assets leads to a decrease in profitability. ali han and ali (2016) examined the effects of liquidity on commercial banks' profitability in their work during 2004-2013 and as a result show that liquidity has a positive relation with profitability and has a significant effect on the profitability of commercial banks in pakistan. ahmed (2016) carried out a research on the relation between pakistan standard chartered bank liquidity and profitability between 1997 and 2009. as a result, the result of the study is that there is a positive relation between profitability and liquidity. there is a negative relation between flow rate and profitability. there is a positive relation between net operating capital and profitability. dabiri, rosylin & norazlina (2017) conducted an empirical analysis for the years 2005-2015 on the profitability and liquidity of islamic banks in the united kingdom. as a result of the study, it is concluded that the liquidity has a negative and significant effect on short and long cycle work and there is not found negative and bidirectional causal relation between liquidity and profitability. 3. data & method several the financial statements of the banks analyzed in order to investigate the profitability and liquidity in the palestinian banking sector were accessed through the web sites of palestinian banks, the website of the palestinian monetary authority , the website of the palestinian stock exchange and the website of the bankers' association in palestine . the accuracy of the data has been checked and verified. the banks used in the analysis are listed in annex 1. the required financial data were collected, classified and analyzed from the bank's balance sheet and income statements. the following ratios were calculated to obtain the rates required for the study. liquidity ratios; monetary liquidity ratio = the funds cash / total customer deposits * 100% loan to deposit 'ltd' = credit facilities / total customer deposits * 100% profitability ratios; return on equity ratio 'roe' = net profit after tax / equity * 100% return on assets ratio 'roa' = net profit after tax/ assets * 100% research model: to investigate the relation between liquidity ratios as independent variable and profitability ratios as a dependent variable, the model of the research was constructed as seen in the following figure. liquidity loan to deposit 'ltd' (ltd) monetary liquidity ratio profitability return on equity ratio 'roe' return on assets ratio 'roa' independent variable dependent variable mohammed zaineldeen profitability is a dependent variable affected by various factors such as liquidity. the liquidity and profitability ratios used to investigate the relation between liquidity and profitability in palestinian banks in the given period are given in table 1. liquidity ratios as independent variables and profitability ratios as dependent variables were used in the study. table 1: liquidity and profitability ratios used in the study the hypothesis of the research is summarized as follows. hypothesis 1: h0: there is no relation between monetary liquidity ratio and return on equity in palestinian banks. h1: there is a relation between monetary liquidity ratio and return on equity in palestinian banks. hypothesis 2: h0: there is no relation between monetary liquidity ratio and return on asset ratio in palestinian banks. h1: there is a relation between monetary liquidity ratio and return on asset ratio in palestinian banks. hypothesis 3: h0: there is no relation between loan to deposit ratio and return on equity ratio in palestinian banks. h1: there is a relation between loan to deposit ratio and return on equity ratio in palestinian banks. hypothesis 4: h0: there is no relation between loan to deposit ratio and return on asset ratio in palestinian banks. h1: there is a relation between loan to deposit ratio and return on asset ratio in palestinian banks. in figure 1 below, the profitability ratios used in the study between 2010 and 2016 are shown. the ratio of both the return on assets (roa) and return on equity (roe) has decreased in the last 7 years. type symbol profitability ratios type symbol liquidity ratios dependent y1 return on equity ratio 'roe' independent x1 monetary liquidity ratio dependent y2 return on assets ratio 'roa' independent x2 loan to deposit 'ltd' liquidity and profitability analysis in the palestinian banking sector 47 figure 1: profitability ratios in the palestinian banking sector during 2010-2016 figure 2 below shows the liquidity ratios used in the research in 2010-2016. both the monetary liquidity ratio and the loan to deposit ratio ltd value have decreased in the last seven years. figure 2: liquidity ratios in the palestinian banking sector during 2010-2016 4. analysis findings skewness and kurtosis normality test were applied to the data. it has been determined that the skewness and kurtosis values in the test result are within the reference values . in addition, the shapiro-wilk test was used and the following hypotheses were tested to see that the data had normal distribution ; h0: the data do not have normal distribution. h1: the data have normal distribution. table 2: normality tests shapiro-wilk test test results are given in table 2. the data were tested and consequently the alternative hypothesis (h1) was accepted and the data were found to have normal distribution since the value of the tests was greater than 0.05. accordingly, the correlation coefficient and the variance coefficient can be tested and the regression line equation can be extracted and the values of "f" and "t" are tested. ratios statistic df sig. return on equity ratio 'roe' 0.898 7 0.319 return on assets ratio 'roa' 0.935 7 0.593 monetary liquidity ratio 0.927 7 0.362 loan to deposit 'ltd' 0.903 7 0.353 mohammed zaineldeen table 3: correlation analysis between liquidity and profitability source: spss correlation analysis results show that the values close to 0 are linear and weak between the two variables, while the values close to 1 indicate a linear and strong relation between the variables . according to the correlation test results in table 3; there is a positive bidirectional and strong relation between return on equity ratio "roe" and monetary liquidity ratio (r = 0.855), there is negative bidirectional and very strong relation between return on equity ratio "roe" and loan to deposit ratio 'ltd' (r = -0,995), there is positive bidirectional and very strong relation between return on assets ratio "roa" and monetary liquidity ratio (r = 0.942) and there is negative bidirectional and very strong relation between return on assets ratio "roa" and loan to deposit ratio 'ltd' (r = -0,981). all relations were statistically significant at the level of 0,01 and 0,05. liquidity and profitability in the palestinian banking sector anova test the findings are as in table 4 in follows. we can subtract the regression level and calculate the value at an indicator (0.05). if the f test is higher than the f table (4.28), we can conclude that the test is good and the regression equation can be written and statistically significant. table 4: regression analysis between liquidity and profitability using anova test source: spss a. return on equity "roe and monetary liquidity regression line equation findings; return on equity ratio 'roe' return on assets ratio 'roa' monetary liquidity ratio loan to deposit 'ltd' return on equity ratio 'roe' pearson correlation 1 **.971 .855* **-.995 sig. (2-tailed) 0.000 .014 0.000 n 7 7 7 7 return on assets ratio 'roa' pearson correlation **.971 1 .942** **-.981 sig. (2-tailed) 0.000 0.002 0.000 n 7 7 7 7 monetary liquidity ratio pearson correlation .855* .942** 1 -0.697 sig. (2-tailed) .014 0.002 0.082 n 7 7 7 7 loan to deposit 'ltd' pearson correlation **-.995**-.981-0.697 1 sig. (2-tailed) 0.000 0.000 0.082 n 7 7 7 7 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). regression sum of squares df mean square f sig. return on equity ratio 'roe' monetary liquidity ratio 6.656 6 6.656 13.561 .014 loan to deposit 'ltd' 9.024 6 9.024 519.456 .000 return on assets ratio 'roa' monetary liquidity ratio 0.138 6 0.138 8.021 .002 loan to deposit 'ltd' 0.215 6 0.215 125.477 .000 liquidity and profitability analysis in the palestinian banking sector 49 source: spss the equation of regression line between return on equity ratio 'roe' and monetary liquidity ratio can be written as follows; y1=(0.234)x1 4.497 the value of t (2.001) is statistically significant as it is greater than the value of t (2.015). according to the regression coefficients; the level of the relation between return on equity and monetary liquidity is significant (p <0.05). monetary liquidity contributes to the coefficient of 0,855 in the formation of return on equity. so, as the monetary liquidity coefficient increases, the return on equity will also increase. also; monetary liquidity predicts the return on equity as 73% (r2) in the positive direction. b. return on assets "roa" with monetary liquidity regression line equations findings source: spss the regression line equation between return on assets "roa" and monetary liquidity can be written as follows: y2=(0.04)x1 1.261 the value of t (6.265) was statistically significant as it was larger than the t-table (2.015). also; the level of the relation between return on assets and monetary liquidity is significant (p <0.05). monetary liquidity in the formation of profitability of assets contributes to the coefficient of 0,942. so, as the monetary liquidity coefficient increases, the return on assets will also increase. also; monetary liquidity predicts return on assets at 88.7% (r2) in the positive direction. c. return on equity "roe" with loan to deposit 'ltd' regression line equations findings acoefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -4.497 4.033 -1.115 0.315 monetary liquidity ratio 0.234 0.064 0.855 3.683 0.014 a. dependent variable: return on equity ratio 'roe' acoefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -1.261 0.410 -3.080 0.027 monetary liquidity ratio 0.040 0.006 0.942 6.265 0.002 a. dependent variable: return on assets "roa" mohammed zaineldeen source: spss the equation of regression line between return on equity "roe" and loan to deposit 'ltd' can be written as follows; y1=(-0.204)x2 + 21.154 the value of t (22.8) is statistically significant because it is larger than the t-table (2.015). the level of the relation between return on equity and loan to deposit ratio is significant (p <0.05). the loan to deposit ratio in the formation of return on equity is in the coefficient of -0,995. therefore, as the loan to deposit ratio coefficient increases, the return on equity will decrease. also; loan to deposit ratio predicts return on equity at 99% (r2) in the negative direction. d. return on assets "roa" with loan to deposit 'ltd' regression line equations findings source: spss the equation of regression line between return on assets "roe" and loan to deposit 'ltd' can be written as follows; y2=(-0.031)x2 + 2.973 the value of t (11.2) is statistically significant because it is larger than the t-table (2.015). the level of the relation between return on assets and loan to deposit ratio is significant (p <0.05). the loan to deposit ratio in the formation of return on assets is in the coefficient of -0,981. therefore, as the loan to deposit ratio coefficient increases, the return on assets will decrease. also; loan to deposit ratio predicts return on assets at 96% (r2) in the negative direction. 5. conclusion acoefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 21.154 .478 44.265 .000 loan to deposit 'ltd' -.204.009 -.995-22.792.000 a. dependent variable: return on equity ratio 'roe' acoefficients model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 2.973 .150 19.787 .000 loan to deposit 'ltd' -.031.003 -.981-11.202.000 a. dependent variable: return on assets "roa" liquidity and profitability analysis in the palestinian banking sector 51 this study aimed to examine the relation between profitability and liquidity of banks in the palestinian banking sector between 2010 and 2016 using the liquidity ratios of banks and profitability ratios. in other words, how banks could maintain the balance between liquidity and profitability was researched and based on the results of the research, in the palestinian banking sector, there is a relation between liquidity and profitability measured by return on equity (roe) and return on assets (roa). there has been found to have a positive and meaningful relation between return on assets (roa) and return on equity (roe) with monetary liquidity ratio. there has been found to have a significant negative relation between return on equity (roe) and return on assets (roa) with loan to deposit ratio. in order to ensure sufficient liquidity for palestinian banks to efficiently run their businesses, it was necessary to adopt a general framework of liquidity management and to evaluate the banks statistically in order to balance the resources of the banks and the use of funds. under the sudden economic and political conditions that palestinian banks may face, it is necessary to identify the strengths and weaknesses of banks in terms of liquidity. as a result of the econometric analysis of the study, we can summarize the relation between the profitability and liquidity of the palestinian banking sector in order; there is a strong positive and statistically significant relation between monetary liquidity ratio and the return on assets 'roa'. there is a strong, negative, and statistically significant relation between the loan to deposit 'ltd' and the return on assets 'roa'. there is a strong, positive and statistically significant relation between the monetary liquidity ratio and the return on equity 'roe'. there is a very strong, negative and statistically significant relation between the loan to deposit 'ltd’ and the return on equity 'roe'. all liquidity ratios and profitability ratios can be formulated in a linear equation. overall, liquidity has been seen as one of the most powerful factors affecting the profitability of palestinian banks. references ahmad, rafiq. a study of relation between liquidity and profitability of standard charterd bank pakistan: analysis of financial statement approach. global journal of management and business research, 2016.‏ alshatti, ali sulieman. the effect of the liquidity management on profitability in the jordanian commercial banks. nternational journal of business and management, 2014, 10.1: 62.‏ alshatti, ali sulieman. the effect of the liquidity management on profitability in the jordanian commercial banks. nternational journal of business and management, 2014, 10.1: 62.‏ bai, jushan; ng, serena. tests for skewness, kurtosis, and normality for time series data. journal of business & economic statistics, 2005, 23.1: 49-60.‏ basil jabr hassan abu zuaiter; supervision / ali abdullah shaheen. factors affecting the profitability of commercial banks operating in palestine (1997-2004). 2006. bordeleau, étienne; graham, christopher. the impact of liquidity on bank profitability. bank of canada working paper, 2010.‏ dabiri, mohammad alfurqan olamilekan; yusof, rosylin mohd. profitability and liquidity of slamic banks in the united kingdom. asian journal of multidisciplinary studies, 2017, 5.4: 66-72.‏ kalayci, şeref. spss uygulamalı çok değişkenli istatistik teknikleri. ankara, turkey: asil yayın dağıtım, 2010. kenaan, hatem. liquidity in the jordanian commercial banks and their impact on profitability for the period 1985-1999. unpublished ma thesis, faculty of economics and administrative sciences, al al-bayt university, mafraq, jordan, 2001.‏ khan, rizwan ali; ali, mutahhar. mpact of liquidity on profitability of commercial banks in pakistan: an analysis on banking sector in pakistan. global journal of management and business research, 2016.‏ lartey, victor curtis; antwi, samuel; boadi, eric kofi. the relation between liquidity and profitability of listed banks in ghana. nternational journal of business and social science, 2013, 4.3.‏ mohammed zaineldeen macharia, wambu timothy. the relation between profitability and liquidity of commercial banks n kenya. 2013.‏ mertler, c. a., & vannatta, r. a. (2005). advanced and multivariate statistical methods: practical application and interpretation(third edition). united states: pyrczak publishing. saldanli, arif. likidite ve karlılık arasındaki i̇lişki-i̇mkb 100 i̇malat sektörü üzerine ampirik bir çalışma. 2012.‏ wolski, rafal; bolek, monika. liquidity–profitability relation analysed once again. the case of poland. european scientific journal, esj, 2016, 12.7.‏ palestine monetary authority (pma), 2011, annual report 2010: september. ramallah – palestine ‏ palestine monetary authority (pma), 2012, annual report 2011: september. ramallah – palestine ‏ palestine monetary authority (pma), 2013, annual report 2012: september. ramallah – palestine ‏ palestine monetary authority (pma), 2014, annual report 2013: september. ramallah – palestine ‏ palestine monetary authority (pma), 2015, annual report 2014: september. ramallah – palestine ‏ palestine monetary authority (pma), 2016, annual report 2015: september. ramallah – palestine palestine monetary authority (pma), 2017, annual report 2016: september. ramallah – palestine ‏ http://www.pma.ps/default.aspx?tabid=509&language=en-us {01/02/2018} http://www.pex.ps/psewebsite/english/listedcompanies.aspx?tabindex=0 {03/02/2018} http://www.abp.ps/english.php?ms_id=jspph8bgvya6657aekw3doowkj {04/02/2018} annex 1: banks total assets $ year established in palestine web site bank of palestine 4,118,629,230 1960 https://www.bankofpalestine.com/ arab bank 3,436,077,174 1994 https://www.arabbank.com/ cairo amman bank 976,959,109 1986 http://www.cab.jo/en/ quds bank 960,070,324 1995 http://www.qudsbank.ps/eng/ tnb bank 957,088,864 2006 https://www.tnb.ps/en/ palestinian islamic bank 809,082,569 1997 https://islamicbank.ps/en/ arab islamic bank 791,442,161 1996 http://www.aibnk.com/english/ housing bank for trade and finance 604,369,186 1995 https://www.hbtf.com/en/ bank of jordan 591,577,993 1994 http://www.bankofjordan.com/ jordan national bank 374,510,987 1995 http://ahli.com/en/ palestine investment bank 352,712,692 1995 https://www.pibbank.com/en/ jordan commercial bank 216,342,708 1994 https://www.jcbank.com.jo/en https://www.bankofpalestine.com/ https://www.arabbank.com/ http://www.cab.jo/en/ http://www.qudsbank.ps/eng/ https://www.tnb.ps/en/ https://islamicbank.ps/en/ http://www.aibnk.com/english/ https://www.hbtf.com/en/ http://www.bankofjordan.com/ http://ahli.com/en/ https://www.pibbank.com/en/ https://www.jcbank.com.jo/en liquidity and profitability analysis in the palestinian banking sector 53 arab egyptian bank 155,565,959 1994 https://en.aqaribank.jo/ jordan kuwait bank 125,165,800 1995 https://www.jkb.com/ al_safa bank 87,038,490 2016 https://www.safabank.ps/ https://en.aqaribank.jo/ https://www.jkb.com/ https://www.safabank.ps/ journal of international trade, logistics and law, vol. 4, num. 1, 2018, 31-43 embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach lokhman hakim osman universiti kebangsaan malaysia received: april 02, 2018 accepted: may 20, 2018 published: june 1, 2018 abstract: this is a network exploratory research looking at determining the different pattern of connectivity that may exist in a buyer supplier relationship of the supply network and how these differences affects the pattern of inter-firm positioning in the network. specifically, to address the lack of theoretical work on how connections in the supply network influence supply network outcome, this research examines how different buyer-supplier embeddedness configuration in the different type of buyer supplier network relations pertains to the different pattern of connectivity that may exist in a buyer supplier relationship of the supply network. this research adopted the social network analysis methodology from the field of sociology. findings showed that the embeddedness configuration of firms differ depending on the type of network relations. future research should attempt to conduct statistical test of the relationship posted in this study. keywords: container supply network, embeddedness, relational capital, supply chain, social network analysis 1. introduction it is argued that firms’ involvement in broader social structure construes relational capital and can have a positive impact on the outcomes of the firms (portes, 1998; cao cao, simsek,and jansen, 2015). relational capital is a concept that is being increasingly adopted in public policy, organizational study and more recently operation and supply chain research (baron, field and schuller, 2000; dakhli and de clercq, 2004; landry, amara and lamari, 2002; 2005, osman 2015;2017). its’ importance to the performance of a firm embedded in a supply network is paramount (choi 2006, 2018). the concept has been applied to elucidate and forecast different phenomena such as industrial districts (gordon, kogut and shan, 1997; reagans, ray and mcevily, 2003; walker, kogut and shan, 1997) emerging market (halaszovich and lundan, 2016). and across a country (dakhli and de clercq, 2004). at the same time, firms have recognized that their continuous pursuit of relational capital is often impeded by their lack of understanding its own network structure and its degree of network involvement (osman, 2017). this is understood as both have yet to be elucidated by researchers in the field of operation management (wu and pullman, 2015). issues regarding the suitable methodology and process contributed to the paucity of research. we extend this research by exploring how the different pattern of embeddedness configuration that firm may possessed in buyersupplier relationship influences the ways in which the buyer and supplier may acquire their level of relational capital outcomes. the relational capital has been metaphorically described in network literature as structure of connectivity (ozdemir et. al. 2016). some firms are connected to others in their environment. being connected to others increases trust between them and subsequently obligate the linked firms to support their partners. in this condition, firms are dependent on exchange with their joined partners. occupying a certain position the structure of these exchanges is by itself an invaluable asset to the particular firms. that asset is what is referred as relational capital, in essence, a concept of location impacts in varied market conditions. thus, the relational capital dimension is defined in this study as the form of capital emerged through connectivity structures or its embeddedness configurations that can 32 lokhman hakim osman create for certain actors a competitive advantage in pursuing their goals or objectives (tregear, and cooper, 2016; laud, et.al. 2015) . in this research we frame the relational capital dimensions as the embeddedness configuration. framing the relational capital dimensions as the embeddedness configuration is necessary because while the quality of relationships matter, the intensity, quantity and organization of firms’ interactions also influence behaviour in the supply network (kim, 2015). therefore, we consider the embeddedness configuration to represent the intensity and organization of supply network structure connectivity. choi and kim (2001) present the initial platform for operations and supply chain management researchers to adopt the embeddedness configuration concept into the supply of supply input in the supply network. using the social network approach, the authors present the embeddedness concept from the perspective of the supply chain. the authors posit the importance of framing organizations in the supply network (i.e. suppliers) as being embedded in a larger supply network than in isolation. such framing provides organizations in the supply network with better basis in developing policies and long-term strategies. the authors went on to posit that the embeddedness configuration of organizations in the supply network influence its performance, a statement in tandem with previous network research findings that found the configuration of network of relations can facilitate or impede an organization’s behaviours and performance (granovetter, 1985; burt, 1992; nohria, 1992). although, choi and kim (2001) article illuminate the essence of embeddedness in the supply network and its impact on the organization in the supply network, it did not describe the type of social network relationship that influences the degree of embeddedness of organization in the supply network and how these resulting embeddedness configuration would impact on the overall performance of the organizations in the supply network (osman, 2013). as many social network analysts would argue, network is resulting from the various social interactions or interorganizational relationship that took place between the actors (i.e. organizations) that reside in it. economic action is embedded in networks of relations (granovetter, 1985). if economic action is embedded in networks of relations, then a logical first step is to specify the dimensions of embeddedness configuration and the relations by which they influence economic action. this undertaking builds on the work of others who have launched the important enterprise of reintroducing social structure into the analysis of economic phenomena. in trying to demonstrate the unique organizational and market processes that follow from an understanding of social structure and economic performance, this research analysed the properties of embeddedness configuration and how they pertain to the network relations of both formal and informal in nature. thus, this research argue that where a firm is positioned in a supply network structure its different type of network relations will influence its embeddedness configuration thus consequently, the performance of the firm. this research did not attempt to determine the correlation between embeddedness configurations with performance as it has been proven by many earlier studies (granovetter, 1985; burt, 1992; nohria 1992; choi 2001). this research will attempt to elucidate, the degree of relational capital dimensions or embeddedness configuration in a formal supply network relationship such as contractual relationship versus informal supply network relationship may differ between the two. the research question that drives this study is: research question: how are the variations in embeddedness configuration associated with different kinds of supply network relations? 2. literature review or research background 2.1 embeddedness we conceptualized embeddedness configuration using the social network analysis and the embeddedness literature. according to granovetter (1985), embeddedness refers to the level of involvement of a firm in the network of inter relations. a firm’s levels of involvement have an impact upon its actions or behaviour in the network. granovetter (1985) advanced the concept of embeddedness as an effort by which to explain economic behaviour of an organization. embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 33 embeddedness configuration is based on the contextualization of economic activity in ongoing patterns of social relations and captures the contingent nature of an economic actor’s activities by the virtue of being embedded in a larger social structure (granovetter, 1985; simsek,and jansen, 2015). more specifically, economic decisions and outcomes are affected not only by the actor’s isolated relations with other individuals or firms in the network but also by the structure of the overall network of relations within which the actor resides i.e. its embeddeness configuration. economic behaviours are embedded in the network of relations that provide the context for economic processes (granovetter, 1985; ozdemir et. al. 2016). as every behaviour materializes through some form of outcome, almost all economic processes are presumed to be embedded in the networks of relations thus leading to the emergence of embeddedness configuration. consequently, because embeddedness configuration is the result of firms’ economic behaviour, it is safe to posit that organizational performance is influenced by the pattern of embeddedness of the organization in the network. since in the supply network, firm embeddedness relate to the degree of the interaction that a firm may has with other firms in the network which are a direct reflection of the firm degree of inter connectivity with others in a network. hence, one may conclude that organization performance in the supply network may also be influenced by the organization embeddedness configuration which may include parameters such as its centrality and connection (scott, 1998) with other organizations in the supply network (mueller, 2000). 2.2 network relationships being embedded in a supply network structure is an indication of interaction among firms in a supply network structure (tregear, and cooper, 2016 ). the resulting pattern of actors’ embeddedness configuration creates a network of interdependent social exchanges, and subsequently increasing the level of trust, reputation and respect present in the relationships. certain actors of the network may then emerge as trusted exchange partners who may come to assist in time of needs (ahuja, 2000; cousins et al., 2006). while this approach may have been widely applied and recognized in the individual and intra-organizational literature (gnyawali and madhavan, 2001; gulati, 1998; moran, 2005; simsek, lubatkin and floyd, 2003; uzzi, 1997), the central role of embeddedness in larger structure such as the supply network is often overlooked (yeniyurt, and carnovale, 2017). furthermore, although previous studies have confirmed that embeddedness configuration materialized in network relationships, these findings were centred in the context of a decentralised network structure. however, the embeddedness configuration in a centralized network structure remains unknown. 2.3 embeddedness configuration: centrality in this study, an element of embeddeness configuration that will become the focus of this research will be the centrality. centrality relates to the coreness of a firm position in a network of inter-firm relationships (freeman, 1979). by coreness is meant central location of the firms in the network. network analysts relate centrality with control and power as function of certain relational characteristics (hanneman and riddle, 2005). centrality can be measured as characteristics of the overall network in which it is called centralization. centrality can also be measured at the actor level property. centralization index ranges from 0 to 1, provides a measure of variation around a central tendency, similarly to the standard deviation (knoke and kuklinski, 1982; knoke and yang, 2008). three measures of centralization are commonly applied in the social network research are the degree centrality, closeness cen trality and betweeness centrality. in this study, the researcher adopted degree centrality centrality measures by which to illustrate firms’ centrality in the centralized upstream supply network structure. degree centrality measures the number of other firms in the centralized upstream supply network to which a firm is tied (freeman, 1979; wasserman and faust, 1994; scott, 1998). 34 lokhman hakim osman 2.4 embeddedness configuration and network relationship multiple and extensive interactions generate relational capital among firms. for example, uzzi (1997) found that, in order to obtain information regarding a potential partner before collaboration activities can be carried out; firms resort to close firms for information. the embeddesness configuration between the firms, argued uzzi (1997) and geels, (2014) is the result of multiple exchanges in the past. in the same vein, geels, (2014) highlighted that years of multiple inter-firm relationships generate dense embeddedness configuration among them. in addition to that, gulati and gargiulo (1999) found that negative gossip by third parties about another party’s uncooperative behaviour significantly reduces the likelihood of direct relations; whereas positive gossip strengthens the likelihood of direct relations among firms in the network. what this literature shows is that extensive interactions are a catalyst for relational capital or embeddedness configuration in networks of inter-firm relations (yeniyurt, and carnovale, 2017). thus, the literature indicates that firms in a network having a multiple and extensive relationship with other firms in the network may be perceived as trustworthy by others. since multiple and extensive relationships in network analysis can be pictured based on the level of firms’ centrality in the network structure, this thesis hypothesizes that: proposition: firms’ embeddedness configuration following their degree centrality position in the centralized supply network is subject to the type of inter firm relations. subheadings are italicized and left-aligned 3. methodology this research follows the exploratory and statistical social network analysis approach found in literature studies in order to determine how the impact of firms’ embeddedness in the centralized upstream supply network impacts upon the firms’ relational capital outcomes. in this section, the researcher briefly discusses and justifies the adoption of the sna methodology. this research follows the exploratory and quantitative social network analysis approach found in the literature in order to determine how firms’ relational capital outcomes are affected by their embeddededness in the supply network structure. in a social network analysis (sna) study, the relationships or ties between the actors in the network are the primary data collected while the actor attributes or characteristics serve as the secondary data. this is the unit of analysis of the study. social network analysis adopted both statistical and graphical methods to elucidate the relational and attribute data of the network members. the survey questionnaire consisted of closed-ended questions and openended questions. it begins by asking general questions and is followed by more specific and probing questions. in general, the questionnaire was framed following the standard of choi and hong (2002), provan and milward (1995), stone (2001), corteville and sun (2009) and cross and parker (2004) respectively. structuring of network of relations has an important implication for actors of the various networks (knoke and yang, 1998). given a collection of actors, a social network analysis can be used to study the structural variables measured on actors in the respective network. these structures involve the pattern of ties between the actors. a network analyst would seek to model these ties to depict the structure of a group. one could then investigate the impact of these structures on the functioning of the network or the influence of these structures on actors embedded within these network structures (hanneman and riddle, 2005). investigation of the implication of these structures upon the embedded firms requires a method that can analyse not only the characteristics of the actors, but also the relations between the firms that form the structures. wasserman and faust (1994) documented that the unit of analysis in network study is not just the actor, but consists of an entity made up from the collection of the actors and the linkages among them. an actor of the network, stressed knoke and kuklinski (1982) can be an individual, a team or even organisations. consequently, the unit of analysis of this study comprises the relationships between the firms and the attributes of firms of the apmmhq-1 upstream supply network. embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 35 in addition, wasserman and faust (1994) as well as lusher (2000) argued that the typical statistical method and analysis are not adept at measuring relations. one important fact behind this argument is that standard statistical analyses disavow the existence of relationships between firms in a network through the assumption of independence of observation. however, the network approach, more specifically the social network analysis (sna), focuses on the relations between firms and the pattern of the relations and the implication of the relationships (wasserman and faust, 1994). for the purposes of this study, a centralized upstream supply network of a small maritime industry seemed to be an ideal setting. a supply network in the maritime industry is a material-intensive enterprise. much of the activity is highly dynamic and is widely dispersed throughout the network. the flow of materials and information is transferred through interactions among different firms. because firms in a supply network operate in an environment having a high degree of complexity (bozarth et al., 2009) and uncertainty (wilding, 1998), these firms seek an edge through connections or interactions with members of the network. lambert and cooper (2000) stated that the key to these issues is the on-going relationship with other partners. they stressed the importance of investigating the relationships that suppliers and customers have. johnston et al., (2004) suggested that on-going relationships among members of the supply network increase efficiency and effectiveness of the supply network. the focal research site of this study is located in the peninsular malaysian cluster. the network, labeled here as apmmhq-1, is part of the centralized upstream supply network. apmmhq-1 is a company in the malaysian shipbuilding industry involved in ship repairs, maritime, engineering and related service provider matters. to date, the company has awarded contracts to local vendors and suppliers totaling rm 31 million for the development of small vessels in the region. recently, the company invested rm 100 million to create new facilities in different locations across malaysia to develop and service small vessels in the country. efforts are being undertaken to determine partners for the operations. apmmhq-1 has also crafted a vendor development program to work with the small and medium enterprises, attracting some firms to supply sbsr products and services. apmmhq-1’s centralized upstream supply network was considered to be one of the best supply systems in the region through its integrated logistic support (ils) programs. top level management was approached for possible participation in the study. after several communications about the goal of this study and the potentials' benefits for the apmmhq-1 supply network, positive commitments were received from the top management to participate in and grant participation for this study. in network studies, all the actors who are located within the naturally-occurring boundaries are included for analysis. consequently, network studies do not use samples as in the conventional sense; rather, it seeks to include all the actors in some population or populations (hanneman and riddle, 2005). as such, the research population for this study consists of all the supplier firms in the centralized upstream supply network of apmmhq-1. more specifically, this study investigates the firms operating in the upstream supply network of apmmhq-1 relating to the supply of parts and materials for the production of rigid hull inflatable boat (rhib) to the apmmhq-1. in apmmhq-1 production, the rhib is a small, fast craft that received the highest demand from the market. thereby, the upstream supply network for the rhib product is one of the most active networks of firms in the apmmhq-1 vast supply network variety. data analysis was performed using the social network analysis software i.e. the ucinet and netdraw. 4. results and discussion 4.1 visual analysis firm embeddedness configuration and degree centrality in this section, for the analysis of the effects of firms’ embeddedness configuration based on degree centrality, the researcher will first present the network maps of the network structure. this network map was developed is developed as the sociogram of the supply network. the result involves firm measures of network embeddedness configuration, i.e.: degree centrality in contract tie, information-sharing tie, referral made tie and referral received tie. this was carried using the program netdraw in generating the network map for supply network that includes the 36 lokhman hakim osman firms’ embeddedness attributes based on the degree centrality scores across all four ties. this will generate four network maps of supply network, which display the level of embeddedness configuration of firms in the network indicated by the size of the nodes in the maps. using these attribute data, the researcher developed four sociograms of the network, i.e., contract tie, information-sharing tie, referral made tie and referral received tie. figures 1, 2, 3 and 4 depict the network with node attributes measured based on degree centrality in four supply ties, i.e., the contract tie, information-sharing tie, referral made ties and referral received tie. the sociograms in figures 1, 2, 3 and 4 incorporated the firms’ measures of network embeddedness configuration (degree centrality) of each of the firm’s level of tier in the network. in each of the figures, nodes or firms are colored based on the nodes’ level of tier as reported by other network members. tier is the position that the firm occupy in the flow of materials in the supply network. for example, firm in tier lowest supply to firm in medium tier. firms in medium tier level supply to firms in highest. red square means the firm is in highest tier; green is medium tier and blue is lowest tier in the network. the rating for tier is based on flow of supply, as nominated by other firms in the apmmhq-1 upstream supply network structure. furthermore, the squares that represent the nodes or firms are in different sizes, which correspond to the level of embeddedness configuration measured based on degree centrality. thus the bigger the size of the square of firm in the network structure, the higher is the firm embeddedness configuration i.e. degree centrality. figure 1 shows the sociogram with embeddedness attribute based on degree centrality in contract ties. in figure 1, the researcher found a distinct core-periphery structure made up of several overlapping clusters. for example, the core actor in the sociogram i.e., the apmmhq-1, is also the node or firm with the highest embeddedness configuration score. on top of that, apmmhq-1 is moreover observed to be connected to other core actors of the network in other clusters such as wilsel-12. apmmhq-1 was also observed to be connected to other core nodes of another cluster, specifically wiluta-4, in the sociogram. wilsel-12 (which is central in the clusters) also possessed one of the highest embeddedness scores. in addition to that, the periphery network members who appear to be distant in the networks represent the nodes or firms which attained either medium or low scores. for example, pmmrsng-17 is one other periphery node of the network in the apmmhq-1 supply system which possessed a low embeddedness score. similarly, dmkbalu-33 and dmtawau-35 are also periphery nodes in network and possess low and medium embeddedness scores. embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 37 high tier medium tier low tier firm criteria: degree centrality figure 1 supply network with color on the nodes representing tier level and node size representing the degree centrality scores in the contract tie figure 2 shows the sociogram with embeddedness attribute based on degree centrality in information-sharing ties. from an overall perspective, figure 2 shows that the greatly embedded firms in the information-sharing tie are also largely among the central nodes in the supply system. for example, apmmhq-1, wilsab-31, mtupjaya-2, wilsel-12, and wiluta-4 are among the firms that are considered very central by other firms (red color). the size of the nodes also indicates that they are among the most highly-embedded based on degree centrality in the information-sharing tie. in addition to that, nodes that rated in low tier also exhibit low embeddedness scores based on degree centrality in the information-sharing tie. these firms include: dmtawau-34, dmkbalu-33, mtukbalu-37, mtukchng-30, pmmrsng-17, pmkkurau-19, dmkkntan-21, dmkganu-22, dmmiri28, mtuktan-24, and dmsdakan-22 respectively. 38 lokhman hakim osman high tier medium tier low tier firm criteria: degree centrality figure 2 supply network with color on the nodes representing tier level and node size representing the degree centrality scores in the information sharing tie structurally, this study found one intriguing finding of how highly embedded nodes in the information-sharing tie may not be among the highest in the supply tier, i.e., the mturawng-3. this phenomenon may be because the information-sharing is considered to be an informal form of ties that are forged without any sets of rules or terms, such as in contractual ties. in contractual ties, when there is a set of terms or rules governing the relationships, the firm may tend to forge ties with others that have more resources (such as materials). on the other hand, in the information-sharing ties, the connection between the firms is formed without any rules or regulations governing its informal nature. embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 39 high tier medium tier low tier firm criteria: degree centrality figure 3 supply network with color on the nodes representing tier level and node size representing the degree centrality scores in referral made tie. figure 3 shows the sociogram with embeddedness attribute based on degree centrality in referral made ties. in panel three, it is evident that greatly embedded firms having referral made ties are among the most valued in the network. for example, apmmhq-1, wilsab-31, wilsel-12, and wiluta-4 are the firms that are very connected with 40 lokhman hakim osman others. the size of the nodes also indicates that they are among the most highly-embedded based on degree centrality in the referral made tie. in addition to that, nodes that are lowest in their tier score equ ally important exhibit a low embeddedness score based on degree centrality in the referral made tie. these firms include: dmtawau-34, dmkbalu-33, mtukbalu-37, mtukchng-30, pmmrsng-17, pmkkurau-19, dmkkntan-21, dmkganu-22, dmmiri28, mtuktan-24, and dmsdakan-22. structurally, the highly embedded entities are basically the core nodes in the clusters of the supply network. for example, wilsab-31 is the core firm in the wilsab-31, dmlbuan-32, dmsdakan-34, pmldatu-36 cluster; apmmhq-1 is the core firm in the apmmhq-1, mtuktan-24 and wiltim-20 cluster; wilsel-12 is the core node in the wilsel-12, dmpklng-14, dmklggi-15, and pmbpahat-18 cluster, and wiluta-4 is the core firm in the wiluta-4, dmlkawi-5, dmppinang-6, dmlumut-7, pmkkedah-8, pmkkurau-9, and mtupinang-11 cluster. overall, figure 3 indicates those firms that are greatly embedded in the referral made tie based on degree centrality attribute are. high tier medium tier low tier firm criteria: degree centrality embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 41 figure 4 supply network with color on the nodes representing trust score and node size representing the degree centrality scores in referral received tie. figure 4 shows trust network with embeddedness attribute based on degree centrality in referral received ties. in figure 4, the highly embedded firms also positioned high in the network tier. for example, apmmhq-1, wilsab31, mtupjaya-2, wilsel-12, and wiluta-4 are among the firms that are most high by the tier standards. the size of the nodes also indicates that they are among the most highly-embedded based on degree centrality. the visual analysis in figures 1, 2, 3, and 4 reveals interesting findings in terms of prominent structural forms and the impact of involvement or embeddedness in formal versus informal supply ties. firstly, the researcher found that most firms having higher levels of tier in the formal tie, i.e. contract tie, do not necessarily materialize into firms high level of embeddedness configuration and vice versa. although one highly embedded firm (apmmhq-1) has high tier level, the visual analysis shows that other organizations (e.g. mturawng-3, mtujb-19, and mtkntan24) acquire lower embeddedness than others with lesser embeddedness or involvement scores (e.g. dmkchng-26, wiltim-20, dmbtulu-29). however, in the informal tie network, the visual analysis also indicates that the majority of firms that have high embeddedness attribute scores based on degree centrality in information-sharing ties are equally important the nodes that are highly trusted in the network. furthermore, it also indicates that firms with high levels of embeddedness attributes based on degree centrality in referral made ties, and referral received ties are also the firms that are considered trustworthy by other firms in the network. this study draws attention to firms’ embeddedness configuration of firms in the various types of relationships in a centralized supply network and the underlying impacts of these different network relations. more specifically, the researcher examined the relationship between a firm’s levels of embeddedness, based on its network structural positions in the centralized supply network in the context of the ship building industry. in the context of a centralized upstream supply network inter-firm relationship, it can be seen that related parties in the network of relationships encounter conflicts through goal incongruence and suspicions of asset abuse. similarly, where a party considers it has been unfairly treated by another party, there will be a higher chance of a more complex supply network resulting from these inter-firm relationships. organizational study scholars such as powell (1996) and putnam (1998) have proposed the adoption of a network form of organizational governance. they posit that this is an acceptable means to the inter-firm relations complexity as it can create numerous relational capital outcomes, such as trust, influence and reputation. further, it can also contribute to an increase of competitive advantage and economic performance in the context of decentralized network structure to the firms embedded in the network structure. consequently, the researcher addressed the issue of inter-firm relationships in the centralized supply network by investigating the pattern of firm embeddedness through its network structural positions in the four types of interfirm relations. it was evident to the exploratory network analysis of the network maps and network embeddedness measures that firm embeddedness in the centralized upstream supply network was related to the degree of formality of the network tie. the results found in the exploratory network analysis regarding the relationship of firm embeddedness and the formality or informality of the tier coordination mechanism indicate a different stance compared to the traditional view of embeddedness that the embeddedness depends upon the strength of the multiple ties (uzzi 1997). the difference between the perspectives of embeddedness found in this study, and the traditional perspective of embeddedness begs the question of how can these divergences be elucidated. if anything, what is fundamentally different about the centralized upstream supply network from the voluntarily formed network structure, i.e. the decentralized network structure that could account for these diverse findings? the explanation that the researcher 42 lokhman hakim osman provides here will focus on the unique form of the firms and the dynamics of the centralized upstream supply network. using exploratory network analysis, the researcher first developed the network maps of four network ties which are: the network contract tie, network information-sharing tie, network referral made tie and network referral received tie in order to determine the network embeddedness pattern of the four ties. this provides a general outlook of the supply network embeddedness structure. it is important to note that, in this analysis, based on earlier findings of organizational studies (cousins et al., 2001); the four network ties are viewed on a continuum of tie's coordination (formal versus informal relations). findings of embeddedness configuration (centrality) both supported and were in line with the research question developed for this study. accordingly, the following argument were discovered, discussed and applied to answer research question of this study. the argument relates to the pattern of embeddedness of firms based on the types of network relations. in the context of the centralized supply network structure, firms were found to be more embedded or involved in network relations that require fewer formal coordination approaches than in the network relations that were formally managed through terms and regulations. an example of this is the contract tie, as evidenced through the increased level of connectivity among firms shown in figure 1 (contract tie network map), figure 2 (information-sharing tie network map), figure 3 (referral made tie network maps) and figure 4 (referral received tie network map). 5. conclusion the results of the exploratory network analysis conformed to similar findings in the literature. for example, polanyi (1957) posited that the embeddedness of economic actions was supplemented by market approach in the postindustrial societies. in addition, granovetter (1985) reiterated this position in his study, wherein the author posited that all economic actions were embedded in networks of social relations. following that, uzzi (1997) found that in the apparel business, although contracts govern the transactions between firms, the author found that firms rely most upon the web of social exchanges. the finding of the exploratory network analysis adds to the views of polanyi (1957), granovetter (1985) and uzzi (1997). similar to these authors, this study found that, at least in the apmmhq-1 supply network for rhib; formal coordinative relations (such as the contract tie) only represent a small part of the actual interaction that exists in the upstream supply network structure. it was also determined that the other (or maybe the larger) portion of the network economic action is transmitted through a network of social relations. base on the findings of the network maps and the statistical results of network structural measures of embeddedness, the network plots and network structural measures indicate that in informally integrated ties, firms are more involved or embedded in the informal network structure than in formal ones. thus, this would suggest that firms’ embeddedness in the centralized supply network differ based on the different types of inter-firm relations. this study is significant as firms contributed a lot of resources in managing its communication with members of its network. with this findings, firms are given the exploratory evidence of the impact of difference patterns of connectivity, thus giving the firms tool to strategically evaluate and developed a holistic resource allocation straegies. in addition to that, the finding of this research added to the body of knowledge of system theory as it identify the importance of difference form of connections in the system such as the supply network. future research should attempt to statistically determine the relationship between the embeddedness of firms and its overall performance. 6. acknowledgement this research was supported by an mpob center grant to the at the universiti kebangsaan malaysia (ep-2015-064). embeddedness configuration and its’ relations to inter-firm connectivity in supply network: a social network analysis approach 43 7. biodata lokhman hakim osman is a senior lecturer at universiti kebangsaan malaysia, malaysia. references references are to be put onto a new page. please follow the apa format. example: patton, d. b., & blaine, t. w. (2001). public issues education: exploring extension’s role. journal of extension, 39(4). rittel, h. w. j., & webber, m. m. (1973). dilemmas in a general theory of planning. policy sciences, 4, 155–169. witteman, h. (1988). interpersonal problem solving: problem conceptualization and communication use. communication monographs, 55(4), 336–359. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 101-110 101 design of a genetic algorithmic approach for reducing energy consumption in single machine production systems elif tarakçı, (msc) istanbul commerce university, turkey abdül halim zaim, (phd) istanbul commerce university, turkey oğuzhan öztaş, (phd) istanbul university, turkey received: april. 26, 2018 accepted: may. 24, 2018 published: june 1, 2018 abstract: in traditional production systems, production is generally based on performance criteria such as total completion time, price and quality. energy consumption or environmental impacts of production systems are not often considered. this article deals with a scheduling problem aiming to increase energy efficiency, which has been noticed by companies in recent years. a mathematical model is set up to minimize the total energy consumption in a single machine production system. genetic algorithm method is used to solve this problem. to pr ove the efficiency of our model and algorithm, we use the sample problems in the reference paper. according to the test results, our model and algorithm have been shown to reduce energy consumption by 50% compared to the algorithm in the reference paper. keywords: energy consumption, single machine, genetic algorithm 1. introduction nowadays, competition for energy sources is becoming more intense than previous decade because of the increase in energy prices and non-renewable resources. including production, the industrial sector consumes about half of the total energy produced in the world (zhang et al., 2016). global climate change, limited energy sources, reduction of dependence on fossil fuels and co2 emissions require that energy management in production systems be integrated into decision-making processes (mikhaylidi et al., 2015). in addition, changes in customer behavior towards greener products and new environmental regulations contribute to the key role of the energy management strategy in production organizations (shrouf et al., 2017). briefly, various approaches and solutions for energy efficiency in production systems have been started to be developed in recent years. measures have been taken to increase efficiency factor components or to avoid inefficient components. generally, energy efficiency studies in the literature can be classified under two categories. the first, studies are aimed at reducing energy consumption through technological advances in production processes (neugebauer et al., 2011). the second is the efforts to reduce energy consumption by adjusting the managerial parameters of the production process called energy efficient production planning. in comparison to technological infrastructure investments to increase energy efficiency in manufacturing systems, energy efficient production planning studies are becoming increasingly popular in practice. because production planning studies usually do not require large investments. especially, there has been an increase in the number of scientific publications in this field in the last decade (biel and glock, 2016). in this study, it is aimed to develop an efficient mathematical model considering energy efficiency for production systems. a suitable genetic algorithm is proposed for the energy efficient scheduling model. elif tarakçı & abdül halim zaim & oğuzhan öztaş 102 the outline of this study is as follows. in section 1, literature review is presented. in section 2, a single-objective problem is proposed in a production system. in addition, an energy efficient model has been developed that minimizes energy consumption in the single machine scheduling problem. in section 3 inproves genetic algorithm to solve the model. in section 4, various problems were used to measure the computational performance of the model. finally in section 5, the results are discussed. 2. literature review the first systematic approach to scheduling problems was introduced in the mid-1950s. from past to present, thousands of articles have been published in the literature on different scheduling problems. (allahverdi et al., 2008). in the past, operational and planning decisions in production systems were primarily based on traditional measures such as cost, quality, flexibility. (vijayaraghavana and dornfeld, 2010). the research on energy scheduling is limited. (zhang et al., 2016). mouzon et al. (2007) is based on the principle that energy consumption is performed by idle-running non-bottleneck machines. for this purpose, they have developed operational methods that minimize the energy consumption of production equipment. in other words, they aimed to reduce total energy consumption together with other production planning targets. in addition, they have proposed a multi-objective mathematical programming model to reduce the energy consumption and total completion time in the single cnc machine. as a result, when there is non-bottleneck in the machine, turning on/off operation of the machine can be decreased the idle energy consumption of the machine. mouzon and yildirim (2008) proposed an np-hard problem to minimize total energy consumption and total tardiness. they developed a new greedy randomized meta-heuristic to solve the single machine problem. they used analytic hierarchical process to find the feasible solution from non dominated solutions. fang et al. (2011) proposed a multi objective mixed-integer mathematical model with flow-shop scheduling problem that minimizes makespan, carbon emissions and peak total power consumption. dai et al. (2013) have developed an energy-efficient scheduling model for flexible flow shop. a genetic-simulated annealing algorithm is used to obtain the appropriate solution in the model. experimental results have shown that there is a conflicting between makespan and energy consumption. liu et al. (2014) have developed a model that aims to reduce total electricity consumption and total weighted tardiness. the study focuses on the classical job shops in the manufacturing industry. non-dominated sorting genetic algorithm method is used to solve 10 * 10 job shop scheduling case study. lu et al. (2017) have developed a multi-objective scheduling problem of permutation flow shop that minimizes makespan and total energy consumption. they used a hybrid multi objective backtracking search algorithm to solve the problem. for this problem, a new energy saving scenario is presented extending the life of the machines. backtracking search algorithm is compared is the two well-known nsga-ii and moea/d methods. the results show that the performance of the backtracking search algorithm method in the study was better. 3. problem definition and mathematical model 3.1. problem definition generally, when the first product arrives, the machines are opened and not closed until completion of the last product in the manufacturing industry . if there is a long time between two consecutive jobs' arrival times, the machine runs idle (liu et al., 2014). if the time between two consecutive jobs is longer than the break even duration, closing the machine between the two jobs can provide significant energy savings. thus, energy consumption can be reduced by controlling the machine (mouzon et al., 2007). assume that the energy consumption per unit time is pi when the machine stays idle. the energy consumption for turning on and turning off machine is eon-off. the time for turning on and turning off machine is ton-off. tbed is defined as the minimum time of required for turning on/off machine. mathematically, tbed = max ( eon-off /pi , ton-off ). (1) design of a genetic algorithmic approach for reducing energy consumption in single machine production systems there are two important key factors in this problem. first, the job scheduling and start times of jobs (or completion times) should be determined. second, it is essential to decide whether to turn on and off the machine between two consecutive jobs. 2.2. assumptions in the model the following assumptions are accepted in the model. i. arrival time and processing time of each job are known. ii. the machine can only process one job at a time. iii. preemption is not allowed. when an operation is started, it must be completed without interruption. iv. jobs are independent each other. v. the machine is always available during the job scheduling. vi. the total turning on/off energy consumption of the machine per unit time is fixed. vii. the idle energy consumption per unit time is fixed when the machine stays idle. viii. the objective function is the turning on/off and idle energy consumption of the machine. a job can only be processed once on the machine. ix. setup time of each job includes in processing time. parameters n = the number of jobs i = the index of job (i= 1,2,…,n) j = the index of job (j= 1,2,…,n) pj = the processing time of job j cj = the completion time of job j rj = the arrival time for job j pi = the idle energy consumption per unit time when machine stays idle. eon-off = the total energy consumption for turning on/off the machine at a time. ton-off = the time required for turning on/off the machine et = the total energy consumption for producing all jobs tbed = minimum time of used for turning on/off machine. (it means that when both the time and the energy consumption of turning on/off machine is less than the idle time and the energy consumption of the idle machine, we should turn on/off the machine to consume less time and energy) decision variables sj = the starting time of job j yij = the state of the machine in the time between job i and job j xij = processing state of j after job i 3.3. mathematical model mathematical model of a single machine scheduling problem that minimizes total energy consumption is presented the following. et = min ( pi ∑ ∑ (𝑆j − 𝐶i)) 𝑛 j=1≠i 𝑛 i=1 (1 − 𝑌ij) 𝑋ij + ∑ ∑ (eon − off) yij xij n j=1≠i n i=1 ) (2) 0, (sj ci) ≤ tbed (if the machine is idle) (3) yij = elif tarakçı & abdül halim zaim & oğuzhan öztaş 104 1, (sj ci) > tbed (if the machine is turned off) 1, job i and job j are consecutive jobs (4) xij = 0, otherwise sj ≥ rj ∀𝑗 = 1,2, … , 𝑛 (5) sj ≥ ci ∀𝑗 = 1,2, … , 𝑛 ; ∀𝑖 = 0,1,2, … , 𝑛 ≠ 𝑗 (6) ∑ 𝑋ij = 1𝑛𝑖=0 ∀𝑗 = 1,2, … , 𝑛 ≠ 𝑖 (7) cj = sj + pj ∀𝑗 = 1,2, … , 𝑛 (8) sj ≥ 0 ∀𝑗 = 1,2, … , 𝑛 (9) in this model; equation (2) aims to minimize the total energy consumption of the machine. equation (3) indicates that the machine runs idle if the time between two consecutive jobs is smaller than tbed, otherwise the machine shuts down. equation (4) identifies that the sequence of consecutively processed jobs. equality (5) implies that a job can not start to be processed in the machine without coming to the production system. equation (6) imposes that the starting time of a job must be equal and greater to completion time of a preceding job. equation (7) ensures that each job is processed once on the machine. equation (8) shows that the completion time of a job is equal to the sum of the processing time and starting time. equation (9) indicates that the starting time of each job is greater than zero. 4. solution method: genetic algorithm genetic algorithms have been extensively researched in the literature (shrouf et al., 2014). the genetic algorithm originally proposed by john holland (1975) in the 1960s and later developed by goldberg (1989) is the heuristic search algorithm that simulates the natural selection and evolutionary process. in order to reach successful solution values, it is important to determine gen structure , chromosomes structure, population size and genetic operators used in algorithm construction well (elmas, 2016). the steps of the genetic algorithm are as follows: step 1: generate initial population of solutions. step 2: calculate the fitness value of each solution in the population. step 3: apply the selection operation (solutions with better fitness values are represented more in the new population). step 4: perform the crossover operation (two new childs are produced from the two available solutions). step 5: perform the mutation operation step 6: calculate the fitness values of the individuals in the new population. step 7: perform the elitism operation step 8: run the algorithm until the stopping criterion step 9: output the best solution design of a genetic algorithmic approach for reducing energy consumption in single machine production systems chromosome structure, generation of the initial population, selection strategy, genetic operators and stopping criterion affecting the performance of the genetic algorithm are explained below. 4.1. coding alphanumeric or real digital coding rather than binary coding is prefered in scheduling problems (elmas, 2016). in this problem, each job is represented by an integer. consecutive integers from 1 to n are generated for n jobs. each gene identifies a job. each chromosome contains genes as the number of jobs. each chromosome in the search space gives a solution point. 4.2. generation of the initial population population is a community of chromosomes. an each chromosome that consists job scheduling represents a solution point. under some constraints, some random solutions (chromosomes) is created for the initial population. 4.3. fitness function the fitness function is used to determine the quality of solutions in the current population. the value of the objective function for each individual (chromosome) in the population is calculated. the calculation value is as follows: function value= pı ∑ ∑ (sj − ci))nj=1≠i n i=1 (1 − yij) xij + ∑ ∑ (eon − off) yij xij n j=1≠i n i=1 (10) equality (10) represents the total energy consumption of the machine for processing of all jobs. this value consists of two parts. the first section shows the energy consumption when the machine is idle. the second part calculates the energy consumption for turning on/off of the machine. 4.4. selection operator the selection operation is a method used for the selection of feasible individuals and the elimination of infeasible individuals in the population. the selection mechanism ensures the best survival. chromosomes, which generally have feasible fitness values, are more likely to be found in future generations. there are many selection operators, such as tournament method, fitness proportional selection, and local selection (liu et al., 2014). stochastic universal sampling operation is used in this study. stochastic universal sampling operation is similar to the roulette wheel selection operation. the most important difference is that the outer part of the circle is divided into equal parts. the number of these parts equals the number of individuals in the population. when the selection is made, the circle is rotated only once. thus, all of new individuals are selected. not only the selecting of the best individuals but also the disappearance of the bad ones is prevented with this method. it prevents the algorithm from sticking to a local point. 4.5. crossover operator crossover is a genetic operator that the displacement of the reciprocal genes of two individuals. there are many methods such as one-point crossover, two-point crossover, position-based or order-based crossover. in this study, an order-based crossover operation is used (elmas, 2016). the steps of the method are shown below. step 1: two individuals are randomly selected from the population. step 2: generate 0 and 1 numbers as the number of genes. the genes are determined for the crossove r process according to more numbers of 0 or 1. these genes are replaced with the genes on the other chromosome respectively. the same process is applied on the other chromosome. step 3. this crossover procedure is applied for all chromosomes. 4.6. mutation operator the mutation operator is the modification of several gene values of individuals in the population. in addition, this operator makes to increase diversity of the target population and speed up the comprehensive search. various mutation operators such as adjacent two-job change, arbitrary two-job change, arbitrary three-job change, shift change are used in the genetic algorithm (murata et al., 1996). elif tarakçı & abdül halim zaim & oğuzhan öztaş 106 arbitrary two-job change operators are used in this paper. two genes are randomly selected according to determining mutation rate and these genes displace. in this way, new chromosomes are obtained. 4.7. elitism elitism is a strategy for preserving the elite solutions in the evolutionary process. this operator can usually help to speed up the convergence of genetic algorithms (zhang and chiong, 2015). the used elitism strategy is explained below. step 1: sk is determined as the best solution in the pk population. step 2: run the algorithm for the pk population. sk+1 is determined as the best solution in the solutions of new pk+1 population. step 3: sk and sk+1 solutions are compared. the highest fitness-valued solution is updated in the pk+1 population. in other words, the worst fitness-valued chromosome is eliminated from the current population. the best fitnessvalued chromosome is added to the new population. (rajkumar and shahabudeen, 2009). 4.8. stopping criteria the stopping criterion is the number of generations specified. when the algorithm reaches this stage, it stops. the best fitness-valued chromosome in the population is the optimal solution of problem (yildirim and mouzon, 2012). 5. computational performance in the literature, liu et al. (2014) tried to minimize the total carbon dioxide emissions and the total completion time with first come first served rule in a single machine manufacturing system. they achieved some feasible solutions with nsga-ii method. we used data sets of three-jobs and five-jobs problems in the paper of liu et al (2014) to verify our proposed algorithm. we have created job sequences. we evaluated the performance of our model. we compared solution results of our genetic algorithm and their nsga-ii outcomes. in addition, we considered the delivery time of all jobs in this paper. liu et al (2014) used the ctcf = λ.etec (λ=0.785 kgco2/kwh ) formula to convert energy values to total carbon dioxide emission values. we used same formula to convert total carbon dioxide emission values to energy values. below is a comparative analysis based on the obtained solutions for these problems. 5.1. a problem with three jobs jobs have processing times of 10 h, 10 h and 20 h, respectively. the arrival times of the jobs are 0 h, 40 h and 60 h, respectively. delivery time of all jobs is 100 h. kilowatt (kw) is used as a unit of measure for energy consumption. processing energy consumption and idle energy consumption are 3 kw and 0.4 kw respectively. the total energy consumption for turning on/off the machine at a time. is 4 kw hours and the turning on/off on time is 12 hours. according to the above datas, we find the tbed value in the equation below (liu et al., 2014). tbed = max ( eon-off/ pi , ton-off )= max (10,12)= 12 (11) the machine must be switched off when both the on-off energy consumption and the on-off time of the machine are less than the idle energy consumption and time between the consecutive two jobs. otherwise, the machine should not be turned off. according to the data, some feasible solutions were obtained as shown in table 1. table 1. some feasible solutions of the three-job by different algorithms ga (proposed in this paper) s1 s2 s3 y12 y23 et design of a genetic algorithmic approach for reducing energy consumption in single machine production systems solutions (1) 0 40 60 1 0 8 s2 s1 s3 y21 y13 et solutions (2) 40 50 60 0 0 0 s3 s1 s2 y31 y12 et solutions (3) 60 80 90 0 0 0 s2 s3 s1 y23 y31 et solutions (4) 40 60 80 0 0 4 nsga-ii (liu et al., 2014) s1 s2 s3 y12 y23 et solutions (1) 10 40 60 0 0 16 s1 s2 s3 y12 y23 et solutions (2) 10 40 60 1 0 12 s1 s2 s3 y12 y23 et solutions (3) 10 50 60 1 0 8 s1 s2 s3 y12 y23 et solutions (4) 40 50 60 0 0 0 table 1 shows that; solution (1) of the genetic algorithm and solution (3) of nsga-ii (liu et al., 2014) gives same result value for same job scheduling. this result shows the success of our model and algorithm. in addition, we achieved zero energy consumption values with different job sequences except first come first served rule in solution (2) and solution (3). 5.2. a problem with five jobs the proccessing time, arrival time and the delivery time of each job are given in table 2. table 3 shows the genetic parameters used in this problem. these parameter values are taken from liu et al. (2014). the other parameter values are the same with three jobs problem above. this problem is solved with the matlab program. some feasible solutions are presented in table 4. table 2. basic input data of each product jobs 1 2 3 4 5 arrival time 0 30 50 80 150 processing time 10 20 20 30 10 time for delivery 200 200 200 200 200 source: liu et al., 2014 table 3. the parameter values parameter value elif tarakçı & abdül halim zaim & oğuzhan öztaş 108 population size 300 maximal number of generations 100 crossover probability 0,98 mutation probability 0,5 source: liu et al., 2014 table 4. some feasible solutions of the five-job by different algorithms ga ( proposed in this paper) s3 s2 s1 s4 s5 y32 y21 y14 y45 et solutions (1) 50 70 90 100 150 0 0 0 1 4 s4 s3 s2 s1 s5 y43 y32 y21 y15 et solutions (2) 80 110 130 150 160 0 0 0 0 0 s3 s4 s2 s1 s5 y34 y42 y21 y15 et solutions (3) 50 80 110 130 150 0 0 0 0 8 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (4) 0 80 100 120 150 1 0 0 0 4 nsga-ii (liu et al., 2014) s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (1) 10 30 55 119 165 0 0 1 1 14 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (2) 10 45 65 100 150 0 0 1 0 26,93 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (3) 10 66 105 130 162 1 1 0 0 10,8 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (4) 10 84 129 152 183 1 1 0 0 9,61 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (5) 10 106 128 154 186 1 0 0 0 8 s1 s2 s3 s4 s5 y12 y23 y34 y45 et solutions (6) 10 76 137 157 188 1 1 0 0 8,4 in table 4, we presented some feasible solutions of our algorithm. solution (4) in our algorithm and solution (5) in nsga-ii (liu et al., 2014) have with same job sequence. the value of solution (4) in our algorithm is better than solution value solution (5) in nsga-ii (liu et al., 2014). we were able to reduce energy consumption by 50%. as a result, it proves that our model can find much better solutions. besides, we have created with various job sequences except first come first served rule and found zero energy consumption in solution (2). the our algorithm succeeded to achieve a zero energy consumption value by creating an appropriate job sequence with different job sequences except first come first served rule. design of a genetic algorithmic approach for reducing energy consumption in single machine production systems 6. conclusion and future work the machines consume waste energy while idling or switching on and off. in single-machine systems, keeping the machine idle running instead of turning it on and off or vise versa would reduce the waste of energy. therefore it is important from the point of energy consumption to decide on when to turn the machine on/off and keep it idle. in this paper, we have developed a model and algorithm that minimize energy consumption in a single machine production system. we aimed to reduce energy consumption with decision whether the machine should be idle or switched on or off between consecutive jobs. liu et al. (2014) set up a model that reduces the total carbon dioxide emissions and the total completion time. they used nsga-ii method to solve three-jobs and five-jobs problems with first come first served rule in a single machine menufacturing system. they obtained some feasible solutions. we used data sets of three-jobs and fivejobs problems in the paper of liu et al (2014) to verify our proposed algorithm. we generated a simulation environment on matlab and obtained some feasible results. we have achived job sequences. we evaluated the performance of our model. we compared solution results of our genetic algorithm and their nsga-ii outcomes. we considered the delivery time of all jobs in this paper. we used ctcf = λ.etec (λ=0.785 kgco2/kwh ) formula to convert total carbon dioxide emission values to energy values (liu et al., 2014). solutions of the problem with three jobs was presented in table 1. solution (1) of the genetic algorithm has same value and same job scheduling as solution (3) of nsga-ii (liu et al., 2014). it seems that our solutions in three jobs problem were not worse than the solutions provided by liu et al. (2014). in addition, we reached zero energy consumption values with different job sequences except first come first served rule in solution (2) and solution (3) thanks to our genetic algorithm. we presented some feaseble solutions for the problem with five jobs in table 4. solution (4) in our algorithm and solution (5) in nsga-ii (liu et al., 2014) have same job sequence. while solution (5) energy value is 8 in nsga-ii (liu et al., 2014), solution (4) energy value is 4 in our algorithm. we succeeded to decrease energy consumption rate 50% with our genetic algorithm. besides, we generated various job scheduling except first come first served rule in this problem. energy consumption value of solution (2) was calculated zero. as a result, that proves our genetic algorithm generating much better solutions than nsga-ii of liu et al. 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(2016), ‘’a method for minimizing the energy consumption of machining system: integration of process planning and scheduling’’, journal of cleaner production 137, 1647-1662. journal of international trade, logistics and law, vol. 4, num. 2, 2018, 25-34 25 the effect of supply chain agility on firm performance hasan mert güner, (mba) istanbul commerce university, turkey murat çemberci̇, (phd) yıldız technical university, turkey mustafa emre ci̇velek, (phd) istanbul commerce university, turkey received: october 12, 2018 accepted: november 19, 2018 published: december 15, 2018 abstract: in the current rapidly changing, developing and complicating global world, the companies are constantly in a competition with one another. in this competitive environment, the companies need to use their resources in the most accurate manner in order to survive. companies gain a competitive advantage by responding to variable customer demands in different markets within the shortest time and at the right time. they can also gain this by concentrating the agility factor in the supply chain. in case of uncertainty, the supply chain must be agile for the companies to gain a competitive advantage. in this study, the effects of agility and technological uncertainty on the performance of the company in the supply chain management are examined. in the research, it has been observed that technological uncertainty affects the supply chain agility and the supply chain agility also affects the performance of the company in a positive way. keywords: supply chain agility, uncertainty, technological uncertainty, firm performance 1. introduction recently, the companies focus on the word “competition” in an environment where the global trade is increasing every passing day and the world becomes the only market. the companies must take many administrative and operational steps in order to remain capable to compete, to survive and to maintain this level of competition in the long term. along with the global trade, the companies have begun to focus on access to emerging markets and strategies for potential customers by concentrating on supply chain management. the companies attach importance to technology and agility, which play an important role in the supply chain management in order to create the most accurate solutions to the market and customer needs and also to keep their costs in balance. the concept of technological uncertainty, especially in terms of technology selection, usage and internal and external customer potential emerging as a result of them is an issue which needs to be focused. it is a very critical situation for companies to implement the concept of agility in the event of such a problem. the problems in the delivery periods, sudden changes in the supply and demand and variations in the product life cycles have led companies to adapt and keep up with these determinants in order to meet the developing, changing and increasing customer demands in the current world with the accurate solutions within a short time (christopher, 2000). the companies try to gain a competitive advantage by taking positions in the developing and changing markets in the global world. the companies canalizing in this strategic plan attach importance to the concept of agility in the supply chain in order to minimize risks, to take precautions against the uncertainties such as customer demand, supplier and technology(braunscheidel & suresh, 2009) (yu, 2001) (butz jr. & goodstein, 1996). when the research conducted is examined, it is indicated that the companies may take necessary steps to these uncertainty factors in the supply chain with the agility. the companies try to prevent uncertainties to determine successful strategies in supply chain management. for this, the companies focus on turning uncertainties into advantages in the best way by prioritizing supply chain agility (kim hasan mert güner, murat çemberci, mustafa emre civelek 26 & chai, 2017). much research has been conducted on how companies gain a competitive advantage by developing this solution and similar solutions additionally (morash, 2001) (selness & sallis, 2003). further researches related to the supply chain management are reviewed in the literature. there is much research dealing with the importance of the supply chain management for companies in this competitive race in the current environment where the level of competition between the companies is developing quickly in a complex structure. these conducted researches related to the supply chain have focused on integration, flexibility, cooperation, and agility within the chain and have introduced many new concepts into the supply chain. it is observed that the supply chain agility affects the performance of the company in a positive way in the environment of technological uncertainty and uncertainty as stated in the aforementioned examples related to the literature. in this paper, the relationship between technological uncertainty and supply chain agility and the effect of supply chain agility on the performance of the company are examined through questionnaires conducted with the participation of the companies. 2. service quality in public transportation 2.1. en 13816 service quality standard in public transportation along with the globalization, the companies have attached importance to the supply chains and increased their investments in this area in order to respond quickly to the customer demands and shorten product presentation time in the global markets where competition rises to the top. the supply chain is the structure that organizes all stages such as the supply of raw materials and intermediates to be used in the production process by the suppliers and the production of intermediate or final products by gathering all the means of production, capital, labor and technology and delivery of these products to the customers. the supply chain is the whole set of systems establishing the relationship between the source where the products manufactured and the final purchaser in the trade. according to meindl and chopra (2007), the supply chain is a chain that not only consists of manufacturers and suppliers but also consists of providers of warehousing service, retailers, forwarders, customers and other partners involved in the all entire system in order to meet customer demands directly and indirectly. in this definition, similar processes in the other definitions and the actors in the process are mentioned. delivery of a raw material supplied in the supply chain as a final product to the final consumer requires a whole range of processing steps. this process constitutes the supply chain structure of the companies in which this process is carried out and the relationship system established between the companies operates in this processing step. the companies in each step of the system are the customers of the company in the previous step and the supplier of the company in the next step. the aim of the system is to provide the best service to the consumer in the last step and as a result of this to achieve customer satisfaction. according to çemberci and et. al (2015), the supply chain structure consists of suppliers, production centers and distribution. the raw materials, stocks in the process and the final products carried within the system as well as retail stores, are other factors constituting the supply chain structure. the chain starts when the raw materials have emerged and ended when the product is reused or disposed of. although the supply chain is an excellent system, it is complex due to having many factors in the chain. one of the reasons for this complexity is that the companies represent the product, process, and organizational structures and possess these different systems. the supply chain system may be called an organizational system from an administrative perspective. because the supply chain consists of three administrative levels as strategic, tactical and operational decisions in terms of supply chain decisions. the supply chain management consists of internal and external organizations manufacturing products based on customer demands and contribute to the formation of a value chain enabling these products to be distributed to customers. in the elementary idea, the supply chain management deals with the selection and determination of participants who undertake strategic tasks within the supply chain (cox, 1996). according to çemberci et al. (2015), supply chain management is actually a flow management. the flow of information, money, and product is managed the effect of supply chain agility on firm performance 27 by the supply chain management. one of the most important points in this chain is that the supply department establishes a connection with the outside world for the company. the effectiveness of the purchasing system depends on the various functions of the company and the flow of information from the supply department to the other functions of the company. the supply chain management is a strategically and systematically planned and structured management system in order to achieve the long-term goals of efficiency, coordination and business organization between the supply chains of the companies and the companies within this chain. the company, taking part any other point of the chain, must always maintain strong relations and communication with the other companies. the most important factor for the effectiveness of this communication may be defined as a predetermined supply chain management strategy. moreover, communication and relationships strengthen the environment of dependence, coordination, cooperation and trust between companies. the concept of the supply chain management, which is able to improve customer service, reduce costs, maintain and increase competitiveness additionally, has emerged for the high customer satisfaction against high-quality, effective and high-level product demands of the knowledgeable customers on the product demand(franks, 2000). the companies require a well-organized information management system to achieve the desired competitive advantage by applying the supply chain management to administrative and business organizations. the supply chain management focuses on support activities, especially those assisting in information sharing and operations for business processes. high-quality products and services may be produced/rendered in the production if the decision makers at various points in the management system function correctly and healthfully. information factor, one of the most important factors in the decision-making process, has made information management successful. 2.2 supply chain agility it is a very important factor for the success of the companies operating in the global markets to respond to the competitive challenges they face in the market and to use these capabilities to gain a competitive advantage over other companies. it is a strategic decision for the companies to maintain their long-term effectiveness in variable and movable market conditions and to attach importance to agility in order to be successful. agile manufacturing, which is an important issue for the companies, is expressed as the changes in the tools, techniques and initiatives enabling a facility or company to develop under unpredictable circumstances. agile manufacturing not only enables a facility to quickly respond to customer needs, but also includes reacting with the unpredictable speed to quickly respond to operations and strategic alliances. in some cases, agile manufacturing also includes “mass privatization” concept to meet unique customer requirements. in a broad sense, agile manufacturing includes the ability to react quickly to technical or environmental surprises. the supply chain agility arises from the ability of a company to quickly identify changes, opportunities, and threats (vigilance). to quickly access relevant data (accessibility); to decisively decide how to act (decisiveness); to quickly implement those decisions (swiftness); and to modify the range of tactics and operations to the extent needed (flexibility) (gligor , 2015). the characteristic, which an agile supply chain should possess first, is indicated as the market sensitivity. observing the demands in the market environment and perceiving priorities and finding solutions for them are expressed as the market sensitivity. the second feature, which is at the forefront, is virtual networks. the virtual network is defined as the fact that the chain elements within the supply chain processes share accurate and full-time information with each other through information technologies. another main feature is process integration. in this feature, supply chain partners work together in processes and take an active role in product development processes with mutual trust and cooperation. the network integration, which is the last feature, is the organization of the chain network in order that supply chain participants may work on a single network (güner & gündoğan, 2017). 2.3 uncertainty uncertainty is defined as the processes arising from lack of information. along with the globalizing world, the markets where the companies maintain their operations have acquired an international dimension and the priority has been given to meet customer demands. the companies taking part in activities and customer demand-oriented markets focus on continuously monitoring the changes in demands of their customers, developing the quality level, hasan mert güner, murat çemberci, mustafa emre civelek 28 and bringing solutions to increase the level of trust and delivery speed. the uncertainty is defined as the main idea, prejudice and techniques which have an effect on the decisions of the managers who take the risk in uncertainty decision process in the definitions made by many researchers regarding the uncertainty. it is stated that the uncertainty situation arises from changes in suppliers, demand and technology apart from expectations. concordantly, the concept of uncertainty is discussed in three sub-factors: demand, supplier and technological uncertainty (çemberci , 2011). demand uncertainty is defined as the changes resulting from uncertainty and unpredictability in demands, expectations, and preferences of the customers in the product and service groups. the concept of demand uncertainty is also defined as the uncertainty about the demand side to be aimed to meet by the supply chain. urgent order requests, increase in the amount and variety of the products needed, decreasing the time to meet orders, increase in the resources of the products to be provided, increase in the speed of innovation in the products may be indicated as the customer expectations increasing the demand uncertainty. supplier uncertainty is defined as the unpredictability of the quality and delivery level of the products supplied by the suppliers of the companies in the supply chain and the uncertainties resulting from these changes. delays and damage of raw materials and semi-products provided by suppliers to be used in the production process lead to huge uncertainty and causes companies to stop or even postpone their production processes. this uncertainty situation starting from the supply process will have an effect on supply chain processes and the inefficient use of resources will result in increased costs for companies such as logistics costs and stock-keeping costs. technological uncertainty is defined as the uncertainty occurred as a result of the unpredictability whether the new technologies offered by the organizations are able to meet the needs that they aim to meet. according to moriarty and kosnik (1989), five factors give rise to technological uncertainty. the first issue is whether the new innovation will function as promised. the second issue is an unpredictable problem of supply periods for products offering a high level of technology. another issue is the companies and vendors providing products to the customers. the main issue is that the customers demand a high-quality service in terms of the products they will purchase from the companies. the fourth issue is whether the technology-based products will create undesirable results and effects. the fifth and last issue is when the level of technology used by the companies currently will become unresponsive. 2.4 firm performance firm performance has been tried to be defined by many performance factors in many sectors from past to present. as the evaluations performed for firm performance in the literature increase, the changes in the performance criteria and developments are observed. the concept of company performance, which is a significant evaluation criterion, is evaluated from the point of view of the companies in terms of efficiency in activities, competitiveness in markets, minimization of costs from the production process to the distribution and profit dimensions to be obtained as a result of the works performed. the measurement of the firm performance is an approach directing the determination of levels of performance of the companies, namely, efficiency in the business activities of the organizations and their use of financial and nonfinancial resources, determination the level of how they are able to perform the effectiveness and economic principles, the problems, which may be faced, and solutions to these problems (ağca & elitaş, 2006). according to li et al.(2006), the firm performance is defined as the level showing how the companies compete at the highest level with their competitors in their business processes and how they achieve their goals at what stage as a result of these operations. 3. iett in istanbul public transportation system 3.1. the relationship between technological uncertainty and agility in the supply chain moriarty and et al. (1989) have focused on situations that have been effective in the emergence of technological uncertainty in their research. in another study, chizzo (1998) stated that the use of information technologies of the companies and their continuous development on these systems has an effect on the integration of supply chains and business processes in a positive way. çemberci (2011) has stated that the uncertainty has a moderating effect between supply chain management performance and firm performance in his study. in this research, the agility in the the effect of supply chain agility on firm performance 29 supply chain has been considered as one of the performance indicators of supply chain management. that is to say, the technological uncertainty, which is one of the sub-headings of the uncertainty, affects agility in the supply chain. 3.2. the relationship between supply chain agility and firm performance in another study related to agility, swafford et al. (2008) have stated the importance of supply chain agility in organizational structures of the companies. they have also stated that the flexibility of the supply chain and the use of information technologies have a positive effect on achieving supply chain agility in their research. they have further shown that the relationship between these three concepts has a supportive effect on firm performance. çemberci (2011) has also established a relationship between supply chain agility, supply chain management performance and firm performance in his research. the supply chain management as one of the performance indicators has proven that the concept of agility in the elaborated supply chain affects supply chain performance in a positive way and the supply chain performance also affects the firm performance in a positive way. it has been observed that the concept of agility in the supply chain has been examined in many studies conducted in recent years. these studies stated that the supply chain agility is a very important factor in the supply chain management strategy. in addition, the effect of agility on firm performance in the supply chain has also been discussed (goldsby et al., 2006; khan et al., 2009; vickery et al., 2010; tallon and pinsonneault., 2011; ngai et al., 2011; gligor and halcomb., 2012; vinodh et al., 2013; yang., 2014; gligor et al., 2015; sangari et al., 2015; kabra et al., 2016; çalışkan et al., 2016; chan et al., 2017; kabukçu et al. 2017). table 1. summary of hypotheses h1: technological uncertainty affects the supply chain agility in a positive way. h2: supply chain agility affects the firm performance in a positive way. figure 1. conceptual model supply chain agility technological uncertainty firm performance h1 h2 hasan mert güner, murat çemberci, mustafa emre civelek 30 4. iett service quality measurement model 4.1. measures and sampling the answers in the questionnaire have been presented for consideration in the format of the multiple-choice 5-point likert hypothesis scale in order to test the hypothesis results. the agility scale, consisting of 7 questions develope d by swafford et al. (2006), has been used for the agility scale concept in the supply chain. the uncertainty scale, which was created by chen and poulraj (2004)and having 3 sub-sections has been used in order to measure the uncertainty concept in the supply chain. the sub-sections of the uncertainty are explained as the technological uncertainty, demand uncertainty and supplier uncertainty. the dimensions of the technological uncertainty have been measured by 4 questions; the dimensions of the demand uncertainty have been measured by 5 questions; and the dimensions of the supplier uncertainty have been measured by 4 questions. total 13 questions have been benefited from the uncertainty scale. the company performance scale, consisting of 13 questions, created by ellinger et al. (2002) and received and developed by akgün et al(2009) has been used for the company performance scale. the questionnaires have been conducted to 125 companies through e-mail and face-to-face interviews and 97 of these questionnaires have been received feedback. it is observed that the feedback rate for questionnaires is 78%. 4.2. test of hypotheses preliminarily, the verification and validity of the scale have been analyzed in the statistical analysis section and the results have been checked with confirmatory factor analysis, reliability and cronbach’s alpha methods. in addition, correlation and regression analysis have been used for data analysis. the method of structural equation modeling tests the conformability of the existing data with the research model at first. the scales of cmin/df, cfi, agfi, gfi, rmsea are well-accepted (çemberci, 2012). table 2. confirmatory factor analysis results question conceptual variable standard factor loads nonstandard factor loads standard error t-value (critical ratio) tkb0110 technological uncertainty 0,801 1 tkb0312 0,404 0,467 0,212 2,210 tzç0327 supply chain agility 0,644 1 tzç0428 0,781 1,229 0,218 5,963 tzç0529 0,820 1,447 0,242 6,092 tzç0630 0,560 0,880 0,190 4,637 fip1279 company performance 0,692 1 fip0168 0,689 0,842 0,127 6,631 fi̇p0269 0,700 0,852 0,157 5,439 fi̇p0673 0,478 0,618 0,155 3,988 fi̇p0572 0,603 0,863 0,177 4,873 fi̇p0471 0,610 0,797 0,162 4,911 note: for all values p<0,01 the standard factor loads of the confirmatory factor model are given in table 7. the standard factor loads are above 0,50 and the compliance scale values close to the threshold values and this indicate the convergence validity of the scales used. as a result of the confirmatory factor analysis, reliability analysis has been performed for the questions the effect of supply chain agility on firm performance 31 the scale validity of which is determined and creating the dimensions. in the analysis conducted, the value of the cronbach's alpha has been found above 0.7 for each dimension. the values greater than 0,7 indicate that the internal reliability of the scale used is sufficient. another value used in the calculation of the scale reliability of each dimension is the composite reliability coefficient. it may be said that the composite reliability is achieved when the value of the composite reliability is 0.70 and above (raykov, 1997) the correlation values between cronbach’s alpha, ave and cr values and research variables calculated for each dimension are shown in table 3. table 3. correlation dimensions and reliability results avg. std. dev. 1 2 3 1. supply chain agility 3,87 0,80 (0,709) 2. company performance 3,81 0,75 0,567 0,633 3. technological uncertainty 3,83 0,75 0,289 0,415 0,634 cronbach’s alpha reliability coefficient 0,789 0,888 0,488 composite reliability coefficient (cr) 0,798 0,798 0,549 explained average variance (ave) 0,503 0,401 0,402 the hypotheses involved in the conceptual model of the study have been tested and created as shown in figure 2 in the path analysis results of the structural model. figure 2. path analysis results the results of the hypothesis testing are as shown in table 4. hasan mert güner, murat çemberci, mustafa emre civelek 32 table 4. hypothesis testing results note: the significance level of 10% the h1 hypothesis has found significant that the technological uncertainty statistically affects the supply chain agility in a positive way. the standard β coefficient with 0,467 value and at the significance level of 0,05 obtained as a result of path analysis of this hypothesis has been accepted. the h2 hypothesis has found significant that the agility in the supply chain statistically affects the performance of the company in a positive way. the standard β coefficient with 0,696 value and at the significance level of 0,05 obtained as a result of path analysis of this hypothesis has been accepted. h1 and h2 hypotheses have been supported at the significance level of 10%. 5. conclusion in the current globalizing world trade large, medium and small scale companies need to adapt various applications inside and outside the company to their systems in order to participate in this global market system and to maintain their position in the existing markets. from the past to the present, the rapid growth of and complexity of the world trade, and the difficulties regarding the establishment of the organizations have led companies to perform solutionoriented operations and to strengthen their new working systems and technological structures. in recent years, it has been seen that not only companies are not involved in the competition, but also the supply and value chains of the companies have become competitive with the evaluation of the supply chain management at a high level of significance. along with this situation, companies are working on the most efficient operation of their systems by creating their supply chains or even expanding their existing supply chains. recently, the supply chain management is considered as a chain of values for the companies. supply chain management perpetuates companies to maintain customer satisfaction by providing support against possible sudden developments especially in global markets. the concept of globalization has turned technology into an important factor for the international trade. the companies benefit from the use of technology at maximum while creating future strategies. companies using technology effectively and efficiently within the organizational structure gain a competitive advantage in the market. technological uncertainty leads companies to take faster and more stable action in the market conditions. therefore, it has been observed that the companies have flexed their qualifications against these negative changes and have turned to agile behavior in the supply chain. agility in the supply chain is perceived as a form of performance providing mobility to the company in here. companies have created new patterns of behavior against the constantly changing developments in the current market conditions. agility is one of these patterns of behavior. in fact, agility is the strategy of recognizing the market and creating a pattern of behavior accordingly. especially in the events of technological uncertainty, supply chain agility provides companies with freedom of movement in order to maintain their activities. companies are able to make decisions quickly and flexibly and try to maintain their competitiveness even in the most adverse conditions. the aim here is to minimize the adversities of the companies resulting from technological uncertainty thanks to their agility. supply chain agility is one of the most important factors affecting the firm performance in the case of challenging market competition for companies. agility provides companies with maneuverability against their competitors and enables companies to gain a competitive advantage. moreover, agility has been considered as the ability to eliminate risks that have not been encountered before and to turn changes into opportunities. creating a good perception of supply chain management is only possible by understanding customer demands. controlling all operational performances by the company, understanding the customer demands, analyzing their competitors in the market and using all information within its own capabilities will only be possible with agile supply chain structure. hypothesis relations standard β p acceptance/rejection h1: tkb → tzç 0,467 0,086 supported h2: tzç → fp 0,696 0,000 supported the effect of supply chain agility on firm performance 33 this study may be considered as a guide for future studies to be conducted on these issues. in particular, the effects of agility and technological uncertainty on firm performance in the supply chain may be examined by selecting a particular sector. the questions in the questionnaires prepared may be useful if they are 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(2001). benefits of information sharing with supply chain partnerships. industrial management & data systems, 114-121. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 182-188 182 organizational change capacity: a scale development selim kirçovali yıldız technical university, turkey murat çemberci̇ yıldız technical university, turkey received: 01 oct, 2020 accepted: 09 dec, 2020 published: 10 dec, 2020 abstract: this study investigates the past literature on the organizational change capacity and then suggests new scales to assess the change capacity based on the past conceptual studies. based on the 404 surveys from 202 firms, this study shows that organizational capacity consists of context, process and learning dimensions and each dimension covers different aspect of change capacity. keywords: change capacity, organizational change, scale development jel code: m10, m19 1. introduction organizational change capability (occ) is one of the most prevalent research areas in the organizational change management literature. as a result, organizations try to develop their change capacities to be more competitive in the markets. here, researchers proposed some processes and instruments to improve the change capacities of the organizations (gravenhorst, werkman and boonstra, 2003; mcguinness and morgan, 2005). in addition, some researchers offered scales to measure the occ (judge and douglas, 2009). interestingly, most of the studies followed the judge and douglas’s (2009) scales to test the role of occ on the firm performance or resilience. while the study of judge and douglas (2009) is critical to leverage the occ in the literature, new scales should be developed and tested to improve the occ concept better. in this respect, some studies recently emphasized the potential of the study of soparnot (2011). soparnot (2011) conceptually suggested three dimensions to assess the occ, namely context, process, and learning aspect of change capacity. nevertheless, those dimensions were not operationalized and then tested in an empirical study. accordingly, the goal of this study to develop question items and then test the validity and reliability of these question items to measure occ from soparnot’ (2011) conceptual perspective. 2. background the term occ has been receiving increasing attention from both management research and practice (judge & elenkov, 2005). for example, gravenhorst werkmann, and bonnstr (2003) focused on multiple aspects of organization and change process in 104 organizations represented by 495 questionnaires in netherland. they defined six aspects change capacity, involving: goals and strategy of the organization, structure, culture, technology, job characteristics, and power relations. they also identified ten aspects of change process itself: goals and strategy of the change, its technological aspects, tensions within and between groups in the organization, the timing of the process, information supply, generation of support for change, the role of change managers, the role of line managers, expected outcome, and support for change. mcguinness and morgan (2005) conceptualized occ through three components, such as a proper basis for continuous change, the ability to form it, and maintaining the energy of it. they showed how occ is associated with market and learning orientation. organizational change capacity: a scale development 183 meyer and stensaker (2006), in their conceptual paper, examined how organizations can create a capacity for change, and presented common change process prescriptions in two group. first group is the most cited one in the literature which is including framing, participation, pacing, and sequencing. second group is mostly illustrated with sustainable change capacity and listed like; routinizing, recruiting, pacing and sequencing. judge and blocker (2008) discussed how occ is different from other change related constructs, such as readiness for change and organizational adaptive capacity. they also discussed how occ is a precursor to strategic ambidexterity. they integrated eight dimensions of organizational change into four organizational polarities, such as a leader and follower polarity, an innovation and accountability polarity, a unitary and distributed leadership polarity, and a thinking and action polarity. klarner, probst, and soparnot (2008) analyzed the occ of the world health organization through the part of context, change process and learning from change. they found that occ permits it to better deal with the elements of change capacity, which improves the adaptation and survival. judge and douglas (2009) systematically developed a change capacity construct consistent of 32 question items through investigating 3,600 surveys in 161 organizational units. they found eight distinct but interrelated dimensions of occ, such as trustworthy leadership, innovative culture, involved mid-management, trusting followers, capable champions, system thinking, effective communication and accountable culture. soparnot (2011) investigated the automotive industry to determine the dimensions of occ by using semi structured interviews and database screening. he identified three dimensions of occ, such as process, context, and learning. the process dimension involves transformational leadership, incremental implementation, mutually created change processes, formation of openness, perceived authenticity of change. the context dimension includes the importance of change, structural flexibility, cultural consistency, trust, practices based on agreement, capabilities of individual learning. the learning dimension covers the development through experience, renewal through experimentation, transfer of organizational knowledge. 3. research methodology 3.1. measures we used itemized rating scale from ‘extremely low’ (1) to ‘extremely high’ (5) to assess the context, process, and learning aspect of occ. for context, process, and learning aspects of occ, we developed new questions derived from the conceptual study of soparnot (2011). table 1 demonstrates our question items. table 1 question items context dimension cd1: to what extent does your organization give value to the change? cd2: to what extent does your organization have a cohesive culture that facilitates the condition of change? cd3: to what extent does trust between those undergoing change (participants) and those performing change (promoter) exist in your organization? cd4: to what extent does your organization encourage the participation and taking of initiatives by the people? cd5: to what extent does your organization facilitate learning capability by training, internal mobility, and proactive problem-solving strategies? cd6: to what extent does your organization use subcontracting? cd7: to what extent does your organization use semi-autonomous teams? selim kirçovali & murat çemberci̇ 184 process dimension pd1: to what extent does management the creator of change by personifying that change, such that it carries the change of identity and produces reasons for it, so participants will accept its general significance? pd2: to what extent does management the creator of change by creating a team of “supporters” who will ensure the propagation of that change? pd3: management the creator of change by spreading the vision of change? pd4: to what extent does the perception of people changing the outcome by solving the problem that the project was created for and, more generally, for the benefits that outcome offers to the organization and its participants? pd5: to what extent does the perception of people changing procedures as various stages and that path taken to achieve the ultimate objective? pd6: to what extent does change created by the exercise of group construction, collective invention and learning about the exchanges of views and negotiation? pd7: to what extent does your organization carrying out a gradual transition during which participants follow the rhythm that enables them to manage change better using their own representations and their own ways of behaving? pd8: to what extent does the change process visible in your organization? pd9: to what extent does your organization fostering communication and dialogue to make the change process more visible in your organization? learning dimension ld1: to what extent does people observe their practices and learn from them to limit the number of similar mistakes in the future? ld2: to what extent does the people in your organization learn from its past? ld3: to what extent does people question their actions and think about improvements? ld4: to what extent does the guiding values that lead to the adoption of the practices often challenged? ld5: to what extent does people experiment to invent new solutions and consequently abandon other certain practices? ld6: to what extent does people experiment to adopt new practices and share new knowledge across the board? ld7: to what extent does those who run the organization develop mechanisms for managing the diffusion of knowledge (via the promotion of initiatives, the creation of discussion clubs, etc.)? ld8: to what extent does people informally impart and spread knowledge throughout the organization? organizational change capacity: a scale development 185 3.2. sampling we gathered the data from mba’s and graduate programs at five universities in istanbul. we first clarified the purpose of our research and requested those students to participate voluntarily in our study. we then invited each student to choose people in their firms to respond our surveys. we contacted with 243 firms, and 232 of them agreed to participate in our survey study. of the survey respondents, 223 out of 232 firms resumed the questionnaires. as we demanded multiple informants from each firm, we removed 21 firms that answered with only one survey from our data set. as a result, our sample comprised of 202 firms and 404 surveys from a variety of industries. 3.3. measure validity and reliability after the data collection, we performed an exploratory factor analysis by using a varimax rotation to evaluate the unidimensionality of each aspect of occ. as demonstrated in table 2, we obtained three factors for occ. interestingly, most of the question items of the context aspect of occ were loaded unto process aspect of the occ. to evaluate the discriminant validity, we performed a series of two-factor models, suggested by bagozzi, yi, and phillips (1999). we compared the fit of the restricted models with the original model by testing six models using amos 4.0. as shown in table 3, the chi-square change (2) in each model, constrained and unconstrained, were significant, 2 > 3.84, demonstrating the acceptable discriminant validity. table 2 results of exploratory factor analysis variables items f1 f2 f3 pd1 .78 pd2 .81 pd3 .80 pd4 .74 pd5 .68 process aspect of occ pd5 .66 pd7 .74 pd8 .74 pd9 .78 cd1 .60 cd4 .65 cd5 .58 ld1 .80 ld2 .73 ld3 .76 ld4 .73 learning aspect of occ ld5 .73 selim kirçovali & murat çemberci̇ 186 ld6 .69 ld7 .76 ld8 .61 ld9 .65 cd2 .89 context aspect of occ cd3 .70 eigenvalue 12.73 1.55 1.29 percentage of variance explained 55.36 6.74 5.60 table 3 discriminant analysis of the construct measures variables unconstrained (χ2/d.f.) constrained (χ2/d.f.) δχ2 process aspect vs. learning aspect 1040.39/188 1086.5/189 46.11 process aspect vs. context aspect 481.82/76 592.34/77 110.52 learning aspect vs. context aspect 244.03/43 374.49/44 130.46 further, we performed a confirmatory factor analysis (cfa) to assess all question items by applying amos 4.0. we found that measurement model fits the data fairly well: χ2(227) = 1173.22, comparative fit index (cfi) = .89, incremental fit index (ifi) = .89, and root-mean-square error of approximation (rmsea) = .09. in addition, we found that all items loaded significantly on their own variables, providing support for convergent validity. table 4 illustrates the correlation among three variables. the comparatively low to moderate correlations offer additional proof for discriminant validity. also, coefficient alphas, average variance extracted, and composite reliabilities, are well-beyond the threshold levels suggested by fornell and larcker (1981). in addition, as implied by fornell and larcker (1981), the squared root of ave for each variable is higher than correlations between pairs of variables, suggesting discriminant validity. table 4 correlations and descriptive statistics mean s.dev. variables 1 2 3 3.05 .73 1 context aspect of occ (.67) 3.28 .60 2 process aspect of occ .38*** (.74) 3.80 .56 3 learning aspect of occ .32*** .71** (.77) organizational change capacity: a scale development 187 composite reliability .69 .94 .92 variance extracted .46 .55 .59 cronbach’s α .68 .95 .93 inter-rater agr. (rwg) .72 .73 .72 *p <.1, **p < .05, ***p < .01 diagonals show the square root of aves 4. conclusion this study demonstrated that occ is a multidimensional construct composed of context, process and learning dimensions. we showed that that none of these three aspects of occ are orthogonal, but they accompany one another in a reciprocally underlining way (i.e., these dimensions are intertwined, establishing a “chain” of resources of the occ). also, this study showed that occ is a combination of each aspect. such that, this study highlighted the profile view of the occ. here, occ components can be deemed individually in a profile approach, noting that those dimensions may differ in their impacts, they may not follow a stable and cohesive way, and hence, can offer better interpretability for the individual effects of each dimension. indeed, occ cannot be conceptualized as an aggregate multidimensional construct as mentioned in the past studies. past studies used the mean values of those dimensions to assess the occ. while such an attempt is suitable when those dimensions are highly correlated and they uniformly affect the occ construct, current evaluation of occ can mask the interaction between those dimensions such that a respondent may report high in two aspects (e.g., context, process) and low in the other aspect (e.g., learning). finally, this study demonstrated that occ allows a firm to adapt more efficiently and rapidly than its competitors for changing circumstances and evolving opportunities (judge & douglas, 2009). in this respect, occ, a part of organizational dynamic capabilities, is important for all forms of organizations and is related to higher organizational performance (ramezan et al., 2013). references bagozzi, r.p., yi, y. & phillips. l.w. (1991). assessing construct validity in organizational research. administrative science quarterly, 36(3), 421-458. fornell, c., & larcker, d.f. (1981). evaluating structural equation models with unobservable variables and measurement error. journal of marketing research, 18(1), 39-50. gravenhorst, k.b., werkman, r., and boonstra, j. 2003. the change capacity of organisations: general assessment and five configurations. applied psychology 52(1), 83-105. heckmann, n., steger, t., & dowling, m. (2016). organizational capacity for change, change experience, and change project performance. journal of business research, 69(2), 777–784. judge, w. q., & blocker, c. p. (2008). organizational capacity for change and strategic ambidexterity: flying the plane while rewiring it. european journal of marketing, 42(9–10), 915–926. judge, w. q., & elenkov, d. (2005). organizational capacity for change and environmental performance: an empirical assessment of bulgarian firms. journal of business research, 58(7), 893–901. judge, w., & douglas, t. (2009). organizational change capacity: the systematic development of a scale. journal of organizational change management, 22(6), 635–649. klarner, p., probst, g., & soparnot, r. (2008). organizational change capacity in public services: the case of the world health organization. journal of change management, 8(1), 57–72. mcguiness, t., & morgan, r. e. (2005). the effect of market and learning orientation on strategy dynamics: the contributing effect of organisational change capability. european journal of marketing, 39, 1306–1326. meyer, c. b., & stensaker, i. g. (2006). developing capacity for change. journal of change management, 6(2), 217– 231. selim kirçovali & murat çemberci̇ 188 ramezan, majid, sanjaghi, m. e., & rahimian kalateh baly, h. (2013). organizational change capacity and organizational performance. journal of knowledge-based innovation in china, 5(3), 188–212. soparnot, r. (2011). the concept of organizational change capacity. journal of organizational change management, 24(5), 640-666. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 46-51 46 logistics strategy as a weapon for territorial conquest: the obor initiative example gilles paché aix-marseille university, france received: 22 july, 2020 accepted: 02 sept, 2020 published: 10 dec, 2020 abstract: with the launching of its obor (one belt, one road) initiative since 2013, china has chosen to invest in massive logistical infrastructures with the aim of asserting its economic power and becoming the world’s leading power by 2049. already at the heart of many global value chains, as the coronavirus crisis of 2020 has shown, china is going to give itself the means to sell its products on a large scale. the research note offers a socio-political reading of the logistical stakes of the obor initiative, indicating that economic balances are likely to be profoundly disrupted. the case of the maghreb countries, which have long been in europe’s area of influence, is particularly evoked to illustrate how the logistics strategy can be analyzed as a weapon for territorial conquest. keywords: china, globalization, maghreb area, obor initiative, socio-political analysis, supply chain 1. introduction researchers in logistics have not paid attention to geographical dimensions for many decades, preferring to focus on the operational, then strategic aspects of product flow management. however, the situation is tending to change significantly. many analysts have discovered with astonishment that flows take place in a space and in territories, with more or less wide borders. the covid-19 pandemic in the spring of 2020 is not the least of the merits of having highlighted the economic and health dysfunctions induced by global value chains. the european and north american medias then became aware of the dependence of countries on china for the manufacturing of protective masks, artificial respirators and other active drug ingredients. however, these global value chains are activated by globalized supply chains, which are now highly efficient in terms of cost and lead time. this research note focuses specifically on the globalization of trade that is enabled by logistics performance. it focuses on an original initiative that has been the subject of much ink, and whose stakes are major for many emerging countries, but which paradoxically remain relatively little investigated for the moment. this is the pharaonic project launched by china under the name of the “new silk roads”, known throughout the world through the expression “obor initiative”, for one belt, one road. since september 2013, the obor initiative has been the centerpiece of chinese economic and geostrategic diplomacy. its objective is to promote transcontinental connectivity between china, asia, africa and europe, covering five main areas: policy coordination, building logistical infrastructures, developing unfettered trade, financial integration and strengthening people-to-people links the construction of logistical infrastructures is perhaps the most visible feature of the obor initiative. the mission of these infrastructures is to facilitate the massive penetration of chinese products into western markets. we can speak here of a weapon of conquest at the service of a hegemonic desire for planetary power by 2049, a century after the birth of the people’s republic of china. the obor initiative has the explicit objective of creating spaces for the circulation of goods aimed both at stimulating the country’s domestic growth and positioning itself as the world’s leading economic power, ahead of the united states and europe. the “new silk roads” thus present themselves as the backbone of global value chains under chinese domination, including by capturing vast territories previously under the control of european countries. this is clearly the case in the maghreb area. logistics strategy as a weapon for territorial conquest: the obor initiative example 47 2. obor initiative the obor initiative is one of the most ambitious infrastructural projects ever conceived in the field of logistics (for a synthesis, see the contributions collected in lim, chan, tseng & lim [2016]). it was announced by president xi jinping during official visits to kazakhstan and indonesia in september 2013. the initiative itself has two complementary components, so in fact two major “roads” rather than one: a land component on the one hand, and a maritime component on the other (see figure 1). the implementation of the “new silk roads” is based on the creation of an extensive network of railways, pipelines and highways, and the acquisition of ports, both to the west, through the former soviet republics and europe, and to the south, namely pakistan, india and the rest of south-east asia. in addition to transport infrastructures, china is planning to establish about 50 special economic zones, based on the shenzhen zone model launched in 1980. in fact, the obor initiative is contributing to the implementation of a strategy to extend its growth model to other partner countries in order to develop trade with them, a source of new contracts for china. to achieve this, an ambitious logistical policy is essential, which corresponds to a constant desire to improve supply chain performance as a source of competitive advantage (tuerxun, 2017). figure 1: the obor initiative source: mercator institute for chinese studies. the logistical policy is based on the multiplication of maritime hubs as the sea route is of paramount importance for china (90% of all international trade and import of energy resources is done by sea) (sun & zoubir, 2017). to ensure the safety and performance of the maritime route, the obor initiative focuses on the development of strategically located ports where, sooner or later, china will obtain privileged land-based logistical access from partner countries (see box 1). the port of piraeus in greece opened the way in the mid-2010’s by being sold to cosco shipping ports & china merchants port holdings. as a weak link in the obor supply chain, the port of piraeus was then seen as an unhoped-for entry point to the european union, with an ideal position to become a transshipment hub to the mediterranean and the black sea. the “next move” is to think about the movement of goods in the hinterlands and beyond. this explains a dynamic policy of investment in high-speed train projects, but also in road infrastructural projects to offer chinese companies’ significant opportunities, based on perfectly managed logistics, integrating the most advanced information technologies (gekara & nguyen, 2020). box 1. strategy for the control of european ports by china from vado ligure in italy, through valencia in spain and marseille in france, chinese companies are investing massively and methodically in quays and container terminals in europe. china would thus control 10% of european port capacities by the beginning of 2020. the most emblematic example is the port of piraeus, in greece, now the leading mediterranean port whose volume of traffic has been multiplied by ten in 13 years. a boom in activity at the price of a total transfer since offices, warehouses, cranes, handling equipment, and even the administrative police, are under chinese control. gilles paché 48 if china develops large hubs in the mediterranean, closer than the traditional ports of rotterdam or hamburg in northern europe, there is of course a great risk of dependence, and a loss of european economic influence in the maghreb area. when countries take on too much debt, such as greece and the countries of central europe, for example, after sri lanka and djibouti, the donor will logically have the means to impose political and strategic decisions. in attempt to limit this spectacular development, which has only taken 15 years, the european union introduced in april 2019 a “filtering tool” for foreign direct investment to protect european companies. the aim is to assess whether a foreign investment constitutes a threat to the security of a state or whether it undermines an existing program benefiting member states. however, the opinions remain non-coercive, and the final decision will always rest with the member states. as long as weak dynamic regions in europe are left out by public authorities, the “filter” is unlikely to play its role effectively. source: adapted from midi libre, december 6, 2019. beyond a simple logistical dimension, which identifies the “new silk roads” to the formalization of several maritime and land radial axes on a global scale, as highlighted by the work conducted on the theme (chan, dai, wang & lacka, 2019), the obor initiative aims to considerably extend china’s economic and political influence. indeed, some analysts consider that the obor initiative corresponds above all to a will for power, a position largely taken up by the united states, as evidenced by the recurrent attacks by president donald trump before, during and after the coronavirus crisis of 2020. for donald trump, the “new silk roads” are primarily a political tool at the service of the globalization of markets, of which china is the main winner, while some asian leaders fear that the “new silk roads” may present themselves as a trojan horse for the military expansion of their powerful neighbor. in a climate of alternating tensions and negotiations, the united states regularly threatens to impose massive tariffs on imports from china, at the risk of harming u.s. companies that have invested strongly in china. nonetheless, the obor initiative is proving to be a true success for chinese diplomacy. more than 120 countries, representing three-quarters of the world’s population, have signed cooperation projects or have expressed interest in doing so in the near future. for example, a china/pakistan economic corridor has already been selected, with a series of projects linking china to the pakistani port of gwadar, on the arabian sea, even if the realization of road and rail infrastructures is still struggling to materialize (in march 2020, less than a third of the projects announced have actually been carried out). between 2013 and the beginning of 2019, significant shares were taken in 14 european ports, without taking into account the ports with which china has signed memoranda of understanding. thus it is possible to consider that the port of piraeus, already mentioned, but also the ports of rotterdam, antwerp, marseille and le havre, to name but a few, are at the service of a patient strategy of conquest on a distant horizon, since the profitability in the short term of the infrastructures is far from being assured. chinese culture, however, refers to a long period of time that will always end up providing the expected answers. 3. maghreb area: a struggle between europe and china the “new silk roads” are physically formed of several radial axes within which there are a series of hubs, notably ports. the maghreb area is both near and far: far, because the suez canal, as a logistical node, is positioned on the periphery of the maghreb countries; but near, because the passage of a “new silk road” through malta, for example, could offer this country the opportunity to play the role of a maritime hub. thus, it comes as no surprise that malta whose attention has turned to the ports of valletta and marsaxlokk. ports which could be envisaged to be connected via motorways of the sea with the port of tangier med in morocco, in which the chinese public company cosco shipping ports & china merchants port holdings has taken stakes, as it did in piraeus, and which is positioning itself as a powerful mediterranean hub. 3.1. from predation to cooperation from a purely logistical point of view, it is clear that the “new silk roads” reinforce the chinese influence both at the gates of the african continent and in southern europe, an influence that was already remarkable in as much as china has been, for several years, in the continuation of the bandung conference of april 1955, the leading investor in the maghreb countries. it is also a major market for chinese exports. under these conditions, it should not be logistics strategy as a weapon for territorial conquest: the obor initiative example 49 denied that the maghreb countries, inextricably linked to an expansionist chinese economy, will end up accumulating huge debts, which could be used as a means of pressure to obtain certain privileges, particularly military ones. as rouquet (2018) has rightly noted, logistics is primarily used to wage war, whether it takes the traditional forms of combat or the more subtle forms of economic confrontation. with the “new silk roads” and the predatory strategies implemented by china, the subject is proving to be highly topical (ho, 2019). of course, predation does not preclude cooperation. thus, in march 2019, morocco and china signed an economic and technical cooperation agreement of around 15 million euros to finance a series of public investments in the fields of culture, education and technology, as a continuation of earlier projects. similarly, in march 2017, a public center for the promotion of the chinese language and culture (confucius institute) opened its doors in tangier, with the aim of developing university exchanges between morocco and china. at the same time, the foundation stone of a “smart city”, called tanger tech, was laid, with the aim of being completed by 2030 (see box 2). this smart city will eventually host 200 chinese high-tech companies. the chinese group haite is contributing directly to the financing of the project (900 million euros), a project led by the société d’aménagement tanger tech (satt), the tangier-tetouan-al hoceima regional council and china communication construction company, through its subsidiary china road and bridge corporation. more generally, chinese foreign direct investment (fdi) in morocco experienced exceptional growth between 2004 and 2017 (see table 1), as noted by zoubir (2020). table 1: chinese fdi stock in morocco (million $ dollars) year amount year amount 2004 9.06 2011 89.48 2005 20.59 2012 95.22 2006 27.01 2013 102.96 2007 29.65 2014 114.44 2008 28.06 2015 156.29 2009 48.78 2016 162.70 2010 55.85 2017 318.21 source: adapted from zoubir (2020). box 2. growing involvement of china in morocco morocco is certainly the most legitimate country in north africa to receive chinese investments. strategically, the port of tangier is the third most important in the world after shanghai and panama. it is an essential place for china since the objective is first and foremost mediterranean and, with the “new silk roads”, there is talk of attracting investment in africa to europe. yet china has long preferred algeria to morocco, no doubt because of its oil reserves. but the creation of casablanca finance city and tanger tech is a model of rebalancing in the region. these are economic zones designed to attract foreign investment via tax credits, while creating value and local jobs. 100,000 jobs will thus be created in tangier after ten years of work and the $11 billion planned for investment. source: adapted from le monde, december 4, 2017. 3.2. from global trade to regional integration however, we cannot ignore the fact that the geopolitical and economic context could constitute a significant obstacle to the linking of the maghreb area to a “new silk road”, over and above the operational issues linked to the implementation of effective inter-modality. with the exception of morocco, we are dealing with a region of the world that remains unstable, regularly traversed by popular upheavals that are not conducive to encouraging foreign investment from china with a view to developing trade. we need only think of the famous “arab spring”, whose outcome in terms of democracy was probably not what we had hoped for. in addition, unemployment rates remain high, especially among the under-thirty-year old, cutting off the purchasing power of as many potential consumers. this is particularly the case in some of the countries most invested in the obor initiative, such as algeria, but also morocco, and there is no doubt that the consequences of the coronavirus crisis of 2020 are likely to worsen the situation. however, a more positive point can be highlighted. the maghreb region has significant potential for regional integration through efficient maritime, railway and road links (see figure 2), even if land transport connectivity is still gilles paché 50 limited (mohamed-chérif & ducruet, 2016). although the historical legacy of colonialism is heavy, there is a real willingness to work together to collectively improve the standard of living of member states rather than adopt measures targeting the specific interests of each state. this is, in any case, the meaning to be given to the signing of the treaty of the arab maghreb union in february 1989, the purpose of which is to strengthen cooperation on foreign policy and defense, but also to work towards prosperity by facilitating the free movement of persons, goods and capital. we find here the foundations of an economic and political integration whose logistical side should not be forgotten, with the reinforcement of transport infrastructures and an explicit objective to reduce the fragmentation of markets in the maghreb area. figure 2: the maghreb transport links source: mohamed-chérif & ducruet (2016) in any case, the maghreb area remains dependent on the strength of the radial axis of the obor initiative to which it is attached. however, this radial axis remains particularly vulnerable. the “new silk road”, in its maritime component, passes through the horn of africa, goes up the red sea and then leads to the suez canal. these are very sensitive geographical areas, and china’s offer of economic development assistance to the palestinians, and reconstruction assistance to syria, yemen and lebanon, could generate tensions that will last for many years (alrawashdeh & al-qatatsheh, 2017). admittedly, in order to protect its logistical investments, china is constantly making diplomatic efforts to convince international organizations to protect them. the question of the safety of ships in the gulf of aden has thus become a key issue, particularly with the deteriorating security situation in somalia and the high rate of piracy in the gulf. the risks thus remain very present and threaten the maghreb area with being “sidelined” from the “new silk roads”, which could have dramatic economic consequences. 4. conclusion the managerial implications of the construction of a “new silk road” on the borders of the maghreb have not yet been fully analyzed. china is gradually becoming the leading investor on the southern part of the mediterranean sea, where it is carrying out major infrastructural projects that will result in the end of western hegemony. in a historical perspective, the maghreb undoubtedly sees this as an important support in line with their former liberation struggles against european imperialism. moreover, the support is based on a total lack of interference since china is not interested in disputes between states. the issue at stake is solely that of using strengthened economic relations with the maghreb countries to achieve certain diplomatic objectives around taiwan, hong kong and tibet. in other words, infrastructural investments are a means of rallying countries to the “chinese cause” in international debates. one might think that logistical considerations are largely outside the realm of controversy, which is limited to a subtle exercise of soft power. to take account of this vision would be clumsy for the simple reason that the infrastructural investments borne by the obor initiative are profoundly changing economic centers of gravity and the paths taken by globalization since the ww ii. one of the most significant challenges is undoubtedly to open up the maghreb area to china that has understood how much the control of flows is an essential element of its policy of territorial conquest. it is clear that transport and logistical systems are organized to increase a managerial power of logistics strategy as a weapon for territorial conquest: the obor initiative example 51 influence, whether we are talking about a company or a country, and the major mistake would be to believe that supply chains should be analyzed solely with reference to operational dimensions. references al-rawashdeh, m.-s. & al-qatatsheh, m.-h. (2017). china’s strategy in the middle east (the silk road project). iosr journal of humanities & social science, 22(1), 37-51. chan, h.-k., dai, j., wang, x. & lacka, e. (2019). logistics and supply chain innovation in the context of the belt and road initiative (bri). transportation research part e: logistics & transportation review, 132, 51-56. gekara, v. & nguyen, x.-v. (2020). challenges of implementing container terminal operating system: the case of the port of mombasa from the belt and road initiative (bri) perspective. journal of international logistics & trade, 18(1), 49-60. ho, w.-y. (2019). re-emergence of the middle east in china: towards a new research paradigm in “one belt, one road”. polish journal of political science, 5(1), 79-92. lim, t.-w., chan, h., tseng, k. & lim, w.-x., eds. (2016). china’s one belt one road initiative. london: imperial college press. mohamed-chérif, f. & ducruet, c. 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(2020). expanding sino-maghreb relations: morocco and tunisia. research paper. london: royal institute of international affairs. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 23-30 23 the effects of oil on economic development of chad mahamat souleymane abakar, (master) istanbul commerce university, istanbul received: april. 05, 2018 accepted: may 30, 2018 published: june 1, 2018 abstract: chad’s oil was extracted in 2003 by consortium oil companies and the world bank. the world bank and chadian government agreed that once chad starts to export oil to international market, the revenues would be used for development, but today evidence shows that oil production did not improve people’s basic necessities. the country remains one of the poorest countries in the world. this paper critically assesses the resource curse in chad by exploring the effects of the oil on chad’s economic and social development. the finding shows that the declining of oil demand in 2016 has decreased the country’s import and export due to the fact the country was heavily depend on exporting oil. many of the chad’s investments come from oil sector and since the investment in oil has been declining, foreign direct investment (fdi) also has fallen sharply. the paper also finds that rentier economy in chad has permitted the president idriss deby to build a strong political elite that create a huge gap between the government and the civil society. the government uses public funding to support the patronage network, and that scenario has weakened institutions in chad. the empirical findings have revealed that the oil production has exacerbated the already fragile economic of the country and that the government has no wills of development, this is why oil has a been a curse in chad. keywords: resource curse, oil, chad, idriss deby, patronage politics 1. introduction the resource curse occurs when a country is rich in natural resources, but tends to experience poor economic growth, and sometimes even political and social struggles. countries which national income are heavily depend on mineral and oil resources exports are prone to the resource curse. for example, countries like nigeria, libya, gabon, sudan, angola and chad are blessed by natural resources and have seen large amount of revenues, but these countries ended up facing tremendous economic and social problems. their resource wealth did not help to boost their economies, instead has exacerbated them (kojucharov 2007). before the production of oil, chad’s main economic activities used to be agriculture and livestock. until 2003 chad’s oil reached the international market, and the government received a significant amount of revenues from the oil, but it did not have any will for development of using the resource revenues to end poverty, improve health and education system. for these reasons, the country experiences major economic recession. according to the united nation development program (2015), chad is 185 out of 188 countries in the humane development index, and the poverty rate in chad expected to rise to 39.8 percent in 2019 (world bank 2017). this paper reviews the theory of resource curse as both economists and political scientists refer to as the resource curse. the theory contains two factors that explains the resource curse which are: the economic and political factors, and under each factors there are theoretical aspects that link them to the resource curse. the theoretical aspects usually are the negative impacts which the resource abundant countries suffer from while dealing with curse. the aspects that are under economic mechanism-the dutch disease, resources volatile in international market, and the poor economic linkages between resource and nonresource sectors (ross 1999). the political aspects that explain the resource curse are; the rentier state and the role of institutions, lack of democracy, the politics of patronage, and increasing of military spending and civil war, (villumsen, 2010, as cited in collier, 2007; kojucharov, 2007; pegg, 2006;). mahamat souleymane abakar 24 furthermore, this paper examines the resource curse in chad while using the same feature that is explained by the theory of resource curse. to find out why chad could not avoid the resources curse and the effects caused by this phenomenon on chad’s economic development, this paper poses the following question: what are the effects of the resource curse on chad’s economic and social development? 2. literature review the term of the resource curse was introduced by richard m auty (1993). he used it in his early studies, in which he argued that countries rich in natural resources tend to experience bad economic performances, due to their heavy dependence on exporting natural resources. since then, the resource curse theory has been widely used by many scholars in the field of social sciences, among them, andrew warner and jeffrey sachs (1997, 2001), philip lane and aaron tornell (1999), paul collier (2007) and nickola kojucharov (2007) and many others (sachs & warner 2001, pp. 827). kojucharov (2007) explains that the closest factor that links the economic mechanism with the resource curse is the ‘dutch disease’is refer to a country which has large of natural resource, or boom in natural resource sector, it only exports its primary resources, (such as oil), that particular country in return gets massive amount of revenues which causes people to get higher income, this causes a high demand for local goods and services. due to this fact, demands of local products increase, and prices in the local market raise up. in this context, the state does not distribute the resource revenues fairly: people who do not belong to the government's political elite would struggle with high living cost because they were not able to share the country's resource revenues. as such, local products turn-out to be expensive compared to foreign products (kojuchrov 2007). the differences in the price between local products and foreign products can lead to a currency appreciation, as the economists refer to the real exchange rate appreciation. kojucchrov also sheds light on the government's behaviors toward the resource curse. he argues that state governments play major roles when they are dealing with the state's revenues. in the academic term, this factor is called behavioral mechanism or political mechanism; the government expands the revenues of the state unwisely. it spends money on unnecessary projects that help neither the citizens nor the country, instead, it causes corruptions. such needless investments usually are invested in infrastructure, for instance, roads or governmental buildings. the question is why the government wastes the state revenues in unnecessary projects? the government expects approval from its citizens assuming that the state is building the country and promoting development, but in most of the case this scenario does not work due to a high level of corruption. the government ends up borrowing money from international donors. 3. theoretical analysis in section, this paper argues the theory of resource curse. as is mentioned in the literature review, it argues the causal factors the resource curse. the term natural resource curse refers to the countries that have immense amount of natural resources. resources such as oil, cold, diamonds and other mineral resources are the particular resources that lead countries to a perpetual economic, social and politics problems (collier 2007). mineral dependence countries do not just experience curse in term of their economic development, but they are prone to experience violent conflict, inequality, lack of democracy and corruption (shaxson 2007) this paper examines the effects of the oil by looking into the theory of the resource curse which contains two factors that explains the resource cursethe economic and political factors, and under each factors there are theoretical aspects that link them to the resource curse. 4. economic factors the economic factors are separated in two (2) effects that this discuss themthe increase of foreign debt and the volatile revenues of the oil. these two (2) factors have direct connection with the resource curse and they remain one of the actual factors that cause the current economic crisis in chad. the volatile revenue refers to the instability of resources’ prices in international market, for instance oil. studies reveal that governments spend significant amount of money on national budget during the boom periods of resources, but it is very challenging to cut the same public spending during the burst. this makes very difficult for governments to maintain a long time budgetary the effects of oil on chad’s economic development of chad system as the price of the commodities are dropping. as such, countries that dependent on exporting natural resources are unlikely to avoid budget deficit (kojucharov 2007). the other effect that many oil dependent countries experience is the international debts. government from resource-rich countries have the habit of borrowing money from international financial institutions, such as international monetary fund (imf) and the world bank group (wbg). many studies reveal that this might cause global problems, such as, corruption, and large amount of debts that lead to a poor economic growth (shaxson 2007). to analyze the economic factors as the negative development outcomes for resource curse in chad, here the paper looks at the failing of the resource revenues management by the chadian government as the reason why chad has never seen any economic development. chad’s president never had the will of transforming the country’s economic into a development, therefore, he has never had a developmental plan for the state. this proves that when he went to buy weapons with the first oil revenues that are received (eriksson & hagströmer 2005). another factor analyzed by kojucharov (2007), according to him deby’s government has failed to manage the oil production can be explained in two ways. first, institutions are very weak, and they lacked capacity. for example, institution such as college de controle et de surveiilance des resource petrolieres (ccsrp), at the start of its functions, it was reported that it lacked fund and work facilities like offices, computer internet and “the committee is under-funded, understaffed and deprived of information by both exxon and chadian government” (eriksson & hagströmer, 2005 as cited in bbc news, 2004, p.47-48). empirical results show that although oil has shown positive impacts to chad’s economic growth during the early years of the oil production, but in recent years the country has experienced poor macroeconomic performance due to the fact that the price in oil is dropping dramatically. table. 1: shows that from 1990 when the current president idriss deby came to power to 2000 when the project of oil extraction approved, chad’s real gross domestic product (gdp) grew only by 1.6% annual average. but when the oil production became operational in october 2003, the exportation of oil helped the country’s gdp to jump to 33.6%. this has made chad to become the highest growth rate in the world by the end of 2004. the booming of oil exports in chad has helped the country to reduce its external debts from 50.2% of gdp in 2003 to 20.5% in 2006 (kojuchrov 2007). table 1.economic and financial indicators for chad international monetary fund (2007) imf (2016) report shows that the dropping of oil's price has brought chad’s economy to the ground. in 2013 and 2014 the price of a barrel crude oil was $100, it dropped to $ 43 and $ 34 in 2015-16. this has affected the oil-sector growth by -5.9 and by huge cut in government budgets. at the beginning of 2016 the investment in oil companies has been cut by 80 percent as the drop in oil price was continuing to drop dramatically. other sectors such as livestock, commerce, communication and transport sector have been affected both by security concern in the region and also because of the slow activity in the oil sector (imf 2016) mahamat souleymane abakar 26 figure 3. chad: economic developments, 2010-16 figure.4 chad: economic development source: chadian authorities, imf 2016 source: chadian authorities and imf, 2016 figure 3 gives information on the drop in oil prices. according to imf the net oil revenues that dropped during the first six months of 2016 was estimated to be cfa franc 25 billion for the year, 80 percent lower compare to the year of 2015. this phenomenon has also caused lots of trouble for the government to deal with the annual budget cut. since the country was running out of money, the government was forced to reduce its annual budget of 2016 by 23 percent below the year 2015 and 44 percent less than the year of 2014 (imf 2016). furthermore, figure 4 shows that the contribution of non-oil revenues in real gdp growth has sharply decline in 2016. the indicator shows approximately cfaf 415 billion in chad’s gdp has fall in 2016, that makes 3 percent lower than the year before. figure. 5 chad economic development, 2010-16 source: chadian authorities and imf, 2016 figure 5 explains that the declining of oil demand in 2016 has decreased the country’s import and export due to the fact the country was heavily depend on exporting oil, as a result, the country’s account deficit narrowed to 7.5 of gdp. many of the chad’s investments come from oil sector and since the investment in oil has been declining, foreign direct investment (fdi) also has fallen sharply, for instance construction sectors are stopped (imf 2016). indicator also shows that chad is an oil producer country; but it does not attract foreign investors. “chad was 167th out of 179 countries in the heritage foundation’s 2014 index of economic freedom, 143rd out 144 countries in the world economic forum’s 2014-15 global competitiveness index, and 185th out of 189 countries in the the effects of oil on chad’s economic development of chad world’s 2014 doing business report (bti 2016, p. 17). there are number of factors led the country not being a suitable environment for investment. therefore, bad infrastructures and power cut problems in chad. in chad 80 percent of the population are farmers or herder, this causes lack professional skillful labors, corruption and patronage system are considered as a legal activity in the country (bti 2016). 5. political factors this political mechanism mainly explains the behaviors of the government in resource-rich country toward the resource revenues. many leaders in africa’s natural exporter countries tend not to manage the resource revenues wisely, they instead use the revenues to enrich themselves and seek for building a strong political empire that can help them to maintain power. therefore, the political factors effects are more serious and they are perpetual effects. political aspects that explain the resource curse are, the rentier state and the role of institutions, lack of democracy, the politics of patronage, (villumsen, 2010, as cited in collier, 2007; kojucharov, 2007; pegg, 2006;). the theory of rentier state refers to when a government only seeks to use the resource revenues for its benefits and tends to ignore domestic problems, such as, economic recession and social struggle. this government does not impose its people to pay domestic taxes, it just relies on the resource revenues and international aids (pegg 2006.) the rentier of state encourages government of being too rational about the future of the resource revenues and it motivates the nonstate actors to involve in actions that only harm economic growth, this include corruption, bad governance and relationship between patrons and their clients. in the case of chad, the effects of rentier can be explained as follow. before the oil extraction, the chadian government has always been free of being accountable to its people the regime is a clan-based system of patronage that any attempt to revolt against the system would end up into conflict because the ethnic-patronage elite who have self-benefit from such system would not let any political faction to arise, they prefer to maintain enriching themselves by violating the rule of law (winters and gould 2011). in the chadian context of paying taxes is otherwise, chadian people pay taxes without any of the expectations that they government would do something in return they do not expect anything from the government (bayart 1999). people are certainly unaware of the fact that in case if they have to pay taxes, they get accountability in return. as it is suggested by bayart (1999) it is a colonial legacy. during the colonization, the french used to rule indirectly while collecting wealth in the country. and in return, the french colonizers supported local chiefs and sultans to rule and collect taxes from the population. as regards the resource rents affects democracy, collier in his own words mentions that “the heart of the resource curse is that resource rents make democracy malfunction” (collie 2007 pp.42). he suggests that democracy is underperformed in the natural resources-rich countries by proposing a law called “the jungle of electoral competition”societies whose countries export oil are more likely to be ruled by authoritarian regimes; they embezzle the public funding to support their parties to win elections. according (bti 2016, chad country report) democratic institutions depend on the government and they were also weakened by the patronage system. in the administrative system works are done very poorly due to lack of independency in the parliament. political appointment is controlled directly by the president and it is based on patronage system. the president controls the country only by himself giving the key positions to his relatives who support him. this has caused a huge gap between the government and the population. thus, the fact that deby’s government is too strong ordinary people cannot question his policies. repression effects in chad’s oil trap can be explained as follow. studies reveal that the oil revenues were not the primary cause of the government’s repression. although deby promised to implement democracy after seizing power. he allowed multi-political parties in which one term has five years of presidency, but throughout his presidency this has not been the case. deby has won all the elections that took place in 1996, 2001,2006, 2012 and recent in 2016 which were controversial, the opposition boycotted the last three election accusing the president for electoral fraud (eriksson & hagströmer 2005, p. 26-27). imprisonment and killing of oppositions were common thing even before chad becoming oil producer. the constitution allows the freedom of expression, but the crackdown on media is normal when it is against the government. newspapers, radios and televisions that in n’djamena (capital city) are the supporters of the president, they cannot broadcast or write against the president (bti 2016) mahamat souleymane abakar 28 this paper claims that democracy has never been in chad even before chad started exporting oil. but that does not say that oil did not cause the malfunctioning of democracy in chad, without doubt that the oil revenues exacerbated democracy that barely was experienced by chadian. furthermore. the rentier effects have been severe effects against the country’s development and help deby’s regime to become strong, it has been the key element of his success maintaining stable government. as for repression effects linking with the resource curse in chad, this paper argues that the dominance of government in chad and government’s violence against the people is not oil’s effects but it is part of chad’s political tradition. consider many governments in africa which their countries are rich in oil assume power with no intention of developments, they are motivated by the greed of power and wealth collection. the politics of patronage can be explained by drawing two (2) analytics. the first is governments use this strategy of the patron-client relationship to avoid political crisis such as coup d’etat and civil war, and the second one is during the electoral competitions political parties use public funds to bribe voters through patron-client’s relationship (collier 2007& arriola 2009) leaders in africa tend to purchase people’s supports while distributing state’s wealth in order to create a great political empire without any major political faction. arriola (2009) argues that in many african resource rich countries, leaders seek to expand their cabinet, while appointing patron in key positions in the government. he claims that politicians use this strategy avoiding political crisis and the risk of being overthrown which at the end of the day this strategy make them “the big man rules”. the politics of patronage is a serious matter that oil has brought to chad. in 1990, idriss deby came to power as a democratic leader, he promised that he would bring democracy to chadian people. he seized power in a patronage elite relationship, particularly through his zakhawa ethnic group and they are still very loyal to him and to his government. deby manages to expand this scenario to other ethnic groups. the patronage system is not just practiced among the president’s clan but it spread throughout the country, at least in every major ethnic groups in chad; that is including gourane, arab, kanembou, sarah, and so forth (may & massey, 2007). idriss deby expands patronage coalition by offering them the state’s resources and those patrons in return buy off their clients in exchange of their loyalty supporting their patron to win position in the country’s bad managed economy and politics (hyden, 2006; lemarchand & legg, 1972; and r. arriola, 2009). in order to expand patronage, he selects one person from a particular ethnic group, appointing him or her to a key positions in the government, that can be minister or general director in one of the key departments in the country, for instance in the ministry of finance, in airport or in oil companies. he also uses the strategy of divide and rule; he can easily bring division among family member by appointing one member of a family to a well-paid salary in case if he sees or hear threat comes from this family member. in this context, this paper claims that due to the complete absent of strong intuitions idriss deby relies on expanding patronage elite by distributing the country’s resource revenues in order to maintain his power, he avoids political challenges by recruiting more elites into his patronage coalitions. because of the mal-governance and poor management of oil revenues, since 2014 chad has been through its worse economic and social crisis. in june last year the government announced an austerity measure (16 austerity measure) that includes 50 percent of civil servant’s salaries were reduced, cutting the annual university students grants completely from public spending (i̇mf 2016). civil servant who just rely on small wages are more affected by the austerity program. people whiteness that teachers were thrown out from their houses as they did not afford to pay the rental house, patients in hospitals remained untreated due to lack of doctors. while school were closed for almost 4 months in 2017 because teachers went on multiple strikes. the same case for doctors in public hospitals do not work as they went on strike. for that reason, in recent years many doctors open private clinics for people who afford the price. but for many chadians private hospital are very expensive, hence, they cannot afford to treat in private hospitals. the united nation development program (2015) reports that chad currently is 185 out of 188 countries in the human development index. the current crisis started with the dramatic falling of the oil's price. according to bertelsmann stiftung’s transformation index (bti 2016) that in chad access to economic power are given according to ethnics and religions. the highest and the privilege positions are only given to member of the ruling clan and the family of the president. oil revenues is the main country’s economic income, but the revenues are not used to help reducing poverty and improve health and educations, they are unequally distributed due to the patronage network. this has caused 60.5% of the population are below the poverty line with $2 per day. people in rural areas are more affected, accordingly, 72% of the populations live in rural areas are under the poverty line and 80% of chadian population are farmers and herder who their activities affected by the recent economic crisis. (bti 2016). the effects of oil on chad’s economic development of chad 6. conclusion this paper is an exploring research paper that has sought to analyze the effects of resource curse in chad by answering the question what are the effects of oil on chad’s economic and social development? in doing so, this paper has applied the theory of resource curse to analyze the research question. according to theory of resource curse, there are two factors that can explain the resource curse; which are the economic and political factors the finding of the analysis from the political factors shows that the main reason that lead chad to experience the resource curse is the patron based government in chad. this regime has been an impediment to economic growth, it is based on politics of patronage, it uses the country’s national income in order to expand its patronage so that the president can maintain his power without any threat of him being ousted. it was reported that “the petroleum revenues management system brokered with the wb has failed, and the revenues have been used by the government to buy arms, pay for some infrastructure and feed the patronage network to maintain support for the current president” (bti 2016, p. 25). in chad democracy is not something that the chadian people enjoy even before the current regime, democracy never existed even before the country explored its natural resources, this is because of the french colonial’s legacy. but the oil production has exacerbated democracy, it motivates the regime to be more repressive. idriss deby uses cabinet reshuffle to manipulate the chadian people. the agence national de securite (ans) is the chad’s national intelligence agency. this agency is run by the president’s closest clan and elites; it is one of the most brutal agencies. manipulating and threatening journalists, opposition parties are part of this agency’s works. the intelligence offers large amount of money and in return you must support the policies of the president, otherwise you might be jailed or killed. there have been many victims who fled the country left their families behind because of the threats posing by the agency. this paper suggests that as far as the recent economic and social development in chad are concerned, the oil production has been nothing but disaster for the country. it is safe to say that chad’s socio economic would have been far better than without the oil production. although, it is believed that oil has contributed at some points to chad’s developments, especially from 2010 to 2012 when the government built some schools and one of the two universities in the capital. but many chadian believe that the government should have done far better than this. the issue of the underdevelopment of chad’s economy was the rentier economic in which the president had no wills of developing the country. his intensions to be in power and help to those who have been seeking for resource rentier furthermore, this paper recommends and encourages the chadian government to implement the same approaches as botswana implemented. chad’s government needs to implement economic diversification which promote non-oil economic growth and must open the country to international investors, then the government must be working on improving domestic problems such as, good infrastructure, permanent electricity power and security. second approach is that chad must end the management of the country’s fiscal is being managed by the imf. the government should take its responsibilities to manage its fiscal by implementing strict fiscal disciplines that will end the patronage network system. one of the most important approaches that chad should learn from botswana is that good governance. botswana’s success in managing its natural resources due to the effective institutions. according to meijia &castel (2012) four aspects of governance that lead botswana to manage its natural resources. voice and accountability, government effectiveness, market friendly regulation and anti-corruption policies. deby and his elite will enjoy this lavish lifestyle while the country’s economy is collapsed. many experts and chadian people think that chad will go toward civil war and armed factionalism. therefore, deby will keep using repression to arrest oppositions and kill protestants on the streets who are already show to the president they do not fear from his repression will keep protesting. especially people from southern non-muslim communities whose their grievances might lead the country into a civil war. mahamat souleymane abakar 30 references arriola, l. 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(2011). betting on oil: the world bank’s attempt to promote accountability in chad, global governance, 17 (2), pp. 229-245. journal of international trade, logistics and law, vol. 7, num. 1, 2021, 8-12 8 space tourism activities overview of international law ratih dara ayu dewily universitas 17 agustus 1945 surabaya, indonesia tomy michael universitas 17 agustus 1945 surabaya, indonesia received: nov 30, 2020 accepted: feb 02, 2021 published: june 15, 2021 abstract: space tourism activity is one example of commercialization activity in space. currently this activity is still in a development session which is better for the future. thus, the description of space tourism activities is a matter that deserves to be known from history to all of its details and seen from the growth and difficulty in increasing space tourism activities, of course it must be supported by laws or regulations governing space. not only that, so far there have been space tourists as well as potential space tourists who have departed for this tourism activity. thus, this space tourism activity is intended to be an activity that can be tried on a regular basis in the future, so that international and national legal arrangements must be well organized, fair and responsible and with regard to the rapid growth of this activity, it’s appropriate for those who participating or having an interest in this activity must be more open in the growth of the activities they are carrying out, so that steps can be taken quickly, it seems like for example, to quickly formulate and ratify a space agreement related to space tourism, protection of parties who participate in activities it's kind of like the private industry. the research objectives, namely keywords: space tourism activities, international law, national law 1. introduction initially space tourism offered very little accommodation. for example, if the international space station is used as a tourist attraction, guests will not find luxurious hotel rooms like those on earth. because this is designed to do research not entertainment. activities in space are aimed at research exploration activities for the development of science and benefits for humans on earth, now these activities have created many benefits for many parties including those who daily use advances in science and technology in the field of space. for example, remote sensing activities or remote sensing, and geo stationary orbit which must use satellite resources. space tourism is currently one of the activities that attracts the attention of many people, where this activity is intended only for entertainment or recreation in a way that a person must buy a ticket so he can travel back and forth to space. this activity has long been dreamed of by many people because without having to become an astronaut, people with various professions can already feel what it feels like to be in space. the space tourism business opportunity is very profitable, several private companies took this opportunity by starting to move in the business and there are also several ongoing projects to commercialize this space travel. the success of the space tourists 'trip was a great opportunity for the public to be able to follow in their footsteps, although dennis tito and the others' journey can be said to be a normal trip considering that astronauts and other scientists also do the same thing for their work but in various ways. this trip is unusual and could have a bad impact because this activity is still a new phenomenon and there is no legal regulation or legal aspect that regulates it explicitly. considering the accident that happened to the virgin galactic company in 2014, this activity doesn’t mean an activity that is free from all risks, but it can pose a very high risk to the crew, passengers and in the area around the launch of the aircraft. space tourism activities overview of international law 9 method normative legal research is legal research that places law as a norm system building. the norm system built is regarding the principles, norms, rules of legislation, court decisions, agreements, and doctrine (teachings)(michael, 2019) 2. research results and discussion 2.1. space law when we hear the word space, which first appears in our minds, it’s an infinite empty space on the surface of the earth which is very large and even countless. space law is a part of legal science related to outer space, or law science that makes space the object of its study. space is broadly defined as space that is generally agreed upon based on certain criteria considered to be above the airspace of a country's territorial territory and above the air space of the common (international) nations.(pranidita, rosidawati and rahmatullah, 2019) space is stated on the basis of the nationality of agrarian law which has been formulated in article 1 of the basic agrarian law, namely the indonesian territory which consists of earth, water, space, and natural resources contained therein, which is one of the indonesian commitments of the indonesian people who are united as indonesian nation. currently conceptualized by countries in the world that space is a shared space that is free from claims of ownership by anyone. conservatively it can be interpreted that all countries in the world have the same rights to space. in reality this is not true, because: a) not all positions in space have the same economic value, thus space can be classified as economic goods/objects for which sacrifice is required. b) only a few countries can currently use space for it’s national interests. the massive liberalization of the world economy with its free market mechanism has resulted in the globalization of the world economy, where control of production sources, technology and information is very important and is due to the growth and development of large (private) corporations in the world. the corporation is currently using space effectively and efficiently as a source of income. whereas if it’s true that space belongs to the countries in the world, then the space capitalization process should refer to the interests and /or benefits for as many countries as possible in the world, not to be used by large (private) corporations exist in the world only. currently, thinking is developing about the existence of countries in space. if this happens, then in fact the neutrality of space and the jurisdiction of a legal community will be void.(lyall and larsen, 2013) 2.2. agreement regulating activities and use in space the formation of international space law has undergone a process of formation that sequentially starts from soft law (1958-1966), then hard law (1967-1984) and back to soft law (1985-present).(hukum et al., 2020) space treaty or formally an agreement on the principles governing the activities of the state in the exploration and use of outer space, including the moon and other space bodies, is an agreement that forms the basis of international space laws. this agreement was opened for signature in the united states, britain, and the soviet union now called russia on january 27, 1967, and entered into force on october 10, 1967. as of june 2019, 109 countries participated in the agreement, while 23 others have signed agreement but the ratification has still not been completed.(unoda, no date) the outer space treaty is the main framework for the basic law of international space law. among it’s principles are prohibiting states parties to the agreement from placing weapons of mass destruction in earth's orbit, mounting them on the moon and other celestial bodies, or installing them in outer space. this agreement also states that space exploration must be carried out to benefit all countries and free space for exploration by all countries. in 1972 the convention on liability for damages caused by space objects took effect. likewise, within four years a convention on the registration of objects launched into space appeared again. (hutahaean, 2008) ratih dara ayu dewily& tomy michael 10 2.3. tourists and prospective tourists for space tourism activities this activity began to be noticed by many people when there was a businessman and scientist from the united states named dennis tito who became one of the first people to become a tourist on the trip.(wall, 2011) on april 28, 2001 dennis tito paid for himself when on the international space station (iss) aboard the russian soyuz spacecraft. apart from dennis tito, there are still space tourists who travel using the russian soyuz spacecraft, here is a list of space tourists traveling using the russian soyuz aircraft, as in the table below. tabel 1.1 no name country of origin profession / job departure year 1. dennis tito united states engineers 28 april 2001 2. mark richard shuttleworth south africa and england enterpreneurs 25 april 2002 3. gregory olsen united states enterpreneurs, engineers and scientists 1 october 2005 4. anousheh ansari iran engineers 18 september 2006 5. charles simonyi budapest, hungary architects at microsoft companies 7 april 2007 and march 2009 6. sheikh muszaphar shukor malaysia doctor, astronauts 10 october 2007 7. yi so yeon south korea scientists 8 april 2008 8. richard gariot united states computer games business 12 october 2008 list of space tourists using russian soyuz aircraft (hutahaean, 2008) prospective virgin galactic passenger, a 61-year-old business school professor named ketty maisonrouge, reenrolled in 2005 for her promise to be at zero g or zero gravity because ketty had waited 15 years for this trip, paying her $ 250,000 or rp.3,700,000.000 to travel beyond earth's atmosphere. the company that sold the tickets, virgin galactic, said it would finally schedule its flights in 2020. but the journey will be preceded by sir richard branson, the founder or founder of virgin galactic, but his departure is not too far away.(thomas, no date) 2.4. rocket launching companies that build business activities in space tourism space tourism is currently one of the activities that attracts the attention of many people, where this activity is intended only for entertainment or recreation in a way that a person must buy a ticket so he can travel back and forth to space. this activity has long been dreamed of by many people because without having to become an astronaut, people with various professions can already feel what it feels like to be in space. the space tourism business opportunity is very profitable, several private companies took this opportunity to start moving in business and there are also several projects that are currently underway to commercialize this space travel such as: a. virgin galactic on february 22, 2019, spaceshiptwo was successfully flown by reaching an altitude of more than 88.5 kilometers. b. space x c. blue origin d. orbital atk e. spacedev space tourism activities overview of international law 11 f. bigelow aerospace(muviola, 2018) formed by the owner of the budget suites of america hotel, robert bigelow hopes to create an affordable habitable space station for the corporate community. g. space island group they will build a commercial space infrastructure shaped like a rotating ring to resemble the spacecraft discovery in the 2001 film: a space odyssey. space island said it would build a space city from nasa's empty former space fuel tank, and place it some 400 miles (644 km) above earth. the space city will rotate once per minute to create a gravitational pull that is one-third as strong as earth. h. the x prize it is a national contest offering $ 10 million to the first private company to develop a reusable or repeatable launch vehicle (rlv) capable of taking the general public into space. i. space adventures according to their statements, space adventures plans to “successfully fly tens of thousands of people into space over the next 10-15 years and beyond, both orbital and suborbital, around the moon and back, from spacecraft both on earth and in space ..’’ j. hilton hotels in fact, they are also showing an interest in the space tourism industry and are likely to build or co-finance hotels in space. however, the company said they believed that such a space hotel would be successful in the next 15 to 20 years.(bonsor, no date) in this space tourism trip, of course, it requires a lot of money, from the private companies that build this space tourism business that have different price benchmarks. the following is a price comparison for each company which will be explained in the table below. table 1.2. comparisons of travel ticket prices of each private company no. nama perusahaan harga 1. virgin galactic $250,000 / rp3.700.000.000,00(grush, 2020) 2. spacex $55 million / rp814.000.000.000,00(o’kane, 2020) 3. blue origin $200,000 / rp2.960.000.000,00 (o’callaghan, 2019) 4. international space station / iss $52 million / rp769.600.000.000,00 (sheetz, 2019) 3. conclusion this space tourism activity is still relatively new and the laws and regulations don’t regulate too explicitly, with this the parties involved, such as tour operators, and potential ticket buyers must know what consequences must be borne during this tourism activity. and with the price offered so great that the organizers should be able to provide safety assurance services for the crew on board the spacecraft. ratih dara ayu dewily& tomy michael 12 references bonsor, k. (no date) how space tourism works, howstuffworks. grush, l. (2020) virgin galactic lost $60 million in first quarter, announces new nasa partnership for supersonic tech, the verge. hukum, j. et al. (2020) ‘sui generis dalam penggunaan geo stationary orbit berdasarkan prinsip dan hukum ruang angkasa pendahuluan indonesia telah mengesahkan traktat mengenai prinsip-prinsip yang mengatur kegiatan negara-negara dalam eksplorasi dan penggunaan antariksa , termasu’, 3, pp. 163–178. hutahaean, p. (2008) ‘bisnis komersial wisata antariksa’. lyall, f. and larsen, p. b. (2013) space law: a treatise, space law: a treatise. doi: 10.1016/j.spacepol.2009.11.010. michael, t. (2019) ‘korelasi hukum document on human fraternity for world peace and living together dengan undang-undang republik indonesia nomor 24 tahun 2007 tentang penanggulangan bencana’, jurnal hukum magnum opus. doi: 10.30996/jhmo.v2i2.2178. muviola, s. p. (2018) 6 perusahaan swasta ini berlomba tawarkan wisata ke luar angkasa, kumparansains. o’callaghan, j. (2019) blue origin launches its first space tourism rocket in seven months and hopes to take humans to space in 2020, forbes. o’kane, s. (2020) spacex will send three tourists to the international space station next year, the verge. pranidita, n., rosidawati, i. and rahmatullah, t. (2019) teori hukum ruang angkasa. sleman: cv budi utama. sheetz, m. (2019) a trip to the international space station will cost tourists $52 million, cnbc. thomas, z. (no date) the woman who paid $250,000 to go into space, bbc news. unoda (no date) treaty on principles governing the activities of states in the exploration and use of outer space, including the moon and other celestial bodies, unoda (united nations office for disarmament affairs). wall, m. (2011) first space tourist: how a u.s. millionaire bought a ticket to orbit, space.com. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 65-74 the effect of transportation investments on urban logistics: istanbul sample özgür örnek istanbul commerce university, turkey murat çemberci, (phd) istanbul commerce university, turkey received: feb. 05, 2018 accepted: may. 22, 2018 published: june 1, 2018 abstract: this paper defines the term of urban logistics, describes its significance, scope, shareholders, the factors affecting it, as well as the relevant performance criteria. herein you will also find detailed information about the cost 321, a european action which is considered as important for the urban logistics sector. this study outlines the urban logistics sector in turkey, including the current transportation networks of istanbul, a metropolis which has so far been experiencing an unplanned urbanization. in addition, the article claims that due to its geographical position, industrial opportunities, ever-growing population, connections, and infrastructure, urban transportation has become more of an issue for the city. this study also analyzes endeavors of the last decade that aim to solve these above-mentioned problems, and their impacts. these impacts were analyzed based on the findings about cost 321, and possible logistics solutio ns were suggested within the study. keywords: urban logistics, transportation investments, cost 321 1. introduction urban logistics is a system which was created to minimize emerging challenges and optimize various logistics services provided by different legal entities, considering urban road infrastructure, environmental impacts of the current situation, energy efficiency etc. istanbul is a metropolis with a daily population of 20 million, whose traffic congestion rates have been at the top of the world lists for a significant while. today, it is unlikely that the city and its infrastructure, which are developed on an unplanned and unorganized basis, may have the capacity to respond to the current needs. the measured time spent each day by an average working citizen in istanbul is nine hours. this number, however, was calculated as seven hours for ankara, and six hours for antalya, izmir and bursa cities. according to the list prepared by tomtom, which is a dutch company that produces navigation systems, istanbul has the second worst traffic congestion with 58% among 146 biggest cities of the world. it is followed by mexico city (mexico) as the second and rio de janeiro (brazil) as the third (sputnik, 2017)(diken, 2015). as it is in all over the world, the most congested times of istanbul’s traffic are the daily commuting times. however, the afternoon traffic is more congested when compared to the morning time. considering the city’s capacity and traffic congestion, solutions should be based on future plans and strategies rather than daily interventions, and both universities and public institutions should be encouraged to take part within the projects. a country where no university and academician take part in the projects, no research is made, no book and thesis is written will make no progress in solution of a social problem, but only save the day. interventions such as prohibiting the use of heavy vehicles in specific periods of the day, building new junctions, narrowing or removing the hard shoulders are only temporary solutions that may even bring about negative impacts such as labour loss. as 66 özgür örnek & murat çemberci the capital city of the ottoman empire and one of the most outstanding cities of the republican period, istanbul has unique strategic, geopolitical, historical and touristic features and characteristics. therefore, all commercial, sociological and cultural incidence and phenomena that emerge in this world-famous city should meticulously be evaluated by academicians and practitioners, and the human life in the city should be facilitated through joint problem-solving interventions. to mention the projects that will possibly affect the current urban logistics sector; construction of the yavuz sultan selim bridge has been completed and the project has been opened to public use with the motorway passing through the bridge. although it is not yet capable of meeting the current needs, there is no doubt that the facility will have positive impacts on the urban transportation after the linking roads are completely opened, and a significant number of vehicles will start to transit between asia and europe sides through this bridge. as for the users, however, it seems to be a costly solution. particularly the recent decision that obligates the use of intercity buses and the 130 -km extension to the route has caused unrest among the society due to the increased costs and time spent on traffic. as a result, a decrease in time efficiency and an increase in costs have become inevitable for those who use these buses in the izmit istanbul route. due to the increase in costs of the good transportation activities from the anatolian side to the european part of istanbul, this route will also have negative impacts on the prices offered to the end users. the guaranteed number of vehicle passages per day for the yavuz sultan selim bridge is 135,000. although the official authorities announced that 100,000 vehicles pass the bridge in a day as of july, 2017, some other sources claim that the number has only reached to 40,000. however, for now it is not possible to obtain any standing statistical data (bi̇k, 2017). regarding the other three controversial projects; the government's prior expectation is to have up to 20 billion usd financial income and 225 thousand new positions will be offered for recruitment in the third airport. this project will also contribute to the logistics sector, with the area it covers, its terminal building and car park, which are among the biggest ones in the world. accordingly, a significant increase is anticipated for economic activities in logistics and warehousing branches of the industry, particularly in local and regional areas. it is also expected that developing logistics parks similar to those around the memphis international airport, the beijing capital international airport, and the frankfurt airport will bring about substantial economic activities as these parks often contribute to the growth and development of new clusters after the opening of any new airport (edam, 2016). in addition to this, the 31-km-long great istanbul tunnel project, which is planned to integrate the trans european motorway (tem), the e5 motorway and nine different subway lines, and be the first of its kind in the world containing both a motorway and a railway in a single tube, will serve for about 6,5 million passengers a day. it is anticipated that this project will lessen the traffic burden on the currently used bridges (habertürk, 2017). the eurasia tunnel, which was announced to the public in 2006, has been completed and put into service as of 2017. the project, which is 14,6 km long and shortens the travel time between kazlıçeşme and göztepe areas up to 10 minutes, has significantly contributed to the traffic in bridges. the authorities announced the number of vehicle passages by the end of year as 47,000, which is below the guaranteed number that’s 68,000. however, other sources claim that this number is only around 34,000. access to statistical data about this kind of projects built on the basis of the build-operate-transfer model is often a challenging duty. these projects are often controversial as it is unknown whether the necessary feasibility studies and environmental assessments have been carried out or not. therefore, the project is regarded as open to dispute and degeneration. in the current situation, it is almost impossible to obtain concrete statistics about these projects, and the only resource is often the numbers declared by the relevant authorities. the channel istanbul project, connecting the black sea and the sea of marmara, has also been a controversial issue in many aspects of it. its route was announced in 2018. the feasibility studies in küçükçekmece başakşehir arnavutköy route of this new channel, which was introduced as surpassing to the suez canal and the panama canal and a remedy for the problems in bosphorus’ traffic, have already been completed. the estimated cost of the the effect of transportation investments on urban logistics: istanbul sample 67 channel is 10 billion usd, although its necessity, environmental impacts, benefits and contribution to the development process are still disputable matters. the project also brings about some other concerns, such a new but isolated city in istanbul that may emerge as it targets a limited and specific population. however, despite the disputes, all necessary construction works are continued apace. the channel is planned to be 43-km long, 400-m wide, with 25-m depth, and the expected population of the new city to be built around this channel is 500,000. the motorway connection is anticipated to be provided with about eleven new bridges to be constructed along the channel. because the policy according to which ships shall utilize the channel has not been introduced yet, its possible impacts on the bosphorus’ traffic poses as another uncertain issue. certain matters such as the main reasons behind this project, its necessity and whether it is a political maneuver or a need are expected to be clarified with further explanations. otherwise, it can be interpreted as a waste of the national wealth which depends on no reasonable ground but political ambitions and desires, temporary employment targets and/or conservation of the construction sector. the marmaray project, which is considered as the new silk road of the railroad transportation, is one of the most significant investments of our time. connecting the asia and europe continents through a rail system, this proje ct will enable pedestrian access during daytime and serve as a significant route connecting the far east and asia. it is expected to be a significant step in logistics once the current construction works between pendik and haydarpaşa areas are completed. the sixth part of this article provides information about the aforementioned projects and many others including ports, tunnels and rail systems, and analyzes all of these projects in respect to their contribution to the urban logistics. the conclusion part of the study, on the other hand, presents the assessments. 2. conceptual framework 2.1 urban logistics the logistics sector extends back to a long history, namely emergence of the first organized commercial activities. however, researches about this subject were initiated only in the early 1900s, in an effort to facilitate distribution of agricultural products, contribute to the land use strategies, and create a business strategy. logistics, as a term, was initially used to describe a military mission which is "to ensure mobility of the military personnel, as well as the transportation, maintenance and regeneration of the military supplies". it is often claimed that "logistics" is originally a military term and the first practices of logistics activities were performed within military areas and combat zones. a comprehensive type of military logistics was practiced by the us army in 1991, the gulf war. more than half million items and 2,3 tons of equipment were transported from usa to the gulf region, at a distance about 12,000 km, through air and sea ways respectively. besides the military logistics, today we can encounter different kinds of this activity, such as the business logistics, production logistics, inbound logistics, transportation logistics and relatively limited other approaches within the sector. the urban logistics sector, which is also the main subject of this study, is among these limited logistics approaches (erdir, 2013)(lorasokkay, 2007). according to the data of 2010, 76,2% of turkey's population (56,2 million people) is city-dwellers, and it is anticipated to reach 82% (70 million people) by 2023. besides the general increase in population, the growth in urban population also plays a significant role in domestic consumption trends. therefore, it is a necessity to consider the impacts of urbanization, urban transformation and the change in lifestyles in order to anticipate the need for logistics-related activities (tui̇k, 2017). this field of research is often mentioned as "urban logistics" and/or "city logistics" within the literature. urban logistics has recently been a significant matter of opinion, considering that we live in a period of rapid and increasing urbanization. in order to achieve the sustainable development targets, urban areas should be turned into more livable spaces. moreover, urban logistics has a significant place in the eu transportation policies. urban logistics also entails certain planning and management activities, while urban transportation requires new strategies about safety and security, human resources and training, information and communication technologies, energy efficiency and environmental issues. urban logistics is regarded as the optimization of logistics and transportation activities 68 özgür örnek & murat çemberci performed by different enterprises within the same social market economy, including the traffic conditions, environmental impacts, and the energy consumption in urban areas (docplayer, 2018). urban traffic conditions have an impact on the costand time-efficiency of urban logistics. in this regard, it is necessary to ensure proper planning of the distribution centers (including the consolidation-deconsolidation processes), and regulation of the routes and operating hours, in deference to distribution and intensification areas of all kinds of small, medium and large-scale retail enterprises, transport infrastructure and distribution of the consumer population. during this planning process, the competition conditions should be taken as a principle in order to decrease the cost of urban logistics while preserving the service levels of the relevant enterprises (musiad, 2014). as a result of the dominant urban life and commercial activities, a great majority of the population in each country have started live in urban areas. ur ban logistics plays a critical role in these urban areas or cities, where the traffic conditions are rather complex and the pace of life is relatively higher than others. this role is particularly important to ensure the sustainable development, competitive advantage, increased quality of life and efficient worldwide supply chains. urban logistics is also a significant matter of research, which may help us have a better understanding of the economic, social and environmental activities in urban areas, and the sector should always be up-to-date to keep up with the contemporary world. the economic stability of the cities and creation of livable spaces for human beings entail efficient and environment-friendly logistics systems. 3. methodology urban logistics is regulated by public authorities or jointly by public and private enterprises, and other stakeholders within the sector. logistics and transportation enterprises, on the other hand, should also abide by the decisions taken by the relevant public authorities. these regulation activities and decisions also lay the foundation of the order in urban life. examples of the aforementioned decisions can be seen in the cost 321 action, which was initiated out in 1998. cost 321 (european cooperation in the field of scientific and technical research) is an action regarding 'urban goods transport' started by twelve european countries in 1998. these countries are denmark, finland, france, germany, greece, italy, spain, sweden, switzerland, the united kingdom, slovenia and the netherlands. parties of the cost 321 action are also among the top twenty countries in the logistics performance index (lpi), the global competition index (gci) and the global innovation index (gii). the cost 321 action aims to ensure appropriate administrative measures by optimizing the air and noise pollution, as well as the energy consumption caused by the vehicles in the urban traffic, with the use of the cutting edge technologies in logistics. all these aims were designed in consideration of the economic impacts. cost 321 also analyzes the innovative methods and practices in order to improve the environmental performance in urban logistics. at the same time, the project examines the decrease in air and noise pollution, as well as the energy consumption levels achieved by the optimization of the heavy vehicle utilization, through modern logistic devices and appropriate administrative measures. the administrative measures and methods of logistics applied in the truck fleet management activities are among the discussed subjects. herein the project aims to explore the most useful factors regarding the efforts to decrease adverse environmental impacts. the project also examines the necessary measures and methods that may bring economic efficiency and environmental benefits, in deference to the direct and indirect impacts on the flow of traffic and the commercial centers. in this regard, the identified economic efficiency in fleet management activities and similar measures in the logistics sector show that these practices are more applicable in the private sector. the cost 321 action also aims to initiate pilot studies in scale indication. the results are particularly relevant to the subjects and areas listed below (cost 321, 1998). the cost 321 action is based on three main areas:  the economic structure  the transportation structure  the urban structure the cost 321 action suggests that each participant country differs greatly in terms of the main areas mentioned above. the study defines these differences in various categories, namely legal, administrative, judicial, infrastructural, economic and cultural. in addition, a survey study was planned for the parties in order to achieve an in-depth analysis within the scope of the cost 321 action. this survey was initially designed to measure three fundamental characteristics:  the settlement structure (population, employees, entrepreneurs) the effect of transportation investments on urban logistics: istanbul sample 69  the traffic structure (number of motor vehicles, types of vehicles and the road network)  transport/traffic demand structure (total trip volume, fuel consumption and air pollution) this study was individually implemented in each city, excluding the national, regional and locational influences. within the cost 321 action, the working group a has identified eight different categories under four main subjects, which are as follow: 1mobility demand  logistical organizations  modal choice  price of transport 2infrastructure supply and land use  physical planning, infrastructure planning & investment  traffic planning & management 3vehicle supply  vehicle technology & alternative fuels 4behavior  driving behavior  other measures these studies show that a great deal of air and noise pollution caused by urban traffics is due to heavy vehicles, such as trucks. on the one hand, today’s society increasingly considers the truck traffic as polluting, while it is clearly seen that these vehicles are indispensable for the transport of goods in urban areas. in parallel with the increasing awareness of environmental problems in urban areas, it was deemed as necessary to further the efforts to identify appropriate measures to reduce the negative impacts of goods transport activities in cities. long lists of such measures had been drafted, including a wide and diversified range of possible interventions. however, the public debate made it clear that widely diverging arguments were being voiced about which specific measures are most effective to enhance the quality of urban life, without impairing that of supply and collection service in the process. increasing the public awareness of the problems caused by urban goods traffic and promoting the international cooperation in this field are among the issues considered as a general target of the cost 321 action. as a specific result, the final report will provide guidance to local public authorities on how to select the most suitable measures. the urban freight models developed within the action, on the other hand, contributes to a detailed planning effort regarding the implementation of the measures. the final report of the cost 321 action reflects the aim in a clear way. according to this report, the aim of the action is to ensure the development and operation of innovative measures to improve the environmental performance of freight transport in urban areas. as a result, the main objective of the action is to define general factors in relation to these measures (cost 321, 1998). 4. urban logistics in istanbul thanks to its unique geographical position, istanbul is one of turkey's and the world's richest metropolitan cities in terms of transport alternatives. it is an important city which connects asia and europe through the sea, land, and airways. nowadays, the city is preparing to add a new connection between these two continents, which is a railway system, the marmaray project between pendik and haydarpaşa. the most preferred mode of transport in the city is the road transport, and a majority of investments are allocated to this method. however, as a city which faces the sea with six different sides, the local administrations should focus more on the solutions that will address logistics problems caused by heavy tonnage vehicles transiting from asia to europe or otherwise, facilitate and promote transportation by the sea and also increase the number of railway projects. the fact that railway systems were not considered as an alternative method to enable container transportation and the lack of investments in relevant systems and methods reflect a significant deficiency and shortsightedness of the local authorities. the main reason for this problem can be explained as the passenger-oriented transportation policies. therefore, the interventions brought about no permanent benefit but temporary reliefs to the city. this truck-oriented transport network in central areas aggravates the current traffic congestion, the fuels used by the vehicles create negative environmental impacts and the heavy working conditions make security and traffic gaps unavoidable. in this regard, it is necessary 70 özgür örnek & murat çemberci to consult relevant non-governmental organizations and universities, consider their suggestions and complaints when planning the logistics activities. all decisions about transportation policies should be made after consultation with the aforementioned organizations and local administrations in order to ensure long-reaching and healthy solutions. in contrary to the previous years, the national authorities have recently gained more dominance over the local administrations and the impacts of urban transformation projects, which intend to ensure an economic recovery, are more clearly seen. in addition, the newly built private hospitals, hotels and shopping malls around the main arterial roads of the central areas aggravate the traffic congestion and necessitate innovative solutions. therefore, giving priority to subway and railway projects already planned by the istanbul metropolitan municipality is highly significant for a relief in urban logistics, as these are critical for the city's transportation system. 5. transportation investments in istanbul as a mega-city hosting a significant international and intercontinental transportation network, the investment trends in istanbul is analyzed below in deference to the current conditions, including the realized land, air, sea, transportation and railway projects, as well as the city's leading position in logistics sector (mega projeler, 2018). 6. transportation projects in istanbul the investments in the construction sector have been intensified within the last fifteen years, and remedial solutions to the istanbul traffic have been drafted. a certain number of these projects have been realized, and many others, considered as "crazy" or "fantastic" projects, are being planned and implemented step by step. in this part, we will examine thirty-three different projects. table 1. transportation projects in istanbul new bosphorus bridge project airport project great istanbul tunnel project ataköy mega yacht marina project eurasia tunnel project bebek boat park project beykoz marina project beykoz cable car line project jetty and dock project in bosphorus çamlıca hill access roads project çubuklu kanlıca coast road project emirgan coast road expansion project eyüp sütlüce (pierre loti miniatürk) cable car project fenerbahçe kalamış marina project fenerbahçe tcdd land marina project galataport (istanbul salıpazarı cruise port) project golden horn metro bridge project golden horn underwater tunnel project port of haydarpaşa (haydarpaşa port and railroad station transformation) project i̇stinye boat park project kabataş transport transfer station project kabataş üsküdar pedestrian tunnel project channel istanbul project northern marmara highway project marmaray railway project mecidiyeköy çamlıca cable car line project rumeli hisarüstü aşiyan coastal cable car line project tarabya boat park project tuzla havaray project the effect of transportation investments on urban logistics: istanbul sample 71 tuzla marina project vadistanbul havaray project yenikapı transfer station and archeopark project 7.conclusion istanbul is an interwoven city with its historically authentic fabric and business areas. therefore, the necessary measures to improve urban logistics, as well as its quality and operating speed should be planned in a way to conserve this historical structure and develop the tourism opportunities. the local authorities should be well organized to ensure this historical and touristic conservation when planning the common grounds to help producers and consumers come together. it is often significant to create effective and sustainable solutions that can help the city's economic development and improve the quality of life, modify the current perspective in favor of both service providers and customers, and adopt a high-quality and sustainable approach in logistics. as all parts of the anatolia and the eastern frontier areas have access to istanbul and the european continent through the current transportation network, the necessary measures and applicable rules are increasing in importance. therefore, the solutio ns should be planned as long-term infrastructure plans, rather than interim remedies. diversification and promotion of public transportation in particular will help the city control traffic congestion levels. development, renewal and extension of the current railway systems and modes of public transportation are the other needs in this regard. the sea access of istanbul remained underdeveloped and relatively weak compared to the others. connections between two sides of the city should be increased in number, and the land routes should be enhanced to fill the gaps in this respect. istanbul has shown a marked improvement in tunnel-based transportation systems within the last few years. particularly the transition from land routes to subway systems in central areas, rescheduling of the working hours and extension of the traffic congestion over specific periods of time have contributed to the improvement achieved in the local traffic. however, additional measures are needed to decrease the car ownership rates and encourage people to use the public transportation system. unfortunately, the urbanization in istanbul has been progressed in an unplanned way and the social life has become mixed up with industrial activities to a significant extent. from all these reasons given above, the main logistics points currently located in central areas of the city should be removed to peripheral areas and the life spaces around these points should be facilitated. transportation from these points to the central areas should be organized to be performed at appropriate times and using appropriate vehicles and scientific methods. schedules and plans should be determined in cooperation with the relevant authorities in order to create contemporary urban areas. in this way, it may be possible to observe improvement in the quality of life over the short term. the necessary logistics activities to support the human life (such as deliveries to shopping malls, grocery store chains and small-scale groceries, other chain stores, and warehouses) should be performed at predetermined time periods, especially at nights, so that the daylight traffic can be relieved and more opportunities can be created for employment. charging fees for daytime entries into certain points of the city, such as taksim, şişli, merter, beşiktaş, kadıköy etc., or limiting the car access to these places can be considered as alternative methods to improve the quality of life, despite the fact that these solutions may increase the costs for end users. investing in necessary areas and encouraging the society to use bicycles or motorcycles in certain points of the city will also bring positive environmental and social impacts. limiting the plate numbers authorized to travel in central areas, using the newest technologies to ensure an online appointment system for the drivers to get permissions for access at limited time intervals, and doing this in cooperation with the public authorities can be mentioned among the possible solutions. effective and efficient operation of urban logistics is dependent on specific plans to be created according to the results obtained through joint researches and analyses expected to be conducted by public authorities, academicians and leading bodies within the sector. as the executive actors of these plans, the law enforcement forces should improve their supervision capabilities, while the actors in the logistics sector rather need self-control capacities. advancements in information technologies (it) have dramatically increased over the past years. the quick spread of the internet-based technologies and progress in networking have enabled the access to the web from almost every single location. the advanced planning, programming or supply chain technologies require new software and automation solutions. the growth in logistics and urban logistics have been facilitated by the newly opened logistics 72 özgür örnek & murat çemberci departments in independent enterprises, integration of 3pl and 4pl logistics companies into the sector through outsourcing activities, and therefore a need for specialization in the sector has arisen. the number of specialized, qualified, trained personnel in turkey is not sufficient to meet the current needs. another need arising in parallel with the growth in this sector is an automation progress required in certain areas, rather than the transfer centers (ercüment kömür, 2017). the need for sustainability in, especially, urban logistics and the sociological concerns require prevention of the practices that cause a considerable decrease in quality of life. special measures and stimulus packages should be designed in order to decrease the use of old, heavy vehicles, prevent air and noise pollution, and the public authorities should be supported through specific projects. infrastructural deficiencies of the cities such as istanbul, which have been immigrant-receiving attraction centers due to geographical position and natural resources, pose a challenging problem that is yet to be resolved. the growing population also aggregates this problem to a certain extent. people often migrate to the cities they call as "metropolis" when they do not find sufficient food, employment, and economic opportunities, and they seek for a better education and a more comfortable life. this sociological trend has also caused a population shift towards the urban areas. likewise, the rural people of turkey have migrated to these cities which are "paved with golden", a phrase we all may remember from the old movies, particularly to istanbul, izmir, ankara, bursa, konya and similar others, which are economically more advanced and have better employment opportunities than the places they live in. these immigrant-receiving cities have a variety of infrastructural problems; however, the only relevant matter discussed in this study is the challenging situation in transportation and urban logistics caused by deficiencies in infrastructures. the local authorities have already paid an effort to ease the life for the society and find interim solutions for transportation problems, which is a significant factor in economic development. however, this effort has not yet yielded the expected results. according to the data obtained in 2017, every day four million vehicles move in istanbul's streets. given the fact that this number was only 2 million and 261 thousand, the increase in motor vehicles involved in istanbul's traffic can be regarded as considerably high. it means that 1 million and 739 thousand new vehicles have joined to the daily traffic in istanbul within the period between 2005 and 2017. these vehicles currently use an 845-km network of motorways, including highways, state roads, and provincial roads. despite the new roads and facilities, this incremental growth in the number of vehicles entails innovative solutions. herein, i would like to suggest a new action plan which i believe would contribute to the local traffic in istanbul in a positive way. this suggestion includes five main activities, and these activities can be explained as follow: 7.1 flexible working hours in light of the results obtained through this study, we know that people spend three hours on average during commuting times from/to home in the morning and in the afternoon. therefore, the first possible measure to be taken is to divide the working hours into groups and extend them over specific periods of time in a day. having been applied in europe and many other regions in the world, the flexible working hours policy has also been tried by the foreign enterprises located in our country due to the problems employees encounter during the commuting times. these trials have yielded positive results and also increased the overall working performance. hence, a number of enterprises arranged working hours in different periods of the days other than the conventional 09.00 18.00 shift, such as 07.30 16.30, 8.30 17.30, and 07.45 16.45. in this way, they both prevented the waste of time in traffic congestion and motivated the employees by giving them the opportunity to set aside sufficient time for themselves and their families. another impact of this practice in favor of the employer is the increase in employees' sense of belonging to the enterprise. besides these and the aforementioned benefits for the traffic conditions, the flexible working hours policy may also provide some externalities in social life. it is not a surprising fact that this method will also bring benefits for families. coca-cola, de facto, eczacıbaşı, pegasus airlines, the sabancı group, turkcell, and vodafone can be given as some outstanding examples to the enterprises which adopt the implement a working hours policy. the governmental incentives, in this regard, may encourage public and private entities to realize similar projects and create a balanced mobility management as a result. (çemberci, 2017) 7.2 employment in workplaces near to residences one of the relevant methods applied in twenty-nine different european countries is the employment policy which targets the nearest residences for certain business districts. currently, there are around three million active small and medium-sized enterprises (sme) in turkey, and almost 500 thousand of these enterprises are located in istanbul. (tepav, 2017) assuming that only three employees in each of these enterprises live in farther places to relevant the effect of transportation investments on urban logistics: istanbul sample 73 workplaces than others, it would mean that 4,5 million people continuously move from a point to another in istanbul, using different types of vehicles. this situation is also an indicator of the fact that the current traffic conditions are based on an unplanned urbanization. therefore, employing people in nearby places will bring a lot of benefits in both use of economic resources and sociological terms. in this regard, the government may offer incentives for employment near the places where citizens reside. 7.3 transit peripheral roads in terms of land routes, istanbul has two different and important alternatives, namely the e-5 motorway, which enables entries to the city in multiple points, and the tem motorway, which does not pass through the city center, however, gives a chance to transit passes and affects the central traffic in an indirect way. in addition to this, it is expected that a feeder transit line to the yavuz sultan selim bridge, which begins from düzce and does not have any entry/exit until çatalca/istanbul will substantially facilitate the inner-city traffic, though may not affect it as much as the tem motorway does. 7.4 home office employment the ever-advancing technology creates new opportunities for the business life. abolishing the need to be dependent on a specific place and time period, this approach leads up new employment methods with the use of the internet. the positive feedbacks obtained during implementation of the flexible working hours policy has also facilitated further investigations to find out new solutions for current problems. enterprises which allow working at home on one or more specific days of the week are more welcomed and appreciated by their employees. both the world and turkey have examples of this type of enterprises. this method also increases the efficiency and motivation of employees. unilever, henkel, turkcell global bilgi, danone, p&g, microsoft, pepsi, novartis and intel can be given as examples of these enterprises worldwide. however, not every department is suitable for home office employment and this method can only be applied in suitable units. 7.5 bicycle and motorcycle incentives as the achievement award of our childhood and an indispensable part of our life, bicycles are now both a tool for leading a healthy life and a significant mode of transportation. particularly after the social activities and projects of bicycle producers, this mode of transportation has been supported by the public authorities by building bicycle road or lines, and many other incentives. it is also expected that using bicycles as a prior mode of transportation through future investments and awareness projects, which introduce bicycles as a way of healthy living and an indicator of an environment-friendly and modern lifestyle, will positively affect the human life and various sociological aspects. moreover, motorcycles are also a good alternative to bicycles as they enable traveling in longer distances, solve certain problems and help the users to avoid the traffic congestion, availability of parking spaces, as well as the high motor vehicle tax. riding motorcycle is also a part of lifestyles, a sociological phenomenon, and a cultural activity. although this method is relatively dangerous in turkey's current traffic conditions, the number of awareness campaigns and training programs in this field shows an ever-increasing trend. references bi̇k. 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(2017). http://www.tuik.gov.tr/prehaberbultenleri.do?id=21528. http://www.tuik.gov.tr/prehaberbultenleri.do?id=21528: http://www.tuik.gov.tr/prehaberbultenleri.do?id=21528 adresinden alındı journal of international trade, logistics and law, vol. 6, num. 1, 2020, 147-157 147 effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem baikeli xiarewana istanbul commerce university, turkey mustafa emre ci̇velek istanbul commerce university, turkey received: apr 20, 2020 accepted: may 07, 2020 published: june 01, 2020 abstract: especially with the emergence of the digital economy in the last two decades, unprecedented changes in technology have come to the fore. technology-induced unemployment has spread all over the world because developments in digitalization and automation reduced the need for human in all business lines. digital economy has also shown its effects as changes in the lifestyles. therefore, it called new ecosocial system. however, beyond the new ecosocial system, humanity awaits a new system as post-digital ecosystem. most probably this transition would occur in an agonizing way. in the post-digital ecosystem, production methods are changing radically, and thus, due to the recent advancements in artificial intelligence technology, machines increasingly take over the jobs of humans. the steady upward trend in unemployment has made economic inequality a chronic problem in the society. the pandemic has the role of a catalyst that accelerates the emergence of the destructive effects of digital economy and augments these effects. after the pandemic, the post-digital ecosystem will rise from the ruins of the collapsing capitalist system. the purpose of this article is to attract attention to the future economic problems within the context of the pandemic. keywords: global pandemic, digital economy, post-digital ecosystem, covid-19 1. introduction at present, the new coronavirus (covid-19) is rampant in china and has spread abroad. with the great attention of the chinese state leaders, the people are mobilized. in the battle against the new coronavirus infections, it is necessary for professionals in scientific and technological disciplines to carry out research on virus transmission characteristics as soon as possible and use them in the battle against the new coronaviruses (yang, 2019).the virus that causes covid-19 is genetically related to the severe acute respiratory syndrome (sars) virus, but it is not the same virus. compared with covid-19, the sars fatality rate is higher, but the infectivity is much lower. since 2003, sars epidemic has not occurred anywhere in the world (q&a, 2020). in the worst case scenario, the economic growth rate in the first quarter will drop by 2-3 percent and in 2020 by 5 percent. compared to sars, which broke out in 2003, covid-19 is more destructive (anthony, 2020). furthermore, its economic impact is spreading globally (un news, 2020). the growing economy generally means increased wealth and jobs. however, the organization for economic co-operation and development (oecd) has recently warned that this year, he global economy affected by the new covid-19 epidemic may see its slowest growth rate since 2009. in the last week of february 2020, several major global stock markets showed their worst performances since the 2008 financial crisis (jones, brown, & palumbo, 2020). baikeli xiarewana & mustafa emre ci̇velek 148 although the pandemic seems to be the cause of economic problems, the main reason is deeper. many former studies have drawn attention to the problems of digital economy and expressed the expectation of a global crisis. the problems that led the capitalist economy to a deadlock had existed before the pandemic. changes in production methods in digital economy will inevitably cause unprecedented rise in the unemployment rates. rising unemployment will cause demand uncertainty in the market. this phenomenon is called the vicious cycle of the post-digital ecosystem (civelek, 2009). this vicious circle is unsustainable and will eventually lead the capitalist economy to collapse (civelek, 2018). advances in artificial intelligence technologies decrease the need for labor force. inequality and unemployment will lead to chaos because consumers who demand products are constantly losing their jobs (ford, 2009) (ford, 2015). the digital economy manifests its impact on the habits, lifestyles, views and perceptions of individuals. considering both the economic and social aspects, it would be apt to define it as a new eco-social system. the term of a new eco-social system was firstly suggested by civelek and sözer in 2003 (civelek & sözer, 2003). beyond the new eco-social system, humanity is awaiting a new system that can be named as the post-digital ecosystem, which as a term was proposed by sözer, civelek and çemberci in 2018 (sözer, civelek, & çemberci, 2018). the current covid-19 pandemic expedites the transition from the new eco-social system to the post-digital ecosystem. most probably, this transition would occur in an agonizing way. dystopian scenarios produced until now may be the future of the world economy after the pandemic; and the post-digital ecosystem will rise from the ruins of the collapsing capitalist system afterwards. 2. the background of covid-19 virus coronaviruses are a large family of viruses that can cause diseases such as the common cold and even acute severe respiratory syndrome (sars) and middle east respiratory syndrome (mers). in china a global disease, covid-19, has broken out recently; and it has been confirmed that its root cause is a new type of virus called 2019 new coronavirus (2019-ncov) (mayo clinics, 2020). at present, the source of the covid-19-causing coronavirus sarscov-2 is unclear. all available evidence indicates that sars-cov-2 has a natural animal source, and it is not a constructed virus. bats are likely to be the natural reservoir of sars-cov-2 virus. sars-cov-2 belongs to a class of gene-related viruses, including sars-cov and many other coronaviruses isolated from bat populations. mers-cov also belongs to this category, but the relationship is not so close (q&a, 2020). people afflicted with the new coronavirus infection may develop the following signs and symptoms within 2-14 days after the exposure: fever, cough, and shortness of breath or difficulty breathing (cdc, 2020). the severity of the symptoms of the new coronavirus infection varies from person to person, with some being mild, some others being serious, and some may even lead to death. this disease remains to be understood in depth, but most severely ill patients are elderly or those suffering from other serious and chronic diseases. this situation is more similar to severely ill patients with other respiratory diseases such as flu (mayo clincs, 2020). the virus that causes covid-19 is mainly spread through droplets generated when an infected person coughs, sneezes, or speaks. these droplets are too heavy to be suspended in the air and will soon fall on the floor or onto various surfaces. if you are within one meter of a covid-19 patient, you may be infected by inhaling the virus, or by touching a contaminated surface before washing your hands, and then touching your eyes, nose, or mouth (q&a, 2020). there is currently no vaccine and any specific antiviral drug that can prevent or treat the 2019 coronavirus (covid-19) disease. yet, infected people should receive treatment to relieve their symptoms, while severe patients need to be hospitalized. most patients recover after receiving a supportive treatment. vaccines and some specific drug therapies are being researched and tested through clinical trials. the world health organization (who) is, for the time being, coordinating vaccine and drug development to prevent and treat the 2019 coronavirus (covid-19) disease (q&a, 2020). according to the latest prediction model of harvard university, the epidemic may have a more serious outbreak, and there may still be a recurrence before 2025. based on the data modeling, the researchers proposed to predict that in the absence of vaccines or other effective treatments, the pandemic may even recur before 2025 at the latest. the study pointed to a pessimistic possibility as such: this pandemic, which has given dozens of countries nightmares, will have the risk of coming back in the future. relaxing isolation before the arrival of autumn could even have more serious outbreaks than today since it is expected that the epidemic may occur during the autumn and winter seasonal respiratory virus epidemics. by the same token, based on the data modeling, effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem 149 the researchers propose to predict that in the absence of vaccines or other effective treatments, the epidemic may even recur before 2025 at the latest (mit technology review, 2020). for herd immunity, it is required that a sufficient portion of the population should be infected. lack of available hosts stops the transmission of the virus and it happens after the widespread exposure. with a disease as infectious as covid-19, experts believe that more than two-thirds of the population would need to be immune so that the herd immunity can be created. nevertheless, there is still much which is unknown about the duration of human immunity to covid (craven, mysore, singhal, & wilson, 2020). 3. the effects of covid-19 on china’s economy the devastating economic effects of the pandemic are now spread all over the world. china was the first country to face this devastating effect. the world health organization’s promotion of the 2019 coronavirus epidemic from an epidemic to a global pandemic indicates that the epidemic has spread widely around the world. naturally, the effects of this global pandemic will be devastating on the chinese economy and the global economy. in an interview, an economics professor and macroeconomist at the faculty of business administration at the east china university of science and technology at deutsche welle, shen ling said that this has two main aspects. on the one hand, an increase in the epidemic means that every economy, especially large economies, should invest more resources in preventing the epidemic. for the epidemic prevention to work, a larger portion of cut is now required from the entire gdp, which will greatly affect production. the second point mentioned by shen ling is that other countries around the world impose flight control and entry restrictions on china since the outbreak of the virus in china and this situation have become more serious than before. this means that after the epidemic increases, the exchange of normal staff and goods will be restricted further, which will have a major impact on the already globalized chinese economy. since the outbreak occurred in china before, china encountered certain restrictions from other countries. consequently, china’s own economy has closed and the economy has been affected substantially. however, this epidemic will certainly have significant impacts on the exchanges, and china’s imports and exports will be significantly reduced (hong, 2020). in the worst case scenario, the economic growth rate in the first quarter will drop by 2-3 percent and in 2020 by 5 percent. compared to sars in 2003, covid-19 proves to be destructive (anthony, 2020). china accounts for one-third of the global manufacturing industry and is the world’s number one exporter. travel restrictions have affected the supply chains of many large companies, such as diageo, construction machinery manufacturer jcb and nissan, all of which have to rely on chinese manufacturing and its 300 million migrant workers. jaguar land rover even stated that because some factories no longer have spare parts available, they did not hesitate to bring the spare parts from china to the uk with a suitcase. consumers also faced some restrictions within this context. some people are afraid of being infected with the new coronavirus and avoid participating in activities such as shopping in which they may be exposed to risk. restaurants, car sales points, etc. have expressed quiet business (jones, brown, & palumbo, 2020). compared to other countries, the support measures implemented by the chinese government have been relatively limited. in terms of enterprises, the social security contribution made by employers on behalf of the personnel between february and june has partially decreased. supports were also provided in companies participating in efforts to combat against the spread of the virus. it has been relatively difficult for many chinese companies to get loans too, which constitutes one of the related financial limitations. the bankruptcy of many companies seems inevitable under these current circumstances. plus, surviving companies will experience major problems in collecting their receivables (livermore & shira, 2020). for a period of time to come, the digital economy will become an important engine driving economic growth, and the pace of digital transformation in various industries and fields will be greatly accelerated. wu hao, the director of the department of high technology of the national development and reform commission, stated at the press conference of the joint defense and joint control mechanism of the state council on the 23rd that the epidemic made us more aware of the huge benefits brought by the deep integration of information technology and digital transformation, telemedicine, e-commerce, mobile payment, etc. , which played a significant role in the prevention and control of the epidemic and resumption of production. according to pan helin, the executive dean of the baikeli xiarewana & mustafa emre ci̇velek 150 digital economic research institute of zhongnan university of economics and law, due to the impact of the epidemic, offline consumption activities have been transferred to online, and the consumption model of the digital economy field that eliminated space restrictions has shown its advantages for example, e-commerce companies have actively used their platform advantages to develop supply sources and optimize inventory, which has played an important role in bridging supply and demand. however, many companies still have many problems and challenges in digital transformation (zhu, 2020). although china hopes to turn the digital economy into the backbone of the new economy against the coronavirus, there are still many problems and difficulties in china’s digital economic development. firstly, most enterprises lac k awareness of digital transformation paths and development models. for example, according to statistics from relevant agencies, currently about only 9 percent of the leading companies in china have opened up new businesses or services through digital transformation. most enterprises, especially smes, lack the knowledge of how to improve efficiency or increase revenue through digital technology. from the perspective of all parts of the country, the following seem to be the main problems: the single method of development and the phenomenon of copying are prominent; focusing only on hardware facilities and overlooking the construction of soft environment, and lack of application scenarios. in order to attain “political achievements” and realize “face-saving projects”, some places have rushed to the market without in-depth understanding and scientific planning of cloud computing, big data, artificial intelligence, block chain and other emerging technologies, resulting in waste of resources and low efficiency. furthermore, the other difficulty concerns the insufficient supply and application guarantee for new digital technology infrastructure. development of digital economy requires the development and maturation of digital technologies such as artificial intelligence, big data, cloud computing, 5g, whip and object network. there is also lack of digital and intelligent applications in key areas such as smart healthcare, smart education, smart transportation, driverless driving, smart cities, smart manufacturing and smart homes (wu, 2020). the construction of new infrastructure can better promote the transformation and upgrading of the chinese economy and accelerate the development of high-end industries. software infrastructure, on the one hand, promotes the adoption of digital and intelligent applications in key areas, promotes the widespread penetration of new generation information technology such as artificial intelligence, big data and object networks and intelligent education. it accelerates the promotion of smart economy, smart education, smart transportation, unmanned driving, smart cities, smart manufacturing, smart homes and other smart economic application developments. on the other hand, it is necessary to improve and perfect the relevant legislation on big data, network security, and platform economy, to strengthen the confirmation, opening, circulation, protection, and use of data resources, to regulate the development of platform-related entities, and to accompany the development of new formats of the digital economy. it is also essential to promote and use digital technology to resume production and production, and ensure the safety of enterprise supply chain and industrial chain. with the control of the covid-19 epidemic in china, the orderly resumption of production and production under the premise of how to ensure the effective prevention and control of the epidemic will become the top priority in our follow-up work. therefore, it is recommended that the government actively encourage enterprises and institutions to make effective use of digital technologies such as big data, artificial intelligence, cloud computing, 5g, object networking and blocking to achieve production and production recovery. the government makes use of the superior role of the industrial internet platform in connection, data collection, remote collaboration, resource scheduling, data analysis, decision optimization, etc. through the aggregation and modeling analysis of massive data, it can timely obtain the information of resumption and production of small and medium-sized enterprises for supporting small and medium-sized enterprises to overcome difficulties and achieve stable development policies providing decision-making basis (wu, 2020). 4. the effects of covid-19 on the world economy beginning in early 2020, new coronaviruses are sweeping countries, which has caused a dramatic impact on the residents’ lives, work and study. in this epidemic, tourism, catering, production, real estate, education, etc. are mainly offline operations industry which are under great pressure, and industries or enterprises with solid information and automation foundations are more resilient to the epidemic. these developments have led to new thinking about online business, automation and zero-touch work methods (yang, ying & hu, 2020). the economic effects of the effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem 151 global pandemic are felt increasingly all over the world. the negative effects of long-term restrictions on economic activities in developed economies will soon spread to the developing countries through trade and investment channels. the sharp decline in consumer spending in the european union and the united states will reduce the import of consumer goods from the developing countries. in addition, as global supply chains may continue to be interrupted, global manufacturing output may also shrink significantly. the worst case scenario is that global gdp may decline by 0.9 percent in 2020, compared with the previous forecast of an increase of 2.5 percent. the report warns that if global restrictions on economic activity continue into the third quarter of this year and the fiscal response fails to support residents’ income and consumer spending, global economic output may shrink further (un news, 2020). the asian development bank (adb) reported that the cost of the new coronavirus (covid-19) epidemic to the global economy may reach usd 4.1 trillion. the report updated the economic impact of the covid-19 epidemic and pointed out that in this case, due to a longer period of cessation of economic activity, a greater demand shock will occur and these will spread to europe, the united states and other major economies, therefore, the cost of the virus to the world economy may reach usd 4.1 trillion. according to the report, global gdp has contracted by 4.8 percent. with the suspension of economic activities and the impact of demand being smaller, the pandemic’s damage to the global economy is limited to usd 2 trillion. global gdp will shrink by 2.3 percent (trt news, 2020). the world trade organization said today that as the 2019 coronavirus pandemic disrupted normal economic activity and life worldwide in 2020, world trade is expected to decline by 13 percent to 32 percent. trade recovery is expected in 2021, but it depends on the duration of the outbreak and the effectiveness of the response policy. the wto report on the impact of the 2019 coronavirus pandemic on trade indicates that in 2020 almost all regions will experience double-digit declines in trade, and north american and asian exports will be the ones which suffer the most. the report stated that trades with complex value chains, especially electronics and automotive products may experience a significant drop in trade. according to the report, transportation and travel restrictions have the most direct impact on trade in services. wto economists suggest that this decline may exceed the 2008-2009 global financial crises. the report points out that after the 2008-09 financial crises, trade has never returned back to its previous trend. if companies and consumers see the epidemic as a temporary, one-time shock, then a strong rebound is more likely. in this case, once the crisis subsides, spending on investment equipment and durable consumer goods may return back to levels similar to those of previous times. on the other hand, if the ongoing or recurring uncertainty of the epidemic becomes common, households and businesses may spend more cautiously. according to the report, in both cases, imports and exports in all regions will have a double-digit decline in 2020. if the epidemic is taken under control and trade begins to expand again, most regions may experience a double-digit rebound in 2021 (un news, 2020). according to the latest study released by the united nations department of economic and social affairs today, due to the impact of the new coronavirus pneumonia epidemic, the global economic contraction rate may be close to 1 percent this year. the study also pointed out that if global restrictions on economic activity continue into the third quarter of this year and the fiscal response fails to support residents' income and consumption expenditure, global economic output may shrink further. in europe and north america, the increasing restrictions on population movements and the adoption of lockdown measures have severely damaged the service industry, especially those industries that require actual interaction, such as retail, leisure and hotels, entertainment, and transportation services are among the ones mostly affected. jobs in all these service sectors account for more than a quarter of total jobs in these economies. as corporate revenues decrease, the unemployment rate may increase significantly, thereby transforming the supply-side shocks to the economy into a broader demand-side shock, in contrast, during the global financial crisis in 2009, the global economy contracted by 1.7 percent (un news, 2020). declining tourism revenue and commodity exports and capital outflows will affect vulnerable countries. the economic risks faced by developing countries will increase further, especially for developing countries that rely on tourism and commodity exports. decrease in the number of inbound tourists will cause serious damage to the development of tourism that employs millions of low-skilled employees in developing countries (jones, brown & palumbo, 2020). baikeli xiarewana & mustafa emre ci̇velek 152 declining incomes and reversing capital flows will make many commodity dependent countries more likely to experience a debt crisis. when expenditures need to be increased to control the spread of the pandemic and support consumption and investment, governments in these countries may have to cut down on public spending. the economic crisis will have a negative impact on sustainable development. the pandemic is having a severe impact on millions of low-income workers in the service industry. these workers often lack labor protection and the work they perform requires close contact with people. without adequate income support, many workers will fall into poverty, even in many advanced economies, which will further exacerbate the already severe income inequality. in addition, the impact of school suspension may have long-term consequences. the report finds that as the covid-19 epidemic worsens, slower economic growth and increased inequality will deepen deep-rooted economic anxiety. even in many high-income countries, a large number of people do not have sufficient funds to ensure that their living standards can be maintained above the national poverty line for up to three months. for example, in italy and spain, which are heavily affected by the epidemic, it is estimated that 27 percent and 40 percent of the population, respectively, do not have sufficient savings to enable them to live more than three months without work (un news, 2020). the precariat class, mostly made up of immigrants, which has emerged as a result of the increasing globalization over the past 30 years, has been affected by the large wave of unemployment. this class represents people without job security (standing, 2011). especially people who live intensely in the cheap production regions of global capital, such as china, will be the source of major social problems in the post-pandemic period. under the crisis condition, gold is often regarded as a safe haven by the investors. the price of gold has also risen recently. in february, the price of gold per ounce once reached a record high of usd 1682.35. investors fear that the new crown virus will spread outside china, which will further dampen the global economy and consumer demand. shutdown of the factories slows production globally. large-scale quarantines, travel restrictions, and social removal measures cause stagnation, leading to a sharp drop in consumer and business spending by the end of the second quarter. although the epidemic was brought under control in many parts of the world in the second quarter of 2020, the collapse will accelerate. if consumers continue to stay at home, businesses will lose their income, and thus, lay off workers. unemployment will rise sharply. increasing bankruptcies will put significant pressure on the financial system. current low interest rates had a limited effect. modest fiscal measures will be insufficient to overcome economic losses (craven, mysore, singhal & wilson, 2020). due to this sudden epidemic individuals are facing severe challenge. the financial turmoil brought about by the outbreak of the global epidemic has brought a new round of impact. according to the deloitte global human capital trends report 2019, which previously participated in surveys in 119 countries around the world, showed that 80 percent of the respondents believed that the application of energy will increase, and 64 percent of the respondents think that the application of robot technology will increase. as technology changes, the design of jobs will be integrated, incorporating more digital and digital drivers, a trend which has undoubtedly been accelerated by the epidemic. “new thoughts on enterprise management under the epidemic situation-intelligent posts guarantee the lifetime of enterprises in crisis” proposes that in the case of an epidemic or a similar crisis, the configuration of more online, automated, and intelligent posts can bring greater resilience and flexibility to ensure the endurance of the enterprise, which was reported in the article “facing challenges and planning the future, planning and response of human resources in the automotive industry under the epidemic situation” describes the overall impact of the epidemic on human resource management in the automotive industry focusing on cost reduction and efficiency enhancement, and thus, ensuring survival (wang, 2020). how can we guarantee that the normal operation of the enterprise is not affected, or at least the impact is minimized in an epidemic or similar crisis? one of the solution is to trigger the integration of online and offline businesses by increasing the level of automation and by decreasing manual intervention. it is foreseeable that the epidemic will bring the whole work changes in the model (yang, ying & hu, 2020). the epidemic has also triggered a profound reflection on how to improve the resilience and flexibility of enterprise management by practicing internal strength. the epidemic will inevitably pass, but entire way of working and the environmental impact is profound. from the current point of view, it is the general trend for enterprises to actively develop smart posts to achieve battery life in epidemic situations (yang, ying & hu, 2020). effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem 153 one of the important features of smart posts is that they do not rely on manual operations or a small part of them rely on manual operations. remote communication is the mainstay in crisis situations. enterprise employees cannot work on the job, and the opportunities of face-to-face contact between employees and customers have greatly reduced battery life. in other words, the large-scale use of automated and intelligent positions will not only minimize the contact between employers and employees, and reduce the possibility of epidemic infection, reducing the operational risk of the enterprise, but also will expand the business online; online and offline walking on two legs. according to the research report “robot and intelligent automation business map” published by deloitte in 2017, enterprises are under multiple influencing factors such as downward, slowdown in growth, and cost pressures, the use of smart jobs is considered a win-win move for society, enterprises and the public. according to the survey of the 2019 deloitte global human capital trends report, the vast majority of companies expressed that they hope to increase the use of artificial intelligence, cognitive technology, and robot technology in the next three years, and with these developments, future jobs will be integrated into more digital, cross-border integration (yang, ying, & hu, 2020). compared with traditional positions, smart positions have obvious advantages, first of which is that the post automation part can work 24 hours, verify and audit strictly in accordance with the rules, so high degree of standardization can be established while human error is minimized; secondly, smart positions can reduce manual operations so that employees can communicate and deliver work without leaving the house. a further advantage is that the online response speed of smart posts is not affected by the epidemic. smart jobs have been widely used in many industries such as banking industry (“drone bank” outlets have been welcomed by robots from the process of collecting points received by robots in unmanned banks). therefore, the positions of lobby managers, tellers, and guides that must be provided in the bank’s business outlets can be replaced by machines. coincidentally, in recent years, the recruitment of tellers by major banks has decreased significantly. instead, the recruitment of scientific and technological talents and information technology talents has increased. these technology and information talents will be added to the digital jobs in the banking industry, using advanced digital technology combined with their own information technology background to complete more complex and cutting-edge work tasks and accelerate the transformation of banking technology. regarding the takeaway industry: under the epidemic, "no contact" businesses are rising. for example, the intelligent food cabinets of takeaway companies, and the self-service tea cabinets of catering companies have started to become widely used. the intelligent meal cabinet replaces part of the responsibility of the food delivery staff (distance delivery from the door of the community to the meal delivery at the customer's door). people can save time for meal delivery, which also reduces distribution pressure, and increases distribution efficiency. for catering companies, it can also increase the turnover rate, reduce costs and increase revenues. for a single person, it also reduces the contact between people and the risk factor of infection. after the epidemic is over, the “no-touch” model may be retained and optimized, and more methods of replacing traditional manual jobs will appear in the take-out industry, such as the large-scale use of drones. in the case of catering industry, it can be noted that the food and beverage industry suffered most from this epidemic. however, before the epidemic began, some catering companies were already using automated, intelligent technologies such as electronic kitchens. in the traditional ordering process, poor communication between the front-end order and the back-end order results in slow serving speed and wrong things may happen, which in turn disrupts the customer’s dining experience and affects the turnover rate. the kitchen can effectively communicate with the front hall so that the front hall can master the progress of dish production in real time. more importantly, the electronic kitchen can store and analyze a large amount of obtained data, and master important information such as raw material quality, production rate, the production department’s dish and dish click rate and dish cost changes. (yang, ying & hu, 2020). as reported by the deloitte customer service is challenged in the epidemic. in the design of intelligent posts, all the specific work facing the customer can be completed by the machine. the artificial customer service truly acts as the brain of the machine and becomes the experience and wisdom output behind the work of the customer. it is valuable to be deposited in the machine, prompting ai customer service to continuously learn and iterate. such operations can greatly reduce the amount of manual work, improve work efficiency and reduce the operational risks of enterprises. for enterprises, talent acquisition, employee training, the design and implementation of crisis plans, a full set of process simulation are the basic means. externally, it is necessary to enhance the customer's awareness and acceptance of smart posts so that companies can quickly use smart posts for customer communication in crisis baikeli xiarewana & mustafa emre ci̇velek 154 situations without causing a decline in customer experience (yang, ying, & hu, 2020). the pneumonia epidemic caused by the covid-19 is still spreading. affected by the epidemic, industrial production, business operations, and residents’ lives have encountered varying degrees of force. as one of the pillar industries of the national economy, automotive sector also faces impacts from all levels of industrial chain. in the short term, the epidemic has brought pressure on the survival of enterprises. in the medium and long term, it poses challenges to enterprises’ cash flow management, supply chain management, risk resistance, and strategic orientation (jiang, yan, & ying, 2020). under the new crown virus epidemic, for the real estate industry, in addition to the direct impact on land acquisition, contract sales, push-in rhythm, asset prices, etc., other deeper impacts are gradually becoming more prominent. issues such as how to transform and upgrade, increase speed and increase efficiency and security that become urgent problems for housing managers. although the short-term and long-term impact of the epidemic on the real estate industry cannot be ignored, challenges and opportunities always go hand in hand. for housing companies, it is also a good opportunity to force housing companies to reform and upgrade. affected by this epidemic, as buyers' willingness to see the property on the spot declines, the challenge of de-selling is becoming severe. major housing companies have launched measures such as online home sales and vr viewing to cope with the impact of the outbreak. in fact, online housing viewing is by no means a “last resort” for real estate companies to suspend their offline businesses under the epidemic. the major housing companies have already prepared for the digital transformation. today digital transformation is as a new way of survival. in addition, the infiltration of new technologies such as cloud computing, object networking, big data and artificial intelligence have brought many opportunities to the real estate industry. therefore, actively embracing new technologies, realizing the deep integration of digitalization, intelligence and real estate business, and promoting new business models will be the main themes of the future. in the digital era, the human-centered management model will become a trend, and the management of human resources will gradually change from process-oriented one to scene-oriented one, from hierarchical to network-based and from modular to interactive. digitalization brings not only the continuous evolution of technology to human resources, but also unprecedented opportunities for innovation and change (zheng & teng, 2020). contrary to trend, life insurance companies accelerate digitalization transformation. according to the historical experience of sars in 2003, affected by the epidemic, the number of residents has generally decreased when going out, the amount of social public activity is reduced, and the huge impact on the development and management of life insurance agents is self-evident. as most life insurance companies still have the highest volume of business in individual insurance channels, the pandemic will have a certain impact on the number of new life insurance companies and the increase in agents. in the face of overall business challenges across the industry, if life insurance companies can effectively and reasonably adjust the agent management model and provide agents with effective exhibition tools, they will be effectively able to achieve the goals of resisting business risks and optimizing management quality. while meeting various business challenges, life insurance companies also need to further sort out and refine their future business models, fully embrace the concept of digital transformation and occupy a favorable position in future business development. under the epidemic situation, the activity of life insurance agents will decrease, while the frequency and time of customer visits, contacts and interviews will be significantly reduced. the life insurance company product description will be generally postponed or canceled, which will bring great challenges to the business development of life insurance companies. life insurance companies can be effective for agents during the pneumonia outbreak by optimizing the management model and promote the digital transformation of the agent management system in the daily management of agents. in the past, by arranging morning and evening meetings and periodic performance review meetings, the performance of agents could be quickly grasped, and various matters of personnel management could also be mastered as soon as possible. during the outbreak the lack of direct communication brought some difficulties to the management of agents (zheng & wu, 2020). at present, the agent management system in the industry is designed more from the perspective of business advancement. the perspective is centered on insurance policies. in terms of personnel, the main goal is to achieve business. it exists between the hrp used by companies to manage internal staff. differences in essential ideas by upgrading the existing agent management system and incorporating the prescribed actions of the agent's daily management into the system are crucial. it is conducive to strengthening the management effect on the agent and effects of covid-19 on china and the world economy: birth pains of the post-digital ecosystem 155 the management quality will be greatly improved. in the long run, the digital transformation of traditional insurance companies is the only way for business development. in the process of digital transformation, how to clarify the long-term development direction of the business and the effective talent strategy matching are among the issues traditional insurance companies need to face directly in the future. from the perspective of business development, digital transformation is a core proposition that life insurance companies cannot ignore. whether to do traffic or products, this is always the first thing that life insurance companies need to return in digital transformation. under the digital transformation, high-tech talents have moved from the background to the forefront. leading large insurance groups in china have begun to adjust the company’s positioning from the traditional “comprehensive financial service enterprise” to “financial technology enterprise”, which is a new inspiration for other traditional financial institutions including insurance companies (zheng & wu, 2020). artificial intelligence is the core driving force for a new round of industrial transformation and will promote the transformation and upgrading of digital economy. the history of the three industrial revolutions shows that regardless of mechanical technology, electric power technology and information technology. especially, information technology can greatly promote production standardization, automation, and modularization. artificial intelligence technology also has similar characteristics and great application potential. the state council's "new generation artificial intelligence development plan" pointed out that by 2025, the scale of china’s artificial intelligence core industry will have exceeded 400 billion yuans, driving related industries to exceed 5 trillion yuans. artificial intelligence is the commanding height of a new round of scientific and technological competitions, which is crucial to economic growth and national security. in this global competition, china's advantage is that platform companies such as baidu, huawei, and ali have accumulated a solid technical foundation, rich application scenarios, and massive data. under the new infrastructure strategy, they will create a new competition for national development advantages and become a new growth momentum, being expected to become the leading force in the new artificial intelligence infrastructure. china still has shortcomings, which is for sure, with regard to basic scientific research, basic algorithms, core chips and high-end talents. the scientific and technological strength of major countries is the core of their national strength. whether or not to seize the opportunities for change in the smart era is the key to china’s modernization. artificial intelligence is an important part of the fourth industrial revolution and will promote the transformation and upgrading of the digital economy industry. since the 18th century, three large-scale technological revolutions have occurred in human society, namely the steam engine revolution, the power revolution and the information, namely the internet revolution. artificial intelligence will be an important technology in the fourth technological revolution. since first proposed at the dartmouth conference in 1956, artificial intelligence has been under the process of development for more than 60 years. it is generally believed that computers constantly need to learn by themselves and expand their knowledge base to master many skills such as “painting, singing, reading, designing” that humans possess, the expression of which is “intelligence”. artificial intelligence can be understood as the continuous perception and simulation of human thinking processes by machines, with machines achieving or even surpassing human intelligence, ability to perceive, think and even make decisions. artificial intelligence has been applied in many vertical fields. currently, more mature fields include home furnishing, finance, transportation, and medical treatment. integrated with many vertical fields, artificial intelligence technology can enable industry empowerment in two ways: on the one hand, it can increase production efficiency, reduce costs and increase efficiency. one example of this aspect is seen in financial industry. at present, artificial intelligence is mainly used in risk control, payment, claims settlement and investment advisory. intelligent investment advisory applications are the most mature one. artificial intelligence has also played a crucial role in the prevention and control of the pandemic, mainly covering aspects such as epidemic surveillance, body temperature detection, virus detection and resumption of production. the outbreak of the covid-19 epidemic during the spring festival brought great challenges to virus detection, tracking, isolation, prevention and control. the application of artificial intelligence, supported by data, mainly helped temporal tracking and epidemic research and judgment. new business models and new economic growth points take the automobile as an example, in which intelligent network connection is area of artificial intelligence application in the automobile industry. on the one hand, intelligent network connection can improve the intelligence of cars, including automatic driving, intelligent voice, and intelligent cockpits; on the other hand, it can be combined with 5g to improve the ability of automobile information communication to achieve network connection, including personnel and vehicle safety management, road traffic planning of the cities, etc. (ren baikeli xiarewana & mustafa emre ci̇velek 156 & xie, 2020). in general, artificial intelligence has had a significant impact on the global economy for all the reasons specified above. 5. conclusion economic impact is spreading globally with a further rise in the influence of covid-19 in 2020. it accelerates digitalization transformation. at present, governments of various countries attach great importance to and provide support and encouragement in infrastructure construction, basic scientific research, talent training, funding research and development as well as cooperation and exchange. capital and enterprises are also actively seeking commercial landing scenarios to assist technology transformation. the covid-19 has accelerated the digital transformation. in the wave of the digital economy, 5g is like an “information highway”, providing high-speed transmission channels for the transmission of huge amounts of data and information. artificial intelligence has an obvious spillover effect, and it will promote industrial transformation and upgrading in the era of digital economy together with 5g and data centers. competition in the artificial intelligence industry is the competition of the comprehensive strength of various countries in terms of policy, basic research, technology and capital. the technology has landed in the vertical field, which in turn generates new data, promotes the algorithm update iteration, and can further serve the vertical field, and so on. the emergence of artificial intelligence chips significantly increases the speed of data processing and supports increasingly complex algorithms to process complex data, which is an important foundation for the development of artificial intelligence. china and the united states are gathering places or hubs for global artificial intelligence companies. chinese companies focus on the application layer, while american companies focus on the technology layer. as of february 2019, there were 3438 artificial intelligence companies in the world. the united states and china are the top countries. from the perspective of enterprise types, china is mainly an application-layer enterprise, and the united states is mainly a technology-layer enterprise. it should be noted that china’s artificial intelligence industry is still in the early stages of development, facing many problems such as lack of basic research and development, technology and scene integration, and traditional infrastructure not keeping up with technological development (ren & xie, 2020). in the light of this development it can be said that the biggest effect of the pandemic will be radical and irreversible shrinking in global economy. in the pandemic process, work from home increased, unemployment reached an 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(2020). yi cai news. retrieved from www.yicai.com: https://www.yicai.com/news/100561357.html journal of international trade, logistics and law, vol. 6, num. 2, 2020, 144-152 144 effects of the sub-dimensions of logistics performance index on foreign trade coverage ratio halil i̇brahim coşkun istanbul commerce university, turkey mustafa emre ci̇velek istanbul commerce university, turkey received: 06 nov, 2020 accepted: 08 dec, 2020 published: 10 dec, 2020 abstract: the main purpose of this study is to explain the effect of each sub-dimension of the logistics performance index on foreign trade coverage ratio. the multiple regression method was used to decompose the effect of each sub-dimension. in the study, secondary data prepared by international institutions was used. spss program was used to perform the analyses. although this study initially predicted that the lpi sub-dimensions had a positive effect on the coverage ratio, all the hypotheses, except for the infrastructure, were rejected. as a result of this study, positive effect of infrastructure on foreign trade coverage ratio has been found to be statistically significant. keywords: foreign trade coverage ratio, sub-dimensions of logistics performance index 1. introduction the main purpose of this research is to examine the effect of the logistics performance index sub-dimensions on the foreign trade coverage ratio. while examining these concepts, trade map and world bank data, which are acknowledged in the world, were used. countries that need to explore new markets by increasing their export share in international trade have been trying to increase their competitive power by strengthening their economic structures. logistics, which allows countries to increase their competitiveness, has become an indispensable part of countries, and thus, has gained importance, especially in the 21st century having manifested significant development with globalization. according to the council of supply chain management professionals (cscmp), logistics is a supply chain process stage that manages, plans and controls the active and efficiently flow and storage of goods and services from the production area to the consumption area in order to meet customer needs (uca, 2017). the logistics sector is one of the fastest growing sectors of our day and has become a sector that new masses are beginning to use every day. for this reason, performance measurement is of great importance in the logistics industry. among various indicators, the international logistics performance index (lpe) is considered to be one of the most comprehensive indicators that measures the performance of logistics processes. (çelebi and civelek, 2018). the research question in the present study is to examine the effect of the logistics performance index subdimensions on foreign trade. in the light of this research question, a hypothesis has been proposed. 2. logistics performance index and sub-dimensions logistics performance index (lpe) data and key indicators published by the world bank every two years create a unique dataset to measure country performance in various dimensions of logistics and to compare this logistics performance with 150 countries. these also provide an empirical basis for understanding and comparing differences in trade logistics and informing policies on difficult bottlenecks and trade-offs (arvis et al., 2007). effects of the sub-dimensions of logistics performance index on foreign trade coverage ratio 145 2.1. coverage of logistics performance index the logistics performance index is initially created and presented in a report by the world bank, together with its academic and professional partners to improve their competitiveness and help of countries develop logistics reform programs, close the information gap and to identify the opportunities and challenges faced by countries in logistics performance. the lpe and its data, created with the knowledge and experience of professionals, allow a comprehensive assessment of logistical advantages and / or shortcomings between countries. professionals around the world provide a comprehensive analysis of the performance of supply chain rings, from customs process, the ability to track and trace shipments, logistics cost and infrastructure quality, competence of the domestic logistics industry, and timely delivery to destination. logistics quality and cost is not only related to the performance of infrastructure and public institutions, but also to private services. besides from the time and cost to deliver the goods, predictability and reliability of the supply chain are increasingly important factors (güleryüz, 2019). the lpe data published for the first time in 2007 allow comparisons between 150 countries in 2007, 155 countries in 2010 and 2012, and 160 countries in 2014, 2016 and 2018. the lpe is based on the research and experience of worldwide operators (global freight carriers and express carriers) who provide feedback on the logistics "intimacy " of the countries in which they operate and the countries they do trade with. they combine in-depth knowledge of the countries in which they operate with conscious qualitative assessments of other countries in which they do trade and experience the global logistics environment. within this context, there are certain opportunities and challenges faced by countries in logistics performance (logistics performance index, 2020). 2.2. sub-dimensions of logistics performance index the international logistics performance index consists of questionnaires containing the qualitative evaluations of logistics experts. the lpe scores the country's logistics and trade profile between 1 (worst) and 5 (best). more than 6000 logistics professionals working in more than 1000 international shipping agencies evaluate the 8 countries where the most trade is carried out and analyse the data collected. a separate country score is calculated for each dimension. the 6 dimensions of lpe are shown in below (uca et al., 2019); 1. efficiency of the customs clearance process (speed, simplicity, predictability of formalities at customs and customs control points) 2. quality of transportation and commercial infrastructure (ports, information technologies, etc.) 3. ease of shipments and competitive pricing 4. quality and adequacy of logistics services (customs and carriers) 5. traceability of shipments 6. the frequency with which the shipment is delivered to the recipient in the planned time the lpi sub-dimensions were created based on theoretical and empirical research and practical experience of logistics professionals engaged in international transport. the lpi sub-dimensions table is shown below (arvis et al., 2018). figure 1: lpe indicators as inputs and outcomes source: (arvis, et al., 2018). halil i̇brahim coşkun & mustafa emre ci̇velek 146 in the lpe survey conducted in 2018, 62 percent of the respondents were from either low-income countries (3 percent) or middle-income countries (59 percent). the lack of representation of low-income countries is due to their more marginal role in world trade and the difficulty in effectively communicating with operators on the ground (arvis et al., 2018). figure 2: lpe 2018 demographic rates according to the lpe reports between 2010 and 2018, most of the high-income countries in europe were ranked in the top 10 in the lpe ranking and are shown in table 1. countries with developed economies are also at the top of the latest 2018 lpe reports. for example, in the 2018 lpe ranking, germany ranks first with 4.20 points, while sweden ranks second after germany with 4.05 points. countries generally at or below middle income rank lower in the lpe rankings, and the lowest 10 countries are shown in table 2. afghanistan is in the last place with 1.95 points in the lpe ranking. the countries ranked last usually have vulnerable economies affected by political instability, armed conflicts, and natural disasters, or these are countries facing economies of scale or adverse geographical conditions in their global supply chain (güleryüz, 2019) table 1. top 10 countries in lpe scoring between 2010 and 2018 2018 2016 2014 2012 2010 rank score rank score rank score rank score rank score germany 1 4,20 1 4,23 1 4,12 4 4,03 1 4,11 sweden 2 4,05 3 4,20 6 3,96 13 3,85 3 4,08 belgium 3 4,04 6 4,11 3 4,04 7 3,98 9 3,94 austria 4 4,03 7 4,10 16 3,81 11 3,89 19 3,76 japan 5 4,03 12 3,97 10 3,91 8 3,93 7 3,97 netherlands 6 4,02 4 4,19 2 4,05 5 4,02 4 4,07 singapore 7 4,00 5 4,14 5 4,00 1 4,13 2 4,09 denmark 8 3,99 17 3,82 17 3,78 6 4,02 16 3,85 united kingdom 9 3,99 8 4,07 4 4,01 10 3,90 8 3,95 finland 10 3,97 15 3,92 24 3,62 3 4,05 12 3,89 source: (logistics performance index, 2020) effects of the sub-dimensions of logistics performance index on foreign trade coverage ratio 147 table 2. 10 worst countries in lpe scoring between 2010 and 2018 2018 2016 2014 2012 2010 rank score rank score rank score rank score rank score central africa rep 151 2,15 n/a n/a 134 2,36 98 2,57 n/a n/a zimbabwe 152 2,12 151 2,08 137 2,34 103 2,55 n/a n/a haiti 153 2,11 159 1,72 144 2,27 153 2,03 98 2,59 libya 154 2,11 137 2,26 118 2,50 137 2,28 132 2,33 eritrea 155 2,09 144 2,17 156 2,08 147 2,11 154 1,70 sierra leone 156 2,08 155 2,03 n/a n/a 150 2,08 153 1,97 nigeria 157 2,07 100 2,56 130 2,39 87 2,69 106 2,54 burundi 158 2,06 107 2,51 107 2,57 155 1,61 n/a n/a angola 159 2,05 139 2,24 112 2,54 138 2,28 142 2,25 afghanistan 160 1,95 150 2,14 158 2,07 135 2,30 143 2,24 source: (logistics performance index, 2020) 3. definition and elements of foreign trade in order to have more goods and services, people have used their scarce resources jointly and produced in cooperation with each other. thanks to these collaborations that people have made with each other for a long time, production factors have developed and specialization has emerged. some of the produced goods are used for the needs of the producers and the surplus goods are used in barter with other producers. in this way, producers are enabled to specialize in the products they produce and at the same time, commercial interaction is kept alive. with this barter transaction, an increase in living standards is achieved on both sides. these clearing transactions are defined as trade. increased production and consumption as a result of barter transactions increase the welfare of societies (eken, 2019). countries produce depending on the products they specialize in and products with excess supply are sold to a different country in demand. in this system, the process of supplying a product from a different country with the need for a product is called import, and the process of selling a product to a different country is called export. 3.1. historical development of foreign trade the foreign trade theory that dominated the world in the 15th and 16th centuries was mercantilism. according to this view of trade opinion, countries advocated that trade should be done by the state and follow protective policies against foreign countries while attaching importance not to going beyond their borders until the end of the 17th century. in the 18th century, the physiocratic period theories, in which state protection and protectionism against foreign trade were partially softened, and passed on (ateş b, 2015). adam smith, who is regarded as the founder of classical liberalism, started the classical economic period in 1776 by putting forward his work named "the wealth of nations". smith argued in his book the wealth of nations that liberalization of foreign trade and international specialization are beneficial. in addition, according to the “absolute advantages theory”, countries should specialize in whatever product they can produce at the lowest cost and import the product that constitutes a high cost of production. it can be said that david ricardo, who corrected the deficiencies of adam smith's theory of absolute advantages and published his book "on the principles of political economy and taxation" in 1817, laid the foundations of foreign trade in modern terms (yüksel and sarıdoğan, 2011). john stuart mill provided the determination of foreign trade gains by including the demand factor, which the previous ones had neglected, into the analysis and put forward the mutual demand law, which would later be developed by neoclassical thinkers. he argued that mutual demand will also accelerate technological developments (bayraktutan, 2003). halil i̇brahim coşkun & mustafa emre ci̇velek 148 classical foreign trade theories emphasized the labor-value theory and assumed labor as a homogeneous production factor. however, entrepreneurship, capital and natural resources are also included in the concepts that affect the cost of a good. gottfried haberler introduced the concept of opportunity cost by criticizing the laborvalue concept to overcome these shortcomings of the theory. (gülmez, 2019) in the 1930s, modern foreign trade theories began to emerge. in this period, the contributions of two swedish economists, heckscher (1919) and ohlin (1933) are seen. according to the heckscher-ohlin theorem, a country should produce in the field in which it has a comparative advantage in production resources. for products with scarce production resources, it should turn to imports (bayraktutan, 2003). as a continuation of these studies, the skilled workforce theory was developed by keesing and kenen. according to this theory, countries with professional or high-quality labor will specialize in qualified labor-intensive goods and export these goods, while countries with more unqualified labor will specialize in the production of goods produced with unqualified labor and will export these goods (deviren, 2004). 3.2. definition of export export is defined as the sale of a product to foreign countries or to places / persons in foreign country status in exchange of foreign currency. exporting countries show that they have raised their production quality to the level of international competition and compete to get a share from the world's wealth (melemen, 2016). according to the export regulation, export covers all the processes of exporting a good or economic value in accordance with the applicable customs legislation and export legislation, and bringing the price to the country except for free export according to the foreign exchange legislation (olhan, 2009). table 3. the data of the last 3 years of the 10 countries with the highest export figures (usd) country / year 2016 2017 2018 china 2.097.637.172 2.263.370.504 2.494.230.195 usa 1.451.023.530 1.546.272.961 1.664.055.581 germany 1.340.752.046 1.446.642.435 1.557.176.334 japan 644.932.439 698.132.787 738.188.768 netherlands 570.931.867 651.696.797 723.347.390 south korea 495.465.606 573.716.618 605.169.190 hong kong 516.588.131 549.861.455 569.105.740 france 488.885.072 523.385.133 568.448.540 i̇taly 461.748.767 507.195.651 546.910.558 united kingdom 411.463.356 442.065.707 487.069.299 source: (trademap, 2020) 3.3. definition of import import is defined as bringing any product into the country from foreign countries or free zones in accordance with the current customs legislation and import legislation (www.gumrukleme.com.tr). import is divided into three categories: import with payment, import without charge and temporary import. table 4 the data of the last 3 years of the 10 countries with the highest import figures (usd) country / year 2016 2017 2018 usa 2.249.943.875 2.408.475.702 2.614.273.313 china 1.587.920.688 1.843.792.939 2.134.987.265 germany 1.060.672.017 1.167.753.355 1.287.199.098 japan 606.924.047 671.892.311 748.361.565 effects of the sub-dimensions of logistics performance index on foreign trade coverage ratio 149 united kingdom 636.367.936 641.332.436 669.640.211 france 560.554.863 613.132.640 658.950.640 netherlands 501.026.975 574.098.648 646.591.021 hong kong 547.124.448 589.317.440 627.327.031 south korea 406.059.974 478.413.948 535.172.391 india 356.704.792 444.052.638 507.580.001 source: (trademap, 2020) 3.4. export – import coverage ratio export-import coverage ratio can be explained as the ratio of imports to be covered by dividing exports by imports. in this context, it can be expressed as the percentage difference between exports and imports. especially in open economies, this concept is accepted as one of the most important criterion. considering different currencies of different countries or different time zones in the same country, the foreign trade deficit may not give a reliable result. in this respect, it can be said that the ratio of exports to imports is more consistent. the share of exports in gdp (gross domestic product) in a country is 10 percent, the share of imports is 15 percent; in the other, when we assume that the share of exports in gdp is 35 percent and the share of imports is 40 percent. although the foreign trade deficit of the two countries is 5, the ratio of exports to imports for the first country is 67 percent, while the ratio for the other country is 80 percent (aykaç and civelek, 2019). table 5. 10 countries with the most foreign trade surplus in 2018 country / value export (2018) import (2018) foreign trade balance china 2.494.230.195 2.134.987.265 359.242.930 germany 1.557.176.334 1.287.199.098 269.977.236 russian federation 449.347.157 238.151.375 211.195.782 saudi arabia 267.379.092 101.718.329 165.660.763 netherlands 723.347.390 646.591.021 76.756.369 south korea 605.169.190 535.172.391 69.996.799 iraq 97.294.803 31.197.083 66.097.720 ireland 167.017.888 106.931.073 60.086.815 brazil 239.889.210 181.230.569 58.658.641 qatar 82.713.417 28.894.531 53.818.886 source: (trademap, 2020) 10 countries with the highest foreign trade surplus in 2018 are listed in table 5 and the foreign trade surplus amount is calculated by subtracting the import figure from the export figures and being added to the table. when the data in the table are analysed, it does not seem possible to reach a result that is clear enough in terms of foreign trade performance. halil i̇brahim coşkun & mustafa emre ci̇velek 150 table 6. the coverage ratios of 10 countries giving foreign trade surplus in 2018 country / value export (2018) import (2018) coverage ratio china 2.494.230.195 2.134.987.265 1.17 germany 1.557.176.334 1.287.199.098 1,21 russian federation 449.347.157 238.151.375 1,89 saudi arabia 267.379.092 101.718.329 2,63 netherlands 723.347.390 646.591.021 1,12 south korea 605.169.190 535.172.391 1,13 iraq 97.294.803 31.197.083 3,12 ireland 167.017.888 106.931.073 1,56 brazil 239.889.210 181.230.569 1,32 qatar 82.713.417 28.894.531 2,86 source: (trademap, 2020) when the data in table 5 are examined, a clear result cannot be obtained as a foreign trade performance. this is because when we examine the total volume and foreign trade surplus, we do not see a result as a percentage. in table 6, on the other hand, we come across a more reliable healthier data since there is a proportioning situation. 4. research model and hypothesis by using the sources in the literature, hypotheses have been developed about the sub-dimensions of logistics performance index data of the countries and the coverage ratio of exports to import. research model is shown in figure 3. figure 3: research model effects of the sub-dimensions of logistics performance index on foreign trade coverage ratio 151 the following hypotheses have been proposed within the scope of the research question: h1: customs rates have positive effects on foreign trade coverage ratio h2: infrastructure rates have positive effects on foreign trade coverage ratio h3: service quality rates have positive effects on foreign trade coverage ratio h4: timelines rates have positive effects on foreign trade coverage ratio h5: international shipments rates have a positive effect on foreign trade coverage ratio h6: tracking and tracing rates have a positive effect on foreign trade coverage ratio 5. analysis results to test the hypotheses, multiple regression method was used. the effect of independent variable sub-dimension of logistics performance index rates on the dependent variable foreign trade coverage ratio was attempted to be clarified. the sample consists of 5 years of data for 123 countries. in table 7, regression coefficient of the relationship is shown. when we look at the coefficient table where lpi sub-dimensions are examined separately, it is seen that the infrastructure value has a positive and significant effect on the ratio of exports to imports. since the international shipments and tracking and tracing beta values are negative, a negative effect of exports on the import coverage ratio has been determined. since the services quality and timelines sig values were above 0.05, it was concluded that there was an insignificant relationship on the ratio of exports to imports. the sig value of customs is less than 0.05, which indicates that it has a significant effect on the coverage ratio of exports to imports. however, a negative beta value means that it has an opposite effect on the coverage ratio of exports to imports. thus, h2 hypothesis is supported. as for h1, h3, h4, h5, h6 hypothesis are not supported. table 3. hypotheses test results relationships standardized coefficients hypotheses results customs → coverage ratio -0.366* h1 not supported infrastructure → coverage ratio 0.418* h2 supported services quality → coverage ratio 0.089 h3 not supported timeliness → coverage ratio 0.109 h4 not supported international shipments → coverage ratio -0.032 h5 not supported tracking & tracing → csa -0.114 h6 not supported *p < 0.05 6. conclusion within the scope of this research, a conceptual model has been established created to determine the foreign trade success criteria of the world countries and to evaluate their performance. in order to test this model, multiple regression analysis was performed on the sub-dimensions of the lpi rates and the coverage ratio of exports to imports of 123 countries for the years 2010, 2012, 2014, 2016 and 2018. as a result of the research, a significant relation was found between infrastructure being the sub-dimension of logistics performance index data and the ratio of exports to imports. a significant relation could not be established between international shipments, services quality, tracking and tracing and timeliness, being the sub-dimensions of logistics performance index and the ratio halil i̇brahim coşkun & mustafa emre ci̇velek 152 of exports to imports. a positive but inverse relationship was found between customs clearance and the coverage ratio of exports to imports. this yields the conclusion that the customs investments would have a negative effect on the ratio of exports to imports. this unexpected result needs to be confirmation by the future research. this result can be stem from possible measurement errors in logistics performance index. in line with these studies, it has been observed that the logistics infrastructure investments have a directly positive effect on the export-import coverage ratio of countries. the scientific contribution of this research is to establish a relation between the relevant concepts in the literature. in line with the findings, important criteria of success emerge for a country that aims to increase its foreign trade performance. logistics investments to be made by taking this analysis into consideration will contribute to the development of foreign trade. the most important result of this research is that the infrastructure investment is extremely crucial for building the welfare of a nation. references arvis, j.-f., mustra, m., panzer, j., ojala, l., & naula, t. (2007). connecting to compete trade logistics in the global economy. the world bank. arvis, j.-f., ojala, l., wiederer, c., shepherd, b., ra, a., dairabayeva, k., et al. (2018). connecting to compete trade logistics in the global economy. the world bank. ateş, b. (2015). türkiye'de 1980 sonrası dış ticaretin gelişimi:enerji sektörü. i̇stanbul: gedik üniversitesi. aykaç, s., & civelek, m. (2019). the effect of mobile phone subscription rate on export-import coverage ratio. eurasian academy of sciences eurasian business & economics journal, 19, 123-133. bayraktutan, y. (2003). bilgi ve uluslararası ticaret teorileri. c.ü. i̇ktisadi ve i̇dari bilimler dergisi, 176-177. bayraktutan, y. (2003). bilgi ve uluslararsı ticaret teorileri. c.ü i̇ktisadi ve i̇dari bilimler dergisi, 4(2), 175-186. çelebi, ü., & civelek, m. (2018). the mediator role of global connectedness in the relationship between logistics performans and human development. busines & management studies:an internationla journel, 6(4), 969-980. deviren, n. v. (2004, eylül). mevzuat dergisi. mevzuat dergisi: retrieved from https://www.mevzuatdergisi.com/2004/09a/05.htm adresinden alındı eken, e. n. (2019). uluslararası mal ticaretinin kolaylaştırılması kapsamında yetkilendirilmiş yükümlü statüsünün dış ticarete etkisi:türkiye örneği. i̇stanbul: marmara üniversitesi. güleryüz, d. (2019, temmuz). çok kriterli karar verme yöntemleri i̇le lojistik performans i̇ndeksinin değerlendirilmesi. konya: selçuk üniversitesi. gülmez, z. (2019). dış ticaretin ekonomik büyüme ve i̇stihdam üzerine etkisi. karaman: karamanoğlu mehmet bey üniversitesi. logistics performance index. (2020). logistics performance index: retrieved from https://lpi.worldbank.org/about melemen, m. (2016). uygulamalı uluslararası ticaret i̇şlemleri. türkmen kitabevi. olhan, z. (2009). türkiye'de i̇hracatın desteklenmesinde i̇hracat kredi sigortası ve uygulama çalışması. i̇stanbul: marmara üniversitesi. trademap, t. (2020). trademap provides. uca, n. (2017). lojistiğin küresel rekabetteki yeri. i̇stanbul: beta yayınları. uca, n., civelek, m., & çemberci, m. (2019). yolsuzluk algısının gayrisafi yurt i̇çi hasıla üzerine etkisinde lojistik performans ile küresel rekabetin ara değişken rolü türkiye değerlendirmesi. uluslararası toplum araştırmaları dergisi, 10(17), 1231-1261. www.gumrukleme.com.tr. (2020) www.gumrukleme.com.tr: retrieved from https://www.gumrukleme.com.tr/gumrukleme-terimleri-sozlugu/ithalat-nedir/ yüksel, e., & sarıdoğan, e. (2011). uluslararası ticaret teorileri ve paul r.krugman'ın katkılarıyla. öneri dergisi, 9(35), 199-206. journal of international trade, logistics and law, vol. 2, num. 2, 2016, 73-80 important and critical issues of complying presentation based upon letter of credit (l/c) payment ömer özkan, (professor) istanbul commerce university, turkey oğuzhan özçelik, (phd) kırklareli university, turkey serpil kılıç, (phd candidate) istanbul commerce university, turkey abstract: in this study, there is suggested proposals and determined about such a way must be followed in complying presentation in accordance with letter of credit payment and the faults of exporting companies specific to turkey in this issue. beneficiary needs to provide complying presentation after preparing the papers appropriately at first letter of credit terms, rules of ucp 600 and isbp 745 for applicant bank and if available confirming bank’s pay obligation could continue against beneficiary company in letter of credit payment. since provided complying presentation ability requires a certain level of experience and expertness; it is observed about exporter companies in turkey localized, receive export prices late and pay extra charges/commissions, could not benefit from pay obligation guarantee of applicant bank and if available confirming bank because of their generally discrepant document, facing contradiction in terms on this complying document preparing. moreover, a various letter of credit condition which are disadvantages of exporters and could be caused financial losses are discussed and includes advices in this study. based upon the findings, there is determined about most important reason of the companies could not provide complying presentation is preparing certain documents within letter of credit conditions incorrect, and it is shown how to prepare the subjected documents appropriately to letter of credit payment as considering their main and critical properties. keywords: letter of credit, discrepancy, complying presentation ucp600, isbp745 1. introduction by the time discussing in terms of operational, could be seen that foreign trade occurs through 3 different processes like the transfer of good1, documents2 and money. making payment is importer’s responsibility while preparing the document and subjected item is exporter’s (beneficiary) responsibility. banks that are financially reputable establishments could have got involved into paying responsibility based on payment methods with importer. in this research’s subjected letter of credit payment method, both importer and importer’s bank and if available confirming bank takes on the payment responsibility. furthermore, primary payment responsibility is firstly on confirming bank if available then importer’s applicant bank. under the condition that complying presentation is existed, confirming bank pays to beneficiary even applicant bank does not credit the account and recedes to applicant bank for subjected amount. likewise, applicant bank credits firstly confirming bank’s account or else nominated bank’s, and this once, applicant bank recedes to applicant firm for subjected amount or uses the guarantee that received form applicant before accredit. applicant bank and if available confirming bank are considered as committed 3 to afford the complying presentation to exporter who is in the position of beneficiary by the letter of credits becoming functional moment. it is determined for ‘’honour’’ word in definitions part of article 2 of ucp 6004, is not only limited with 1 good, item and load are used in the same meaning in this research. 2 document means the papers used in foreign trade. 3 ucp 600 item 7,8 and 15 4 icc (international chamber of commerce) is an institution centered in paris, determines rules to make the foreign trade easy worldwide via 16 different institutions exist within it’s structure. english version of icc’s one example methods and application 74 ömer özkan, oğuzhan özçelik and serpil kılıç making payment, but also involves the meaning of accept the remitted policy and take the responsibility of payment in timed and acceptance credits. for letter of credit payment, the applicant bank blocks a guarantee amount from importer at least as letter of credit amount before taking the payment responsibility. confirming bank takes the payment responsibility referring to its correspondent bank relation with applicant bank and its agreement also. this means, confirming bank will not add confirmation for every letter of credit letter even their content is appropriate, could add confirmation only with the condition that existing a correspondent bank contract between them. while the letter of credit payment provides a kind of bank assurance to beneficiary about cost receipting, exporter firms need to show complying presentation for taking advantage of this guarantee. complying presentation is defined in article 2 of ucp 600 as ‘’ it means a complying presentation for letter of credit conditions, practicable provisions of these rules and appropriate international standard banking application’’. the implied statement in ‘’international standard banking application ‘’ sentence is, ucp 600 and isbp 7455 which is broadcasted as complement of ucp 600. beneficiary firms which could guarantee the cost provided that a complying presentation, prefer this payment method in their especially large amount trading6 . despite this, they present discrepant document because of the reason that subjected payment method necessitates extensive know-how and experience as well. it is observed about discrepant document presentation is about 74% in turkey-wide7. iinitiative passes through to applicant firm after every presented document about paying the cost or not to, after this level, letter of credit transaction turns into cash against documents. this study’s motivation has occurred at this level and there is offered solutions about critical letter of credit conditions which could cause to financial losses with incorrect document arrangements made by exporter firms in turkey localized. 2. various letter of credit terms which could cause financial losses for beneficiary firms with letter of credit and solutions 2.1. letter of credits and letter parts which could be critical for beneficiary firms letter of letter of credits could be written in every language but english is adopted as common language in practice. as indicated below as well, it is seen that the subjected letter is partitioned by digit places and thus, it is converted to monotype (uniform) prepared texts in worldwide. letter of credit’s parts comprise of 20; 31c; 40 and e; 31 d; 50 ve59; 32 b and 39; 41 and 42 a, c, e, f, b; 44 a, e, f, b, c; 45 a; 46 a: 47 a; 71 b; 48; 49; 53; 78; 52 a; 57 and 72 number of digits. while every part is important about complying presentation, letter of credit’s parts which are obtained from open-end survey questions are detailed below.  40 a form of documentary credit: this digit is organized as irrevocable, revocable and transferable. transferable form of a letter of credit is preferred in trades and transit trades which the beneficiary firm is not the producer of good but is only broker or supplier.  20 letter of credit reference: a kind of tracking number which is consisted of number and/or character group by applicant bank during the letter of credit start-up8.  31 d date and place of expiry: the item makes conditional on the expire date, namely delivery date of letter of credit by beneficiary and latest delivery date for document to applicant or beneficiary bank 9. (icc broadcast no. 600) regarding letter of credits. icc has totally 5 more publications, firstly ucp 500 concerning the issue before ucp 600, and their validness are still continuing. it is a rule to mention on letter of credit about which broadcast is taken as main. 5 international standard banking practice concerning to evaluate the presented documents under the letter of credits (icc broadcast no.745). 6 based on the survey studies that is made with 10 commercial bank’s letter of credit services in turkey, there is discussed on the solution that letter of credit payment method is preferred as the trade’s amount is increasing. although, letter of credit transactions could be used for every kind of amount as well. 7 it is obtained from survey study results which are made with 10 commercial bank’s letter of credit services in turkey. 8 according to the information that are obtained from open-end survey questions, it is learned about beneficiary firms frequently write the subjected reference number wrongly or confuses with confirming bank’s reference number 9 according to the survey results, it is seen that this item could not be understood by beneficiary firms and presenting discrepant document and lately as well because of this reason. important and critical issues of complying presentation based upon letter of credit (l/c) payment 75  44 c latest date of shipment: this shows the date of good’s shipment date10.  45 a description of goods or services: the part where has detailed info about the trade subjected good’s price, way of delivery and amount.  46 a required documents: this part is accepted as the most crucial part in terms of providing complying presentation. the document’s content and number information is located in this part which beneficiary firm needs to prepare or make it prepared11.  47 a additional (special) conditions: this area has two main intended purposes. first is, writing the special or standard conditions usable for every letter of credit by applicant bank, second is writing special conditions aimed at the deal between beneficiary and applicant firm (kütükçü, 2013:480).  71 b charges and commissions: the part that shows how to share the banking services for letter of credit transaction with transferring costs between exporter and importer.  49 confirming instructions: the part that shows the letter of credit’s being as confirm, without confirm or may add confirm. despite of this digit is stated as confirm, letter of credit will become obligatory without confirm if the confirming bank does not add its confirmation for any reason. in practice, confirming bank could not add confirmation to letter of credit because of main tree reasons. first is the sanction decision for these countries by united nations (un) and/or country risk. second is, as stated before, not to be a correspondent bank agreement concerning approval with applicant bank. third reason is, various conditions are existed in letter of credit conditions like charter party bill of lading etc. that could cause risks for confirming bank. confirming bank could be generally in beneficiary’s own country’s bank as well as could be any bank in abroad also. in practice, sometimes, although rare, there is seen more than one banks add confirmation on one letter of credit transaction. 2.2. various letter of credit terms which could cause financial losses for beneficiary firms undoubtedly the biggest financial loss will be not to provide complying presentation for beneficiary in letter of credit payment. the beneficiary will face with risks like not to collect any cost, collect missing or collect lately. otherwise, letter of credit conditions which cause financial losses for beneficiary are below with reasons.  40 a: type of letter of credit: letter could be opened as revocable or irrevocable. opening irrevocable is much important for beneficiary firms. likewise, there could not made any changes in letter of credit conditions without confirming bank’s approval if available, applicant bank and importer’s (applicant firm) approval also in irrevocable letter of credits. opening the letter as revocable allows to applicant firm can change letter of credit conditions without beneficiary’s agreement, so this situation will be disadvantageous to beneficiary firm. revocable letter of credits could be applied in practice few and far between, but yet beneficiary firms need to be careful at this point about letter of credit arrangement as irrevocable.  31 d letters of credit due date and place: most important issue in this section is in the part of letter of credit’s place. this issue could be disadvantageous to beneficiary firm and could cause discrepant document presentation also. definition of letter of credit’s place as applicant bank’s country or any other bank in abroad means the document must be in that country in specified date. in survey studies, there is seen about firms localized in turkey falls into discrepant because of late complying presentation and their unawareness about the fine detail between letter of credit’s place is being in turkey or in a country abroad. in a letter of credit which’s place is discussed as abroad, beneficiary firm needs to deliver the document 3-4 days before the date is mentioned 31 d, the fact remains that, a letter of credit could be delivered at due date if it’s 31 digit discussed the place as turkey. 3-4 days period mentioned above for carrier and delivery time of document’s transfer from beneficiary bank’s to bank in abroad.  46 a documents required: the riskiest statement in this part is to define as applicant firm who prepares or approves a document within needed documents. moreover, becoming effective of a letter of credit could be made conditional on various terms and substitutive documents about provided the terms definitely. this 10 according to the survey results, one of the most modified item after accredit. 11 a position which is not needed to give place for required documents and properties only this part but also a frequently used situation by giving place in 47a at the same time 76 ömer özkan, oğuzhan özçelik and serpil kılıç kind of required documents could be seen rarely and restricts the beneficiary’s self-control on required documents, even risks the collection of cost.12  48 period of presentation: in this digit, there is stated that how long time after from loading the beneficiary must present to document to applicant bank. article 14 c of ucp 600 limits this period as 21 days after shipment as well as this calendar could be shortened with a statement like ‘’after 10 days after shipment’’ and could be prolonged also with a statement like ‘stale document acceptable’. but, in every situation, the document presentation must be made before due date of letter of credit. on condition that respect to letter of credits date, 21 days after shipment or ‘stale document acceptable’ statement will provide advantage for beneficiary.  71 b charges and commissions: this is a part which could occur financial loss for beneficiary firms. according to the data that obtained from open-end survey questions, it is determined about this digit is arranged as ‘’all banking charges and commissions outside of applicant bank are for beneficiary’s account’’ and beneficiary firms are in mistake because of this arrangement’s make equal sharing between purchaser and seller. however, the statement above creates the perception like both sides are undertaking the commissions and costs of only their own servicer banks; still the related statement causes reimbursing bank’s cost and commissions are undertaken to beneficiary. to arrange this part as ‘’all banking charges and commissions outside of beneficiary bank are for applicant’s account’’ will occur an opposite situation of above and will provide advantages for beneficiary firms. 3. preparing document for complying presentation with examples as expressed before, preparing the good and documents are beneficiary firm’s responsible. in the method of letter of credit payment, document preparing is conditioned to letter of credit terms differently from the other payment types like cash against documents, bank’s obligation to pay, cash against goods, cash. beneficiary firms, applicant bank and confirming bank if available, must prepare the document appropriately to both ucp 600 and isbp 745 rules and present timely to nominated bank13. beneficiary firms prepare the papers like invoice firstly, packaging list, weight list, policy, shipping info etc. by himself in practice while they have some papers prepared to private and public institutions as well like consignment and road transport documents firstly, analysis, inspection, health, plant, quality and other certificates with certificate of origin, atr, eur.1, euromed, insurance policy, etc. required documents which are based on trade’s flow, trades property and demand of importer firm are not limited with aboves, there are shown main terms. undoubtedly, preparing the document within complying presentation responsibility is on beneficiary firm whether the document is prepared by himself or servicer institution (özkan ve özçelik, 2015: 73). 3.1. main document types with samples which are prepared by beneficiary firms, frequent mistakes and solutions in this part of study, there will be focused on two main documents which are in documents prepared by exporter himself; invoice and policy. furthermore, frequent mistakes are determined by surveys and made solving suggestions also. policies are a kind of bills receivable that prepared by beneficiary firms in foreign trade technic whether valuable paper. exporter who is drawer of the document calls it as ‘’draft’’ of ‘’bill of exchange’’ and must prepare it depends on form requirements like preparation date of document, place, payment amount, date and drawer14. frequent mistakes in preparing document and solving suggestions are tabulated below: 12 accredit and after occurring the notification to beneficiary, the beneficiary firm is free about to use the subjected letter of credit until it’s date and not to be under any commitment. that’s why, document presentation conditions are taken place by applicant firms in terms of receiving a certificate or a guarantee as to load by beneficiary firm. undoubtedly, giving place to conditions like these in letter of credits makes practical effects. the applicant who worries about not to use letter of credit must have a kind of external guarantee letter, performance bond prepared to beneficiary. 13 according to the survey datas, the nominated bank and advising bank are the same banks in turkey mostly. 14 the issue about how to prepare the policies is not existed in ucp 600 as well as the details of document is shown on item b isbp 745. important and critical issues of complying presentation based upon letter of credit (l/c) payment 77 chart 1: frequent mistakes during preparing policy by firms localized in turkey and correction suggestions l/c terms discrepancy in presented draft problem that will be caused and correction suggestion 46a: document required: (bill of exchange is not existed in required documents) 41d: available with x bank by acceptance 42 c: drawee x bank beneficiary firm does not present a draft because of non-existing situation of bill of exchange in required documents in field 46 a. 41d and 42 digits shows the obligation of draft presentation however 46 a digit has no require for draft presentation. document comes to discrepant position by the reason of not to present the draft. beneficiary has to present the document appropriates to form requirements. 52 a: issuing bank: x bank 41 d: available with x bank by acceptance 42 c: drawee x bank 49 confirmation instruction: without showing the importer as drawee in presented draft by beneficiary firm. in the payment by acceptance, draft acceptor must be importer, while the acceptor must be applicant bank in letter of credit payment. drawed drafts on applicant firm are discrepant documents in letter of credit payment. 52 a: issuing bank: x bank 41 d: available with y bank by acceptance 42 c: drawee y bank 49 confirmation instruction : confirm in presented policy, there is seen the drawee (means bill obligator) as applicant bank by beneficiary firm. the document is with discrepant as is side column. drawee is the applicant bank in unconfirmed letter of credits. in confirmed letter of credits, policy obligator must be arranged the part of draft in the name of confirming bank as drawee. one of the other main documents is invoice which beneficiary prepared by in person. invoices must be prepared unexceptional in all letter of credit types but policies must be prepared only in letter of credits which opened with the “by acceptance” condition. technical explanations are arranged in article 18 of ucp 600 with isbp 745 c. according to survey data’s findings, exporter firms make mistakes mostly in showing the number’s fractions wrongly. this subjected issue has its source in fraction showing system in turkey and in abroad. in turkey, dot (.) is used to make the reading easy in turkey, while it corresponds to comma (,) in foreigner system. chart 2: frequent mistakes during preparing invoice by firms localized in turkey and correction suggestions l/c terms mistake in presented invoice problem that will be caused and correction suggestion 45 a: 90,000 kgs sunflower oil, unit price 2.004 usd/kg 90.000 kgs… unit price 2,004 usd/kg the document has a risk to be subjected as discrepancy even letter of credit condition is provided by unit price with loaded good amounts. dot and comma usage must be appropriate with letter of credit condition. 3.2. main document types with samples which are prepared for beneficiary firms, by institutions, frequent mistakes and solutions as a matter of course, beneficiary firms have the document of good’s transportation, insured, oversighting, etc. organized to private and public institutions who undertakes the business. the critical issue in here is, beneficiary must give correct instructions to his servicer institutions for preparing the documents appropriately to letter of credit technic. in reference to survey datas, it is reached to the finding that beneficiary firms make mistakes mostly in arrangement of bill of lading which is sea way chattel paper, cmr which is road transport chattel paper and insurance policies. and the frequent mistakes in preparing these tree documents are determined by surveys and solutions are shown below. 78 ömer özkan, oğuzhan özçelik and serpil kılıç chart 3: frequent mistakes during preparing bill of lading (b/l)15, cmr16 and insurance policy17 by firms localized in turkey and correction suggestions l/c terms discrepancy in presented document problem that will be caused and correction suggestion 46 a: required documents + full set bill of lading signatory party does not mentioned his title when signing the document. document is with discrepant at side column. transporter and captain with their agencies can sign the b/l except charter party b/l18 based on ucp 600 and isbp 745. it must be absolutely determined the roles of signs on document. 46a: required documents + full set bill of lading signatory party of document does not give place carrier firm information despite of determining to sign it as the agency of carrier. the document is with discrepant at side column. there must be absolutely mentioned for carrier firm information on b/l19. mentioning the carrier firm information is important in terms of determining the responsible firm in case destroying the good during transport time. 46 a: + full set20 bill of lading consigned to xxx consignee digit of b/l: to the order of xxx. letter of credit conditions need to be arranged the b/l as ‘’to the name’’ with ‘’consigned to’’ statement even though the document is arrangement ‘’to the order’’. as long as the consignments are arranged as ‘’written to the rule’’ it could be possible to endorsed the document’s behind. but it could not be possible to endorsed the documents behind which are written as ‘’to the name’’. 46 a: + full set bill of lading consigned to order and blank endorsed consignee section of consignment: not to being endorsed of behind part although written “to the order” the document as is with discrepant as side column. the exporter who is in the position of loader of good has to show transferring his right on the good with blank endorsed. if not endorsed, importer firm have difficulties in terms of ownership proof when clearing the goods from customs. 46 a: + full set bill of lading… presented b/l hasn’t got any board notation record although the document in question is received b/l. the document as is with discrepant at side column. b/ls could be arranged with two different types with printed papers as received bill of lading and shipped bill of lading. there is no need an extra on board notation (shipping record) for b/ls which 15 it is organized in articles 19, 20, 21, 22 of ucp 600 about how to prepare only the multimodal transport documents that includes seaway and more detailed in isbp 745 d, e, f and g items. sea consignments are valuable papers (negotiable documents) because their good’s ownership presentation. 16 crms are organized in article 24 of ucp 600 with isbp 745’s j item. document’s most important property is being a nonnegotiable document, as different from b/l’s, insurance policies and drafts. 17 insurance policies are valuable papers and organized in article 28 of ucp 600 28 with isbp 745 k items. make organized the insurance policy by beneficiary is about delivery type, and the insurance policy is prepared in the delivery types of cip and cif. 18that is to say, according to the ucp600 item 22, charter party b/l (no matter how it is arranged under any name) which has an indication or record about being tied to charter party, could only be signed by captain or via an agency whose name is called on behalf of captain, or ship owner either via an agency whose name is called on behalf of ship owners, or also lessor either via an agency whose name is called on behalf of charterer. 19 there are 2 situations that not to giving place to carrier firm will not occur a discrepant. first is, letter of credit’s allow for charter party b/l presentation. the second is, adding a statement like ‘’freight forwarder transport document is acceptable’’ to letter of credit conditions 20 ‘’full set’’ term means ‘’team’’ that is used for both b/l and policies, and it shows also whole original ones of document must be presented. copy documents are not included in full set. according to the rules of ucp, it must be understood through document about how many original copies occur the document (paper). important and critical issues of complying presentation based upon letter of credit (l/c) payment 79 are prepared as shipped bill of lading of its printed part. in addition to this, there is need an extra board notation (shipping record) for the consignments which’s printed part shows the delivery of good to loading. 46 a: cmr consigned to…. and indicated freight prepaid marking the non-franco digit which means any payment is not made while delivery method is c and d group in presented cmr. the document is as with discrepant. in delivery types like c and d which the freight cost is played by beneficiary, there must not show any statement about freight cost without paying in cmr. 46 a: + full set bill of lading… + full set insurance document…. insurance policy date of issue is later than the loading date of goods which are in b/l. insurance policy needs to guarantee the goods from dangers during the travel, that’s why the insurance policy date must be the same date or before with goods loading date which are in b/l 4. conclusion when viewing the icc publications about letter of credit payment, the most important reason is determined as provided complying presentation by beneficiary for benefiting bank’s payment guarantee that they are responsible for him. there is seen in survey studies that firms are localized in turkey firstly could not be effective about complying presentation issue by the reason of lack of technical knowledge. moreover, research findings show that the beneficiary firms do not take care of statements placed in letter of credit conditions. the reason of many incorrect document which are presented wrongly is not only lack of technical knowledge but also not to take care of statements placed in letter of credit conditions and thus, this could not be carried to presented documents. in some letter of credit payments, the documents which are unnecessarily and/or have the same functions existed in letter of credit conditions (for example, preparing both eur.1 and certificate of origin which could proof the good’s origin in required documents etc.). in this research, there are touched upon to critical letter of credit conditions for beneficiary firms could collect the export costs in full and timely, moreover, brought explanations over examples based on the technical knowledge for frequent mistakes. in addition, letter of credit terms which could occur financial losses and risks for beneficiary firms are examined as well as the analysis of risks which are borned from country risk and sanction decisions, such solution suggestions could be thought are the matters of an another research. references collected docdex decisions 1997-2003 (2004), icc product no. 665e collected docdex decisions 2004-2008 (2008), icc product no. 696e collected docdex decisions 2009-2012 (2012), icc product no. 739e collyer, g. (2011). the guide to documentary credits. kent: institute of financial services commentary on ucp 600 (2007), icc product no. 680e ekici, a. ve durukanoğlu, n. (2013). türk hukukunda ve dış ticarette poliçe. i̇stanbul: legal yayıncılık. international standard banking practice (icc issue no.745) icc banking commissions opinions 2009-2011 (2012), icc product no. 732e kütükçü, y. (2013). ucp 600 ve isbp 745’e göre akreditif metni ve belgeler. ankara: international chamber of commerce özalp, a. (2012). akreditif ve standby l/c rezerv konuları. i̇stanbul: turkmen bookstore özkan, ö and özçelik, o. (2015). recommendations for foreign trade companies established in turkey on making charter party marine bills of lading in accordance with letter of credit-l/c method. journal of international trade, logistics and law, vol. 1, issue 1, 2015, 9-23. reisoğlu, s. (2009). türk hukukunda ve bankacılık uygulamasında akreditif. ankara rodrigo, t. (2011). ucp 500 to 600: a forward movement: elaw journal: murdoch university electronic journal of law, volume 18, number 2. 80 ömer özkan, oğuzhan özçelik and serpil kılıç uniform rules for collections (icc issue no. 522) uniform customs and practice for documentary credits, ucp 600, (icc publication no. 600) uniform rules for bank-to-bank reimbursements under documentary credits (icc issue no. 725) ülgener, m.f. (2010). çarter sözleşmeleri. i̇stanbul: der issues journal of international trade, logistics and law, vol. 5, num. 1, 2019, 44-51 44 financial leasing in manufacturing and production sector: the case of turkey mehmet çelebi yozgat istanbul commerce university, turkey okşan ki̇bri̇tci̇ artar istanbul commerce university, turkey received: april 07, 2019 accepted: may 30, 2019 published: june 15, 2019 abstract: financial leasing is the transaction in which a property needed by an investor (lessee) is leased for a contractual specified period of time through purchasing by a financial leasing company. a financial leasing takes place with a contract made between an investor and a financial leasing company. the advantage of financial leading for an investor is that they can use the significant amount of money they have to allocate when they purchase the property in more strategical investments. financial leasing is commonly used in the world and is also important for developing countries. financial leasing transactions are carried out in turkey, which is one of the developing countries with a legislation. most of the sectors in which financial leasing transactions are made in turkey are manufacturing, service and agriculture. the aim of this study is to determine the differences between the state of financial leasing in turkey and in the world by evaluating the operation, advantages and disadvantages of financial leasing. keywords: financial leasing, manufacturing industry jel codes: m41, m48, g39 1. introduction the history of financial leasing can be dated back to 2000s bc when sumerians leased the agricultural tools in mesopotamia. in the modern sense, the history of the leasing in the world dates back to decades ago. financial leasing is a type of leasing. it is used in today's world as a significant alternative financing tool with the advantages it provides to the entrepreneurs. the sale and lease back used by companies as a funding method is the process of leasing back the properties subject to amortization registered on the company after selling them to the leasing company. the basis of lease back is that lessor obtains the property of the lessee and directly presents it for lease. therefore, a company provides money with lease back guarantee (kolpak, p.128). financial leasing consists of direct and return. direct financial leasing is used when the most common lessee needs to renew its current technical capacity. in this case, the lessor only provides financing that is obtained in the financial leasing of the property. financial leasing takes place with a contract made between lessor (financial leasing company) and an investor (lessee) as seen in figure i. financial leasing in manufacturing and production sector: the case of turkey 45 figure 1.1. lease contract source: stanislava pancheva, 2015, p.117 the terms and conditions of financial leasing and beginning and end dates of this operation are stated in the contract. financial leasing contracts cover a period of more than one year (şişman,2017, p.148). attributions such as borrowing contract can be added to a contract under financial leasing by evaluating it under german and swiss laws (tunçsiper,2011,p.35). 2. literature review gürol (2018) study calculated the financial rates of three financial institutions determined according to 2014, 2015, 2016 sector financial tables in his study and obtained performance rankings by years by analyzing them with the topsis analysis method. the conclusion of the study demonstrated that the most successful year for financial leasing and factoring sectors is 2016 and the most successful year for financing companies is 2015. among the three institutions, financial leasing sector has shown a stable performance increase. şişman & şişman (2017) study examined the reasons why the form of financial leasing attracted interests in financial arbitration for economy after the 2008 global crisis in their study and they determined that leasing finance form is directed with the tax advantage in countries it is commonly used in the world (australia and canada) for smes and reduces the asymmetric information. çağlar, kılıç & başer, (2016) demonstrated in their study that farmers benefiting from vat advantage will be able to renew their machines at more economical rates and therefore the costs of using the machines will be reduced. farmers will be able to produce with less cost and debt pressure by benefiting from the advantages of financial leasing. thus, the demand and created added value for investment goods will increase. yılmaz, atalay, aksoy & aslantaş, (2015) examined in their study the transaction volume, growth and penetration rates of the financial leasing sector in turkey by years drawing on the statistical data published regularly on the websites of financial leasing association (fider) and financial institutions union (fkb), of which financial leasing companies in turkey are members. şit & şit, (2013) examined the development of financial leasing sector between 2008 and 2012 and concluded that financial leasing sector has grown in parallel with the financial services sector, however, the desired results couldn't be reached as a consequence of the effects of 2008 crisis and vat rates applied in financial leasing. akel, ergül & dumanoğlu, (2010) study evaulated the financial leasing method as a financing technique by conducting financial analysis of financial leasing companies whose financial tables could be accessed in 2005 2008 registered on istanbul stock exchange. lease contract financial lease contract activity lease contract the risks and benefits of ownership are transferred at a significant extent. the risks and benefits of ownership are not transferred at a significant extent. mehmet çelebi yozgat, okşan ki̇bri̇tci̇ artar 46 3. financial leasing in turkey and in the world financial leasing is widely used around the world. financial leasing is a direct alternative financing technique in developed countries. leading financial leasing countries in the world are as follows: leasing emerged in 1950s in united states of america (usa) and equipment leasing reached a significant amount in 1980s. international leasing finance corporation was founded in 1973 in usa and turned into a public company in march 1983. in the uk, leasing has shown an important development after the introduction of tax exemptions in 1970. in france, leasing is very common as opposed to purchasing. in france, aircraft and helicopters, ships and barges, transport equipment, containers, computers, medical supplies, printing, large-scale industrial equipment leasing is being developed. in france, movable goods leasing began in 1960 and leasing act was adopted in 1966. immovable goods leasing was determined by the law of 1966. there are many leasing companies in germany. 57 of them are german leasing associations. leasing contracts made in accordance with the established norms allow the use of certain tax profits. leasing operation volume in the world has increased over the years, except for financial crisis periods. appendix 1. shows the increase amount of world leasing operation volume in percentage. turkey ranked 21st among the first 50 countries with an amount of 7.93 billion usd on the basis of operation volume in 2017. it has seen that at the regional distribution in financial leasing operations, north america has the largest share. this region is followed by the european region and asian region. financial leases are important for developing countries. the main reason for this is the financing problems of the developing countries. financial leasing tool contributes to the growth and development of the economies and revitalizing markets when used as an alternative financing tool by the institutions of developing countries. "financial leasing has a demand creating impact in the economy. companies with insufficient purchasing power will be able to use their investment property through financial leasing method. for this reason, financial leasing has an extending effect in the country's economy. financial leasing sector is accepted to be one of the key indicators of revival or recession in the country's economy." thus, the importance of financial leasing is increasing for developing countries. as a developing country, turkey is applying financial leasing to revive and enlarge its economy. in order to achieve this, legal regulations were established and financial leasing practices were introduced in turkey at the end of 1970s. appendix 3 shows the comparison of turkey's financial leasing volume to the world's financial leasing volume between the years of 2003-2017. turkey's financial leasing volume reached 7,93 billions of usd in 2017. the change rate was 17,80 compared to the previous year. in turkey, financial leasing is applied most in manufacturing (light and heavy industrial production areas), service (construction, wholesale and retail trade, etc.) and agriculture (agriculture, animal husbandry and forestry) sectors. the growth rate of manufacturing industry in turkey has fluctuated significantly between the years of 1999 and 2015 and the annual average growth rate has been 3,8 percent. manufacturing (production) sector in turkey has continued to grow in recent years. the manufacturing industry in turkey is one of the sector in which most financial leasing is done with a 10.305.172tl gross operation volume and 46,4% gross operation volume rate. with the service sector (construction, wholesale and retail trade, motor vehicles services, real estate commission, leasing and operation activities, health and social services, transportation, storage and communication, hotel and restaurants (tourism) services, etc.) in the period of .01.2018-31.12.2018 . gross operation volume during the same period was 10.724.240 tl and gross operation volume was 48,3%. in the period, textile and textile products industry ranked first with 3.099.698 tl gross operation volume and 14,0% gross operation volume rate in the manufacturing industry. it was followed by main metal industry and processed material production with 1.597.799 tl gross operation volume and 7,2% rate. and they were followed by other industries with less gross operation volumes and gross operation volume rates in the manufacturing industry. doing business by purchasing the machines to be used in the manufacturing (light and heavy industrial manufacturing fields) increases the investment costs of the investor. financial leasing is a viable option for the entrepreneur by providing an alternative long-term payment facility instead. considering that small and medium sized industrial enterprises are facing financial problems in turkey, the importance of financial leasing is especially increasing. using financial leasing, small and medium sized industrialists will be able to make payments much easier without purchasing them by not delaying their investments. the advantages of financial leasing are as follows: the investor can use the significant amount of money they have to allocate when they purchase the property they leased in more strategical investments. financial leasing reduces the investment risks of the investor when the risk rate is compared to the possibility of purchasing goods with high financial leasing in manufacturing and production sector: the case of turkey 47 commercial credit. financial leasing provides long-term financing. it supports liquidity. it does not affect credit facilities. it provides scale economy advantage. it provides protection against interest rates and inflation. in addition, financial leasing has vat advantages, exemptions, tax advantages, security and cost advantages, maturity and cash flow advantage and investment incentive advantages. the disadvantages of financial leasing are; all risks and benefits depend directly on the provision of certain items. all risk of the goods subject to the lessee is transferred to the lessee. in practice, the lessee is held responsible for the damages that the leased property will incur. it may cause the lessee to be deprived of the scrap value of the property at the end of the lease period, cause restriction of the right to use and decrease in the possibility of providing credit. 4. conclusion financial leasing is a good alternative to investing in ventures with a lack of available financial resources. thus, entrepreneurs do not postpone their investments. it allows a very expensive commodity to be included in the structure of enterprises and/or individuals to easily obtain. it reduces the investment risk of enterprises. financing shortage in manufacturing industry can always be experienced. in particular, small and medium-sized industrialists need to finance in order to grow in the sector and make the necessary investments for this. the financing requirement in question allows an industrialist to invest in a financial leasing company in a much more riskless way. it can be seen from the rates of the financial leasing tool in the investments of the sector companies, textile industry has got a gross transaction volume of 14%. references aydın, n. 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(2015). evaluation of financial performances of financial leasing companies traded on istanbul stock exchange in the period 2005-2008. marmara university journal of economics and administrative sciences, 28 (1), . retrieved from http://dergipark.org.tr/muiibd/issue/486/4136 appendix1. volume of world leasing year volume(million usd) change % 1990 331,6 ……. 1991 345,3 -4,13% 1992 323,3 -6,37% 1993 309,6 -4,24% 1994 356,4 15,12% 1995 409,1 14,79% 1996 428,1 4,64% 1997 405,8 -5,21% 1998 432,5 6,58% 1999 473,5 9,48% 2000 499 5,39% 2001 476,7 -4,47% 2002 461,6 -3,17% 2003 511,3 10,77% 2004 579,1 13,26% 2005 582 0,50% 2006 633,7 8,88% 2007 780,4 23,15% 2008 732,8 -6,10% 2009 557,3 -23,95% 2010 594,5 6,68% 2011 796,7 34,01% 2012 868 8,95% 2013 884 1,84% 2014 944,3 6,82% 2015 1.005,30 6,46% 2016 1.099,80 9,40% 2017 1.282,80 16,64% source: https://www.fkb.org.tr/sites/1/upload/files/dunya_leasing_islem_hacmi-1714.pdf http://dergipark.org.tr/muiibd/issue/486/4136 https://www.fkb.org.tr/sites/1/upload/files/dunya_leasing_islem_hacmi-1714.pdf mehmet çelebi yozgat, okşan ki̇bri̇tci̇ artar 50 appendix 2. first 50 countries based on operation volume rank continent code country volume (million usd) change in 2016-2017 (%) penetration rate 1 na u.sa(ameri̇ca) 410,35 6,9 21,6 2 a china 265,68 20,42 6,8 3 e england 92,45 5,18 32,4 4 e germany 78,32 7,29 17,2 5 a japan 60,47 -2 5,3 6 e france 49,78 8,69 16,1 7 e italy 33,63 12,89 15,2 8 ant australi̇a 31,49 2,1 40 9 na canada 26,46 2,7 38 10 e swi̇tzerland 24,88 10,5 27,1 11 e russi̇a 20,06 46,68 n/a 12 e poland 19,11 15,72 25,1 13 e swi̇tzerland 13,59 0,27 12,3 14 a s.korea 12 5,3 8,9 15 e denmark 11,95 0,31 29,4 16 a taiwan 11,83 8,08 9,9 17 e spain 11,15 8,76 6,2 18 na mexi̇co 9,06 9,7 n/a 19 e austri̇a 8,85 7,85 13 20 e norway 8,77 13,88 12,9 21 e turkey 7,93 17,8 n/a 22 e belgium 7,73 -3,49 10,1 23 e netherland 7,71 7,64 7,3 24 sa colombia 6,44 6 n/a 25 e czechoslovaki̇a 5,58 5,59 13,6 26 e fi̇nland 5,1 -6 16 27 e portugal 4,47 16,08 17 28 sa chi̇le 4,37 -16 n/a 29 sa brazi̇l 3,26 20 n/a 30 e slovakia 3,16 6,59 17,8 31 af south africa 3,11 -2,9 n/a 32 e hungary 2,8 18,35 10,3 33 e romania 2,5 2 1 34 e lithuanian 2,36 23,66 32,1 35 e slovenia 1,75 8,73 21,9 36 sa peru 1,7 -7 n/a 37 af morocco 1,63 9,35 n/a 38 a malaysia 1,58 35,65 n/a 39 e estoni̇a 1,45 9,88 31,6 40 a iraq 1,32 5,4 4 41 e bulgaria 1,17 9,19 11,9 42 a indi̇a 1,08 8,5 0,5 43 e letoni̇a 1 13,02 18 44 sa argenti̇ina 0,89 68 n/a 45 e greece 0,63 65,32 2,9 46 af nigeria 0,51 5 n/a 47 e ukranie 0,46 33 n/a financial leasing in manufacturing and production sector: the case of turkey 51 48 a hong kong 0,4 2,6 n/a 49 af egypt 0,4 23 n/a 50 sa porto rico 0,36 23 n/a source:https://www.fkb.org.tr/sites/1/upload/files/islem_hacmi_bazinda_ilk_50_ulke_2017-1711.pdf appendix 3. the comparison of financial leasing volume between turkey & the world (2003-2017) year world (million usd) turkey (milyon usd) share % penetration rate 2003 511,3 2.166 0,42% 5,06 2004 579,1 2.921 0,50% 4,24 2005 582 4236 0,73% 4,96 2006 633,7 5.271 0,83% 5,37 2007 780,04 8.203 1.05% 6,73 2008 732,08 5.303 0,72% 4,47 2009 557,3 2.197 0,39% 2,7 2010 594,5 3.183 0,54% 2,95 2011 796,7 4.891 0,61% 3,61 2012 868 5.360 0,62% 4,14 2013 884 6.990 0,79% 5,68 2014 944,3 11.008 1,17% 3,83 2015 1.005,30 9.492 0,94% 3,74 2016 1.099,80 9.454 0,86% 3,69 2017 1.282,70 10.663 0,83% 3,68 *penetration rate refers to the division of the financial leasing operation volume into fixed investment expenses of the private sector. source: resul umut çağlar, osman kılıç and uğur başer p.35 journal of international trade, logistics and law, vol. 7, num. 2, 2021, 16-21 16 meaning the phrase “own demand” in leadership in east java tomy michael universitas 17 agustus 1945 surabaya, indonesia received: june 30, 2021 accepted: augt 17, 2021 published: dec 01, 2021 abstract: this study uses normative legal research that uses legislation and current conditions to carry out legal interpretation. in this case, the phrase "self-request" is defined as a request that originates from his own awareness that his actions have harmed the community. this means that there is no conflict preceded by the act of resigning oneself. self-awareness of actions is important to understand the meaning of “self-demand”. the governor of east java is better off resigning at his own request because this action will make the state focus on legal certainty. keywords: leadership; phrase “own demand”; east java 1. introduction in handling covid-19, compliance with the law is absolute. this means that the public interest is the main goal. an interesting thing happened in indonesia when the handling of covid-19, which was from the central government, became a conflict of norms. referring to the instruction of the minister of home affairs of the republic of indonesia number 6 of 2020 concerning enforcement of health protocols for controlling the spread of corona virus disease 2019 (covid-19) where in the fourth decree the reference is law of the republic of indonesia number 23 of 2014 concerning regional government (law no. 23-2014) that the regional head may resign due to death, at his own request and dismissed. the meaning of the sound of the article should be interpreted fairly in order to achieve legal certainty. in this case the researcher doesn’t focus on legal justice because legal justice is something that can be achieved if other goals are met. denial of these rights means denying human dignity. therefore, any state, government or organization has an obligation to recognize and protect human rights for every human being without exception. this means that human rights must always be the starting point, and goals in the implementation of community, national and state life. this explanation invites all humans to understand their freedom with a sense of responsibility. when freedom is done not paying attention to other humans, freedom is not justified. from this perspective, elections are born of the great conceptions and ideas of democracy, which means they refer to john locke and rousseau, who guarantee freedom, justice and equality for individuals in all fields. in a democracy, these are participatory values and sovereignty that are upheld and must be carried out by citizens and state instruments both at the legislative, judicial and executive levels.(w. l. s. tomy michael, n.d.) the concept of civil rights in the civil law system is basically related to the state and the idea of citizenship. where the government's role is to protect the people.(díaz gude & navarro papic, 2020) this study focuses on the interpretation of the phrase “self-request” which is associated with the case in east java by governor khofifah indar parawansa. 2. research method this study uses normative legal research that uses legislation and current conditions to carry out legal interpretation.(r. d. a. d. and tomy michael, 2021) meaning the phrase “own demand” in leadership in east java 17 3. research results and discussion 3.1. mistakes made by the governor of east java the form of state law in a legal perspective is the existence of a state and a government based on law. when based on law, everything must be normative even if there are unwritten rules but have binding enforcement. on may 19, 2021, the governor held a 56th anniversary celebration which included general events such as musical entertainment. this event took place at the official residence, namely the grahadi state building complex.(nurdiyanto, 2021) this activity is actually a violation in the legal context. in the rule of law, differences in responding to international problems that also occur nationally are implications for understanding the law. the birthday activities carried out by the governor resulted in legal problems in east java.(coggon & gostin, 2020) leaders in this case don’t make maximum efforts to recognize the covid-19 crisis, this tends to manipulate people’s wishes into personal desires. the response given by the governor was simply to act casually by offering an apology and clarification. referring to the thoughts of gemma d’auria and aaron de smet it’s said that they don’t understand the various actions in responding to covid-19. temporary relocation is doing public work from a private residence or there is no collaboration on what will be done.(d’auria & de smet, 2020) meaning that the habit before covid-19 was carried out on covid-19, this is not in line with the meaning of the leader. 3.2. implications of the separation of powers in covid-19 in theory, indonesia adheres to the separation of powers originating from montesquieu. where the separation of pure power is no longer carried out but continues with the distribution of power. the important question is whether the separation of powers in indonesia is the reason for the emergence of events such as the governor of east java? the separation of powers is closely related to the rule of law where when everything is based on the law, arbitrariness will arise. the second definition of the rule of law is the law based on the respective regional autonomy. he existence of a separation of legislative, executive and judicial powers makes the state carry out good governance of state institutions.(waldron, 2020) the implications of the separation of powers also raise the principle of de facto immunity. de facto immunity from punishment can run with class status, kinship, wealth, ethnicity, or status as a political elite. for people who are above the law, no increase in the size of the formal sanction for committing a crime or corrupt act, and no increase in detection efforts by the government, will alter their propensity to engage in criminal or corrupt behavior, because the probability of being punished if caught is too low for legal enforcement to affect their behavior. an important question is how elites respond to de facto immunity and to changes in the probability of being punished if caught for a criminal act. such changes may occur more often than we might think: civil wars end and relative power shifts between groups; constitutional amendments are passed, resulting in less-favored groups being given formal equality; the presidency changes hands and with it one family rises while another falls.(jensenius & wood, 2010) covid-19 emergency policies were inherently different from the austerity and work-related policies pursued in several countries in the decade before the beginning of the covid-19 crisis. yet, in a number of countries , we observe a continuation of the dual transformation of social protection that took place in recent decades which retrenched earnings-related benefits for long-term unemployed and atypically employed people on the one hand and expanded social security to so called “new social risks” on the other. (béland et al., 2021) this principle of de facto immunity seems to have become a legal habit at the east java governor's birthday party. when the act is carried out, there are consequences that can occur but cannot occur because it has a very large influence on law enforcement. the influencer means a reluctance to proceed further but informs the public through the media that the contract is being processed professionally. this means that when a declaration appears that it will be processed professionally, it will not actually happen. such a meaning will be a bad legal understanding for the community. communities are given space to play active roles and become part of the democratic process. although substantially, their participation still tends to be procedural and momentum. the separation of powers also makes the rule of law a welfare state. this paradigm shift actually strengthens the authority of a region within a country to provide good guarantees for its people. the complexity of the welfare state is defined as the fulfillment of both aspects in the same entity. the provision of public services, for example, provides satisfaction for users while users also seek to maintain the rights they obtain from the state based on laws and regulations. emphasizing the vulnerability of the judicial system and justice standards, the authors support the tomy michael 18 expansion of exchange of experience and cooperation not only at the state level but also at the level of professional communities.(gorodovenko et al., 2021) the provision of public services can be further divided into services such as education and childcare, which are primarily intended to open up opportunities for society and leaders.(curtice, 2020) the assumption raised by the researcher is that understanding welfare is the duty of each region so that it’s not the obligation of the central government but the local government. there are quite a few examples of the implications of the separation of powers in dealing with covid-19, namely: table 1. various types of regulations in handling covid-19 no. place of origin rule name 1. banten regional regulation of banten province number 1 of 2021 concerning control of corona virus disease-19 2. medan medan mayor regulation number 27 of 2020 concerning the implementation of new habits adaptation to the corona virus disease 2019 (covid-19) pandemic conditions in the city of medan 3. depok depok mayor circular letter number 451/203-huk 2021 concerning the implementation of itikaf activities, eid prayers and eid al-fitr celebrations 1442 h/2021 m during the covid-19 pandemic period 4. jawa barat circular letter of the governor of west java number 68/ks.01.01/hukham of 2021 concerning the sixth extension of the implementation of restrictions on community activities in handling corona virus disease 2019 (covid-19) in west java province 5. jakarta decree of the governor of dki jakarta number 762 of 2021 concerning locations of isolation in the context of handling corona virus disease 2019 6. gunungsitoli gunungsitoli mayor's circular number 440/2679/org/2020 of 2020 concerning amendments to the circular letter of the mayor of gunungsitoli number 400/1517/org/2020 concerning adjustment of the work system of the state civil apparatus in efforts to prevent the spread of covid-19 in the gunungsitoli city government 7. tebing tinggi decree of the mayor of tebing tinggi number 360/392 of 2020 concerning the determination of the emergency status for nonnatural disasters for covid-19 in the city of tebing tinggi in 2020 8. samosir samosir regent circular number 7 of 2020 concerning precautions meaning the phrase “own demand” in leadership in east java 19 against the transmission of corona virus disease (covid-19) infection in samosir regency 9. bali circular letter of the governor of bali number 2 of 2021 concerning extension of the implementation of restrictions on community activities in the new era of life order in the province of bali 10. papua barat decree of the governor of west papua number 360/99/5/2020 concerning amendments to the attachment to the decree of the governor of west papua number 360/89/4/2020 concerning the task force for the acceleration of handling corona virus disease 2019 in west papua province 11. makassar makassar mayor regulation number 36 of 2020 concerning acceleration of control of corona virus disease 2019 (covid-19) in makassar city 12. sulawesi selatan decree of the governor of south sulawesi number 1574/vi of 2020 concerning extension of time for the granting of incentives for exemption of motor vehicle taxes in 2020 during the covid-19 pandemic period in south sulawesi province from the table above, it’s known that the separation of powers wasn’t implemented properly because each region has it’s own laws and regulations. this cannot be used as an excuse when covid-19 isn’t known when it will occur in an area. we must try to protect the basic rights that we all enjoy because of our common humanity. they include the right to life, the right not to be tortured or subject to inhuman or degrading treatment or punishment, the right not to be enslaved, the right to a fair trial, freedom of thought, conscience and religion, freedom of expression, to respect personal and family life, the right to marry, the right to private ownership, to education, to take part in free and secret elections, and to enjoy these rights without discrimination. 3.3. interpretation of the phrase “self request” referring to article 78 of law no. 23-2014 found conditions for the governor to quit, namely death, own request or dismissed. in law, the phrase “dismissed” is defined as: a. end of his term of office; b. unable to carry out tasks continuously or permanently absent for 6 (six) months; c. declared to have violated the oath/promise of office of the regional head/deputy regional head; d. doesn’t carry out the obligations of the regional head and deputy regional head; e. violating the prohibition for regional heads and deputy regional heads; f. commit a disgraceful act; g. given a task in a certain position by the president which is prohibited from being held concurrently by the provisions of the legislation; h. use false documents and/or information as requirements at the time of nomination of regional head/deputy regional head based on evidence from the institution authorized to issue documents; i. get a dismissal contents of law no. 23-2014 which explains the meaning of the phrase “dismissed” is actually very inappropriate because it can provide space for other meanings. if you see the letter f, which is committing a disgraceful act, then tomy michael 20 what the governor of east java has done can be approved as a disgraceful act. taking into account the meaning of disgraceful acts that are very possible, the definition can be interpreted as explained below. crimes are classified according to the nature of the crime, such as mala in se and mala prohibita. crimes are also classified as felonies, misdemeanors, and treason. according to most authorities, crimes punishable by death or imprisonment in a state prison are felonies, while crimes not amounting to felonies are classified as misdemeanors.(pollock, 2020) the theory distinguishes between sanctions that are monetary and nonmonetary. the main difference between the two is that the magnitude of nonmonetary sanctions isn’t limited by the offender’s wealth. nonmonetary sanctions are typically referred to as “imprisonment,” though other forms of nonfinancial sanctions that can be imposed on an offender unable to pay a large fine surely exist. “crime” is simply any offense that is punished by nonmonetary sanctions. it has no special meaning in the optimal deterrence theory.(raskolnikov, 2020) disorderly conduct, public drunkenness, minor marijuana possession, driving with a license that has been suspended for failure to pay parking tickets, littering, and other low-level public order offenses can result in permanent criminal records and wildly disproportionate consequences for individuals and their families.(roberts, 2018) furthermore, in letter i it’s written that there is a dismissal sanction, meaning that when there is an error, the priority is the termination sanction. sanctions can be imposed by several state institutions. the dismissal of regional heads and/or deputy regional heads is announced by the leadership of the regional people's representative council in a plenary meeting and proposed by the leadership of the dprd to the president through the minister for governors and/or deputy governors and to the minister through the governor as representatives of the central government for regents and/or deputy regents or the mayor and/or deputy mayor to obtain a dismissal determination. returning to the phrase "own request" which isn’t defined in the law, it shows that the mistake made must be resolved with a third party, namely there must be evidence to support it and a defense from the governor. it’s different when the request itself becomes a reference with an explanation. this means that when a governor commits an error that is considered by the public to be a bad thing, then the act of "own request" must be taken. in such a context, the phrase "self-request" can only be done when the awareness of the mistakes made has a detrimental impact on the community. the researcher interprets that the intended error in the phrase “self-request” is not an error made but tends to its effect. whether the error caused turmoil or not. this attitude when moral goodness can be interpreted as eudaimonia. the basic happiness according to aristotle is when humans are able to realize the best as humans.(torres, 2020) plato, in his idea for the creation of ideal state, couldn’t avoid other societal activities. in this respect, he speaks about poetry with the greatest contempt, while about the poets he speaks as for destroyers, not only of the idea of establishing an ideal state, but also as destroyers of the youth.(avdyli, 2019) 4. conclusion in this case, the phrase "self-request" is defined as a request that originates from his own awareness that his actions have harmed the community. this means that there is no conflict preceded by the act of resigning oneself. selfawareness of actions is important to understand the meaning of “self-demand”. the governor of east java is better off resigning at his own request because this action will make the state focus on legal certainty. references avdyli, m. n. 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(2020). separation of powers in thought and practice? revista de direito administrativo. https://doi.org/10.12660/rda.v279.2020.82914 journal of international trade, logistics and law, vol. 5, num. 1, 2019, 12-20 12 representative democracy elections sadik haxhiu, university kadri zeka gjilan, kosova arbresha meha, university kadri zeka gjilan, kosova received: may 01, 2019 accepted: june 05, 2019 published: june 15, 2019 abstract: the elections legitimize the will of the citizens to represent them in the representative bodies. this legitimacy comes through various forms of electoral processes. these processes take place in various forms, depending on constitutional and legal definitions on the one hand and political culture on the other. political culture develops parallel to the development of representative democracy. during the development of political pluralism and the multi-party system there are different types of election organization, depending on the elected representative body, the level of power to be elected, the manner of election of the representative bodies and the time of their holding. based on the elected representative body we have: parliamentary and presidential elections. according to the level of state bodies we choose, we have: local elections and central elections. according to the election method we have: direct and indirect elections. according to certain time intervals we have: regular and extraordinary regular elections. all these types of elections are organized based on the particular electoral legislation, election management and the electorate expressing their free will. keywords: parliamentary, presidential, local, indirect, representative democracy 1. introduction about 2500 years ago, in ancient athens a leader named pericles gathered in the city's famous acropolis all its free citizens to get a decision together. from that moment on, human history was enriched with one of its greatest and most democratic concepts, representing the people through the election of representative bodies, which in the course of history has evolved and enriched, reaching the time ours with the multi-dimensional application of the standard one citizen one vote. elections and representative democracy are two notions that are presented and developed at the same time. they are parallel to each other, because they are conditioned by each other. there is no democracy where people do not choose their own representatives according to their free will, as there are no free elections where the election of the people's representatives is not done according to international standards for democratic elections. elections are the legitimacy of elected representatives to represent citizens in representative bodies. this legitimization comes through direct or indirect elections. the organization of elections is a rather complex process because it requires a special legal infrastructure, professional management of election administration, and an advanced political culture of citizens participating in elections, especially those who are running for election. 2. parliamentary elections in the field of psephology there are several hundred definitions for election and electoral systems. authors are divided into three groups. those who speak only for the elections, the second ones for the electoral systems and the third ones about the election and the electoral systems jointly. the elections essentially represent the institutional way in which voters express their political preferences in the form of votes, which votes turn into mandates; while electoral systems are defined and implemented through electoral legislation, which includes electoral form (majority representative democracy elections 13 or proportional), electoral districts, electoral competition, voting, methods of converting votes into mandates and electoral censors. (đukanović, d. (2006). izborni sistemi u zemljama nastalim na području nekadašnje jugoslavije). elections are institutionalized procedures or formalized and generally accepted procedures recognized by the organization's rules for collecting voting preferences. (mackenzie w.j.m. (1968). elections, the functions of elections). elections and electoral systems are a key factor in building a democratic order in modern states. democratic representation and democratic order are unthinkable without the organization of competitive elections for political power. free and competitive elections are an essential element of the democratic one. (štefica, deren a. (1992). izbori i izborni sustavi). unlike the notion of the notion of elections in general, parliamentary elections mean the entirety of formal-legal and procedural rules, which determine the manner of election and constitution of representative bodies. (bajrami, a. (2005). demokracia parlamentare, f. 175) these rules determine the processes of organizing the elections since their announcement, the appearance of candidates in elections, the election campaign, the voting process, the allocation of mandates and the constitution of the representative bodies. these procedures are, in principle, sanctioned by constitutional provisions, as well as by laws and by-laws that implement the elections. another feature of parliamentary elections is whether they are organized for the election of a one-room or two-room parliament. if the state has a parliamentary chamber structure then the situation is simple because it is here that we only have to choose a structure of deputies through a legal infrastructure, but if the state has a two-chamber parliamentary structure then the issue is much more complicated because, , the choice of rooms is not done at the same time intervals. two constituencies are elected here, the electoral legislation is different, and the electoral system is almost completely different. in the us, the two-room structure of the congress is solved through two different electoral systems, with different legal infrastructure, with different mandates. in terms of content, congressmen represent all us states in proportion to the number of voters, while senators represent federal units regardless of the size of the state and the number of population. (https://www.govinfo.gov/). the two-room structure of parliament in germany and the uk is also chosen. usually for each room are applied different electoral systems, different legal infrastructure, different representation of citizens in representative bodies, etc. regardless of whether a country has a one-room or two-room parliamentary structure, elections are organized in order to better represent the will of the people in the legislature. depending on what time intervals the parliamentary elections are held, we share them in:  regular parliamentary elections  early elections  extraordinary elections 2.1. regular parliamentary elections upon termination of the mandate of the legislature, regular parliamentary elections are held in accordance with the constitution and other legal acts. the legislature usually ends with the termination of the mandate, as determined by the legal acts in force. through the elections, the political selection process takes place, ie the election of political representatives and the gathering of the expressed voter preferences on the basis of general and special binding procedures. (štefica, deren a. (1992). izbori i izborni sustave ). these elections are held after the expiration of the regular parliamentary term. they are typical for stable systems, where no parliamentary crisis appears. in parliamentary practice, two ways of regular parliamentary elections are known. (bajrami,a. (2010). parlamentarizmi – aspekte krahasuese, f. 210). a. complete selection of the composition of the legislature and b. its partial choice. the full election of the composition of the new legislature is done after the work of the old legislature has been completed. the full choice of the composition of the legislature is mostly applied in parliamentary practice. this is achieved because the composition of the new legislature is more homogenous and can easily accomplish its electoral program, for which it has received the mandate from the electoral body. this form of legislature choice applies mainly to one-room parliamentary states. partial, or re-elected parliamentary election applies mainly to states that have a two-room parliament. this is accomplished by making a partial selection of the composition of a third of it. as a special model of renewal of representative bodies, the senate election in the united states and france takes place, where their renewal takes place every two years. the partial election of the senate is justified by maintaining the continuity of the work of parliament on the one hand and the renewal of a third of it on the other. sadik haxhiu & arbresha meha 14 in parliamentary practice there is no exact rule of the length of the regular parliamentary mandate and then the announcement and organization of the elections. in england before the xii century, the parliamentary mandate had no restriction. for the first time, the mandate of the chamber of commons was assigned for 7 years in 1716 and then this rule spread to other countries as well. (luan omari, ( 2003).sistemi parlamentar, f. 139) in most of the world's states, the regular parliamentary mandate is 4 years, as is the case of kosovo, albania, romania and germany; parliamentary mandate for 5 years, as is the case of italy, the grand national assembly in turkey. (the constitution of the republic of turkay, article 77). the 6-year mandate of senators in the us or the 9-year term of office for senators elected for 9 years in france. (the constitution of france title 4). regularity of regular parliamentary elections is in the function of the rule of law. states that regularly organize regular parliamentary elections, without having to organize early and extraordinary elections, best argue, the degree of political stability and the quality of representative democracy. 2.2 early parliamentary elections early parliamentary elections are organized as a result of early parliamentary distribution by the authorized state body. (glossary of parlamentary and legal tems, published by the osce mission in kosovo, pristina 2005, pp 279). this right is rightly the president of the republic and the speaker of parliament, or in some states jointly, when the two highest state institutions agree to announce early elections. unlike the extraordinary elections, early parliamentary elections are not the result of the emergence of special or extraordinary circumstances that justify the need for the election of the representative body. these elections come to light after the dissolution of parliament, relying on the constitutional and legal powers of the highest state body. according to the constitution of kosovo, the assembly is distributed in these cases: a. if, in the third ballot, no candidate is elected president of the republic of kosovo, the assembly is dissolved and new elections are announced, which should be held within forty-five 45 days. b. if after the first failure, neither the second time is resolved by the government, then the president of kosovo proclaims elections, which must be held no later than forty days from the day of their revelation (constitution of the republic of kosovo, article 86). in most constitutions, it is not explicitly stated that when early and extraordinary elections are announced. they almost as a rule sanction that after the dissolution of the parliament are organized elections to select the new composition of the legislature. they attribute this issue to the representatives of the highest representative bodies, to assess the overall political situation, whether it is about the political state to announce early or extraordinary elections. nor does the constitution of kosovo specify when the early elections and the extraordinary elections may be announced. according to the serbian constitution after the dissolution of the people's assembly, the president of the republic is obliged to announce the early elections for the election of the deputies of the people's assembly, in order for the elections to be held no later than 60 days from the day of their announcement. (constitution of the republic of serbia, article 109). also in albania, the president of the republic sets the date of parliamentary elections, local government bodies and referendums. (constitution of albania, article 92). 2.3. extraordinary parliamentary elections extraordinary parliamentary elections are held in exceptional circumstances before the expiration of the mandate of the representative bodies. (glossary of parlamentary and legal tems, published by the osce mission in kosovo, pristina 2005, pp 279). reasons for holding extraordinary parliamentary elections usually take on the various political events that cause profound political changes in a country. extraordinary parliamentary elections in parliamentary practice are usually held in states lacking political stability, where there are frequent shifts and political and social conflicts, civil and inter-ethnic struggles, and so on. (bajrami, a. (2010), p. 176). other factors that condition the need for the announcement of extraordinary parliamentary elections are parliamentary crises, which have the consequence of blocking the work of the parliament, which for a long time can not exercise its functions. these parliamentary crises are the result of internal parliamentary conflicts, between the ruling party and parties and the opposition and other obstructions that make the work of parliament impossible. in this case, when this crisis lasts for a relatively long time, the demand and pressure of the electoral body comes to the fore until the announcement of extraordinary parliamentary elections. (bajrami, a. (2010), p. 211). typically, we have in albania the contestation of parliamentary elections in 1996 which were not recognized by the opposition. under the pressure of the opposition and the lack of civic civility, in 1997 the ruling party was forced to accept the organization of representative democracy elections 15 extraordinary elections for the exit from general institutional anarchy. in the countries of eastern europe, after the collapse of communism in the first two decades, frequent extraordinary parliamentary elections have been organized as a result of political and social conflicts, on the one hand, and the low level of political culture on the other. 3. parliamentary elections in two-room parliaments the constitution determines whether a bicameral or unicameral parliamentary system should be established. federal states tend to create a two-room legislative structure that can be believed to provide representation of states or provinces. small-state united governments tend to set one-room parliamentary structure. usually countries that are large in terms of geographic size and number of residents apply a two-room parliamentary structure. the first chambers represent the citizens or the electorate in general, without the designation of administrative divisions, while the second chambers mainly represent the territorial political administrative units, such as regional, cantonal, provincial, federal units. in states that have a two-room parliamentary structure, they are often classified as lower chambers and upper chambers. the lower chambers such as the us house of representatives, the house of commons in britain, the chamber of deputies in italy, etc., elect directly from the electorate and represent a certain number of citizens. the higher chambers (usually called the senate, house of lords, or the federal council) differ considerably in relation to the chambers of both composition and manner of choice. although there are numerous variations between different types of second chambers, often known as the upper chamber or senate, two generalizations can be made about them. second chambers generally have less power than low chambers; and it can rarely happen that the two chambers have the same power. (electoral systems, (1997), international international idea p. 109). the authority of the two chambers in the two-room parliamentary systems varies greatly from one country to another. in most cases, the upper chamber has more limited authority than the lower chamber. this restriction of the lower chamber's authority can be easily understood, as it has only the power to review the legislation voted by the lower chamber. also, this chamber has more limited competence in budget and financial matters. on the other hand, there are two-room systems, such as those of the united states, where the two chambers have equal or balanced powers, and both chambers have the same powers to review, amend or adapt the legislation. the most common application of the second chambers is the representation of federal units. for example, states in the usa and australia, landings in germany, provinces in south africa, regions in italy etc. (electoral systems, (1997), international idea manual, p. 109). in other words, the senate of the republic of italy is elected on a regional basis, with the exception of certain countries in the overseas territory. basically no region can have less than seven senators, with the exception of molise who chooses two, while valle d'aosta a senator. the division of seats between the regions, with the exception of the number of seats elected in the overseas territory, is made in proportion to the population of the regions according to the latest census and the highest residuals. (constitution of the italian republic, article. 57). the election of representatives to the us senate until the ratification of the xvii amendment of the us constitution in 1913 was made by the state legislatures individually, so they were not elected by the people's direct vote. with the adopted amendment, it was given the right of state constituents to elect senators alike as elected members of the house of representatives. in any state, regardless of the number of its population, are elected by two senators. in the comparative political theory, the two-room parliamentary structure is conditioned as a fundamental element of political liberalism, because it is considered as a contribution to the limitation of powers, even as a concretization of the principle of separation of powers. (filo, ll. (2010) ideological platforms and american political institutions, p.41). another form of alternative representation of citizens through the second chamber is the creation of a second room to represent particular ethnic, linguistic, religious or cultural groups. because of these reasons, some of the second chambers are partially selected indirectly. in other words, in the us every two years were solved by 1/3 of the senators. even in france, the senate's president is elected every time after elections for the partial election of the senate are held. . (constitution of france, article 32). most jurisdictions have reflected the different roles of the two chambers, using different electoral systems, for the first and second rooms, (bajrami, a. (2010), p.129) as well as various legal infrastructure to implement the choice of these chambers. sadik haxhiu & arbresha meha 16 4. the election of the president the election of the president is the most special form of organizing the elections because parliament or electoral body elect the state president. the election of the president takes place in two forms:  by parliament and  by the electoral body the election of the president by the parliament takes place when the state applies a parliamentary system of government and when a constitution of the state foresees that the state president be elected by the parliament. these constitutional provisions are also foreseen with the constitution of kosovo, albania, italy, germany, etc. however, there are cases when a constitutional state applies a parliamentary system of government, but the president is directly elected by the electoral body, for example. the election of the president in macedonia, slovenia, austria, serbia etc. also, each constitutional state sets out specific criteria for electing a president from parliament, such as age, period of time of being resident in the state, the percentage of votes that should be taken in parliament, etc. the constitution of kosovo provides that the president of the republic of kosovo may be elected any citizen of the republic of kosovo who has reached the age of thirty-five years (constitution of kosovo, article 85). in albania, the president can only be elected albanian citizen from birth, staying in albania for not less than 10 years and having reached forty years of age. (constitution of albania, article 86). in germany, the candidate who has reached the age of forty can be elected president by the federal assembly. the federal assembly is established by the meeting of members of parliament and a number of members, elected by the people's representatives on the basis of proportional selection principles. (basic law for the federal republic of germany, article 54), and in italy one citizen who has reached the age of fifty years can be elected president of the republic and enjoys civil and political rights. (constitution of the italian republic, art.84). also, different criteria apply to the manner of voting in parliament. in kosovo and albania, the president is elected by a one-room parliament. in kosovo, the election of the president is done by two-thirds of the votes of all members of the assembly. if no candidate receives a two-thirds majority in the first two ballots, a third ballot is held between the two candidates who have received the highest number of votes in the second ballot and the candidate who receives the majority of the votes of all deputies , is elected president of the republic of kosovo. (constitution of kosovo, article 86). in albania the president is elected in the first, second or third ballot when a candidate receives not less than three-fifths of the votes of all members of the assembly. in the last round, the president is elected by an absolute majority of the votes of the deputies of parliament. (constitution of albania, article 87). unlike these states, in germany and italy the president is elected by the assembly with the absolute majority of the votes of the deputies with a mandate of 5 respectively 7 years. unlike the election of the president by parliament, today in the contemporary world a large number of states with the parliamentary system and states with the presidential government system apply their choice directly from the people. as for the election of the president by the parliament applying different criteria that are defined by the constitution of each state, as well as for the election of the president directly by the electoral body apply different criteria such as age, time period of being resident in the state, duration of the mandate and other criteria. it is important that the way of their election is determined by constitution and electoral laws, where the electoral system is also defined. while three main electoral systems are applied for the selection of representative bodies (assembly, parliament, senate, representative chamber etc.) and dozens of subsystems deriving from them, for electing the president directly from the electoral body, the majority system is mainly applied with different variants of voting. the most direct way to choose a president is when the president is elected who receives the most votes. such are the presidential elections in mexico, kenya, the philippines, zambia, south korea, malawi, iceland and zimbabwe. (electoral systems, (1997), international idea manual, p.103). it is clear that such a system is simple, inexpensive and efficient, in the highly competitive race of many candidates, leaving open the possibility for the president to be elected, with few votes, while most of the electorate may have voted against his. he legally constitutes the mandate of the president of the republic, but in reality he does not represent the voice of the majority of citizens, as hypothetically he is likely to be elected with a very low percentage of votes. for example, if 11 candidates are competing for the president, ten may win 9% of the vote, while the candidate is 11, 10% of the vote. if 50% of the electoral body has participated in the polls, then the president is elected the candidate representative democracy elections 17 with the highest number of votes, in this case won the candidate who received only 10% of the votes of the electoral body that voted or 5% of the vote general of the electoral body. such is the case of the election of the philippine president in 1992, where the seven candidates competed, of whom fidel ramos was elected with only 24% of the vote. (electoral systems, (1997), international idea manual, p.115). unlike the one-vote majority vote, in most of the countries where the president elects the electoral body, the system applies two rounds of voting if no candidate has won the absolute majority of votes in the first round of voting . even in this case we have different models. of course, the second round takes place between the two candidates who have won the most votes in the first round, but there are times when more than two candidates qualify in the second round. in the first case in the second round qualify the two candidates who have won the most votes. this form of voting applies most to the election of the president by the electoral body. this system is applied by russia, macedonia, croatia, poland, most of the countries in latin america, a part of the african-speaking countries of africa and so on. in the second case in the second round qualify more than two candidates, then in the second round the president's mandate is won by the candidate who has won the most votes in relation to the other candidates in the race. however, the rules of the system of elimination of the majority system have undergone changes and have been adapted in different states. in costa rica a candidate can win in the first round with 40% of the vote; in sierra leone the second round can only be avoided if the candidate wins 55% of the vote in the first round. (electoral systems, (1997), international idea manual, p.104). a special form of election of the president is the organization of the presidential election in the united states, where the election of the president is done according to completely specific criteria and procedures in relation to other presidential systems in the world. (bob, g. (2008) choosing the president, a citizen’s guide to the electoral process, league of women voters, the lyons press, guilford of the globe pequot press). the electoral body in the federal states first chooses electors, while electors elect the president. 5. local elections like the procedures that are being conducted and the votes cast for the election of mps for parliament as well as local government bodies choose their representatives to represent their will by building and empowering the autonomy of local government. with the autonomy of local government, the right and the effective ability of local communities to regulate and direct a good part of public affairs under their own responsibility and to the benefit of their populations. this right is exercised by councils or assemblies consisting of members elected by free, secret, equal, direct and universal voting. the organization of local government is sanctioned through a certain number of domestic acts and international acts. as internal acts are statutes of local government bodies. one of the international acts is the european charter on local self-government adopted on 15 october 1985 in the form of a convention by the council of ministers of the council of europe. . (european charter of lokal self – government, concil of europe, strasburg, 1991, article 3). the concept of local self-government, as reflected in the charter, represents the right of local authorities to regulate and manage a substantial part of public affairs under their own responsibility and in the interest of the local population. the local administration itself marks the purpose and the request for participation, its definition, its organization and its administration. it manifests the intention of more or less independent people to lead the affairs in their local community, directly or through their representatives. the specific role that local government plays in a political system is to draw attention to a number of special considerations. 1. first, local government has more to do with everyday life issues, 2. secondly, local government performs more services and exercises less power, 3. third, local government is the lowest level of power that is directly subordinated to and controlled by the central government. (haxhiu, s. 2013, p. 73). local self-government should be considered as an integral part of the entire governing system. this is necessary for better governance, more democracy, greater credibility and more accountability in managing public affairs. this can only be achieved through the selection of genuine representatives of the people, based on higher democratic standards for free elections. local elections are a key political moment, which by the time, country, subjects, phases and other characteristics are so complex that it is impossible to engage in a full electoral system that operates the way voters express their party preference. local elections are also an essential and secure indicator of the extent of citizen sadik haxhiu & arbresha meha 18 involvement in the local political life. local elections are the type of elections in which the bodies of their local government units are elected. they are the city council, the municipal assembly, the municipal assembly, the mayor, the mayor, etc. there is a large number of systems and sub-systems in the world for the organization of local elections, however, most of these choices apply the majority system or the proportional system. (electoral systems, (1997), international idea manual, p.111). in kosovo, elections for local self-government bodies are held on sunday every four years. elections can not be held earlier than 60 days before the end of the mandate and no later than thirty 30 days after the end of the mandate. (law on local elections in the republic of kosovo, (2008) article 4). early and extraordinary elections may also be held in accordance with the legal provisions on local elections. 6. indirect elections in the contemporary world in principle, it is the rule of choice of people's representatives in a direct way, however, as an exception, indirect choices are also applied. indirect choices have been applied in many countries of the world in the eighteenth and nineteenth centuries. they have been applied in france, spain, german principals, and so on. first, the second voters were elected, then the first constituents who elected mps as representatives of the people. at the end of the 13th century in france, the representatives of the people were elected under a two-stage system, where voters elected the second voters, while the second voters chose the assembly's representatives. even in the period of napoleon bonaparte a number of senators have been appointed. in albania, for the first time, the law on pluralistic elections was adopted in 1920, which was far from standards for democratic elections of the time. elections were organized according to the two-stage electoral system that was applied earlier in different european countries. every 500 voters had to be elected a second voter and every 11,000 voters a deputy. (luan omari, (2003) sistemi parlamentar, p.165). in february 1925 in albania, the new election law was adopted, essentially the same as the previous law, but with some changes and additions of the technical and practical nature. the voting system remained the same: the two-way and indirect voting system. reducing the number of seats in parliament doubled the number of voters in an electoral zone and at the same time the number of votes a candidate had to win. even in the new law mps represented the nation and not just the electoral zone. (krasniqi, a. (2009) political systems in albania, p. 116). in the contemporary world, only a few countries apply the indirect choices of representative bodies. this form of election applies mainly to states with a two-chamber parliamentary system for the election of the house of commons. this is best illustrated by the election of senators in france, of deputies in the bundesrat of germany, the election of the president in the us, etc. in france, the senate is indirectly elected by elected representatives of local government, as well as the senators who are elected, in overseas territories. (constitution de la cinquieme republique france, article 24). in germany, the house of lords or bundesrat consists of members of the land government. the land is elected and revoked by the bundesrat deputies. each land chooses at least three mps. land with more than two million inhabitants has four mps, and those with more than six million people are five mps. (grundgesetz für die bundesrepublik deutschland, article. 51). landes have the right to revoke their representatives from the bundesrat and to replace them with other members of their governments. also in the us, the president and vice president are elected by a college of presidential electors. the college is formed by members elected by each state that does not hold the post of senator and a member of the house of representatives or other positions. (bob, g. (2008) choosing the president, a citizen's guide to the electoral process). the second constituency election is made by the citizens of the states through a majority vote with a list and a round, which is organized on tuesday after the first monday of november. each state appoints a second voter as there are congressmen and senators. since the mandate of the second electorate is de facto known, because they are previously determined for a candidate, the new president is known since tuesday evening. (duhamel, o. (1993) constitutional law democracies, p.131). upon the end of the election, the electorate (electors) gather in the respective states and vote in ballots for the president and vice president. the candidate who receives the highest number of votes in each state wins all the electoral votes of that state. the elector of 50 states and of the district of columbia, which is 538 members, announces the winner of the candidate who collects at least 270 votes. (filo, ll. (2011) ideor platform and american political institutions). indirect choices have been applied to a large number in communist regimes in eastern europe. even today, communist china applies an indirect electoral election system. representative democracy elections 19 7. conclusion recommendations representative democracy is realized through the organization of elections according to standards defined by constitutional or legal legal acts on the one hand and through international legal acts on the other. most states elect constituencies and electoral systems by constitutional norms and less by legal norms. there is no standard for elections and their types. each constitutional state first determines the governance system from which we then know what to choose. electoral processes are also different. there are few international legal norms in the form of international standards that claim to regulate the way mps are elected for parliament, the election of the president, mayors, communes, municipal councils, municipal assemblies. these standards, however, have unified some types of elections, setting criteria for election of deputies, presidents, local government representatives such as age, sex, being resident in the country, representation of particular ethnic, linguistic, religious or cultural groups etc. these criteria were sanctioned through the european charter on local autonomy in 1985, the copenhagen document in 1990 and in particular through the basic principles of the venice commission in 2002. however there are also a number of issues that need to be standardized for all types of elections so that their observation is easier, such as: unification of the age standard for the election of deputies, the president, the mayor, the municipal council, the mayor, etc., the unification of the standard of being resident in the state, to run for election posts, unification of the standard for the percentage of participation in elections, for example, all elections can be declared valid if at least 50% of the electoral body have participated in them, a standard percentage for the representation of small ethnic groups in parliament, municipal councils, municipal assemblies, etc., standardize the system of two rounds of voting, to remove the indirect voting system which does not represent the direct will of citizens to select any type of elections. by sanctioning these standards for all types of elections, political culture is generally enhanced as well as the quality of organs receiving mandate from the people through free vote. references štefica, deren anatoljak. (1992). izbori i izborni sustavi, društveno istraživanja. zagreb 2/god.1 br.2 encyclopedia of the social sciences, (ed. david sills), volume 5, new york. bajrami, arsim. (2005). demokracia parlamentare, botimi i katërt, prishtinë. krasniqi, afrim. (2009). sistemet politike në shqipëri, tiranë. dragan đukanović, (2006). izborni sistemi u zemljama nastalim na području nekadašnje jugoslavije, , vol. lviii, br. 4, str. 513-514. bajrami, arsim. (2010). parlamentarizmi – aspekte krahasuese, prishtinë. basic laë for the federal republic of germany. constitution de la cinquieme republique france. constitution of the italian republic. european charter of lokal self – government, (1991). concil of europe, strasburg. glossary of parlamentary and legal tems, (2005). published by the osce mission in kosovo, pristina. grundgesetz für die bundesrepublik deutschland, art. 51. haxhiu, sadik. (2007). sistemet elektorale. instituti “rahmil nuhiu” prishtinë. kushtetuta e republikës së kosovës. kushtetuta e republikës së shqipërisë. ligji nr. 03/ l-072 (2008). për zgjedhjet lokale në republikën e kosovës. omari, luan. ( 2003). sistemi parlamentar – lindja dhe evolucioni i parlamentarizmit, botimi i katërt, shtëpia botuese “elena gjika” tiranë. sadik haxhiu & arbresha meha 20 filo, llambro. (2010). platformat ideore dhe institucionet politike amerikane, botimet ideart, tiranë. duhamel, olivier. (1993). e drejta kushtetuese – demokracitë, logos shkup, faqe 131 sistemet elektorale, (1997). manual i international idea-së për hartimin e sistemeve elektorale stockholm sweden. bob, guldin. (2008). choosing the president, a citizen’s guide to the electoral process, league of women voters, the lyons press, guilford of the globe pequot press. osbe misioni në kosovë, (2008). marrëdhëniet ndërmjet autoriteteve qendrore dhe lokale në kosovë, kartën e kanë nënshkruar dhe ratifikuar 43 nga 47 shtete anëtare të këshillit të evropës. mali i zi e ka nënshkruar kartën por ende nuk e ka ratifikuar. haxhiu, sadik. (2013). zgjedhjet, sistemet zgjedhore dhe proceset zgjedhore – aspekti juridik, politik dhe krahasues. brezi 81 prishtinë. tomas m. horvath, (2007). decentralizimi: eksperimente dhe reforma. the constitution of the republic of turkay. ustav republike srbije. ustav republike hrvatske. [29] ustav republike crne gore. mackenzie w.j.m. (1968). elections, the functions of elections. https://www.govinfo.gov/content/pkg.pdf https://www.izbori.hr/site/aktualnosti/ususret-izborima-2019/ https://www.edition.cnn.com/2018/10/28/americas/brazil-election/index.html https://www.independent.co.uk/news/world/europe/austria-president.html/ https://www.theguardian.com/world/2018/mar/19/ in-russian-presidential-election/ https://www.dunyanews./pakistan/president-polls-national-provincial-assembly/ https://iaskracker.com/presidential-election-indian-president-elected/ https://www.conseilconstitutionnel.fr/sites/default/files/constitution_anglais.pdf/ http://www.doiserbia.nb.rs/img/doi/.pdf. https://www.govinfo.gov/ journal of international trade, logistics and law, vol. 8, num. 1, 2022, 62-76 62 is international trade an indispensable instrument of foreign policy? itır sinem aykut kadir has university, turkey received: april 02, 2022 accepted: may 25, 2022 published: june 01, 2022 abstract: the article proposes that international trade is an indispensable instrument of foreign policy and dei̇k’s governmentalization is the epitome of this instrumentalization. the case is unique in that a state appropriates an ngo whose mission is international trade. the research enquires about the validity of the assumption of trade’s indispensability for foreign policy and vice versa. an in-depth interview methodology is assumed to configure causality. the hypothesis argues, that if institutionalized international trade’s indispensability for foreign policy is true, then this direct state intervention is suggestive of the degree of importance, that international trade and foreign policy have, vis-à-vis each other. this act of governmentalization, again by the unique way it was effectuated, the new status created, seems to render all underlying causes other than the significance given to institutionalized trade as an instrument of foreign policy and vice versa, rather marginal. the case is not only a de facto but also a de jure act of instrumentalization. keywords: international trade, tfp, tft, dei̇k, governmentalization 1. introduction the research question of whether institutionalized international trade is an indispensable instrument of foreign policy was the principal drive that inspired the ph.d. thesis, which is the source of this article. (aykut, 2019) the intention was to study a unique case, dei̇k’s governmentalization , to uncover the extent to which the above assumption could be validated in turkey’s foreign policy (tfp) and trade (tft). the article argues that when employed with or instrumentalized by the other, both foreign policy and international trade outgrow their otherwise individual impact because of the possibility of complex interdependency that exists between the two. it is beyond doubt both concepts have interchangeably been practiced on an array since the beginning of diplomacy. from a historical perspective, the proposition’s underlying assumption can be found deeply rooted in the origins of diplomacy itself considering the first permanent embassies could be venice’s commercial agents in the ottoman empire called the baiulo. (hamilton, langhorne, 2011) foreign policy as statecraft and diplomacy as a métier, therefore, might have, in their dna, an inherent, commercial component redefined, today, within the fields of economic/commercial diplomacy. while this instrumentalization may not be something new, today, globalization is assumed to be the catalyzer that renders it paramount. ample evidence on this relationship and its nature was uncovered to claim that trade’s instrumentalization in foreign policy and vice versa does profoundly exist. the ultimate relevance of the research could, in return, be proposed as its unique policy advocation potential for the balance of power configurations among states (and non-state actors alike) in general, turkey in particular. instrumentalization is observed to take both benign along with malign forms pertaining to its use as power within the government apparatus in the form of carrots and sticks. in instances whereby a state is required to take a bitter course of action against another state, this instrumentality, in the embodiment of sanctions, is used as an indispensable strategy, an “action-of-first-resort or its threat thereof” (kerry, 2014) before reaching out for coercive, unilateral, or multilateral force. understanding the motivations behind such instrumentalization is, therefore, crucial to study state behavior. the research aims to suggest that with deductive explanations from turkey and the world. is international trade an indispensable instrument of foreign policy? 63 to achieve such aim, the inquiry starts by tackling the agency-versus-structure (giddens, 1986) problem to understand the units and the systems involved. the theoretical assumptions enable it to abstract the unitary state into its components. the study argues that it was possible to articulate a wide spectrum of actors’ agency (hollis, smith, 1992) as they assumed roles (aykut, 2019:60) in economic diplomacy. individual human actors and their collectivities, such as ngos , are assumed to have agency as they interact with both material and nonmaterial factors. in our case, dei̇k, an ngo, is a non-state actor from the business community, whose members range from multinational corporations to small businesses, as well as their collective associations. identifying the units and the systems provided valuable insight but they would have fallen short without the application of a multi-theory approach. a pluralistic view of theory is assumed to explain the underlying causes why dei̇k, the ngo that it is, was, hence, governmentalized. as such, neoliberal institutionalism, global political economy, and economic diplomacy’s assumptions (aykut, 2019:72-88) were used. dei̇k was deemed an appropriate fit to be “an empirical venue for applying a particular theory”. (moses, knutsen, 2012:137) neoliberal institutionalism was the expedient framework in the inquiry. it assumes that states are non-unitary actors, negotiators do not have full knowledge of national policy preferences, preferences are not steady nor are they immune to developments in the market. (bayne, woolcock, 2011:5) using trade as an instrument of foreign policy was also assumed to be a systemic social construction. to theorize about it, the research contends that starting with taking preferences seriously, (moravcsik, 1997) neoliberal institutionalism provided many tools to explain and understand the phenomenon of dei̇k’s governmentalization. neoliberal institutionalism assumes a two-way communication and interaction between ngos and governments. businesses insert pressure on governments through lobbying. transnational networks of business associations, chambers of commerce and stock markets interact and socialize. they import and export ideas and norms besides material goods and services as they operate in what is coined as economic interconnectedness, a key area where governments are involved to a considerable extent as direct players, motivators, facilitators, and regulators. the theory enables an inside-out approach whereby a statesociety level of analysis is put forward as a game-changer, as opposed to the structural realist approach, where anarchy and the distribution of power are the major determinants. for the neoliberal institutionalist, organizations and institutions matter and have causality in international relations. trade is not only materially important, but also ideationally relevant to governments. ideas are also valuable when considered from a wendthian window of constructivism in ir, under the assumption that actors’ interests, identities, key structures in the states’ system are not given, based on human nature, or domestic politics but perceived inter-subjectively by actors through the manipulation of ideas in social interactions. (wendt, 1994:385). trade could similarly be defined as an ideational social construct. helping form the identity and interests of a state and its actors. it arguably cultivates interdependence. increased complex interdependence between states, in return, is expected to construct a mixed cobweb of inter-subjective relations, identities, and interests. such complex interdependence is ultimately likely to contribute to the institution of peaceful international relations. the prevalence of economic issues among high politics is, therefore, imperative. (nye, keohane, 1987) they can help broaden the agenda of international relations without limiting it to cutthroat cycles of the military security domain alone. they nurture the prospects of multiple channels connecting societies. the rational actor model inherent in neoliberalist assumptions, argues for state interests and their maximization through the instrumentalization of actors like dei̇k. neoliberalism proposes that governments need institutions because they enable them to do things, they could otherwise not do themselves. institutions help monitor and enforce mutually advantageous rules based on reciprocal contributions and concessions. (goldstein, pevehouse, 2014) reputation, reduced transactional costs, and reciprocity are all-important values of institutions that enable rational actors to achieve enhanced cooperation and mutual gains. it also contends for complex interdependence in a world where national economies and technologies have become increasingly one with the international in the form of global value chains and mncs . under the theory, institutions, like regimes, are thought to be developed so that actors could speak the same language and regulate cooperation through widely agreed rules and principles. neoliberalism agrees, however, that the international system is still anarchic, i.e., there is a lack of a central world authority to enforce the order. yet, when states come to share common interests in this case, the management of international trade they opt for the construction of international institutions that make and administer norms and rules to foster cooperation. as states itır sinem aykut 64 and agents iteratively and regularly meet over trade, like in dei̇k, they also socialize. while the potency of institutions in eliminating misperceptions is not a priori, (jervis, 1976) institutionalism’s potential benefits often outweigh its shortcomings. institutions like dei̇k may not be omnipotent nor perfectly functioning mechanisms, but they seem to help deliver information to encourage learning, build trust, help socialization (johnston, 2008) of actors and lessen the likelihood of misperceptions. neoliberal institutions also provide a much-needed legitimate social purpose base for the political authority. (ruggie, 1982:382) state interests can no longer be defined only in the narrow sense of mere survival and power. however, with an increase in non-state actors with potential agency, states cannot help but see their authority erode. nowadays, state sovereignty is also under increasing scrutiny and regarded even as what is called “hypocrisy”. krasner (1999) claims that as far as both the state and its sovereignty are concerned, neither can be considered as given under a constructivist lens. sovereignty has become a contested concept that is constructed and deconstructed. it is no longer sacred since the once sacred established agreements can be annulled overnight. interactions among agents and between agents and structures constantly alter the world. non-state actors like ngos, such as dei̇k may also be perceived as threats by the state undermining their authority, hence their governmentalization. while neoliberal institutionalism provided an abundant inventory of tools to understand and explain dei̇k’s governmentalization, the economic diplomacy theory was also used with a valuable perspective to offer. an act of statesmanship that is performed by both government and non-government actors alike, usually in close coordination and/or equally in conflict (bayne, woodcock, 2011), economic diplomacy is often conducted in what are called forums . woodcock identifies a checklist of six systemic and domestic key factors that shape economic diplomacy. as far as the process of decision-making and negotiation is concerned (1) relative economic power, (2) international institutions or regimes, (3) markets, (4) interests, (5) domestic decision-making and institutions, and (6) ideational factors affect a state’s ability to effectively use economic diplomacy. (woolcock, 2011:18-25) the theory is concerned also with the markets’ impact and treats them as endogenous factors influencing economic diplomacy. the article observed the effects of the market developments, to identify their unique contribution to the case; aiming to distinguish whether the markets impacted the government’s final decision to governmentalize dei̇k. theory also allows some room for misperception and changing preferences, and a lack of information on national policy inclinations. the research inquired if such misperceptions and changing policy preferences applied to dei̇k’s case. the focus was not, however, on the process of decision-making or the negotiation/bargaining models of economic diplomacy. the quest stayed within the restricted issue area of bringing to the surface the underlying reasons why and methods how of a particular government policy, which has foreign economic policy implications. finally, the assumptions of strategic trade theory within the context of the global political economy were employed. this final theoretical lens was used in unearthing how a nation’s capacity helps to interfere effectively and gain disproportionately in strategic trade in certain industries, such as exports, under the assumptions of relative gains. (gilpin, 2001:216) the article’s inquiry inquisitively tackles gilpin’s three conceptions for:  whether economics should determine politics (liberalism) versus  whether politics should determine economic (mercantilism) versus  economics does (in fact) determine politics (marxism and class interests). (gilpin, 2014:526) gilpin challenges the conventional trade theory and its undeniable commitment to free trade. imperfect competition, economies of scale and scope, learning by doing, r&d, and technological spillovers (gilpin, 2001:214), arguably give an excuse for the proponents of protectionism. the strategic trade view is not uncommon in practice. the european union is a means, for instance, of european capitalism arranged to compete more effectively with competitors in world markets. (bache, et al., 2011:47) in the cold war world order, the general agreement on tariffs and trade (gatt) and its follower world trade organization (wto) were reinstated as the new strategic institutions that have helped lower trade barriers, paving the way for freer international trade. the intention was to increase national efficiency based on the notion of comparative advantage. this has surely not been an easy task, given mercantilist tendencies. mercantilism purports for exports rather than imports. the liberals claim that self-interest in perfect competition will produce the greatest good for the greatest number both internationally and domestically. mercantilists, however, argue for economics being conflictual (gilpin, 2014:527) to start with. the article proposes that organizations like dei̇k, as well as their is international trade an indispensable instrument of foreign policy? 65 counterparts in diplomatic trade missions and corresponding chambers of commerce, intend to foster two-way trade and investment between states. nevertheless, mercantilist expectations shape any negotiation, such that, asymmetrical relative gains, more often than not, win over absolute ones. nevertheless, regardless of such mercantilist attitudes (gilpin, 2001:219), global political economy assumes that trade and its varied uses enable cooperation among states even when a security dilemma (jervis, 1978) prevails as a pretext. in line with the strategic trade theory, the research shows that, in turkey’s case, by 1980s, exports were chosen as a strategically valuable sector for both the economy and for foreign policy. dei̇k uniquely proved to be a worthy means to leverage this strategic move. the article contends that beginning with the 1980s, the export promotion strategy replacing the import substitution (pamuk, 1981) economy model which gave wings to dei̇k, was preplanned to make turkey’s domestic economic policies more compatible with the changing world tendencies. based on the “washington consensus” , the epitome of liberalization and privatization, the turkish economy was given no choice but to adapt to the world, no matter how harsh its terms were. the context was nurturing given the economic crisis of the late 1970s and the coup d’état that followed. prime minister özal could arguably implement this liberal regime with little worry about the next elections. the article posits institutions like dei̇k right in the middle of both domestic and international concerns, as well as public and private spheres. theory cautions us to be constantly reminded that the interaction between domestic and global political economy is a reciprocal, a two-level game. in putnam’s words, governments seek to satisfy domestic pressures at the international level, while curtailing the effects of international developments at home. (putnam, 1988:434) institutions like dei̇k, serve a critical purpose of carefully evaluating the needs of both spheres, acting as both mediators and arbitrators between conflicting interests. their value stems from their experience and expertise accumulated through decades of contacts and networks developed with relevant partners in a series of overlapping multi-dimensional strands of mutual understandings and acquiesce. they manage perceptions and misperceptions and help shape and build trust in foreign economic interactions. policy advocating is at the heart of such institutions as they maintain a constant channel of communication between the public and private spheres of influence. to sum up, to test the hypothesis, the research assumes that neo-liberal institutions which give birth to organizations like dei̇k not only matter but are essential for effective cooperation in a world of complex interdependency. moreover, states need more than material power to have a say in the international system and legitimacy is that soft power, institutionalized trade, as well as collaboration with non-state actors it necessitates, can provide, to enhance global economic governance. (aliu et al., 2016) dei̇k is an established non-state actor who has agency. it is affected by the system/structure, but it can also perform economic diplomacy apart from the state mechanism. it derives its strength from three decades of institutionalized norms and rules it exercised in a very important policy area; international trade. such institutionalized knowledge and experience in a reputable area of interest is professedly a precious attribute. it proposes legitimacy to enable the state to achieve what it cannot do alone. the research argues that the state, having seen this inherent strategic trade value in dei̇k, has taken a critical action to contain it in 2014 by way of governmentalization. dei̇k’s capabilities in fostering economic and political ties with its counterparts around the world, is now at the service of the state, along with its legitimacy. the research problematized dei̇k specifically because this case, possibly delineated a unique incidence in which a state appropriated a three-decade-old ngo. arguably, because of its significance, as an indispensable instrument of foreign policy, dei̇k was brought under the ministry of economy on 11 september 2014, by direct government intervention, the enactment of law no. 6552 (aykut, 2019:236). dei̇k’s case is thus claimed to be the epitome of the instrumentalization the hypothesis is after. the hypothesis is unique as it contends that, if the indispensability of international trade as an instrument of foreign policy is true, then this extreme case of direct state intervention through the appropriation of a business ngo suggests the importance, to the point of indispensability, international trade has vis-à-vis foreign policy and vice versa. the thesis maintains that a state would only take an action as governmentalization (as with dei̇k through an overnight omnibus bill) so long as it regards institutionalized international trade in the embodiment of an ngo like dei̇k, crucially vital to its interests defined in terms of economic power. the control, or its loss thereof, of a valuable organization like dei̇k, an ngo, must have been perceived as critical to these interests, making its conquest imminent. (aykut, 2019:27) itır sinem aykut 66 besides the theoretical explanations, as a method, the research adopts the “generalizing case study” approach (aykut, 2019:89-95). it pursues a “deductive model” to test the claim; trade’s indispensable instrumentality in foreign policy and vice versa, using a single case. the model is congruent with a “fitting” or “theory confirming” case study (moses, knutsen, 2012:137). the “elite interviewing method” under harold eckstein’s “plausibility probe”, (eckstein, 1975:109) which questions whether painful efforts to test the validity of a hypothesis is worth it to find a clear empirical instance of it, has been applied. “semi-structured interviews” (burnham et al., 2008:231) were conducted with chosen dei̇k members and their counterparts in bilateral councils residing in foreign missions to meticulously account for contrasting views. the study’s intent for testing the hypothesis is not generalization. further research, however, holds the potential for new hypothesis generation and generalization. as the findings reveal, future quantitative and qualitative research could extend the scope of theory and strengthen its validity questions like “is this a general trend?” “can such governmentalization be repeated in other states or in other contexts?” could be starting points. broadening the scope of the study to more interviewees in dei̇k, as well as extending the study to other institutions in trade such as ti̇m, tüsi̇ad, müsi̇ad, and tobb , promises to test the possibility of generalization. the research has uniquely attempted to solve a puzzle (baglione, 2012:75); namely the rationale behind what must have been the governmentalization of dei̇k. the importance of tfp and tft were found among the underlying causes. dei̇k, the embodiment of institutionalized trade, by being exposed to this act of governmentalization, was the instrumentalized variable. such instrumentalization entices measures akin to once inconceivable “state capitalism” (musacchio, lazzarini, 2014:57-8) in what are presumably the so-called liberal markets. (aykut, 2019:247) the uniqueness of the research also lies in its intended quest to find out the extent, such instrumentalization can go as in this specific case. on a spectrum analogy, there is a degree of importance each state gives to international trade; some governments use it more than others for foreign policy. the same is true for international relations. an ngo’s governmentalization, at least at this scale and manner, is arguably a first in the turkish political economy. being cautiously aware of epistemology, the interviewees were believed to have spoken candidly and expressed their genuine opinions. the intention was not to evaluate either the effectiveness or the efficiency of this state action, which could be the core of future research. time is needed to observe the evolution of the new dei̇k. the research also uncovered, possibly based on the economic nature of dei̇k and the choice of interviewees, more examples of trade being used as an instrument rather than those of foreign affairs. future research could be designed to interview more foreign affairs subjects to see if there is a shift in this balance for foreign policy. 2. major findings in a nutshell, the research, using deik’s governmentalization as a case and based on historical data, found trade to be an essential instrument of foreign policy, and likewise, foreign policy an essential instrument of trade. it proposes that both have become intrinsically linked over the centuries, ever since sovereigns and states have engaged in commercial relations with each other. in line with the world, tfp and tft are found to be intertwined in parallel complex interdependency and instrumentalization. this instrumentalization may take both benign and malign forms, such as incentives and sanctions. (masters, 2017) the inquiry contends that governmentalization is the epitome of such instrumentalization. the resultant phenomenon of governmentalization shows the extent of not only a de facto but also a de jure instrumentalization by the state of an economic actor, an ngo, whose main purpose is the development of international trade for the purposes of foreign policy. (aykut, 2019:14) the act of governmentalization imposed on a business ngo, due to the unique way it has been effectuated and the new pseudo-political status created consequently out of an economic legal entity, seems to render all underlying causes other than the importance given to institutionalized trade as an instrument of foreign policy, relatively marginal. while governmentalization is an extreme measure showing how far such instrumentalization can go, trade and foreign affairs are naturally found officially embraced in some governance systems by their merger at the ministerial level. such governance models could be perceived as the perfect embodiment of the thesis’ proposition, but they are not the norm. in addition, it is the institutionalized, rather than ad hoc trade, which is of interest to the research. viotti and kauppi (2012:149) claim that institutions encompass worldviews and beliefs, which are cognitive roadmaps that impact policymaking. ideas, when institutionalized, become social norms with a life of their own. when ideas are then linked to interests, they equally influence foreign policy choices. what makes its is international trade an indispensable instrument of foreign policy? 67 instrumentalization unique and irreplaceable under the assumptions of neoliberal institutionalism are the norms, rules, regulations, and values, trading relations culminate over decades of iteration, experience, know-how and informed learning. organizations like dei̇k become deeply rooted in the world of trade and foreign affairs among developed nations. such organizations may even assume roles in the instigation of new diplomatic relations performing economic diplomacy per se. they are recognized even before formal diplomatic relations, as embassies, have been established. dei̇k’s endeavors in africa, latin america, the former eastern bloc countries and turkic republics in the 1990s were found to be corresponding examples. (aykut, 2019:143) one accelerating force behind this instrumentality today, maybe globalization, which is hardly living its glory days. new protectionist strategies acting as guardians of national interest seem to nurture isolationism rather than globalization. today, it is to the astonishment of believers in liberalism that such is the trend to act as a shepherd by the united states. (o’grady, 2017) gilpin purports that whether it is called nationalism, or protectionism, the subservience of the economy to the state and its interests is mercantilism in essence. (gilpin, 2014:468-475). how this change towards protectionism today may affect the instrumentalization of trade and foreign policy is the subject of further inquiry. the research reiterates, however, that the retreat of democracy and liberalism in the 1930s was, in part, a result of the political turmoil produced by the great depression. the second world war was the ultimate result that followed the rise of fascist and imperialist states besides the emergence of rival economic blocs in its aftermath. (deudney, ikenberry, 1999:192). the strength of world peace as it correlates with today’s protectionist tendencies in trade since the great recession of 2007-2009 appears, therefore, similarly fragile. the research proposes that the survival of liberalism may lie in holding onto institutionalism itself and the legitimacy it promises. scholars liken the institutionalization of the european union, regardless of countless setbacks, such as euro-sclerosis , for instance, to the strength it derives from the notion of its social legitimacy rather than efficiency. (bache et al., 2011:26-7) aiming to achieve both social legitimacy and efficiency appears to make institutions like dei̇k, even more, valuable for those who stand to benefit from assuming their control. irrespective of the legitimacy they derive from their institutionalized nature, manifestly, such institutions are not without fault. their effectiveness may depend on their capability to adapt to changing preferences of states and non-state actors alike. as stiglitz (2002:241) argues, even for a giant like the world bank, reform is an option. governmentalization as strategy, on the other hand, is allegedly unorthodox, as per foucault’s governmentality, non-state actors, by way of engaging in governance are not necessarily transferring power from the governments. such engagement is simply an expression of the changing logic and rationality of the act of government whereby civil society become both the object and subject of governance. (sending, neumann, 2006) to understand the application of this instrumentalization and to historically comprehend the governmentalization of dei̇k, the research analyzes tft and tfp in 4 distinct periods. (aykut, 2019:96-187) the results imply that turkey does not differ from the rest of the developing and emerging markets as regards such instrumentalization. while having been around since the debut of the young republic, instrumentalization appears to have reached significant levels during the menderes administration of the 1950s. after the turbulent 1970s that shook turkey even more than the world economies because of her own particularities, it seems to attain a peak in the 1980s, coinciding with prime minister turgut özal and turkey’s liberalization experiment. (öniş, bakır, 2007:149) the 1980s appears to provide a fertile atmosphere for the institutionalization of turkey’s liberal trading efforts. dei̇k, a part of these efforts, is found to be established to formalize turkey’s trading relationships. while intended by both the government and the private sector as the sole point of contact harmonizing turkey’s uncoordinated foreign economic relations (altun, 2009:82), dei̇k is observed to have had its rise and fall analogous to the domestic, international economic, and political context until the 2000s. it is after 2005, however, things appear to take a different turn for dei̇k, leading to its eventual governmentalization. 2.1. turkish foreign policy and trade – four distinct eras the young republic’s beginning years was witness to the instrumentalization between tft and tfp shaped by the trauma inherited from the ottoman debts. the experience from the ottoman empire’s “council of public debt” (krasner, 2004:109) which had exclusive authority over the revenue of the empire, was traumatic. economic sovereignty was, therefore, a matter of life or death during the early years for ataturk. having hardly preserved her neutrality during wwii, with the start of the cold war, turkey was to enter the multi-party era . the second era was itır sinem aykut 68 witness to volatile liberalization experimentation led by the menderes administration. it was not until the 1980s, the third era, however, in a post-coup d’état turkey, that trade assumed its leading role in tfp. the crisis appears to instigate a radical break with previous models of accumulation (öniş, 2009:410). embracing the “washington consensus” (reinert et al., 2009) turkey, hoping to achieve a jump-start growth through the promotion of exports, opened its economy which was based on import-substituting-industrialization and autarky model (aykut, 2019:233), albeit a little too fast. (stiglitz, 2002:177-185). under the leadership of özal, turkey’s institutionalization went through an imperative revision. dei̇k’s birth coincides with these times. dei̇k, a model imported from the united states, japan, and korea (aykut, 2019:111) was envisaged at a crucial moment as turkey mobilized for global business. dei̇k became a pedestal of turkey’s economic diplomacy initiative, conceptualized as pivotal statecraft for the national interest. its establishment was significant as an institutional platform for public-private sector dialogue (soobramanien, 2011:198). its unique mission was to coordinate the turkish business community’s activities globally. the strategic intent was appearing as a single voice and the elimination of duplication of scarce resources. (aykut, 2019:234) in sum, dei̇k was intended by the nine founding father associations to coordinate and harmonize turkey’s efforts as a united body, aspiring to represent a significant portion of the turkish business community. marshalling resources for dei̇k’s formation by the private sector is analogous to neoliberalism’s harmony of interests for technical expertise and specialist, instead of generalist, diplomacy. (soobramanien, 2011:199-200) not only did dei̇k have the green light from the government to assume this umbrella role based on the proposal made by tüsi̇ad, özal , the head of state, was the main catalyst (arat, 1991:144) behind the initiative. according to özal, to the astonishment of many others, foreign policy had to be organized to nourish foreign trade (altun, 2009:65). the article argues dei̇k to be a first in the legitimization of the public-private dialogue enabling commercial diplomacy and participatory governance (bache et al., 2011:28). assuming a respected role amongst turkey’s foreign affairs agents; an area previously strictly confined to career diplomats, dei̇k appeared to breach the sacred void between bureaucracy and the business world. (aykut, 2019:121) notwithstanding, the fragile bonds balancing the private/public spheres were to be woven carefully. this critical rapprochement dismantling the long-established negative perceptions between the two spheres was a part of turkey’s liberalization experiment. thanks to the government elite’s involvement going beyond a supporting role, the dialogue between the private and public sectors thrived under dei̇k’s roof. among other reasons, this was possible since dei̇k was a consensual arrangement with established roles and responsibilities (aggarwal, dupont, 2017:66). however, özal also dictated sternly that dei̇k was to be formed under tobb, which was, in fact, a semi-official body. this was against the staunch position of tüsi̇ad who advocated for dei̇k’s civil society nature to be preserved at all costs . ties to tobb were surely a major drawback for the independent nature of dei̇k. while dei̇k, was fabricated as a voluntary ngo (aykut, 2019:13) encompassing values such as civil participation, pluralism and altruism (dimaggio, anheier, 1990:153), acquiring its legal status under tobb, de jure affected its impartiality and civil society standing and hence all those values intended for an ngo. the primary objection raised by sakıp sabancı against tobb, at the time of dei̇k’s enactment, became pertinently noteworthy today, given the counter arguments on behalf of dei̇k’s governmentalization in 2014 . whereas the third era was witness to dei̇k’s rise, the fourth one concurs with akp’s rise to power in 2002 and dei̇k’s alleged fall from grace. from 2005 onwards, dei̇k’s fate was subject to a serious challenge from a new rival called tuskon. tuskon’s members were composed mainly of anatolian tigers , a new cadre of business elites, who had been arguably excluded from the benefits of the state mechanism, benefits allegedly provided to others, such as deik members, until then. these business elites supported the state in its endeavors to project influence and impact turkey’s new neighborhood in the middle east and africa and beyond for the sake of their interests. (kutlay, 2011:77) the shift from the west to the east in markets was not peculiar to turkey alone. a gradual “axis shift” on a global scale was taking place in the 2000s. (babacan, 2011:135) as novel as they seemed, these elites did not just appear in a vacuum. they had resulted from alternative models of modernity of the 1990s accommodating tradition in their assumptions. the so-called “islamic capital” as a powerful economic actor was on a speedy rise. (keyman, koyuncu, 2005:112) all the same, the post-2001 era coined as the third phase of the turkish neoliberal experiment, was as a dramatic departure from the earlier two phases which saw is international trade an indispensable instrument of foreign policy? 69 the emergence of a regulatory state. (öniş, 2009:410) tuskon’s advent could be read within these lines, as a strategy with the significant political and distributional consequences associated with the regulatory state inherent in this third phase. tuskon’s arrival produced a sudden existential crisis (aykut, 2019:208) for dei̇k since its economic diplomacy endeavours were drastically curtailed. the enigma behind the prerequisite for a totally new organization to supersede and duplicate dei̇k appeared contrary to dei̇k’s establishment principles. when compared to disputes and accusations of co-option for civil society organs, (green, bloomer, 2011:115) the circumstances in tuskon’s strategic rise fall short of rational economic modelling and turf fights. findings suggest they are more indicative of an ideological and political raison d’être based on deeply rooted beliefs of turkey’s ruling elite. instead of joining forces with dei̇k, with its two decades of institutionalized power, to enhance turkey’s capabilities for potential commercial diplomacy opportunities in unchartered territories in africa and latin america as argued, certain segments of the turkish business world, had established and associated with a new organization, tuskon, instead (aykut, 2019:240). 2.2. governmentalization a key departure from liberalism as a concept, governmentalization, nonetheless, seems to suggest continuity in turkey’s strong state and statism tradition. coupled with the fragility of its liberalization experiment, (öniş, bakır, 2007:149) just as özal had ordered dei̇k’s formation under tobb, the governmentalization in 2014 could be interpreted, on a policy continuum, as a preeminent grip to contain dei̇k. tobb, being a semi-public organization, may have already given the anap government, the tight leash it mandated, to instrumentalize dei̇k, as the desires of the tfp elites dictated. a loose connection through the semi-public tobb may have worked in the interim. yet dei̇k apparently became a persistent institution authoring its own synergies, a life of its own, devised through years of connection and networking in foreign affairs and international trade. (thun, 2017:186) it unavoidably must have given to its parent body, tobb, powers that may have proven to be anathema and threatening to the very government that induced them. by 2014, the government, evidently becoming anxious about no longer being “aware” (levent, 2014) of dei̇k’s activities under tobb, chose to governmentalize and contain it. it appears dei̇k’s affiliation with tobb as the parent organization had also increased its vulnerability as a target. it must have disturbed the delicate balance of power calculations between the public and private actors which, by 2014, jeopardized dei̇k’s ongoing concern. the sensitive balance of power between tobb and the government bureaucracy must have been irreparably disturbed. (aykut, 2019:242) such loss of control seems to have constituted one of the major reasons that contributed to dei̇k’s inescapable fate. while in the beginning, underpinning dei̇k’s alternate tuskon may have posed as an attractive strategy, but as tuskon reneged on its assigned role, a decade was also foregone in furnishing the much-needed international networks in trade and foreign politics that dei̇k possessed. when the tuskon experiment failed, a new strategy was needed to tilt the balance of power away from dei̇k and its parent organization, tobb. given the exhaustion of the substitute path, taken to replace it, dei̇k, itself, was to be transformed at all costs. they could not forfeit another decade. (aykut, 2019:242) the context was also nurturing as markets were once again in turmoil. turkey’s trading state status applauded only a couple of years before, was in danger of reversal. in the post-arab uprisings, turkey’s trade-driven integration strategies in foreign policy were forestalled in line with both external and internal state capacity-related problems. the instability in the trading partners and neighboring export routes was substantial. (kutlay, 2016) turkey’s middle power aspirations for regional leadership, based on an economic machine claim aiming to project integration and growth and bring stability to the region (oran, 2013:236) were in disarray. as the arab spring turned into arab winter, turkey was also driven into the syrian quagmire in its southern border. in a nutshell, within its first 20 years of existence, dei̇k had its share of rise-and-fall, self-doubt, and selfcongratulation (green, bloomer, 2011:125), like any other ngo. with the sudden arrival of tuskon, an ideological rival, (aykut, 2019:149) it had faced an existential crisis more serious than self-doubt; this time little to do with her own capabilities. the governmentalization of 2014 , however, was to change it forever. dei̇k was once again without direct competition, but this time in a state of the search for its soul. institutionalization in any field appears to be an arduous long-term engagement, and not easily reproduceable to say the least. moravcsik (1997) itır sinem aykut 70 argues for taking state preferences underlying the strategic calculations of governments seriously, assuming that they are influenced by societal ideas, interests, and institutions. similarly, we can contend that the state elites, formulating their fundamental social purpose, could have preferred that if ties with dei̇k were not familial, bureaucratic, or economic enough until then, this time they had to be made so. the chances of rebuilding an alternate equal organization i.e., muskon, once again, were not great. dei̇k’s governmentalization was collateral damage, a sacrifice for the greater good. 2.3. the day after nevertheless, the state preference for the sudden and unilateral decision to tie dei̇k under the ministry of economy through an overnight omnibus bill did not come without repercussions. tüsi̇ad resigned from its founding association status, regretting dei̇k’s loss of civil society character. tobb remained. some clearly interpreted this operation as a move away from the liberal market economy towards state intervention and statism. following the fait accompli that arguably traumatized dei̇k members and counterparts, dei̇k’s new restructuring took place with around 100 associations joining dei̇k as the new founders (aykut, 2019:213). yet, tüsi̇ad’s refusal to join in the new dei̇k weighed heavily over the governmentalized new entity. dei̇k’s new chairperson was appointed by the economy minister, zeybekçi, who had extensive authority over dei̇k. paradoxically, the interim period was subject to a series of what appears to be new power struggles between vardan and zeybekçi (patronlar dünyası, 2017), between bureaucracy and civil society, that finally ended in the former’s replacement by olpak on 25 september 2017. (aykut, 2019:184) now that dei̇k was under the ministry of economy, it had become quite possible, this time by law, to appoint a new chairperson. the governmentalization was presented as a routine operation made to bolster dei̇k. ties to the ministry, according to the government and dei̇k’s new management, did not damage its civil society character. the mainstream conviction, according to the findings, however, suggests that dei̇k was now perceived as a public institution, a governmental organization. (aykut, 2019:210) there appeared no obscurity in terms of division of labor. (dimaggio, anheier, 1990:146). governmentalization made roles very formal and stable, rendering the private, the public beyond doubt. one might argue that, as long as politics safeguards life in its broadest sense (arendt, 2005) as an end purpose, it does not matter whether the new dei̇k is in public or private sphere. one argument raised by the interviewees held dei̇k had never been a civil society organization to start with because of its tobb connection in the first place. while tobb had always been there ever since dei̇k’s legal status was formulated in the late 1980s, and özal had especially mandated tobb as the parent organization, agency seem to have mattered and who led tobb and/or dei̇k apparently had implications in the delicate power dynamics (aykut, 2019:12). the article contends that not only the change per se, but also the way they imposed the new status has implications for the hypothesis in understanding the extent of the instrumentalization. nobody had barely any clue of this upcoming change, why it had been done or what it really entailed. the day after, all operations had been frozen, ongoing meetings suspended and programs canceled. interviewees express (aykut, 2019:237) the despair they felt when they heard about the law that transformed dei̇k, with no prior consultation or notification most importantly, however, the government must have seen that it was in its capacity to go it alone in a matter of a fait accompli. presuming the private sector would anyhow adapt, given buğra’s self-image findings for the turkish business world, policymakers must have strategically calculated the consequences and unhesitatingly taken the risk. to observe the market’s defenselessness when facing the leviathan is rather salient. zeybekçi’s short but blunt explanation ‘“we were not aware of its activities”’ (levent, 2014) to justify dei̇k’s governmentalization, shows the need to exert overwhelming control by the government apparatus. in short, being unaware of an ngo’s activities in trade and foreign policy posed a risk to the government’s balance of power calculations, leading to its containment in the form of expropriation. looking at dei̇k, from herz’ view of idealist internationalism, (herz, 1950:176) when faced with a dire security dilemma, the government’s intervention, no matter how counterintuitive it may sound at first for the sake of liberalism, might be read easily as power politics. 2.4. what does the future hold for deik? dei̇k was now officially crowned, again as it was in the 1980s, as the organization responsible for commercial diplomacy (aykut, 2019:243) following the redistribution of power and wealth arguments, (gilpin, 2014:468-475), administrations seem to produce their own structure of economic relationships with groups that are more apt to their policies. dei̇k, apparently belonged to the previous era, the old turkey’s entourage, yet policymakers could is international trade an indispensable instrument of foreign policy? 71 not ignore its value as an instrument of foreign economic policy either. essentially, it had to be brought into the sphere of government influence, expressly since the tuskon experiment had grossly failed. (aykut, 2019:244) to reiterate, measuring the effectiveness of this state behavior, requires further deliberations in time, and could be the subject of future research. still, if ngos, as alternative sources of trusted, informed opinion compared to the government, are expected to affect the legislature, the media, and the public (bayne, woolcock, 2011:372), this de jure governmentalization may have damaged dei̇k as an alternative source, representing freely the demands of the market. in addition, if ngos are expected to bring antiseptic sunlight in the form of scrutiny and activism to keep the demos (green, bloomer, 2011:116), a governmentalized dei̇k cannot be classified as one. intrinsically, the interviewees relay mixed conclusions about dei̇k’s future. those who declare today’s dei̇k to be a better version compared to the immobilized dei̇k of the tuskon era, commend dei̇k for having more space to maneuver since it had now more budget and the full backing of the government. similarly, rather than being arguably de facto tobb’s istanbul branch, being connected to the ministry of economy is considered a better ordinance by some. (aykut, 2019:245) the foreign missions in istanbul perspicuously see the new dei̇k as a government entity. some unquestionably articulate it as the “business world’s official link to the government”. (aykut, 2019:218) while some in the west, like the german-turkish business council, have objected to this mandatory status, refusing to deal with dei̇k initially, today it is back to business as usual. it is also possible to assess this turn-around as compartmentalization of interests in foreign policy i.e., support for civil society versus economic interests. ironically, the newly appointed officials in foreign missions have almost no recollection of dei̇k’s governmentalization and having had a civil society claim to start with, let alone its effectiveness. (aykut, 2019:246) while the new dei̇k is inarguably in a state of soul-searching (aykut, 2019:180) trying to mend its reputation in a denial of its governmentalization, its foreign counterparts appear rather clear about its new status as a government entity. dei̇k might be designated once again as the sole point of coordination of turkey’s institutionalized commercial diplomacy yet inevitably other organizations like tüsi̇ad have boldly gone alone in re-making their bilateral connections with foreign counterparts. arguably, in a complex social world (viotti, kauppi, 2012:161), dictating a single channel for the totality of tft is unrealistic. the interviewees stated one of the major domestic problems of turkey as “polarization”. (aykut,2019:211) the need to allow for diverse views and means to achieve the ends is, therefore, apparent. they argue that they should give no one organization, the monopoly to assume the reins of commercial diplomacy single-handedly. if dei̇k is to be repositioned as a roof organization, a certain tension could similarly be felt from within the new dei̇k itself, in the acceptance of this preeminence and pledge of allegiance. (aykut, 2019:218) one such organization is ti̇m, whose members present themselves as the “real experts of exports” (ti̇m, 2018) a claim for expertise resonating with peter haas’ (1992) “epistemic communities” appears to already produce clashes for dei̇k’s umbrella role, and its members’ like-for-like aspirations. how the new dei̇k will resolve this remains to be seen. since a one-size-fits-all structure (soobramanien, 2011:195-8) is a highly contested notion in today’s complicated society, how much buy-in from the non-monolithic business world, both domestic and international, the new dei̇k’s role will get is uncertain. some find the new dei̇k’s character to be more compatible than before with the less developed markets such as it was in the early 1990s post-cold war former soviet markets. calibrating a different strategy based on the level of development of liberal democracy and civil society of the foreign counterparts is a likely scenario with the possibility of a second-tier organization such as dei̇k-public and dei̇k-private. (aykut, 2019:248) time will show and future research could follow it up. 3. conclusion on an end note, the research suggests that to explain and understand dei̇k’s governmentalization, while a keynesian perspective, whereby smoothing out the business cycle and providing social equity/security as well as maintaining full employment are the main reasons for state interventions, seems farfetched (burchill, 2005:71), musacchio and lazzarini’s “path-dependence-view” for the reinvention of “state capitalism” may help. the thesis argues that the turkish state’s historical need for absolute control in tft and tfp, as tools enhancing its balance of power in the international system, may have manifested in the ideological preference for a strategy of path dependence for state capitalism. the resultant intervention, governmentalization, was not an economic necessity, but more a result of inherited, resilient institutional conditions that are difficult to change. the research by itır sinem aykut 72 problematizing dei̇k’s governmentalization may have opened the future debate for its policy ramifications as regards turkey’s liberalization experiment and civil society, its europeanization (bache et al., 2011:63) efforts, and the validity of turkey’s historical path-dependence. the article attempts finally to compare an ngo’s governmentalization by the state to a city’s conquest by machiavelli’s the prince and theorize about the future. machiavelli’s proposals which are instructional guidance to the prince, who has just conquered a city, suggest three viable strategic options. the third option, creating an oligarchy of proxies to keep the city, in our case dei̇k, ideologically more favourable, could be the strategic path taken by the state. the thousands of new members made to join dei̇k could be likened to proxies. however, the government’s financial grip (green, bloomer, 2011:117) as the new patron, risks downgrading dei̇k to a service delivery apparatus, ripping it off the freedom to imagine freely tft’s capabilities and hence jeopardizing its inherent values and eventually destroying it. (aykut, 2019:250) therefore, a reroute to machiavelli’s first option, i.e., destruction, remains an imminent danger. dei̇k’s governmentalization bears resemblance, on an endnote, to smith’s dignified statism (2012:732), to the exercise of duty that the executive power presumably undertook, to defend her commonwealth, expressed in terms of trade and foreign relations. the article has argued that liberal institutionalized trade, such as the one intended by dei̇k, and foreign policy are two instruments at the disposal of policymakers. either may be instrumentalized by the omnipotent state (aykut, 2019:152) and its agents or the structure of the international system to serve the other, in the end, to defend the commonwealth. through theory, the article, in line with the scientific realism’s proposition (wendt, 1999:47), has humbly tried to reflect reality pertaining to a particular case to test its hypothesis, i.e., the governmentalization of dei̇k. while each case of instrumentalization is specific and necessitates a precise inquiry to determine the underlying causes and effects and measuring its effectiveness may be hard, this does not diminish its significance in terms of understanding state behavior. the potential impact of the instrumentalization of foreign policy and trade to policymakers is extensive. their instrumentalization can benefit as well as damage ultimately the balance of power between states in the anarchical international system. hence, any related strategic preference should entail a meticulous planning stage with no room for a whim. needless to mention, an extreme intervention by the state to foreign trade in the form of governmentalization, such as in the case of dei̇k, implies a tilt towards state capitalism and a move away from liberalism. the article advocates that whether such a strategy is beneficial to state and interests is something policymakers should meticulously contemplate upon, when opting for strategies that instrumentalize foreign trade in foreign policy and vice versa. references abdullah, h., (2017), “what is feto?”, trt world, 10 july, viewed on 20 january 2019, https://www.trtworld.com/turkey/what-is-feto--8654 aggarwal, v.k., dupont, c., (2017), cooperation and conflict in the global political economy in ravenhill, j., 5th ed. global political economy, (52-76) oxford, oxford university press, ahmad, f., (2014), turkey: the quest for identity, london, one worldpublications, aliu, a., melemen, m., aliu, d., özkan, ö. 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published: 10 dec, 2020 abstract: it is expected that great lockdown caused by covid-19 will cause the worst recession since the great depression, and far worse than the global financial crisis of 2008. this paper aims to analyse the effectiveness of export credit insurance as a tool to mitigate the consequences of default in deferred international trade payments. a panel data analysis will be realized by using the data of 27 berne union member countries for 11 years in order to elaborate the effects of the export credit insurance commitments on exportation by taking into account other related economic factors such as export as a percentage of gdp, export volume, real effective exchange rate. the results of the analysis indicate that the export credit insurance schemes, mainly supposed to be provided by the public insurers, may mitigate the detrimental effects of covid-19 on international trade. keywords: export credit insurance, default, international trade 1. introduction the new global economic environment has been figured out by covid-19 rules. it seems that the current coronavirus pandemic has forced a pause in many activities for at least three months. imf reported that global growth in 2020 to fall to -3 percent under the assumption that the pandemic peaks in the second quarter of april for most countries in the world, and recedes in the second half of 2020. this makes the great lockdown the worst recession since the great depression, and far worse than the global financial crisis of 2008 [1]. hermes of germany forecast at least 15 per cent decrease of gdp growth worldwide for de first half of 2020. for the second quarter, two alternative forecasts are reported; u-shaped recovery or an l-shaped protracted economic and financial crisis due to a 12-18 months’ health crisis [2]. imf also reports that while the decline in advanced economies is predicted as -6.1 percent, it is forecasted as -1.0 percent in 2020, and -2.2 percent in 2021, excluding china. since the first day of the acknowledgement of the situation, the border closures, travel bans, and other restrictions on the movement of goods, people, and capital together with the forced closure of businesses and the inability of workers to get to work caused substantial production disruptions. the first trade-related data came from china by tradeshift [3] and reported that cross border and domestic trade activity fell by more than half during a single week in february. it is also stated that the number of transactions between chinese businesses and international firms dropped by 50 per cent during the same period. it is also reported that due to severe distortions in the supply chains, chinese trade activity drop 56 per cent on a week by week basis [4]. it is for sure that the developments in china will have great impacts on complex supply chains spanning the globe as china has been “the global and regional hub” for years and many economies export a significant amount of intermediate goods to the country, while others use inputs from china in their own production. it is predicted that impact of covid-19 on global supply chains will force many companies to temporarily shut assembly and manufacturing plants in the u.s. and europe as to contact with new suppliers is also out of concern. it is for sure corona pandemia times: the export credit insurance as a trade finance tool 169 that the most vulnerable companies are those which rely heavily or solely on china’s parts and materials producers as their activities has fallen sharply and is expected to remain depressed for months. it is estimated that those disastrous developments will have paramount effects on trade finance activities. first of all, under the prevailing conditions the expected defaults on the existing export and import related payments will inevitably exacerbate the already hit international trade, as well as the financial environment in the recipient countries. even at this early phase of the pandemic, there exists debate whether it is a “force majeure” event which is broadly defined as an event or effect that cannot be reasonably anticipated or controlled such as a natural disaster as defined in a contract and cause inability to meet the liabilities imposed under a contract [5]. whenever the payments related to the international exchange of goods and services are planned to be made on deferred basis there should exist some form of financing. international trade finance products typically include intrafirm financing, inter-firm financing or more dedicated tools such as letters of credit, advance payment guarantees, performance bonds, and export credits insurance or guarantees (chauffour and farole, 2009). historically, there has been a presence of public export credit agencies (eca) in the short-term trade finance market. in fact for many of the developing countries including china, korea and turkey, eca support to export has been continuing in the forms of lending and export credit insurance. however, over the last 15 years, in many of the developed countries, states have progressively stepped out from this market, to make it “marketable” under the rulings of oecd and eu. in those countries including us, the short-term trade finance by any means are provided by private banks, as government intervention via official trade finance schemes is considered as state aid (korinek et al.,2010). however, the foreseen and unforeseen consequences of covid-19 changed this market orientation approach in relation with export credit insurance. the european commission has decided to temporarily remove all countries from the list of “marketable risk" countries which makes public short-term export credit insurance more widely available in light of the current crisis linked to the coronavirus outbreak. the amendment further expands on the flexibility with respect to the possibility by state insurers to provide insurance for short-term export-credit [6]. the radical shift in eu legislation addresses the possible effects of the export credit insurance scheme on resolving a part of the consequences of covid-19 pandemia in the field of international trade finance. in this framework, this paper aims to analyze the effectiveness of export credit insurance as a tool to mitigate the consequences of default on international trade. in the following section, the literature review will be provided focusing on export credit insurance as a trade finance instrument and the effectiveness of export credit insurance for supporting the export by using. in the analysis section, a panel data analysis will be realized by using the data of 27 berne union member countries for 11 years in order to elaborate the effects of the export credit insurance commitments on exportation by taking into account other related economic factors such as export as a percentage of gdp, export volume, real effective exchange rate. after the effects of covid-2019 on international trade have been fully understood, it thought that export credit insurance will gain further importance in order to prevent financial problems caused by trade distortions. 2. literature review the availability of financing foster world trade and it is reported that an estimated 80 to 90 percent of world trade relies on some form of credit, insurance or guarantee facilities provided by the financial institutions (auboin, 2007). the effect of the trade credit on exports have been analyzed by some researchers and the results are contradictory (ronci, 2005; berman and martin, 2009; iacovone and zavacka, 2009; levchenko et al., 2010). the functionality of export credit insurance for promoting international trade was fully realized by the developed countries and it is rather new tool for the developing countries. export credit insurance (eci) provides protection to the exporters against the risk of non-payment by a foreign buyer. it is a fact that for cross border trading transactions, the default risk is harder to manage as it is more costly to monitor risks and more difficult to enforce payment. eci generally covers commercial risks and political risks as defined in the policy and the coverage can be set as 90 to 95 percent. the commercial risks covered are insolvency of the buyer, bankruptcy, or protracted defaults/slow payment cases and the political risks covered are both risks such as war, terrorism, riots, and revolution that cause non-payment and financial system risks of the importer’s country such as inconvertibility, expropriation, and changes in import or export regulations. eci is provided either on a single-buyer basis or on a portfolio multi-buyer basis for short-term (up to one year) and medium-term (one to five years) repayment periods. the contribution of the eci to international trade is twofold; as non-payment risk is neslihan turguttopbas 170 reduced, exporters can increase export sales, establish market share in emerging and developing countries, and compete more vigorously in the global market. also, the insured foreign accounts receivable makes the financial intermediaries more willing to provide financing with attractive financing terms [7]. in developed countries eci policies are offered by many private commercial risk insurance companies. those companies apply premiums rates as individually determined based on risk factors and may be reduced for established and experienced exporters. in the developing countries public insurance institutions dominate the market as they can provide cover for riskier emerging foreign markets where private insurers may not operate. the international union of credit and investment insurers (berne union) is an international not-for-profit trade association, representing the global export credit and investment insurance industry and it is founded by mainly european credit insurance companies in 1934. in 1994, berne union formed the prague club with support from ebrd, in order to support new and maturing export credit agencies and insurers setting up and developing export credit and investment insurance schemes [8]. it is worthy to mention that oecd rules restricts official export credit agencies from providing guarantees covering export risks to oecd core members with a maturity of less than two years. nevertheless, to provide trade credit insurance for firms wishing to export towards countries suffering from nonmarketable levels of default risk, most oecd countries maintain export credit agencies (ecas)—either in the form of ministerial departments, or publicly owned or supported insurance companies—commissioned to issue trade credits with a state-guarantee (baltensperger and herger, 2009). funatsu (1986) proposed a formal model of trade-promoting effect of credit insurance and reported that insurance cover of trade credits will result in a higher output level. the studies of egger and url (2006) and moser, nestmann and wedow (2008) focused on austrian and german public export credit guarantees respectively and showed that such insurance stimulate trade in the long run. mah (2006) analyzed the effect of export insurance subsidy of japan on the export supply by using unit root tests and cointegration analysis. however, they reported that although japan has been the heaviest user of the export insurance system, export insurance system has not contributed to promoting export supply in japan. baltensperger and herger (2009) analyzed export credit insurances provided by oecd member ecas reported that those instrument have escalatory effects on the exports to middleand high-income countries, but not to low-income countries during 1999-2005 period. by using data set on worldwide exports insured by a world’s leading private trade credit insurer in the period from 1992 to 2006 and applying various trade models, van der veer (2010) consistently find a positive and statistically significant effect of private export credit insurance on exports. felbermayr and yalcin (2013) used sectoral data on export credit guarantees issued by the german government and they found a robust export‐increasing effect of guarantees which is larger for especially export markets with poor financial institutions and in sectors that rely more on external finance. polat and yeşilyaprak (2017) estimated different panel gravity regressions for 212 countries and 16 years and revealed that increasing export insurance provided by turkish official export credit agency of turkey (turk eximbank) positively affects turkish export. they also reported that one percent increase in export insurance leads to 3 per cent to 17 per cent increase in turkish exports. koksal (2018) analyzed the effect of export credit ınsurance covered by export credit agencies on the developing countries’ export figures and gdp. the countries subject to the analysis are turkey and indonesia, malaysia, thailand also known as imt countries. the results revealed that for countries malaysia and thailand, there is a cointegration relationship among the variables gdp, export value and export credit insurances. however, for countries turkey and indonesia there is no cointegration relationship. 3. short term export credit insurance the international union of credit and investment insurers (berne union) has 85 public, private and multilateral organizations including most active national export credit agencies, as well as the largest commercial credit and political risk insurance providers, who collectively account for the vast majority of export credit insurance activity globally. this capacity lets berne union to hold the most comprehensive data set on the business of export credit and investment insurance including risk exposure, commitments, claims, recoveries, premium income and reinsurance, by provider, business line, country, sector and by obligor type [9]. in the first half of 2019, berne union members reported a declining volume of new commitments alongside an overall 21 per cent increase in claims paid, as compared to the same period last year. this development explained by corona pandemia times: the export credit insurance as a trade finance tool 171 the challenging trade environment, characterized by uncertainty fuelled by exacerbated by negative trade policy and deteriorating macro-economic conditions. insurers of short-term trade credit (st) reported usd 1.7 trillion aggregate credit limits issued at the end of june – no real change since the end of 2018, reflecting a lack of growth in underlying trade volumes9. figure 1 shows the short term turnover covered by public and private during the period 2014-2018. as of the end of 2018, the short term coverage reached to 2.2 billion usd in 2018 representing 11,8 per cent of total world exportation and 12,8 per cent of the exportation of the member countries. referring to the oecd restriction about official guarantees with a maturity of less than two years, the share of the private insurers has been increasing gradually. the private insurers’ share in short term export credit turnover cover increased to 60 per cent. the graphs in figure 1 and 2 are self-produced by using berne union data. figure 1 short term export credit turnover cover 2014-2018 figure 2 provides the regional share of short term export credit insurance commitments as of the end of 2018. it can be easily seen that the export credit insurance mainly utilized by european counterparties. in fact, the general operational and legal rules applied to short term credit insurance are sourced by mainly european institutions, such as oecd and berne union with the participation of non-european countries. figure 2 regional share of short term export credit insurance commitments 2018 9% 10% 10% 12% 11% 10,2% 10,8% 11,4% 13,0% 12,8% 0% 2% 4% 6% 8% 10% 12% 14% 500.000 1.000.000 1.500.000 2.000.000 2.500.000 2014 2015 2016 2017 2018 1 0 0 0 u s d private public percentage of world trade percentage of bu member countries trade neslihan turguttopbas 172 4. the analysis a panel data analysis will be conducted by using the data of 27 berne union member countries for 11 years in order to elaborate the effects of the export credit insurance commitments on exportation by taking into account other related economic factors such as export as a percentage of gdp, export volume, real effective exchange rate. the export credit insurance commitment data is provided by berne union directly and the other economic factor data is provided by world bank database. in panel data, the selected data is observed at several points in time and it is more used whether explanatory variable(s) which are not observable but correlated with the observed explanatory variables. if such omitted variables are constant over time, panel data estimators allow to consistently estimating the effect of the observed explanatory variables. there exist two basic models for the analysis of panel data, the fixed effects model and the random effects model. for the analysis of the explanatory power of the selected economic factors on predicting the export short term commitment the following 4 factors linear regression model for individual i = 1, ..., n which is observed at several time periods t = 1, ..., t is produced: 𝒚𝒊𝒕 =∝ +𝜷𝑬𝒙𝒑𝒊,𝒕 + 𝜸𝑬𝒙𝒑 %𝒐𝒇 𝑮𝑫𝑷𝒊,𝒕 + 𝜹𝑮𝑫𝑷𝒊,𝒕 + 𝜽𝑹𝑬𝑬𝑹𝒊,𝒕 + 𝒄𝒊,𝒕 + 𝒖𝒊,𝒕 in the formulation, y is the dependent variable which is short export credit insurance commitments, α is the intercept, β, γ, δ and θ are dimensional column vector of parameters for the independent variables of annual export volume, exportation as a per cent of gdp respectively, c is an individual-specific effect and u is an idiosyncratic error term. the summary statistics for the dependent variable and four independent variables are given in table-1 where all variables are in logarithmic form. the annual short export credit insurance commitments, export volume and annual gdp are given in billion usd$. table-1 summary statistics variable obs mean std. dev. min max ln short term exp.insur.comm.bio $ 270 9.88 0.82 7.44 12.05 ln exp 270 26.56 0.94 24.80 28.62 ln exp per cent of gdp 270 3.68 0.58 2.39 5.40 ln gdpbio $ 270 27.16 1.70 20.99 30.68 0 200.000 400.000 600.000 800.000 1.000.000 private public corona pandemia times: the export credit insurance as a trade finance tool 173 ln real eff.exc.rate 270 4.59 0.10 4.24 5.05 in the random effects model, the individual-specific effect is defined as a random variable that is uncorrelated with the explanatory variables and it is uncorrelated with the explanatory variables of all past, current and future time periods of the same individual. in the fixed effects model, the individual-specific effect is a random variable that is allowed to be correlated with the explanatory variables. in this paper, both the fixed effects and the random effects models were estimated for panel data analysis. table-2. panel data analysis results in order to measure overall statistical significance, f-test for fixed effects model, and wald chi2 test for the random effects model is conducted. the results for both models are significant even at the 1 per cent statistical significance level. the fixed effects model and the random effects model are compared and as a result, the fixed effects model is preferred according to hausman test. however, the results of both models are given in table-2 for comparison. according to t-test results, all independent variables are statistically significant at 1 per cent significance level, except for exp per cent of gdp, which is statistically significant at 10 per cent significance level. besides, according to the results of the analysis, while exp-bio $ and gsp bio $ have positive impact, exp per cent of gdp and real eff.exc.rate have negative impact on short export credit insurance commitmens. 5. the conclusion variables fixed effects random effects exp-bio $ 1.19 *** (0.18) 0.88 *** (0.05) exp per cent of gdp -0.63 * (0.31) 0.15 (0.14) gsp bio $ 0.83 *** (0.27) 0.09 *** (0.02) real eff.exc.rate -1.79 *** (0.46) -0.74 ** (0.29) c -34.05 *** (5.86) -13.31 *** (2.13) f 29.35 *** wald chi2 318.61 *** * denotes 10 per cent, ** denotes 5 per cent and ***denotes 1 per cent significance level. the values in the parenthesis show the huber/white standard error. neslihan turguttopbas 174 the new global economic environment has been figured out by covid-19 rules. it seems that the current coronavirus pandemic has forced a pause in many activities for at least three months. imf reported that global growth in 2020 to fall to -3 percent under the assumption that the pandemic peaks in the second quarter of april for most countries in the world, and recedes in the second half of 2020. this makes the great lockdown the worst recession since the great depression, and far worse than the global financial crisis of 2008.it is estimated that those disastrous developments will have paramount effects on trade finance activities. first of all, under the prevailing conditions the expected defaults on the existing export and import related payments will inevitably exacerbate the already hit international trade, as well as the financial environment in the recipient countries. whenever the payments related to the international exchange of goods and services are planned to be made on deferred basis there should exist some form of financing. historically, there has been a presence of public export credit agencies (eca) in the short-term trade finance market. in fact for many of the developing countries including china, korea and turkey, eca support to export has been continuing in the forms of lending and export credit insurance. however, over the last 15 years, in many of the developed countries, states have progressively stepped out from this market, to make it “marketable” under the rulings of oecd and eu. in this framework, right after the announcements of controls for covid-19, the european commission has decided to temporarily remove all countries from the list of “marketable risk" countries which makes public short-term export credit insurance more widely available in light of the current crisis linked to the coronavirus outbreak. the radical shift in eu legislation addresses the possible effects of the export credit insurance scheme on resolving a part of the consequences of covid-19 pandemia in the field of international trade finance. some research using different statistical methods have shown the positive and statistically significant effect of private export credit insurance on exports. in this framework, a panel data analysis is conducted by using the data of 27 berne union member countries for 11 years in order to elaborate the effects of the export credit insurance commitments on exportation by taking into account other related economic factors such as export as a percentage of gdp, export volume, real effective exchange rate. the export credit insurance commitment data is provided by berne union directly and the other economic factor data is are provided by world bank database. the accepted model is formed by using natural logarithmic values of all the variables under fixed effects approach. the results reports strong evidence of explanatory power of the variables on short term export credit insurance. the results of the analysis indicate that the export credit insurance schemes, mainly supposed to be provided by the public insurers, may mitigate the detrimental effects of covid-19 on international trade. otherwise, the risk of default of the buyers may create pressure on the exporters all over the world to realize transactions in the near future. endnotes  https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-greatdepression/  https://www.eulerhermes.com/en_be/news/latest-news/othr-coronavirus-can-lead-to-sharprecession.html  tradeshift is one of the few western technology companies with a license to operate in china. as the world's largest business commerce network, tradeshift’s platform connects over 1.5 million companies, spread across 190 countries. 150 of tradeshift’s customers belong to the group of the world's 500 largest companies, and around $500bn in transactions crosses its platform every year.  https://via.ritzau.dk/pressemeddelelse/ca-tradeshift?publisherid=90456&releaseid=13589397  https://insights.nordea.com/en/ideas/trade/covid-19-and-the-consequences-for-trade-finance/  https://ec.europa.eu/commission/presscorner/detail/en/ip_20_542  https://www.trade.gov/export-credit-insurance  https://www.berneunion.org/stub/display/41  file:///c:/users/user/downloads/bu%202019%20h1%20data%20report%20(4).pdf corona pandemia times: the export credit insurance as a trade finance tool 175 references auboin, m. (2007). "boosting trade finance in developing countries: what link with the wto?" economic research and statistics division discussion paper, world trade organization. geneva: wto. baltensperger, e. & herger, n. (2009). exporting against risk? theory and evidence from public export insurance schemes in oecd countries. open economies review, 20(4), pp. 545-563. berman, n. and p. martin (2009). "the vulnerability of sub-saharan africa to the financial crisis: the case of trade." sciences po, mimeo. chauffour, jean-pierre and thomas farole, trade finance in crisis: market adjustment or market failure?, world bank policy research paper 5003, july 2009. egger, p. and t. url (2006). "public export credit guarantees and foreign trade structure: evidence from austria." the world economy, 29(4), pp. 399-418. felbermayr, g. j., & yalcin, e. (2013). export credit guarantees and export performance: an empirical analysis for germany. world economy, 36(8), 967-999. http://doi.org/10.1111/twec.12031. funatsu, h. (1986). "export credit insurance." journal of risk and insurance, 53(4), pp. 680692. iacovone, l. and v. zavacka (2009). "banking crises and exports: lessons from the past." world bank policy research working paper 5016, washington, d.c.: world bank. koksal, c.(2018) export credıt insurances in developıng countrıes: the case of turkey and imt countrıes, international journal of commerce and finance, vol. 4, issue 1, 107-120 korinek, j., j. le cocguic and p. sourdin (2010-06-02), “the availability and cost of short-term trade finance and its impact on trade”, oecd trade policy papers, no. 98, oecd publishing, paris. levchenko, a.a., l. lewis and l.l. tesar (2010). "the collapse of international trade during the 2008ñ2009 crisis: in search of the smoking gun." nber working paper no. 16006. mah, j. s. (2006). the effect of export insurance subsidy on export supply: the experience of japan. journal of asian economics, 17(4), 646-652. http://doi.org/10.1016/j.asieco.2006.05.004. moser, c., t. nestmann and m. wedow (2008). "political risk and export promotion: evidence from germany." the world economy, 31(6), pp. 781-803. polat, a. & yeşilyaprak, m. (2017). export credit insurance and export performance: an empirical gravity analysis for turkey. international journal of economics and finance, 9(8), pp. 12-24. ronci, m. (2005). "trade finance and trade flows: panel data evidence from 10 crises." in j. wang and m. ronci (eds.) access to trade finance in times of crisis, washington, d.c.: international monetary fund. van der veer, koen (2010), "the private credit insurance effect on trade", dnb working paper no. 264. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 46-51 46 fair-trade certification impacts on social responsibility and ethics of smallholder coffee producers in ethiopia wondaferahu mulugeta demissie jimma university, ethiopia sisay tolla whakeshum jimma university, ethiopia fikadu gutu bulga jimma university, ethiopia received: may 05, 2020 accepted: may 24, 2020 published: june 01, 2020 abstract: in ethiopia, more than one third of foreign exchange is attributed to coffee product and the production process engages almost one fourth of the working population of the country. small-scale coffee farmers producing for fair-trade market outlets are frequently considered to benefit from better prices and stable market outlets. yet, some empirical studies are veri-fying this notion adversely. therefore, this study tried to assess the impact of fair-trade certi-fication on social responsibility and ethics of small-scale coffee farmers using both descrip-tive and econometrics techniques for the selected 383 respondents in jimma zone of ethio-pia. the study investigated that the introduction of fairtrade certification among small-scale coffee producers matters the inquiry of social responsibility and development signifi-cantly. logistic regression result indicates that, the coefficient for the variable fair-trade membership status is 3.412. this result implies that for every oneunit increase in fair-trade membership status, we expect 3.412 increase in the log-odds of the dependent variable em-ployment creation. also, the coefficient for the variable fair-trade membership status is 1.319. this shows that for every one-unit increase in fair trade membership, we expect a 1.319 increase in the log-odds of the dependent variable. also, education level and family size affect child school enrollment significantly and positively. however, the coverage and development of fair-trade certification in the study area was very low. therefore, extension of fair-trade certification should be well thought-out as one of sustainable development riding instruments among policy makers. keywords: fair-trade certification, coffee, social responsibility, ethiopia 1. introduction coffee (coffee arabica) has continuously been ethiopia’s most significant cash crop. cof-fee accounts the major share of the total export proceeds of the country. the potential of coffee production in ethiopia is very high considering the country’s suitable altitude, rainfall, temperatures and fertile soil (bäckman, 2009). opposing to other coffee producing coun-tries, though, in ethiopia coffee production is dominated by small-scale subsistence producers, whereas plantation production plays a negligible part, and ethiopia is the base of the global coffee arabica gene puddle. in the context of globalization and trade liberalization, the certification of products and services seems inevitable. the budding concern about environmental deprivation, care of food outputs and taking advantage against employees and associated reasoned gave rise to the demand for certification. the desirability of certification or labeling arrangements is resulting from their market-established and intentional approach to realize environmental and socio-economic goals ( grote et al., 2007). fair-trade targets at improving farmers’ living and working circumstances through setting up least possible prices and pledging a set of social values/standards succeeding transnationally acknowledged agreements, thus it is reflected as an approach for poverty mitigation. fair-trade certification impacts on social responsibility and ethics of smallholder coffee producers in ethiopia 47 members of fair-trade are economic organization, religious institutions, and consumer protection agencies, amongst many stakeholders. fair-trade certification can only be allowed to a cluster of smallholder farmers prepared in peasant organizations (associations/cooperatives) “which are capable to contribute to the social and economic growth of their affiliates and their societies and are democratically well-ordered by their associates” (flo, 2003). numerous studies have delivered contradicting findings about the effect of fair-trade certification for coffee producers. fair-trade initiatives upgraded the welfare of small-scale coffee producers and strengthened local organizations, mainly due to improved returns to smallholder farmers (bacon, 2005; calo & wise, 2005; jaffee, 2007; milford, 2004). fair-trade producers were also found fruitful in escalating their production; practiced better approval with the prices acquired for their coffee, and reached enhancements in food consumption and livelihood situations (becchetti &costantino, 2008). however, according to studies conducted in nicaragua (valkila, 2009) and mexico (barham et al., 2011), fair-trade certification has achieved almost insignificant change in livelihood as compared to the non-certified producers. the rise in farm income evidenced to be modest, and numerous producers stayed in poverty even though being associated to fair-trade market outlets (bacon et al., 2008). notwithstanding the rising number of recently proven value chains for certified coffees from ethiopia with seemingly far-reaching and multidimensional influences on subsistence of thousands of smallholder coffee producing farmers, there is still a substantial absence of empirical homegrown studies that can corroborate the social responsibility impact of fair-trade certification on smallholder coffee farmers’ means of living. allowing the aforemen-tioned experiences, therefore, this study tried to assess the impact of fair-trade certification on social responsibility and ethics of small-scale coffee farmers using both descriptive and econometrics techniques. the objectives of this study was to analyze the impact of fair-trade certification on social responsibility and ethics of smallholder coffee producers in jimma zone of south west ethiopia employing child school enrollment and employment creation as proxy variables. 2. literature review 2.1. sources of data this study was conducted based on both primary and secondary data. the primary data were collected by face to face interviews using structured questionnaire with the help of trained enumerators. additionally, qualitative data were collected through semi-structured interviews and discussions were made with selected cooperative union at regional level and general managers of cooperative union, secondary sources were included unpublished and published materials. 2.2. study design and period a cross-sectional study design was employed to look for socio-economic impacts of fair-trade certification on small household coffee producers and cooperative unions. from each selected coffee cooperative union, the researchers randomly selected ten primary coffee producer cooperatives for this study, which means five of them are fair-trade certified and the others are none. the non-certified are sellected based on various comparability factors, including similarity on infrastructure availability, communication facilities and other socioeconomic characteristics, such as topography, accessibility and presence of other development programs. all farmers including respondents are residing in the selected cooprative village were consitituted as the study population. the study was conducted from september 2016 to end of july 2017. 2.3. sample size determination and sampling techniques multi-stage sampling techniques were employed to determine sample size. the researchers applied lottery method to select certified and non-fair-trade certified from each selected cooperative unions from four selected coffee cooperative unions in ethiopia. after researchers determined total sample of cooperatives from both certified and non-certified; the selection criteria of farmers was based on the membership registry book of each cooperative. the sample size (383) was determined by the following formula (noel, et al, 2012). n ≥ n 1+(n−1)( 2d z )2 ……………………………………......……………………..……………. (1) wondaferahu mulugeta demissie & sisay tolla whakeshum & fikadu gutu bulga 48 where, is the total population, is the required sample size, margin of error, is the confidence level. and n=383 for total population (n) =8934. after determining the total sample size , a stratified sampling technique was used to select households from each cooperative union. partition of the study sample to each cooperative was based on proportional allocation. then, study population or households from each cooperative were identified using member registry book through systematic random sampling of every fifth row until the allocated sample size reached. 2.4. data analysis data was analysed using stata software package version 13.0 for regression analysis. the empirical analysis of the study conducted using both descriptive statistics and logistic regression analysis. various tables generated to describe characteristics of respondents. 2.5. estimates of the model assessing the impact of fair-trade on social life of farmer’s at household level requires adjustments to control for differences between membership and non-membership. the impact of fair-trade on respondents was assessed based on the dependent variables indicated below. the variables used in regression are respondent age, total farmland size; membership status of fair-trade certification, amount of coffee land, household’s headship status. the functional relationship between the probability of better of household social and explanatory variables is specified as follow: let yij be the ith farmers response for component indicate better social status (a binary outcome, 1= alone, 0=otherwise) for small household farmers in the jth cooperative. log pj 1−pj = β0 + β1x1 + β2x2 + ⋯+ βkxk…………………………………………………(2) where is the population proportion of better social responsibility and ethics of smallholders coffee producer farmers in the jth cooperative, ith farmers response for the social responsibility and ethics impact components index of change on social life, individual level characteristics of study subjects or independent variables and are their associated regression coefficients or parameter to be studded. internationally fair-trade certification impact on small household farmers is evaluated in three main ways. those are:  economic impact  social responsibility and ethics  environmental impacts from these three indicators we used social responsibility and ethics impact to evaluate the fair-trade certification on small household farmers of cooperative union. for selected indicators of social responsibility and ethics, we selected employment (job opportunity) creation and child school enrolment as a proxy. the question of better social responsibility and ethics at household level is expressed in dichotomous form. thus, “better social responsibility and ethics of smallholder coffee producer farmer” is assigned a value of 1, otherwise 0. which means that, if social responsibility and ethics indicators employment (job opportunity) creation and child school enrolment is at better status (which is dichotomous variable) or if the response of smallholder coffee producer farmers is ‘’yes’’ it takes 1 value and if the response is ‘’no’’ it takes 0 value. 3. result and discussion 3.1. the impact of fair-trade certification on employment creation of smallholder coffee producers according to table 3.1, the coefficient (or parameter estimate) for the variable educational level is 2.536. this result implies that for every one-unit increase in education level, we expect a 2.535665 increase in the log-odds of the dependent variable employment creation (social responsibility and ethics), keeping all other independent variables constant. the coef-ficient (or parameter estimate) for the variable fair-trade membership status is 3.412. this result implies that for every one-unit increase in fair-trade membership status, we expect 3.412 increase in the log-odds of the dependent variable employment creation (social re-sponsibility and ethics), keeping all other independent variables constant. the coefficient (or parameter estimate) for the variable household headship status is 0.135. this result implies that for every one-unit increase in household headship status, we expect 0.35 increase in the log-odds of the dependent variable employment creation (social responsibility and ethics), keeping all other independent fair-trade certification impacts on social responsibility and ethics of smallholder coffee producers in ethiopia 49 variables constant. also household headship (being male) and education level determine employment creation positively and significantly. according to the finding of the study, fair trade certification empowers social responsibility and develop-ment. although this is a difficult quality to measure, thrive regarding employment creation, and its associated capacity and knowledge building. there are social benefits of group membership, including support through tough times, networking, and idea sharing. since fair-trade members are internally noncompetitive, coffee farmers have no reasons to be hesi-tant about sharing their best practices and expertise. the entire community, particularly poor people are empowered when social responsibility and development is built up, their em-ployment participation increases, and their positive influence is magnified. generally, with the stability that long-term employment contracts and minimum prices provide producers and employees feel as though they are in control of their future. table 3.1 binary logistic regression result (n=383) source: study survey, 2017 3.2. impact of fair-trade certification on child school enrolment status of smallholder coffee farmers rendering to table 3.2, the coefficient (or parameter estimate) for the variable fair-trade certificate membership status is 1.319. this shows that for every one-unit increase in fair trade membership, we expect a 1.318028 increase in the log-odds of the dependent variable (child school enrollment), keeping all other independent variables constant. also education level and family size affect child school enrollment significantly and positively as the result of table 3.2 indicate. education has been time and again identified as an essential building block for development. fairtrade helps support education in a variety of different ways. fairtrade members benefit from technical staffs, who instruct farmers how to develop coffee quality through organic production methods, cultivation techniques like shade grow-ing, and appropriate coffee handling. fair-trade members learn to have access to a plenty of market information from their fair-trade contact personnel. fair-trade members get tutor and advise to send their children to school. additionally, members of fair trade feel more secure on approaching non-fair trade mem-bers because of their enhanced capacity and understanding of how usual international cof-fee sales work. since the introduction of fair trade, relatively families of fair-trade members can afford to send their children to school because of their better standard of living than non-fair trade members. in jimma zone, fair-trade membership has allowed families to pay of children’s education and purchase required uniforms, shoes and books. table 3.2 binary logistic regression results (n=383) dependent variable (employment creation) coefficient standard error (r) z p> |z| age of household head (continuous) 0.009 0.017 0.50 0.618 household educational level (continuous) 2.536 0.318 7.97 0.000 dummy, fair-trade membership status(1=member) 3.412 0.486 7.02 0.000 dummy, hh headship status (1=male) 0.135 0.441 2.98 0.003 total farm size (continuous) 0.154 0.136 1.13 0.258 total coffee land (continuous) -0.332 0.220 -1.51 0.113 cons -5.741 0.972 -5.91 0.000 dependent variable coefficient standard error (r) z p> |z| household educational level (continuous) 0.725 0.263 2.76 0.006 wondaferahu mulugeta demissie & sisay tolla whakeshum & fikadu gutu bulga 50 source: study survey, 2017 in conclusion, our finding is in agreement with the study conducted by kruger (2007), stated that based on a simple neoclassical model of household time allocation, the number of children engaged in farm work could decrease if household income rises due to fair trade certification. at the same time, however, child labor could be positively correlated with fair-trade certification due to an increase in the demand for family labor, as has been suggested by the investigator in her study of the child labor response to the temporary surge in coffee prices during the 1990s in brazil. 4. conclusion and recommendation 4.1. conclusion the core of this study design was a cross-sectional based survey, with main objective to analyze the social responsibility and ethics impact of fair-trade certification on small-scale coffee farmers in ethiopia. the assessment centered to issues of social responsibility and ethics with the indicators variables of child school enrollment and job opportunity at house-hold. to answer the objectives of the study, we adopted a combination of research tools, generally both quantitative and qualitative. this involved a long paper-based questionnaire applied to stratified random samples within the research sites and interviews with fair-trade members and non-fair trade members identified from the survey sample respondents in accordance with a set of analytical criteria, so as to allow for more detailed and different kinds of evidence. this study generated the following remarkable empirical findings. according to the output of the study, fair-trade certification has a direct and significant impact on social responsibility and ethics of small household coffee farmers and also plays great role in the development of infrastructures in the study area. fair-trade has improved the life of fair-trade certified cooperative member than non-certified members. fair-trade certification influences social responsibility and ethics of smallholder coffee producers posi-tively. the entire community around fair-trade certified cooperative has been enjoying the social projects implemented by the fair-trade premium funds. with these benefits small scale farmers are enjoying job opportunities. this positive impact of fair-trade certification direct-ly leads them to send their children to school better than the conventional coffee coopera-tives and also encouraged certified farmers to enhance their coffee production as fair-trade benefits directly related to coffee volume traded. in addition, the finding suggested that those who are members of fair-trade group have developed the awareness of the necessity of sending their children to school with a full supportive materials and hiring legal labors for productions of coffee. as for the effectiveness and efficiency of the fair-trade approach in general, it has been shown that the awareness of fair-trade members about social responsi-bility and ethics has direct as well as indirect effects on sustainable development and growth at regional and national level. finally, the motivation of the respective decision-makers and the general information and understanding of fair -trade certification impact among the respective farmers and workers are decisive success factors for the program as planned. however, beside this success story of fair-trade certification, inflexible governments rule and regulations, non-inclusive nature of fair-trade certification and complex bureaucracy were the main obstacles not to provide optimal outcome, which can be help for sustainable de-velopment and growth of the country. 4.2 recommendation dummy, fair-trade membership status(1=member) 1.319 0.280 4.71 0.000 total farm size (continuous) 0.075 0.117 0.63 0.536 total coffee land (continuous) 0.120 0.191 0.62 0.533 family size (>5 member) 0.281 0.476 5.91 0.000 cons -2.595 0.467 -6.32 0.000 fair-trade certification impacts on social responsibility and ethics of smallholder coffee producers in ethiopia 51 based on the finding of the research, the researchers forward the following recommenda-tions for optimal exploitation of fair-trade certification. fair-trade certification as a trade license has a promising result regarding social responsibility development advantages to small-scale coffee farmers directly and the society (nations) in general. this particular research study result also shows that fair-trade certification has a great impact on small-scale coffee farmer wellbeing in changing the livelihood of destitute coffee farmers and also improved the development infrastructures of community. therefore, fair-trade certification should be considered as one of development riding forces and instruments among policy makers at regional, national and international level. fair-trade plays a great role toward achieving social responsibility development which is reflected by employment creation opportunities and child school enrollment expansion due to the begin-ning of fair-trade certification. and the study assured this reality. consequently, anyone who has a vision of unemployment reduction and illiteracy eradication should consider fair-trade certification while setting up socioeconomic development strategies. indeed, this research suggests that office-holders regarding fair-trade administration need to pay far more atten-tion to make working procedures of fair-trade certification more flexible, easy as well as should be inclusive to achieve the main objectives of fair-trade certification at all level. references bäckman, t., 2009. fairtrade coffee and development-a field study in ethiopia. bacon, c., 2005. confronting the coffee crisis: can fair trade, organic, and specialty coffees reduce small-scale farmer vulnerability in northern nicaragua?. world development, 33(3), pp.497-511. bacon, c.m., ernesto mendez, v., gómez, m.e.f., stuart, d. and flores, s.r.d., 2008. are sustainable coffee certifications enough to secure farmer livelihoods? the millenium devel-opment goals and nicaragua's fair trade cooperatives. globalizations, 5(2), pp.259-274. barham, b.l., callenes, m., gitter, s., lewis, j. and weber, j., 2011. fair trade/organic cof-fee, rural livelihoods, and the “agrarian question”: southern mexican coffee families in transition. world development, 39(1), pp.134-145. becchetti, l. and costantino, m., 2008. the effects of fair trade on affiliated producers: an impact analysis on kenyan farmers. world development, 36(5), pp.823-842. calo, m. and wise, t.a., 2005. revaluing peasant coffee production: organic and fair trade markets in mexico. global development and environment institute, tufts university. flo, 2003. fairtrade standards for coffee. version january 2003. bonn. grote, u., basu, a.k. and chau, n.h. eds., 2007. new frontiers in environmental and social labeling. springer science & business media. jaffee, d., 2014. brewing justice: fair trade coffee, sustainability, and survival. univ of california press. kruger, d.i., 2007. coffee production effects on child labor and schooling in rural brazil. journal of development economics, 82(2), pp.448-463. milford, a., 2004. coffee, co-operatives and competition: the impact of fair trade. cmi report, 2004(6). noel veraverbeke, yilma tefera, legesse negash, zeytun gashaw, belay birlie, 2012. notes for the course principles of statistical inference. north-south-south project in biostatistics series, belgium. valkila, j., 2009. fair trade organic coffee production in nicaragua—sustainable develop-ment or a poverty trap?. ecological economics, 68(12), pp.3018-3025. journal of international trade, logistics and law, vol. 5, num. 2, 2019, 1-9 1 practices and challenges of supply chain management between eu and nigeria: a research on i̇nternational trade said abdullahi usman, i̇stanbul okan university, turkey ahmet murat köseoğlu i̇stanbul okan university, turkey received: june 22, 2019 accepted: nov 19, 2019 published: dec 30, 2019 abstract: the study was conducted on challenges of supply chain management that affect the international trade between nigeria and the eu. the study used pure qualitative approach using secondary data from the national database and various sources for the period of 2007 to 2018. the research provides an overall view of how the practices of logistics and supply chain from two distinct part of the globe (nigeria and the eu) are assessed and identifies the components included and how it affects the foreign trade between both parties. the research aims to find out the factors and attributes that lead to efficient logistics management and supply chain practices that will affect the performance of organizations and improve trade between nigeria and the eu.the topics consist of introduction, general idea about supply chain management, the general information about nigeria and its international trade, the current overview of the eu and its international trade with west africa precisely nigeria. lastly, recommendations are suggested so as to help enable improvement and growth in the sector of (foreign) trade for nigeria through effective management of logistics. keywords: supply chain, international trade, challenges 1. introduction the role-played by logistics and scm in the development of any nation cannot be overemphasized. efficient utilization of the supply chain is a vital aspect in any business as it is directly connected to the cost of goods manufactured. practices in the supply chain industry have huge impact on trade connecting nigeria and european union. according to (martinelli and ilo 2012) nigeria is also known as an african powerhouse. it is a strategic partner for the eu, a vital partner in the region and performs a two-sided role by stabilizing the ecowas peace and security architecture. in line with the rise in international trade, the diminution of the borders between countries, the advancement of the concept of globalization, the logistics and supply chain industry has recently become very critical for organizations however despite the growth, the trade between the eu and nigeria is still yet to attain its potential due to poor practices in the supply chain management. the focus of this paper is to understand the problems of supply chain management between nigeria and the eu and how this issue affects the international trade between both parties and also to stretch out the lessons that can be drawn from it which can help nigerian companies to better and effectively strengthen their supply chain. 2. literature review said abdullahi usman & ahmet murat köseoğlu 2 oliver & webber (1990) state that the expression "supply chain management" initially came up in 1982. around 1990, scholars first described scm from a conceptual perspective to distinguish it from conventional methods and terms (logistics) to the management of material flow and the related information flow (cooper et al., 1997). the expression “scm” has become more recognized in the last twenty years due to the increase in findings on the subject (ashish, 2007). the global supply chain forum describes supply chain management as the unification of important aspects from end user through original suppliers that provides products, services, and information of a business that increase benefits for consumers and various members (lambert et al., 1998). the concept and practices of supply chain management have gained popularity from managers, scholars, and consultants (hamister, 2012). the comprehension and implementation of scm approach occupies a crucial place for companies to stay competitive and for increasing profit in a growing and fierce international marketplace. the execution of supply chain management approach is not restricted to production companies only and is applied as well in the distribution sector (randall et al., 2011). according to (ajiboye and afolayan 2009), supply chain management and logistics are very crucial in the overall growth of any country. supply chain management and logistics in every community be it underdeveloped, developing or developed are both focused on the safe and efficient transportation of people and products from one place to another. millions of passengers travel by road, rail, air, and water throughout the world in general and in nigeria, in particular, every year all the products that are imported and exported pass through the logistics supply chain. ajiboye (2009) states that the position for logistics and sc planners, managers and engineers in nigeria in 2000s continues to rise despite the meltdown episode. this growth depends upon a number of factors such as the fact that logistics and supply chain management profession is relatively young and small while the supply chain and logistics industry is expanding at a rapid rate and has resulted in an ever-increasing demand for professionals with balanced knowledge of the various factors of scm and logistics to meet the current challenges and future challenges. in the last decade, part of the key components that contributed to the economic growth is the logistics industry with europe been another example. several signals are turning to red in europe as a “hard brexit” is anticipated from talks between the uk and eu. the outcome for supply chains leaving the uk would create a high opportunity cost and huge loss for european union and united kingdom companies: increased administrative restrictions, customs border procedure, additional bureaucracy for import and export declarations, no further value-added tax, and customs duty integration. this will consequently have effect on revenue, finances, and transaction times. companies operating within the eu today are enjoying the eased system and the well-integrated european supply chain aspects with several components designed to maximize benefits from investments and provide continuous increased service levels. (liguori, 2017). 3. nigeria’s export performance the role of export as an essential component of international trade in the nigerian economy has increased during the years. nigeria uses foreign trade to import capital goods, raw materials, and consumer goods all of which are vital elements for prosperity and economic development. according to nbs, exports in the first quarter of 2018 were dominated by crude oil. it accounted for 76.3% of the total exports from nigeria.as shown in the table below. this shows a growth of up to 19.74 compared to the last quarter of 2017. table 1 practices and challenges of supply chain management between eu and nigeria: a research on international trade 3 2018 export first quarter products % share of total exports petroleum oils and oils obtained from bituminous minerals, crude 76.28 natural gas, liquefied 10.28 other petroleum gases etc in a gaseous state 0.66 sesamum seeds, whether or not broken 0.57 good fermented nigerian cocoa beans 0.50 naphthalene 0.38 urea, whether or not in aqueous solution 0.35 electrical energy (optional heading) 0.21 polyethylene having a specific gravity >=0.94, in primary forms 0.19 cigarettes containing tobacco 0.18 superior quality raw cocoa beans 0.13 other, medium petroleum oils 0.12 unwrought aluminum, not alloyed 0.11 cashew nuts, in shell 0.11 cocoa butter, fat and oil 0.09 source: national bureau of statistics. http://nigerianstat.gov.ng/elibrary?queries[search]=foreign%20trade by continent, according to the data given by nbs in 2018. europe is at the top with over 49% of the nigerian export going to the european continent then comes the asian continent with about 28% and finally the americas and the rest of african continent with a little over 12 percent and 10 percent respectively. table 2 http://nigerianstat.gov.ng/elibrary?queries%5bsearch%5d=foreign%20trade said abdullahi usman & ahmet murat köseoğlu 4 % of the top five countries in total export country of destination % share of total export netherlands 20.53 india 18.19 spain 8.35 united states 8.24 france 6.35 source: national bureau of statistics. http://nigerianstat.gov.ng/elibrary?queries[search]=foreign%20trade as part of the top 5 countries for nigerian exports in the first quarter of 2018, the netherlands is leading the way with over 20.53%. 4. nigeria’s import performance the dependence on imported products has created a huge demand for foreign exchange and a depreciation of the naira through the years. majority of the things in nigeria are imported from toothpicks to refined petroleum products. high importation has resulted in an almost nonexistent manufacturing industry leading to an increase in the country’s unemployment and underemployment numbers. (proshare, 2016). table 3 % of the top five countries in total import 2018 first quarter country of destination % share of total export china 21.09 netherlands 12.14 belgium 10.59 united states 6.51 india 6.27 source: national bureau of statistics. http://nigerianstat.gov.ng/elibrary?queries[search]=foreign%20trade as part of the top 5 countries for nigerian imports in the first quarter of 2018, china is leading the way with over 21.09% followed by the europeans netherlands and belgium with 12.14% and 10.59% . according to nbs, imports in the first quarter of 2018 http://nigerianstat.gov.ng/elibrary?queries%5bsearch%5d=foreign%20trade http://nigerianstat.gov.ng/elibrary?queries%5bsearch%5d=foreign%20trade practices and challenges of supply chain management between eu and nigeria: a research on international trade 5 were dominated by motor spirit (refined oil). it accounted for 28.52% of the overall exports from nigeria.as shown in the table below table 4 2018 import first quarter products % share of total exports motor spirit ordinary 28.52 gas oil 2.96 durum wheat (not in seeds) 1.99 cane sugar, meant for sugar refinery 1.85 imported motorcycles and cycles, imported ckd by established manufacturers >50cc<=250cc 1.53 durum wheat, seed 1.41 other herbicides, antisprouting products, and plantgr 1.24 used vehicles, with diesel or semi-diesel engine, of cylinder capacity >2500cc 1.17 lubricating oils to be mixed 1.16 parts; electrical apparatus for line telephony or line telegraphy 1.06 polypropylene, in primary forms 0.80 milk & cream in powder>1.5% fat not contain sweetening matter specially made for infants 0.73 mackerel (scomber scombrus, scomber australasicus, scomber japonicus) meat, frozen. 0.70 other paper and paperboard weighing 40g/m2 or 0.58 said abdullahi usman & ahmet murat köseoğlu 6 more but not more than 150g/m2 polyethylene having a specific gravity <0.94, in primary forms 0.57 source: national bureau of statistics. http://nigerianstat.gov.ng/elibrary?queries[search]=foreign%20trade 5. the pattern of trade between the eu and nigeria the partnership between the eu and nigeria has grown over the years. the eu is the main associate of commerce for nigeria, with the trade volume attaining 25.3 billion euros in 2017 (arrion, 2018). in spite of the growth in trade, nigeria has postponed the signing of the epa, which was initiated by eu with the goal of removing trade barriers with its ecowas member states counterparts. after almost a decade of multiple discussions initiated by the european union, the economic partnership agreement form was completed in 2014 with increasing advantages to emerging nations such as easier entrance to european union markets and better access into the world market. following pessimistic opinions from nigerian manufacturers and other various professionals citing the disparity of advantages to eu manufacturers having unrestrained rights into the local market over nigerian producers, the previous head of state, declined to sign the agreement (saction, 2016). currently, the businesses cannot rival with the more developed and advanced businesses in europe. the protection of the industries and the youth is prioritized (sahara reporters, 2018). there is also a huge trade imbalance in the pattern of trade between nigeria and the eu as shown in the figure below. figure 1 source: newsdairyonline, june 05, 2016. nigeria expresses concerns over ecowas-eu trade deal. http://newsdiaryonline.com/nigeria-expresses-concerns-ecowas-eu-free-tradedeal/ it reflects the state of the nigerian economy and how it lacks the means and ability to benefit from export of agricultural products to the eu markets. (saction, 2016). despite the growth, these issues are the ample reasons affecting the stability of the eu-nigeria international trade. 6. trade barriers the nation enforces various restrictions on exports and imports which are mandated politically in order to support spaghetti, noodles, meat products, furniture footwear and meat products to mention a few in order to boost and also support the local industries which helps the nations economy to a larger extent . the country also uses protectionism by charging tariffs or duties on some goods. there are various major categories in trade barriers. http://nigerianstat.gov.ng/elibrary?queries%5bsearch%5d=foreign%20trade practices and challenges of supply chain management between eu and nigeria: a research on international trade 7 poor infrastructure for movement, lack of adequate skills and lack of transparency in cross border management. some other problems such as difficulties to acquire local content criteria, and also exportimport licensing, which have been designed to facilitate the protection of the local manufacturers from sub-par or low quality imports. furthermore inclusion of trade barriers badly affects the chain of supply from the importers to the exporters. the cost of export and import in nigeria and africa is twice as high if not more when compared to the pacific region and east asia. although the quantity of foreign trade with nigeria is very high, it can be better managed in such a way that there is a remarkable increase with the removal of supply chain obstacles and barriers. 6.1. operational issues the system practiced in nigerian ports continues to bring about serious problems to trade. according to the importers the use of customs guide lines regarding trade is irregular the process is filled with corruption, unnecessary long procedure during clearance and also high prices for berthing of vessels, these issues mostly contribute to the reduction in terms of quality of most perishable goods and as a result this translates to huge losses for the importers. disputes that occur within the government agencies in nigeria as to the use and interpretation of the laws and regulations also cause unnecessary delays. delays and changes to the guidelines for import and export also contribute to the slow movement of goods in the nigerian ports. the method used by nigeria in checking imports is the destination policy. the destination policy is a policy that states that every import must be checked at the point of arrival in nigeria. the process is slow and archaic because it delays the process and it incurs cost for the importers. (export.gov, 2016). according to nifemi (2017), similar to other neighboring countries nigeria experiences the same issue of poor infrastructure. inadequate roads mainly add to the overall transportation cost for businesses. this cost of transportation is also increased due to an unstable market that is not mostly connected to the important road networks. the distribution challenges often as a result vary based on the nature of the goods and the location of the customer. another operational issue in scm affecting the trade between the two partners according to nifemi (2017) is the storage and inventory management issue. some distributors do not have the befitting warehouse infrastructure for the goods that they distribute. for example, food stuff that have to be stored in cold rooms will end up wasted due to the irregular power supply that affects every nigerian business. also due to the immense storage cost, some distributors outsource their warehousing, exposing their various partners to additional risk. the absence of the required information technology infrastructure creates a lack of clarity and comprehension of the market, making it complicated for managers to monitor the of stock levels and to provide information with associates in the market. 6.2. governance and trade policies although the nigerian customs service created a website to assist in the provision of information which would be of importance to both the importer and exporters and all the stakeholders. disagreements between various government agencies regarding the uses and limits of the stipulated laws mostly causes unnecessary changes and delays as to how goods or the process in which goods are moved in the nigerian ports. 6.3. regulations for international trade between the eu and nigeria since 2000, the cotonou agreement has governed trade relations between nigeria and european union. the present government focuses on nigeria’s benefits i.e. the european union gives the country better terms for its trade with europe often more than what the european union gets in return. this arrangement is not officially in accordance with the wto rules for international trade. hence, when the cotonou agreement was put into practice, the signatory countries demanded for, and obtained, a waiver from the various partners of the world trade organization (european union external action, 2016). nigeria gives customs duty exemption to imports of, agricultural goods such as fertilizer, seeds and machinery to allow growth in agricultural productivity. duty-free imports of plants and machinery for the mining sector are said abdullahi usman & ahmet murat köseoğlu 8 permitted. several products imported into export processing areas are exempted from customs duties and other taxes. the cit holiday is the main tax inducement given to enterprises, mainly to businesses that are well established. the country applies these industrial strategies to enable usage of various resources, and value added/manufacturing. (tralac, 2017) 6.4. recommendations following the findings of the study: these are the feasible recommendations.  despite the provision for several range of incentives that are mostly tax or import-tariff related and that affect businesses manufacturing for the local as well as international market, nigeria needs to focus on further diversifying its economy in order to increase its capacity of trade and not remain limited to the oil and gas industry.  the government and also the companies would need to provide special training programs for staffs in order for them to have the necessary skills and to avoid issues such as deficiency in several aspects, lack of skilled labor. this would help manage and tackle better the other huge issues impacting cargo and shipments such as theft, mishandling and other immense charges  the government should enforce international regulations and standard of operations to provide an increase in the acceptance of the made in nigeria products. the focus should be on producing more globally focused products.  soft border management should be taken into consideration to solve the border administration issues (delays, corruption etc.) 7. conclusion the nigeria-eu relations have been rapidly developing over the past years. africa has become an important player in global economics and trade, and a crucial factor of international growth and development. in addition to that, nigeria has grown to be an important partner for eu-africa export and import activities. the nigeria-eu economic and socio-political relations are still in their introductory stage of development. however, the recent developments and latest data show that they are steadily and constantly growing and improving. according to the author, logistics remains the main problem of the nigeria-eu international trade. it is safe to say that efficient and effective supply chain and trade practices will have positive impact on the business capacity mainly the nigerian companies and eventually lead to economic growth in nigeria. a successful management of the supply-delivery chain requires many decisions such as information sharing, products and capital. the establishment, organizing and practices of a supply chain have huge effects on the revenue generation and overall result of a company. the planning of the supply chain enables companies to function better in the short term and to have better coordination hence avoiding issues such as the bullwhip effect. while in the planning stage, nigerian businesses have to provide a certain degree of contingency hence creating a need for structural flexibility in order for the supply chain to adapt to the demand or tbe supply side of the business, forex and competition for that limited period the planning phase should help businesses determine the types operational rules that guide their immediate and long-term operations. the top managers in companies have to consider supply chain as one of the key aspects towards the attainment of high performance levels in nigerian trade. for a developing country like nigeria to compete on the global arena in term of supply chain practices, a proper and transparent implementation of the exemption of trade barriers is necessary and also a huge investment in innovative systems is required in order to boost the nations prospects in international trade. a significant part of the growth in the supply chain trade is due to the advancement in technology, which helped in decreasing the risk and costs in the global supply chains. additionally, for nigeria there is a need to review and improve its capacity in terms of skills, capital and innovation in order to upgrading its status in global supply chains practices and challenges of supply chain management between eu and nigeria: a research on international trade 9 in conclusion everything that has an advantage would surely have some disadvantages. the issue of improving supply chain performance to enhance the trade between nigeria and the eu remains a complex problem, thus in line with the various reasons mentioned in the analysis and as stated by the world bank, efficient and effective scm performance is highly related with trade growth, export diversification, and the capacity to stimulate fdi’s, and economic development.” . references ajiboye a. o. & afolayan, o. (2009b). a study of the transportation factors militating against agricultural production in a developing country: the case of africa journal of technology policy. vol. 5, no1, pp 263271. ashish, a.t. (2007) competitive advantage of a firm through supply chain responsiveness and scm practices (doctoral dissertation) retrieved from dissertations and thesis database . arrion, m.2018 “eu, nigeria trade volume hit 25.3 billion euros” retrieved from https://economicconfidential.com/2018/05/eu-nigeria-trade-volume-hit-25-3-billion-euros/ cooper, m. c., lambert, d. m., and pagh, j. d. (1997), supply chain management: more than a new name for logistics, the international journal of logistics management, vol. 8 no.1, pp. 1-14 export.gov 2016. “foreign trade barrier”. retrieved 31.07.2018 from https://www.export.gov/article?id=nigeria-trade-barriers european union external action. 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(1982), supply chain management: logistics catches up with strategy, logistics: the strategic issues, london, uk: chapman & hall. proshare. 2016 “import substitution in nigeria: feasibility and path towards reduced import content.” . https://www.proshareng.com/news/nigeria%20economy/import-substitution-in-nigeria--feasibility-andpath-towards-reduced-import-content-/30809 saction.2016. “nigeria and eu’s epa: economic cooperation or economic slavery?” retrieved on 31.07.2018. http://saction.org/wp-content/uploads/publications/epa_briefing.pdf tralac.2017. “trade policy review: nigeria” retrieved 23.07.2018 from https://www.tralac.org/news/article/11745-trade-policy-review-nigeria.html https://www.tralac.org/news/article/11745-trade-policy-review-nigeria.html journal of international trade, logistics and law, vol. 8, num. 1, 2022, 1-10 1 factors affecting agricultural input loan repayment in southern ethiopia: evidence from soro district negese tamirat mulatu jimma university, ethiopia sanait tadele hagayo jimma university, ethiopia received: nov 13, 2021 accepted: march 18, 2022 published: june 01, 2022 abstract: this study was conducted to assess determinants that influencing smallholder farmers loan repayment in soro district. agricultural sector plays a key role in alleviating poverty. this study was aimed at investigating the determinants of input loan repayment in the soro district using cross-sectional survey data gathered in 2018/19. a primary and secondary source of information through structured questionnaires, key informant interviews and focus group discussions were used. descriptive analysis and econometric methods such as probit regression were employed for the data analysis. the probit regression result revealed that variables such as educational level, landholding, expenditure of household, crop income of household, credit borrowed to input, and owned oxen significantly influences smallholder agricultural input loan repayment. hence, emphasis should be given to enhance loan repayment in the sector through by enhancing the practices of relatively agricultural input loan repayment in soro district. hence, enhanced loan repayment that will be a key to achieve alleviated poverty. keywords: agriculture input, loan repayment, probit model, soro district, southern ethiopia 1. introduction agricultural sector is key in alleviating poverty less developed country, especially in sub-saharan african countries. in ethiopia agriculture is a basic tool in achieving millennium development goal (mdg), and basis to achieve food security (world bank, 2008). the sector in ethiopia accounts 45% of gdp of the country; provides 85% of employment opportunity; 90% of export revenue, and 70% of raw materials for country’s industrial sectors. however, the sector faces low yield with high potential due to low adoption and practices of improved agricultural technologies (bekele and kasse, 2005). the development of agriculture sector is important to enhance agricultural production and yield improving techniques. therefore, enhanced technology, improved finance, increase farm investment, better rural credits, decrease expenditure and high income were important sources to enhance yield (singih et al., 2008). farm sector controls overall economy in southern ethiopia. the sector also faces low saving, and yield due to backward yield enhancing techniques. short – term and medium – term credits are crucial to employ yield enhancing fertilizer, and seeds. hence, off – farm income, and farm income is important enhancing productivity in agricultural sector. in ethiopia agricultural sector faces limited financial resources due to decreased in land fertility, and increased in demand for agricultural inputs. the sector is resulted very large sustainable credit utilizations (zemen, 2005). the sector in the district was featured by subsistence farming system, and over degraded cultivated lands. majority of farmers in soro district lack of cash to purchase fertilizers, and seeds. therefore, it is better that government and concerned private sector provide agricultural input loan, that inturn important to improve yield (bekele and kasse, 2005). limited information, fail cooperative work, and fail in repay their loan increases problem in agricultural loan repayment cooperatively. however, there was limited empirical evidence on the factors that affecting agricultural input loan repayment in soro district. consequently, it is important to describe the existing level, identify the factors negese tamirat mulatu & sanait tadele hagayo 2 that determine agricultural input loan repayment. unlike the other studies, this study assesses the determinants of agricultural input loan repayment in the study area. this study, enhance agricultural input loan repayment on productivity thereby providing useful information, bridge the existing knowledge and helps to enhance the success of agricultural crop production. therefore, the main focus of this study was to assess the agricultural input loan repayment in soro district. specifically, the study was to assess determinants that influencing agricultural input loan repayment in the study area. credit plays very key role in agriculture, and entrepreneurships (rashid, 2010; shultz, 1964). accumulated savings, and capital market is crucial to adopt modern agricultural techniques (rashid, 2010). a recent study conducted in the country work inefficiency due to market imperfections (jermay, 2004). due to limited finance, it is difficult employ enhanced fertilizers and seed (tenaye, 2007). in the sector inputs are expensive, farmers can not buy enough inputs by their own cash. agricultural input loan facilitated for production and consumption (mark and khandker, 2001). agricultural loan has effect on enhancing production, consumption, investment, income, equilibrium, and wage (joseph and robert, 2009). use of credit boost yield through enhancing fertilzer, and seed. credit employed as a key market stability (ifad, 2001). it also an important role in alleviating consumption deficits. credit increase saving, saving will in turn increase yield. agricultural loan enhances employment opportunities (wolday, 2003; assefa, 2004; bekele, 2001; zemen, 2005). credit plays a surprised role agriculture in nigeria employed tobit model (arene, 1992). results presented that higher credit use increases maize yield impressive. (singih et al., 2008), a study conducted loan default higher at large farmers than counterparts in punjab. size of family, asset, and expenditure affects agricultural input loan repayment of defaulters than non-defaulters. determinants that influencing performance of inputs loan in ethiopia by employed tobit model (million, 2004). the results presented that agricultural inputs loan significantly determined by credit, income, social ceremonies, and extension. land, labor, membership, and credit determine borrower repayment their debt (belay, 2005; zemen, 2005). by applied logit regression larger loan better in terms of performances than counterparts (bekele, 2001). appropriate evaluation of loan repayment is crucial to encouraged minimum standard loan applications (belay, 1998). 2. methods 2.1. description of the study area this study was developed in soro districted. it is suited in southern ethiopia and lying between 7023’00” and 7046’00” north latitude and 37018’00” and 37023’00” east longitudes. the altitude that lies from 840 to 2850 m asl. gimbichu capital of the district is about 260km away from addis ababa and 32km southwest from hosanna. the district comprises 46 rural kebeles, 3 rural towns and has total population of 229,617 of which 114,489 (48.86%) are men and 115,128 (50.18%) are women. from given total population, 14% dwellers are found in urban. the district has a population density of 222km2 and average landholding farm family is 0.4ha and has a total area of 58,061ha. as the swado reports 2015/16 the soro district faces three basic agro – ecological zone: namely; dega (14.2%); woynadega (53.1%) and kola (32.7%). the average yearly rainfall of 1260mm and mean temperature 190c. the cultivating system of soro district is subsistence mixed crop and livestock cultivating. the major types of cereals grown in the soro district are wheat, teff, barley, maize, and sorghum. thus, both crop and livestock contribute their share to the farmers’ agricultural income. hence, assessing smallholder farm agricultural input loan repayment to improve agricultural productivity. soro district is one of the main surplus grain producing area of the hadiya zone and wheat and teff are the main cash crop too. 2.2. sampling techniques a multi stage sampling techniques was applied to select the sample kebeles, and respondents. this research developed non-probability and probability sampling methods to select the respondents from a given population in the district. first stage: from given total of hadiya zone 11 district, soro district was purposively selected, based on its amount and volume of production, accessibility and communication. in the second stage, take into account the resource available, five kebeles (kecha, bure, sundusa, kosha and danetora) were selected based on their agro ecological zone. third stage: smallholder cultivator was presented for each selected keble and respondents were selected by simple random sampling method, and respondent was developed, and allocated to each selected kebele through proportionately. the cross-sectional survey was developed in the months of may and june 2019. the factors affecting agricultural input loan repayment in southern ethiopia: evidence from soro district 3 sample size from given total population was developed based on the simplified formula given by (yamane, 1967). where n is the sample size, n is the population size, and e is the level of precision. n is the total number of cultivators in the selected kebeles (20,500 hhs), and e is acceptable error margin 9%. it could be calculated by employing below given formula: n = n 1+n(e)2 = 20,500 1+20,500(0.1)2 = 100 2.3. data collection in this study, descriptive and econometric data analyses were developed. primary and secondary data sets as well as both qualitative and quantitative primary data were developed for the study. the primary data sets were collected from farmers through questionnaires, interviews, and discussion. both open and close-ended questionnaires were conducted to achieve all objectives of the study. primary data was prepared from february to june 2018/19 farming seasons. the supplementary data such as secondary data sets were collected from published and unpublished sources, agricultural and rural development administrative offices, omo microfinance institutions, banks, internets, and empirical literature. 2.4. method of data analysis after all necessary data were collected; it was analyzed through descriptive and econometric models by the study. econometric models were developed in order to assess determinants influencing the input loan repayment. probit model was developed to analyze determinants influencing agricultural input loan repayment (agricultural input loan repayment takes a dummy variable 1 if the repayment, 0 otherwise) by using data that was collected through structured and semi-structured questionnaire from smallholder farmers. stata software version (13) was employed for the analysis of the data. some empirical studies applied multiple regression (ols) to analyze the factors of smallholder saving (gedela, 2012). however, multiple regression has its own drawbacks; the use of ols techniques in censored sample data sets make ols estimates biased and inefficient, thus influencing the basic tenets of best linear unbiased estimator (blue) conditions. however, ols estimates become biased and inefficient depending on the number of zeros in relation to the number of samples in the data set. the greater is the number of zeros in relation to the sample, the greater is the instability of the ols estimates and vice versa. ols regression indicates to inconsistent parameter estimates because the sample is not represented of the population. the employ of a tobit model is presented on theoretical grounds in preference to ols methods for data sets with censored samples (gujarati, 2003). to investigate the determinants of households’ s agricultural input loan repayment the study intended to employ tobit model. in order to estimate the effect of main determinants of household agricultural input loan repayment and to assess the determinants that agricultural input loan repayment. the dependent variable in this study is household agricultural input loan repayment. thus, complete regression model, that is, tobit model is better for such types of dependent variables. the tobit model that the study employed is censored from below: 𝐴 ∗= 𝑋𝑖𝛽 + µ𝑖………………………………...........................................................………............1 𝑖 = 1,2,3,4,5………. n 𝐴𝑖 = 0 𝐼𝑓 𝐴𝑖 ∗ = 𝑋𝑖𝛽 + µ𝑖 = 0 𝑜𝑟 𝐴𝑖 ∗ = 0 𝐴𝑖 = 𝑋𝑖𝛽 + µ𝑖 𝐼𝑓 𝐴𝑖 ∗ = 𝑋𝑖𝛽 + µ𝑖 > 0 𝑜𝑟 𝐴𝑖 ∗ > 0 where: ai is agricultural input loan repayment of the 𝑖𝑡ℎ household head which is observable; ai * is the latent variable; 𝛽𝑖𝑋 is the independent or explanatory variables; 𝜇𝑖 = is the error term and where, 𝜇𝑖 n (0, σ2) xiβ = α + β1x1 + β2x2 + β3x3 + ⋯ βk + xk……………................................……............…. 2 the dependent variable in this model is ai is the household agricultural input loan repayment, calculated as: negese tamirat mulatu & sanait tadele hagayo 4 𝐴𝑖 = 𝑓(𝐻𝐻𝐴𝐺𝑖, 𝐻𝐻𝐹𝑆𝑖, 𝐻𝐻𝐸𝐷𝑈𝑖, 𝐻𝐻𝐿𝐻𝑖, 𝐻𝐻𝐸𝑆𝐶𝑖, 𝐻𝐻𝐶𝐼𝑖, 𝐻𝐻𝐶𝐵𝑖, 𝐻𝐻𝐹𝐼𝑖, 𝐻𝐻𝑁𝑂𝑖, hhsxi .... 3 𝐴𝑖 = 𝛼 + 𝛽1𝑙𝑛𝐴𝐺𝑖 + 𝛽2𝑙𝑛𝐴𝐹𝑆𝑖 + 𝛽3𝑙𝑛𝐴𝐸𝐷𝑈𝑖 + 𝛽4𝑙𝑛𝐴𝐿𝐻𝑖 + 𝛽5𝑙𝑛𝐴𝐸𝑆𝐶𝑖 + 𝛽6𝑙𝑛𝐴𝐶𝐼𝑖 + 𝛽7𝑙𝑛𝐴𝐶𝐵𝑖 + 𝛽8𝑙𝑛𝐴𝐹𝐼𝑖 + 𝛽9𝑙𝑛𝐴𝑁𝑂𝑖 + 𝛽10hhsxi + µ𝑖 where, α is a constant term, 𝜇𝑖 is the error term and variance σ2 where, ai is agricultural input loan repayment; α is a constant term; agi is the age of household head; hfsi is the family size; hhedui is the educational level household head; hhlhi is the landholding of household in hectare; hhesci is expenditure in the celebration of social ceremonies; hhcii is crop income in birr; hhcbi is the credit borrowed to input; hhfii is the off – farm and non – farm income; hhnoi is the number of oxen owned, hhsxi is sex of household head and µi is error term. table 1: definition of the variables used for the analysis definition type expected sign age of household head (hhagi) continuous + family size household head (hhfsi) continuous educational level household head (hhedui) continuous + landholding household head (hhlhi) continuous + expenditure of household head (hhesci) continuous crop income of household head (hhcii) continuous + credit borrowed to input of household head (hhcbi) continuous + off farm and non-farm income of household head (hhfii) continuous number of oxen of household head (hhnoi) dummy + sex of household head (hhsxi) dummy + source: own construct 2018/19 3. results and discussion 3.1. respondents background the survey data results in the (table 2) below indicated that, from the total non-defaulter respondent's 76.2% are men and the rest 23.8% are women. while from the total defaulter respondent's 63.6% are female and the remaining 36.4% are male. this result indicated that majority of male farmers are non-defaulter and where female farmers are defaulter. this difference is happened due to difference in ability and willingness to purchase agricultural input and lack of information about the use of agricultural input like fertilizer, improved seed, chemicals and insecticide, and female headed household was less ability and willingness in work of agricultural activities then the production will be decreased in the study area. out of total non-defaulter farmers 76% are married, 15% windowed, 7.5% divorced and 1.5% single respectively. farmers those who are married have a potential to repay agricultural input loan than that of others. this difference is happened due to that, the farmers those who are married generate more income than the others so that they have better repaying capacity and highly motivated to use agricultural input loan. from the total non-defaulter respondent's 40.25% of farmers have between 3-5 family size, 32.8% of farmers having 6-8 family size, 18% of farmers having between 0-2 family size and remaining 8.95% farmers have above 8 family sizes. while from the total defaulter respondent's 39.4% of farmers having above 8 family sizes, 27.3% of farmers are having between 0-2 family size, 18.5% of farmers having between 3-5 family size and remaining 14.8% of farmers have 6-8 family size. this implies that, the farmers which have more family size are more default than those with small size of family, because the household consumption expenditure of large family size is higher than that of low family size. as the results of survey data, from the total non-defaulter respondent's majority was aged between 35-50 (53.7%) followed by 51-76 (29.8%) and 19-34 (16.5%). from the total defaulter farmer’s majority was aged between 51-76 (39.4%) followed by 35-50 (33.4%) and remaining was aged between19-34 (27.2%). farmers acquire more experience to use agricultural input loan as age number increase. age of farmers become older and older the ability and willingness to factors affecting agricultural input loan repayment in southern ethiopia: evidence from soro district 5 work and invest of farmer become lower so as a result their income also become lower and lower. therefore, input loan repayment is influenced negatively when the cultivator’s age become older and older. total non-defaulter respondents about 36 (53.7%) of farmers owned between 3.6-5 ha of lands, (32.85%) own between 2.1-3.5 ha of lands, 6 (8.95%) own above 5 ha of lands and remaining 3(4.5%) owned 0.5-2 ha of lands. total defaulter respondents about 23 (69.7%) of farmers owned between 0.5-2 ha of lands, 5 (15.15%) owned 2.1-3.5 ha of lands, 4(12.15%) owned 3.6-5 ha of land and remaining 1(3%) owned above 5 ha of land. therefore, based on the above results, those farmers who own more farm size have potential to repay the loan and to use agricultural input loan than that of farmers who have less farm size. according to income of respondent’s, out of total nondefaulter respondents about 23.8% of farmers earns income (40000-50000) birr from both from off and on farming income. from defaulter respondent's majority of farmers earn income (<10000) birr from both off and on farming income. this shows that the farmers who are non-defaulter get higher income than that of defaulter one from both on farm and off farm income. out of total non-defaulter respondents 46 (68.65%) of respondent get enough credit service from different governmental and non-governmental organization especially from cooperative; remaining 21(31.35%) of respondents does not have enough credit access from those organizations. from the total defaulter respondent's 21(63.64%) of respondents does not have enough credit access and the remaining 12(36.36%) respondents get enough credit service from different organization. therefore, based on this result. those farmers who have got credit from different organization have confidence to repay their agricultural input loan for the government and private cooperative organization than those who does not have enough credit access. from the total non-defaulter respondents about 24 (35.8%) farmers own 4 oxen, 23 (34.3%) farmers have owned 5 oxen, 10 (15%) own 3 oxen and remaining 7 (10.4%) and 3(4.5%) own 2 and 1 oxen respectively. from the defaulter respondent's, 14(42.4%) of farmers have no oxen for farming activities. therefore, based on the result of this survey the study, farmers those who have more oxen use more agricultural input in combination with their oxen and are more productive in agricultural activity. as a result, they have better potential to repay the agricultural input loan than those farmers who own few numbers of oxen. the survey data results indicated that from the total non-defaulter respondents, 29 (43.3%) of farmers attend primary school 1-4 and 27(40.3%) also primary school education from grade 5-8, farmers about 8(11.9%) are illiterate that means those farmers are not attend education and the remaining 4 (5.5%) farmers attend high school. from the total defaulter farmers around 20(60.6%) are illiterate, 9 (27.3%) farmers attend primary school education 1-4 and the remaining 3(9.1%) farmers are attending 5-8 class. therefore, based on the result of this survey data, on the side of agricultural input loan non-defaulter the majority of farmers attend primary school but on the side of defaulter farmers’ majority of them are illiterate. this difference in education level between the two creates difference in awareness about agricultural input loan repayment. therefore, more the educated the more knowledge about agricultural input and also agricultural input loan repayment. hence, education is key variable in enhancing repay loan debts. social ceremonies such as different holiday, wedding, mahiber, and birth day (kristina) were celebrated in the study area. according to the cross – sectional survey data result, 58 (58%) of farmers celebrated one or more of these occasional ceremonies and 42 (42%) of farmers does not celebrated any of the ceremonies. while from the total non-defaulter farmers, 36 (53.7%) of farmers celebrated different social ceremonies and 31(46.3%) of farmers does not celebrated social ceremonies and the total defaulter farmers 22(66.6%) farmers celebrated different social ceremonies and 11(34.4%) of farmers had not celebrate different social ceremonies. these social ceremonies have their own negative effect on the performance of borrower’s inputs loan repayment and force the farmer to apply the borrowed money for consumption. the result of this survey data indicated that from the total non-defaulter farmers 58(86.5%) use agricultural input like improved seed and fertilizer and the remaining 9(13.5%) of the farmers did not get agricultural input. while from the total defaulter 26 (78.8%) farmers did not get agricultural input and the remaining 7(21.2%) of farmers get improved seed and fertilizer. this presents that the defaulter group employed less input than non-defaulter group. this would be one main reason for their defaulting and as it has an effect on their production. out of total non-defaulter farmers 55(82%) of farmers are supervised by loan developmental agents in cropping season and remaining 12(18%) of farmers they did not supervised by any developmental agents. while from the total defaulter farmers 19(57.5%) of farmers are committee from member of loan and remaining 14(42.5%) of farmers are not supervised by any loan developmental agents. this supervision prevents the misemploy of credit for non-productive activities and hence facilitate regular repayment of loan. according to cross – sectional survey negese tamirat mulatu & sanait tadele hagayo 6 data result, supervision of borrowers by the developmental agents before the due date of loan repayment was found to be important. table 2: respondents background by determinant variables variables non-defaulter defaulter total sex frequency % frequency % frequency % male 51 76.2 12 36.4 63 63 female 16 23.8 21 63.6 37 37 total 67 100 33 100 100 100 marital status married 51 76 3 9 54 54 single 1 1.5 17 52 18 18 divorced 5 7.5 5 15 10 10 windowed 10 15 8 24 18 18 total 67 100 33 100 100 100 family size 0 – 2 12 18 9 27.3 21 21 3 – 5 27 40.25 6 18.2 33 33 6 – 8 22 32.8 5 15.1 27 27 >8 6 8.95 13 39.4 19 19 total 67 100 33 100 100 100 age 19 – 34 11 16.5 9 27.2 20 20 35 – 50 36 53.7 11 33.4 47 47 51 – 76 20 29.8 13 39.4 33 33 total 67 100 33 100 100 100 farm size 0.5 – 2 3 4.5 23 69.7 26 26 2.1 – 3.5 22 32.85 5 15.15 27 27 3.6 – 5 36 53.7 4 12.15 40 40 >5 6 8.95 1 3 7 7 total 67 100 33 100 100 100 off and on farming income <10,000 4 6 11 33.3 15 15 10,001 – 20,000 7 10.5 9 22.3 16 16 20,001 – 30,000 11 16.5 5 15.2 16 16 30,001 – 40,000 15 22.5 4 12.2 19 19 40,001 – 50,000 16 23.8 2 6 18 18 >50,000 14 20.8 2 6 16 16 total 67 100 33 100 100 100 access of credit yes 46 68.65 12 36.36 58 58 no 21 31.35 21 63.64 42 42 factors affecting agricultural input loan repayment in southern ethiopia: evidence from soro district 7 total 67 100 33 100 100 100 number of oxen 0 0 0 14 42.4 14 14 1 – 4 44 65.7 19 57.6 63 63 >5 23 34.3 0 0 23 23 total 67 100 33 100 100 100 educational level illiterate 8 11.9 20 60.6 28 28 grade 1 – 4 29 43.3 9 37.3 38 38 grade 5 – 8 27 40.3 3 9.1 30 30 grade 9 – 12 3 4.3 1 3 4 4 total 67 100 33 100 100 100 celebrate social ceremonies does not celebrate 31 46.3 11 34.3 42 42 celebrate 36 53.7 22 66.6 58 58 total 67 100 33 100 100 100 source: own survey, 2018 3.2. test for multicollinearity and heteroscedasticity the adequacies of the model have to be supported by diagnostic tests before proceeding to interpret the econometrics result. hence, generally the diagnostic tests depict, the model have good statistical properties. since the value of the variance inflation factor (vif) is equal to 1.62 multicolinearity is not a treat any more. the breuschpagan test also failed to reject null of constant variance against the alternative hypothesis of heteroscedasticity variance because, the estimated result chi-square (1) = 0.00 and prob>=0.9947. though there is slight indication of heteroscedasticity problem, the result is in favour of no heteroscedasticity problem at 5% level of significance. 3.3. estimation results of probit model according to the table 3, educational status positively influences agricultural inputs loan repayment at 0.08 marginal effect. this presented that higher year schooling increases agricultural inputs loan repayment, cetris paribus. education enhances probability of loan repayments through creating awareness and information on income, technology, and efficiency. hence, educational status creates better way to repay agricultural loan than illiterate one. the study similar with (gebrehiwot, 2007), presented a significant positive correlation between loan inputs repayment, and educational status of farmers. credit use similarly as educational status positive correlation with agricultural inputs loan repayment at 3.00 odds ratio. credit is a key source of income to farmers, that in turn increase expenditure of smallholders. household who has got credit have more adopt to repay loan than counterparts in table 3. landholding household head: this variable is positively correlated with agricultural loan repayment, and significant at 5% probability level. as stated, (table 3), marginal effect is 0.21. the positive relationship implies that cultivators, who have more farm size, are most likely to repay agricultural loan, cetris paribus. that means households’ farm size increases, the probability of repaying agricultural loan increases, ceteris paribus. as the cultivated land size increases, the household becomes able to increase agricultural loan repayment on the cultivated land; this may, in turn, imply enhance agricultural crop production and cultivator income. the possible explanation is that household’ cultivated land size increases, the probability of repaying agricultural debts crop increases. the study by (daniel, 2006), suggests that land is an important factor in influencing farmer ‘s decision to repay agricultural debts. oxen and repay of loan are positively significant at 0.14 marginal effect table 3. the oxen number increases by 1 tlu, the repay inputs loan decreases by 14%, cetris paribus. large number oxen will increase or make more repay debts. this presented that repay loan debts through sell oxen employed to buy fertilizer, seed, and to minimize risk. large number oxen mean there is large product, income, and repay loan debts. the study which is similar with the negese tamirat mulatu & sanait tadele hagayo 8 study of (wolday, 2003), showed that number of oxen of household positively influences agricultural loan repayment. expenditure of household head negatively influence repay of inputs loan debts at – 0.24 marginal effect table 3. enhancing expenditure of household head by 1, decrease repay debts by 14%. with opposite relation agricultural inputs loan repayment, lower expenditure enhances production and farmers income, which in turn enhances repay loan debts. crop income of household head: this variable is positively influence agricultural loan repayment and significant at 10% probability level. as presented table 3, marginal effect is 0.17 for crop income reveals that, cetris paribus, as agricultural crop income enhances by 1, the repay agricultural debts increase 17%. that means increase crop income make them possible to repay agricultural debts. it would also imply that repay agricultural debts have good access to financial source through increasing crop income which would be employed to buy farm inputs to increase agricultural productivity and income. the main reasons are household head that has high agricultural crop income will have high agricultural production and productivity, and they will use thier income for plowing so it is easy for them to repay agricultural debts. table 3: estimation result of agricultural input loan repayment probit model variable robust coefficient odds. ratio. p>│ z│ std. err marginal effect (dy/dx) hhagi 0.0134543 1.706479 0.144 0.0339506 0.132073 hhfsi 0.0618124 0.9894035 0.698 0.1655347 0.0026498 hhedui 0.2997398 1.383871 0.003*** 0.1140787 0.080799 hhlhi 0.4675242 2.554673 0.017** 0.2164611 0.2101116 hhesci 0.0004938 2.689239 0.009*** 0.0003478 0.2401024 hhcii 0.0000221 1.994709 0.087* 0.0000662 0.17093 hhcbi 0.0006671 2.9997181 0.004*** 0.0003224 0.2105701 hhfii 0.000036 0.679427 0.607 0.0000816 0.0949038 hhnoi 0.3569699 1.28934 0.027** 0.1609851 0.14142390 hhsxi 0.453894 2.1734 0.452 0.2160158 0.1099782 cons 4.115852 0.0064 0.000*** 1.497012 lr chi2 (9) 74.26 pseudo r2 0.5855 prob > chi2 0.0000 log likelihood -26.286512 number of obs = 100 *** p < 0.01, **p < 0.05 and * p <0.10 source: own survey, 2018. inferential statistics (such as chi-square and t-tests) were employed to provide further insights on factors affecting households’ adoption decisions. 4. conclusion and recommendations 4.1. conclusion this research was designed to investigate determinants that influencing agricultural input loan repayment of the smallholder households in the study area. a primary and secondary source of information through structured questionnaires, key informant interviews and focus group discussions were used. descriptive analysis and econometric methods such as probit methods, and field survey data were developed to achieve the objective of the study. this research employed field survey data collected in 2018/2019 cultivating season from 100 samples respondents. the study in the descriptive part presented that economically non-defaulter better than counterparts. in addition to this the descriptive result shows some socio-economic, institutional and demographic characteristics of respondent's by using percentage. the main factors affecting agricultural loan repayments are the educational level of household level, landholding of household head, expenditure household head, crop income of household head, credit borrowed to input of household head and owned oxen were found to be important variables to affect cultivators’ tendency to repay agricultural debts. therefore, it is employed to boost up the best way and practices to repay agricultural debts enhance agricultural repay of agricultural debts and productivity. factors affecting agricultural input loan repayment in southern ethiopia: evidence from soro district 9 4.2. recommendations education influence repay inputs loan debts positively. hence, enhancing adults, and youngster’s education through formal and informal way is a key to promote income and repay loan debts. therefore, boost up education of cultivator is one of the options to enhance production, income, and repay loan debts. oxen are farm assets that enhance farm security, income, repay loan debts, and food security. the research recommended that it is impressive to increase oxen, that increases repay loan debts. credit is another policy implication variable in this study. cultivators who have got higher credit have better repay loan debts, and performance of inputs loan. therefore, concerned body facilitate better environment to cultivating credit at competitive market price promote agricultural yield. the study also showed that as land holding increase the default rate decreased. farm size increase the output increase and enables that farmers to repay its loan on time. therefore, the farmers should increase farm size and government should give uncultivated land to the farmers to increase their production and farm size, the people can prevent those land from erosion and other land fertility problems, then efficiently use land for production. even though expenditure in the social ceremonies can affect the performances of loan repayment negatively. the study recommends that thus, concerned bodies especially the religion community leaders are to teach the community to minimize the practices. references arene, c. 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(2005). a study on the repayment of farmer’s multi service cooperatives agricul-tural input credit, m.sc. thesis alemaya university. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 53-58 53 the eu-korea panel report: a watershed moment for the tradelabor nexus or mere symbolic victory? louis koen university of johannesburg, south africa davy rammila university of south africa, south africa received: sept 13, 2021 accepted: nov 11, 2021 published: dec 01, 2021 abstract: there have been increased calls to link international trade law more pertinently with labor and environmental standards in recent years. this has seen a rise in the number of regional trade agreements incorporating labor standards. however, states have long appeared to be reluctant to seek enforcement of the labor standards through trade agreements. the eu-korea panel report, considered in this contribution, is the first trade panel to hold a state to have breached labor standards in a trade agreement. this contribution reflects on this important decision and what it means for the trade-labor nexus in the future. however, this contribution also acknowledges the lack of enforcement mechanisms and questions whether trade tribunals with limited enforcement powers will be any more successful than the ilo in promoting compliance with international labor standards. keywords: trade, core labor standards, freedom of association 1. introduction the international community has long recognized international trade as a critical contributor to economic growth and higher living standards for people across the globe (unctad, 2016). more recently, however, there has been increased recognition of the negative consequences of financial globalization for labor standards. this significant body of literature indicates that improved labor conditions have rarely materialized despite economic progress (davies and vadlamannati, 2013). against this backdrop, there have been increased calls for a social clause within the world trade organization (wto) framework from the mid-1990s. in 1996 the wto ministerial conference adopted the singapore declaration, which adopted the position that the international labor organization (ilo) is the most appropriate forum for the setting of binding international labor standards (ils) (wto ministerial conference, 1996). in light thereof, the wto did not take any role concerning binding ils which would permit states to impose trade restrictions in the event of a breach of these standards. insofar as the wto is concerned, the matter was definitively settled at the wto ministerial conference in doha, where the wto reiterated that it was not the appropriate forum for resolving disputes relating to ils. there have been no noteworthy attempts to include a social clause within the wto framework since this last failed attempt in doha (harrison, 2019a). the labor debate within the wto nevertheless contributed significantly to the eventual adoption of the ilo declaration on fundamental principles and rights at work. the ilo has also taken note of the trend whereby international labor standards are increasingly being included in regional trade agreements (agustí-panareda et al., 2014). the vast majority of preferential trade agreements that have been concluded since 2013 contain references to labor standards. the increased incorporation of these standards in trade agreements makes a clear understanding of their role of greater importance. (barbu et al., 2018). however, labor standards in trade agreements have also been criticized as being merely symbolic. some authors have expressed concerns over states perceived unwillingness to take action against trading partners for widespread labor standards violations (bodson, 2019). louis koen & davy rammila 54 the eu’s declaration of a dispute under the eurepublic of korea free trade agreement (eu-korea fta) has seen some authors express cautious optimism that the situation may be changing (koen & fourie, 2020). this contribution briefly reflects on the core labor standards and the increased incorporation thereof in trade agreements. it then proceeds to consider some of the concerns raised with respect to the trade-labor nexus before providing an overview of the eu-korea panel report and commenting on the extent to which the panel report has navigated the key concerns surrounding the trade labor-nexus. 2. the core labor standards the majority of regional trade agreements incorporating labor standards refer specifically to the ilo’s core labor standards. the ilo has recognized eight ilo conventions as fundamental conventions. these conventions address certain rights that are considered core labor standards and include: ‘freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labor; the effective abolition of child labor; and the elimination of discrimination in respect of employment and occupation’. states are encouraged to ratify all eight fundamental conventions. however, in the interim states must respect the principles underlying these conventions. states are then required to report to the ilo regarding implementation (ilo declaration on fundamental principles and rights at work, 1998). the core labor standards have also been criticized for creating a perceived hierarchy of rights. scholars such as weiss argue that although the declaration appears admirable it creates a perception that these rights are the most important. in contrast, other rights are merely regular or inferior labor rights. weiss also cautions that the declaration departs from the ilo’s traditional focus on hard-law obligations and instead follows a soft law approach (weiss, 2018). notwithstanding the reporting obligations, the ilo supervisory mechanisms also do not provide for any sanctions where there is non-compliance with the declaration. this lack of sanctions for non-compliance with the core labor standards through the ilo has also contributed substantially to advocacy for their inclusion in trade agreements. 3. opportunities and challenges in linking trade and labour standards advocates for trade and sustainable development have driven the inclusion of labor standards in trade agreements. the sustainable development movement advocates for the integration of a range of economic, environmental and social interests in a manner that results in the prosperity and posterity of humankind. gjuzi (2018, at 103) opines that at “the core of the concept are the global and local concerns for environmental protection (including human health) and social welfare (including human rights) in the context of economic development and growth”. proponents of the trade and sustainable development movement such as stoll, gött and abel (2018) have also argued that sustainable trade involves recognition by states that certain forms of labor, including work in the informal economy, involves a specific vulnerability of workers which may hinder the attainment of decent work for all. they argue that states are obligated to implement measures to address decent work deficits which these workers face in line with this recognition and their existing international obligations. proponents of linking trade and labor standards have also argued that states are more responsive to economic pressure than the ‘toothless mechanisms of the ilo and other international organisations’ (leeg, 2019). trade sanctions have been proposed as a mechanism to enforce compliance with international labor standards. the authors support these arguments in principle. however, broad economic sanctions can have far-reaching implications for the most vulnerable members of society and further inhibit sustainable development. it has become increasingly apparent that the adverse effects of economic sanctions disproportionately impact the poorest members of society (peksen, 2011). it would be counterproductive to the purpose of trade and sustainable development chapters if the adverse consequences of sanctions were so severe as to contribute to a substantial rise in poverty. this contribution’s support for ‘sanctions’ is accordingly limited to methods such as the suspension of benefits granted under the trade agreement rather than a wholesale economic embargo. this approach would also align more closely with wto law. ultimately, regional trade agreements operate outside of the general agreement on tariffs and trade (gatt) framework by virtue of the article xxiv exception. imposing limited measures under the regional trade agreement—that do not affect the state’s rights as members of the wto—would accordingly not need to be justified under the gatt. the state would merely need to continue providing the party who breached the labor standards with the most favorable treatment it offers to the most favored nation, outside of the context of a regional integration agreement, to be compatible with wto law (koen & the eu-korea panel report: a watershed moment for the trade-labor nexus or mere symbolic victory? 55 fourie, 2020). the authors, however, acknowledge that the suspension of benefits under the trade agreement may still contribute to an increase in poverty, albeit less severely. therefore, it may also be of value to investigate different compliance mechanisms in future trade agreements. in addition to challenges surrounding the enforceability of labor standards in trade agreements, the mere inclusion of labor and social standards in international trade agreements has attracted criticism. certain scholars posit that globalization has affected many social issues, so that connecting each of these with free trade is ‘like hanging too many ornaments on a christmas tree’. they argue that this may well result in the collapse of the international trade agreement system. the proponents of economic liberalism also argue that open markets will result in more rapid economic growth, ultimately leading to improved working conditions in developing countries (lyutov, 2017). many developing countries also initially expressed concern that social standards within trade agreements could be vulnerable to abuse by developed countries for protectionist purposes. other scholars support the linkage between trade agreements and labor standards but caution the need to ensure an interpretation of labor standards that align with the ilo's (addo, 2015 at 12). the responsibility for monitoring compliance with core labor standards has traditionally been the sole responsibility of the ilo, while trade disputes are resolved in other forums (such as the wto) established specifically for the resolution of trade-related disputes. there is a risk of diverging interpretations of labor standards by these bodies and the ilo. however, these challenges can be easily addressed, especially considering that the ilo supervisory mechanisms continuously monitor the implementation of ratified ilo conventions. these institutions have published and issued full and detailed comments on the meaning of provisions in the conventions and the core labor standards (agustí-panareda, 2014). if the institutions responsible for implementing labor standards in international trade agreements take due account of the views of ilo supervisory bodies, they can provide an effective additional avenue for the implementation of international labor standards (koen & fourie, 2020). 4. the eu/korea labour dispute the eu-korea labor dispute has its genesis in a request for consultations made by the european union to korea in december 2018, the failure of which led to the former declaring a dispute and requesting that a panel be convened pursuant article 13.15.1 of the eu-korea free trade agreement (eu-korea fta) in july 2019. the eu disputed measures taken by the korean government and provisions of the korean trade union and labour relations adjustment act (tulraa). specifically, the eu contested the propriety of four provisions of the tulraa which the eu claimed violated the first sentence of article 13.4.3 of the eu-korea fta by limiting the scope of the right to freedom of association (panel report, 55). the first part of article 13.4.3 enjoined the parties on the basis of their shared ilo and declaration on fundamental rights at work membership to respect, promote and realize “in their laws and practices, the principles concerning fundamental rights … [including the right to] freedom of association and effective recognition of the right to collective bargaining” (panel report, 61). furthermore, the eu also took exception to what it deemed to be the failure by korea to make sufficient efforts to ratify the ilo core labor conventions in accordance with the third part of article 13.4.3, which states that the “[parties] will make continued and sustained efforts towards ratifying the fundamental … [and other up-to-date ilo conventions]” (panel report, 55). korea, arguing against the property of the panel request on the specific issues, suggested that the measures contained in chapter 13 of the fta were subject to a trade affectation test and were therefore limited to issues that affected trade or investment between the parties (panel report, 56). however, so proceeded the contention, the eu had yet to establish that the issue before the panel constituted “a matter arising under the eu-korea fta” (panel report, 54). moreover, korea also argued that an adverse finding against its efforts, or lack thereof, to align its labor laws with, and give effect to, the rights in the aforementioned ilo instruments would amount to a proposal to harmonize the domestic labor laws of korea with those of eu member states (panel report, 80). from korea’s point of view, the parties in concluding the fta had not pledged to subject their sovereign rights to set levels of protection and standards in their labor laws against the provisions of the agreement, something which the eu panel request attempted to do. korea further suggested that the language of article 13.2.2 of the fta, which precludes the use of chapter 13 for protectionist purposes, supported its contention that the parties had not intended to subject their domestic labor laws to the application of the agreement beyond trade or investment (panel report, 86). louis koen & davy rammila 56 the eu contrasts korea’s first claim by arguing that article 13.2.1 of the fta includes the residual phrase “(e)xcept as otherwise provided in this chapter” which only operates when a provision in chapter 13 cannot be ordinarily ascertained (panel report, 59). in the eu’s opinion, the meaning of article 13.4.3 could be determined without defaulting to the rule under article 13.2.1 and was thus not subject to a trade affectation test. the panel agreed with the eu on the first point, observing that viewed both in context and in isolation, article 13.4.3 was unique within the architecture of chapter 13. it noted that the parties had drafted article 13.4.3 in such a way that the limitations to matters relating to trade between the parties that were present in other provisions of the chapter were completely absent therein (panel report, 72-74). having examined the meaning of the provision, the panel concluded that korea’s argument suggesting that the provision should be interpreted within the confines of trade-related aspects of labor could not be sustained. it opined that, in its ordinary meaning, article 13.4.3 fell within the scope of the “except as otherwise stated in this chapter” qualification contained in article 13.2.1 (panel report, 63). furthermore, it indicated that the first part of article 13.4.3 focused on both parties’ obligations arising from their voluntary membership of the ilo and the 1998 declaration (panel report, 64). the specificity with which the parties referenced the ilo constitution and the 1998 declaration including its attendant fundamental principles in the first sentence of article 13.4.3 was, in the panel’s opinion, indicative of the parties’ intention to commit themselves to the full scope of the internationally accepted meaning thereof (panel report, 64). the meaning within the context of the ilo instruments is one of universality of fundamental principles, of which the parties gave specific expression to by their replication of the instruments’ language. as such, the panel concluded that article 13.4.3 had been drafted in a manner that rendered the obligations assumed by the parties in terms of the provision incapable of being restricted to trade-related aspects of labor, as argued by korea (panel report, 65). moreover, the panel further noted that the eu-korea fta was explicitly constructed with these ilo instruments promoting links between trade and labor in mind, that the “promotion and attainment of fundamental labour principles and rights” envisioned by article 13.4.3, was inextricably linked to trade (panel report, 95). the panel also rejected korea’s harmonization argument and noted that what article 13.4.3 imposed on the parties was rather an obligation to establish the bedrock of fundamental labor rights. the right to set the levels and scope of protection fell squarely within the province of the respective member states. the panel said: “[t]he fundamental principles and rights and core labour standards mentioned in article 13.4.3 do not require harmonization of domestic labour laws or outcomes. … many of the member states which have ratified the relevant conventions both comply with their international obligations and maintain disparate systems of industrial relations, with very different substantive outcomes in terms of levels of economic development” (panel report, 81). the panel also considered various wto, ilo and oecd positions on the use of labor standards for protectionist purposes, each of which recognizes the compatibility of ilo core labor standards with trade and investment. the opinion from empirical research conducted by oecd as expressed by the panel notes that: “any fears that the application of these standards [the core labour standards and fundamental principles and rights referred to in article 13.4.3] might influence the competitive positioning of these countries in the context of [trade] liberalization are unfounded. on the contrary, they might even in the long term tend to strengthen the economic performance of all countries” (panel report, 88). the panel was convinced that the eu panel request did not amount to an attempt to use chapter 13 for protectionist purposes, as envisaged in article 13.2.2, and accordingly rejected korea’s contention. 5. discussion the caution with which the panel handled the issues it was confronted with is noteworthy. as opposed to pivoting on the external material that it considered, the panel took care to restrict its observations within the confines of the provisions of the fta. the language in which chapter 13 is couched thus played a pivotal role in how the panel interpreted article 13.4.3 and, indeed, in dismissing korea’s objections. as noted above, chapter 13 of the eu-korea fta includes a provision which deals with the scope of the chapter. article 13.2.1 notes that the chapter only applies where the parties adopt or maintain measures that affect “trade-related aspects of labour …” but this restriction is prefaced with the proviso “(e)xcept as otherwise provided in this chapter …”. the panel correctly notes that the qualification infers that certain provisions in the chapter are capable of establishing their own scope beyond trade or investment. the comparison that the panel draws between article 13.4.3 and other provisions contained in the chapter further serve to underline this point. in other provisions such the eu-korea panel report: a watershed moment for the trade-labor nexus or mere symbolic victory? 57 as article 13.8 and 13.9, the parties inserted the phrase “that affect trade” to limit the scope of the application of each respective provision. nowhere does article 13.4.3. place such a trade limitation, which would accordingly place it in the province of the qualification in article 13.2.1. the panel is also correct in noting that the want of a trade affectation restriction, for which korea contended, accompanied by explicit references to the instruments of the ilo, was indicative of the parties’ commitment to accepting the accepted understanding of said instruments as is. in the authors’ view, the panel did not impose its own perceptions but rather relied on the provisions of the fta to reach its correct conclusions. the panel also navigated the concerns in respect of coherence of content between trade-labor panels and the interpretation by the ilo well. in interpreting the content of the standards agreed upon, the panel clearly considered the longstanding jurisprudence of the ilo freedom of association committee as contained in the compilation of decisions (ilo, 2018). novitz (2021) also notes that the panel had notably avoided reliance on observations made by the ilo committee of experts on the application of conventions and recommendations. she argues, and this contribution aligns itself with this argument, that the panel’s decision not to rely on the committee of experts was appropriate given that korea has not ratified ilo conventions nos. 87 and 98. ultimately, korea had not become a party to these conventions through the trade agreement but merely committed itself to respecting these conventions' fundamental principles. the decisions by the freedom of association committee provided valuable guidance in giving content to the core principles of the right to freedom of association. the panel report is also significant as it makes it clear that not all trade-labor cases are subject to a trade affection test. while such a test was required in a previous dispute brought by the united states against guatemala, scholars have long agreed that the trade affection test, in that case, arose as a result of the explicit wording of the treaty (van ‘t wout, 2021). the panel report further supports these scholarly arguments and could be of great persuasive value in future trade-labor disputes. however, despite this value it remains to be seen if the report will be implemented and if korea will make any changes to its laws to align with the core labor standards given the absence of enforcement mechanisms in the fta. the trade and sustainable development committee is empowered to monitor the implementation of the report but does not have the power to take any corrective measures where a party fails to implement it. while agreements such as those by the united states make provision for reversion to the pre-fta trade position if parties breach their labor and environmental obligations, the eu-korea fta contains no such provisions (van ‘t wout, 2021). this has long been recognized as a key challenge in the way the trade and sustainable development chapter in the agreement has been designed (harrison et al, 2019b). nevertheless, the vclt does allow a party to suspend an agreement where there is a material breach of an agreement. the cjeu had previously opined that this provision of the vclt would entitle the eu to suspend a trade agreement where the counterparty breaches its obligations under the trade and sustainable development chapter. even if this were to be correct, the practical cost of enforcement against a large trading counterpart may well discourage the eu from taking such action. 6. conclusion this contribution has considered the key rationale for the linkage between trade and labor standards and commented on some of the conceptual difficulties in linking these two areas of law. from this contribution it has become apparent that the panel of experts in the eu-korea dispute has navigated these criticisms skillfully and has not overstepped in any way. however, it is also quite apparent that the enforcement mechanisms leave much to be desired and raise questions about the value of resolving labor disputes through trade panels in the first place. ultimately, the panel of experts has no greater powers than the ilo to enforce the core labor standards in this instance. in future agreements there should ideally be enforcement mechanisms included in the agreement. these enforcement mechanisms should be formulated in a way that encourages compliance without having such severe consequences that they defeat the purpose of sustainable development clauses. clearly resorting to the wholesale suspension of the fta has proven undesirable and may have equally negative consequences for the party who has breached core labor standards and the non-breaching party especially where the party in breach is a strategic trade partner. only enforcing these standards when the counterparty is a non-strategic trade partner would also erode the moral authority of the party seeking to enforce it. louis koen & davy rammila 58 references barbu, m., campling, l., smith, a., harrison, j. and richardson, b., 2018. the trade-labour nexus: global value chains and labour provisions in european union free trade agreements. global labour journal, 9(3). bodson, t., 2019. how do eu free trade agreements protect workers?. green european journal, pp.1-4. davies, r. and vadlamannati, k., 2013. a race to the bottom in labor standards? an empirical investigation. journal of development economics, 103, pp.1-14. gjuzi, j., 2018. stabilization clauses in international investment law. springer international publishing, cham. harrison, j., barbu, m., campling, l., richardson, b. and smith, a., 2019. governing labour standards through free trade agreements: limits of the european union's trade and sustainable development chapters. jcms: journal of common market studies, 57(2), pp.260-277. harrison, j., 2019. the labour rights agenda in free trade agreements. the journal of world investment & trade, 20(5), pp.705-725. ilo., 2018. freedom of associationcompilation of decisions of the committee on freedom of association. 6th ed. international labour office, geneva. koen, l., fourie, e. (2020), the role of international and regional instruments with reference to the labour and social protection of women workers in the informal economy 147-172. van eck, b., bamu, p., chungu, c. and kalula, e., 2020. celebrating the ilo 100 years on: reflections on labour law from a southern african perspective. juta, cape town. leeg, t., 2019. when do paper tigers get teeth?: social standards in u.s. and eu preferential trade agreements. nomos verlagsgesellschaft, baden-baden. lyutov, n., 2017. traditional international labour law and the new “global” kind: is there a way to make them work together?. zbornik pfz, 67(1), pp.29-54. novitz, t., (2021), "asserting jurisdiction to assess compliance with ‘multilateral labour standards and agreements’ – the eu-korea fta panel decision", available at: https://ohrh.law.ox.ac.uk/asserting-jurisdiction-to-assesscompliance-with-multilateral-labour-standards-and-agreements-the-eu-korea-fta-panel-decision/ (accessed 08 september 2021). panel of experts proceeding constituted under article 13.15 of the eu-korea free trade agreement, "report of the panel of experts", available at https://trade.ec.europa.eu/doclib/docs/2021/january/tradoc_159358.pdf (accessed 08 september 2021). stoll, p.t, gött, h and abel, p., (2018), a model labour chapter for future eu trade agreements 381-430. gött, h (ed), 2018. labour standards in international economic law springer, göttingen. united nations conference on trade and development., 2016. trading into sustainable development: the sustainable development goal. unctad, geneva. van ‘t wout, d., 2021. the enforceability of the trade and sustainable development chapters of the european union’s free trade agreements. asia europe journal,. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 75-80 75 development of export performance scale for fresh vegetable-fruit sector murat keskinkılınç istanbul commerce university, turkey mustafa emre civelek, (phd) istanbul commerce university, turkey received: feb. 14, 2018 accepted: april. 09, 2018 published: june 1, 2018 abstract: the purpose of this paper is to propose a scale for assessing the performance of foreign trade companies in fresh vegetable-fruit sector. as a first step, a qualitative interviews was conducted to the sample consists of the managers working in export companies. as a result of the interviews major problems of exporters were grouped. in the second phase of the study a questionnaire was formed and a survey was conducted to the larger sample. subsequently, validity and reliability of the scales were determined by means of explanatory and confirmatory factor analyses and reliability analysis respectively. the theoretical contribution of this research is the development of a method for evaluation of export performance of foreign trade companies in fresh vegetable-fruit sector. keywords: foreign trade, fresh vegetable-fruit sector, export performance 1. introduction foreign trade is about the flow of goods and capital out of the national borders. in terms of the delivery of foreign trade transactions, import and export take place in two forms. export is a major factor in the development of the country's economy. for this reason, increasing the exports and decreasing the imports are among the important targets in the countries. decisions and measures taken by the businessmen to achieve these goals constitute foreign trade policy. fresh vegetable and fruit sector; is one of the most important sub-sectors within the agricultural sector. the fresh fruit and vegetable sector involves the cultivation of vegetables and fruits by agricultural activities and the transportation of the grown crops to the final consumers or businesses before and after the completion of the natural decay period without any change of the original structures. all fruit and vegetable species are in the category of fresh vegetables and fruits except for tubers (potatoes, ground apples, etc.) and nuts (nuts, walnuts, peanuts etc.) that grow in the trees ( doğu akdeniz kalkınma ajansı, 2015). turkey is still about 4 million family farmers engaged in production activities in the agricultural sector. and they make their living by the agricultural sector. as in other sectors, agriculture workers have various problems both in business and in sectoral basis (dogan, 2011). analyzing the structure of the agricultural sector in turkey is to see that the majority of producers have created small businesses. manufacturers with small businesses can’t achieve high efficiency due to the insufficient use of input, financing and technology (dogan, 2011). turkey is among the few countries in the world in agricultural production. however, there are some problems in agricultural production and marketing, such as high dependence on nature, high risks and uncertainties, a wide variety of crops, and the instability of agricultural markets (kahraman, 2012). in order for our agricultural products and exporters to compete in the markets, they must enter the international marketplace. in addition, new market searches should be developed in order to increase our share in existing markets and to enter new markets. especially the production of the desired products should be encouraged in the outer market. in addition to the technology that will increase productivity, it is necessary to increase the amount of product murat keskinkılınç & mustafa emre civelek obtained from the unit area by using quality seeds, high yield varieties and appropriate inputs (gürbüzer, 2008). the marketing problem is one of the biggest problems of the industry. many problems in the industry are affecting indirect marketing. in the fresh fruit and vegetable sector, marketing is influenced by many elements; the main direct effect is the lack of production plan. while the most important problem in our work with industry marketing problem is that there are many factors that can indirectly affect marketing, the most important problem is that the manufacturer cannot afford the effort he has shown in his product. there are many reasons for this problem. for instance, the wrong to use agricultural chemicals while producing and choosing the wrong marketing resources. the biggest problem, however, is the lack of production planning. if there is no production planning, which of our producers have been profitable in the previous year, directing that product leads to production excess. in this case, the price of the product which is much in the domestic market is decreasing and this reflects directly to our producers. research question of this study is that what are the most important factors exerting influence on the export performance of the firms in fresh vegetable-fruit sector. additionally there is a need for a scale to measure of this performance. therefore main purposes of this research are the determination of the factors and propose a scale. 2. scale development process scale development process consists of two phases. in the first phase, qualitative interview study was conducted in order to determine the dimensions. in this study, it was found that there are 6 dimensions. these dimensions are logistics and customs problems, packaging problems, production problems, supports and incentives problems, marketing problems. and also firm performance dimension was added to the questionnaire. for firm performance dimension a scale developed by akgün et al.’s (2007) scale, which was adapted from ellinger et al.’s (2002), was used (akgün, keskin, byrne, & aren, 2007). in the second phase, explanatory factor analysis was conducted for purification and subsequently confirmatory factor analysis was conducted for determination of convergent validity (civelek m. , 2018). after that, for the determination of reliability cronbach α and composite reliability were calculated. 2.1. qualitative interview study & proposed scale in the qualitative interview study, face-to-face meetings were held with 17 senior and mid-level managers working in export departments. these interviews were semi-structured. interview subjects consist of 17 males (100%), 9 senior (52,94%) and 8 mid-level (47,06%) professional managers. at the end of the first phase, a questionnaire was developed consists of 28 questions. in table 1., proposed scale items are shown. table 1. proposed scale items logistics and customs problems 1-the loss of product due to the fact that the exported product is not transported by the most suitable transport vehicle affects our exports negatively. 2. the bureaucratic processes at customs and border gates negatively affect our exports. 3the threat of human health due to the fact that the exported product is not transported with the most suitable transportation means negatively affects our exports. 4not having enough refrigerator vehicles affects our exports negatively. packaging problems 5not using the appropriate packaging for the product subject to export affects our exports negatively. 6. the use of packaging dangerous for human health negatively affects our exports. 7. use of packaging which isn’t suitable for logistics and storage process affects our exports negatively. development of export performance scale for fresh vegetable-fruit sector production problems 8. pesticides misused during the production stage negatively affect our exports 9producing the wrong amount of product by not making production planning affects our exports negatively. 10. not specifying suitable products for the regions in production planning affects our exports adversely supports and incentives problems 11. inadequate export incentives affect our exports negatively. 12the fact that agricultural chambers and exporters' associations do not provide the necessary support for the appropriate packing and storage conditions of the product negatively affects our exports. 13inadequate support from farmer unions in terms of the correct use of agricultural crops, seeds and fertilizers and the right selection of harvest time negatively affects our exports. marketing problems 14the fact that the market research on the best market for the product is not done properly negatively affects our exports. 15failure to find qualified personnel to conduct market research negatively affects our exports. 16. inadequate marketing department affects our exports negatively. firm performance 17the return of our investments is higher than our competitors. 18our average productivity per employee is higher than our competitors. 19our time to produce and market the product is higher than our competitors. 20our market share is higher than our competitors. 21-our sales are higher than our competitors. 22our profitability (in percentage) is higher than our competitors. 23the cost of sold is lower than our competitors. 24the number of new skills learned by our employees is higher than our competitors. 25-return on equity is higher than our competitors. 26our growth rate is higher than our competitors. 27our operating revenues are higher than our competitors. 28turnover profit (profit / total sales) is higher than our competitors. 2.2 methodology for testing construct validity and reliability in order to confirm construct validity of the scale items, first of all explanatory factor analysis was conducted. in this analysis data was purified. after the data purification process 13 items were included in the confirmatory factor analysis. confirmatory factor analysis was performed in order to determine convergent validity, (anderson & gerbing, 1988). cfa results indicated that fit indices values were adequate: χ2/df =1.368, cfi=0.908, ifi=0.915, rmsea= 0.077. cmin is the likelihood ratio chi-square test which shows the conformity of the initial model and acquired model. a cmin/df ratio is under the threshold level of 3 (bagozzi & yi, 1990). furthermore, other fit indices exceeded their recommended thresholds. murat keskinkılınç & mustafa emre civelek confirmatory factor analysis results are shown in table 2 and standardized factor loads of each item are larger than 0.5 and significant. according to the results, the convergent validity of the scales were determined. average variance extracted values were also calculated. results are close to or beyond the threshold level (i.e. 0.5) (byrne, 2010). reliability of each construct individually calculated. composite reliability and cronbach α values are close to or beyond the threshold level (i.e. 0.7) (fornell & larcker, 1981). table 2. confirmatory factor analysis results variables items standardized factor loads unstandardized factor loads firm performance fp0622 0.604 1 fp0117 0.516 0.983 fp0925 0.668 1.070 fp1228 0.888 1.475 fp1127 0.905 1.589 logistics and customs problems lc0303 0.620 1 lc0404 0.709 1.165 lc0202 0.696 0.825 lc0101 0.617 0.915 packaging problems pp0307 0.922 1 pp0206 0.714 0.648 marketing problems mp0114 0.772 1 mp0215 0.609 0.815 in table 3, descriptive statistics of the dimension, average variance extracted values, composite reliabilities, cronbach α values and pearson correlation coefficients are shown. additionally, in table 3 the diagonals demonstrate the square root of ave values of each variable. as shown in the table 3, the square roots of ave values are beyond the correlation coefficient in the same column. these results confirm the discriminant validity of the scales used. table 3. construct descriptives, correlation and reliability variables 1 2 3 4 1.firm performance (.733) 2.logistics and customs problems .007 (.662) 3.packaging problems .134 .154 (.825) 4.marketing problems .120 .078 .288* (.695) composite reliability .844 .738 .807 0,649 average variance ext. .537 .438 .680 0,483 cronbach α .847 .756 .787 0.653 development of export performance scale for fresh vegetable-fruit sector 3. conclusion at the end of this analysis, a scale was proposed to measure and assess the performance of the foreign trade companies in fresh vegetable-fruit sector. according to the findings, items were grouped under four constructs. the theoretical contribution of this research is the proposal of a method for scale development. this proposal aims to enlighten the future studies. after repeated analysis by researchers in future this measurement scale would be confirmed. the managerial contribution of this research is to provide an instrument for assessing the export performance of foreign trade companies operating in fresh vegetable-fruit sector. references doğu akdeniz kalkınma ajansı. (2015). yaş sebze meyve sektör raporu. akgün, a., keskin, h., byrne, j., & aren, s. (2007). emotional and learning capability and their impact on product innovativeness and frm performance. technovation, 27(9), 501-513. anderson, j., & gerbing, d. (1988). structural equation modelling in practice: a review and recommended twostep approach. psychological bulletin. bagozzi, r. p., & yi, y. (1990). assessing method variance in multitrait-multimethod matrices: the case of selfreported affect and perceptions at work. journal of applied psychology, 75(1), 547-560. byrne, b. m. (2010). structural equation modeling with amos. new york: routledge taylor & francis group. civelek, m. (2018). yapısal eşitlik modellemesi metodolojisi. i̇stanbul: beta. doğan, h. (2011). türkiye‟deki üretici birliklerinin üretici örgütlenmesinde yeri ve önemi (kazova bölgesi yas sebze meyve üreticileri birliğ örneği). tokat: gaziosmanpaşa üniversitesi. fornell, c., & larcker, d. (1981). evaluating structural equation models with unobservable variables and measurement error. journal of marketing research, 18(1), 39-50. gürbüzer, a. (2008). türkiye’de yaş meyve ve sebze üretimi, i̇hracatı, karşılaşılan sorunlar ve çözüm önerileri. konya: selçuk üniversitesi. kahraman, e. (2012). türkiye’de yaş meyve-sebze pazarlamasında toptancı hallerinin etkinliği, karşılaşılan sorunlar ve çözüm önerileri: i̇zmir i̇li örneği. i̇zmir: ege üniversitesi fen bilimleri enstitüsü. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 1-8 consumer protection in indonesia on selling buy transaction through e-commerce niniek wahyuni kadiri university, indonesia received: march 10, 2018 accepted: april 24, 2018 published: june 1, 2018 abstract: in the e-commerce process many cases are detrimental to consumers, so consumers should get legal protection. this study will discuss about the form of agreement used in e-commerce and the forms of legal protection against consumers who do e-commerce. the original of this study lies in consumer protection in e-commerce based on e-contract. based on the results of the discussion can be concluded: first, the form of agreement used in the contract of sale and purchase of e-commerce in indonesia can be divided into two categories, namely e-contract which has the object of transactions in the form of goods and or services. second, the form of legal protection against consumers is the settlement of consumer disputes; consumer dispute resolution process is done if in an online transaction violation of consumer rights. the consumer dispute resolution process can be done through court or out of court. keywords: consumer protection, e-contract, e-commerce 1. introduction the existence of internet technology is characterized by the increasing number of trading activities both small, medium and large scale that utilize the internet as a medium of communication called e-commerce. alvin toffler in his book the third wave (1980) has predicted that in the third millennium era, technology will play a significant role in human life. the development of modern science and technology will imply changes in human performance. one of telecommunication technology innovation product is internet (inter connection networking) that is a connection between computer network. today's internet applications have entered various segments of human activity, both in the political, social, cultural, and economic and business sectors (sigit, 2017). e-commerce today has destroyed the classic business paradigm with the development of a virtual-based business paradigm. the system used in e-commerce is designed to conduct electronic sale and purchase without having to meet the sellers and buyers and cross the borders of the state and the nation. the new paradigm can grow very rapidly because, everyone nowadays has used the internet as part of his life, not the exception of the people of indonesia. the whole side of life is done by using internet technology, and now all life activity is highly dependent on internet access. currently, in trading life, almost all products can be traded through the internet, either through social media such as face-books, whatsapp, instagram, and tweeters. by using the internet, the cost incurred by the seller is only the cost of internet access which is very cheap. such conditions, will be very encouraging for the expansion of sales-based business. changes in the way business transactions from the real world to the virtual world have generated a variety of new legal issues for consumers in ecommerce, where consumers often do not have a strong bargaining position and put consumers in a weak position. from the data analysis is known that the growth of sales value of online business in the country each year increased by 40 percent. there are approximately 93.4 million internet users and 71 million smart phone device users in indonesia. not just to seek information and chat, people in big cities now make the internet for e-commerce activities as part of their lifestyle. the value of e-commerce in indonesia in 2016 is estimated to reach 30 billion us dollars or equivalent to rp 395 trillion. the figure is predicted to rise to 130 billion us dollars or equivalent to rp 1.714 trillion in 2020 (bernada, 2017). 2 niniek wahyuni some issues related to online shopping. first, many people are afraid of the fraud that occurs when shopping online. credit cards that can be accessed by naughty hands, items that are not up to the wishes or stores t hat are hard to reach when the consumer has paid. indonesia is still minimal with its security concerns. the highest factor today is the fear of fraud. such as payment fraud, fraud by using a rogue account, as well as an account takeover. second, the buyer can only guess how the goods. but we do not know whether the goods will be sent the same goods in the picture. third, the price offered is more expensive than buying by coming to his shop directly. fourth, most goods sold are not guaranteed or warranty cannot be proven. law no. 8 of 1999 on consumer protection, and law no. 11 of 2008 on information and electronic transactions which was later revised into law no. 19 of 2016 on amendment to law no. 8 of 2011 is the main legal basis for ecommerce in indonesia. the significance of this ite act for e-commerce transactions are: a) recognition of transactions, information, documents and electronic signatures in the legal framework of engagement and law of evidence, so that the legal certainty of electronic transactions can be guaranteed; b) the classification of measures that include qualification of law violations related to misuse of information technology accompanied by criminal sanctions (wariati and susanti, 2014). shofie (2003: 3) explains that during this distance selling and mail order marketing is a consequence of free trade, where consumers simply use communication technology in conducting the transaction goods or services desired. conditions like this, the consumer feel very aggrieved, because business actors offering goods with interesting pictures, while consumers if you want to buy must pay first. after the proof of payment (copy it) sent to the business consumer, then the goods will be shipped later with shipping costs charged to consumers. thus, the consumer has not earned his right, but has fulfilled all his obligations. when the goods received are not in accordance with speech, the consumer cannot claim. generally, consumers can only take for granted. in the general explanation of law no. 8 of 1999 on consumer protection a factor that often occurs in the exploitation of e-commerce consumers is the lack of consumer knowledge of legal awareness of consumer rights, in addition to the public perception that the legal affairs will greatly make the complicated affairs increasing, there is no guarantee that if claimed consumer affairs will be completed as expected. dealing with the law is like doing a job in vain. consumer difficulty to contact the parties who can help the business of rights as a consumer. in addition, the cost is not small if contacting the consumer protection agency. standard agreements that are ready to be signed on ecommerce are made by business actors with standard provisions that are not informative and non-negotiable. this makes e-commerce transactions like roads in place (wariati and susanti, 2014). according to news released by hukum-online.com it is learned that: 1) the weakness of regulation and policy and not yet optimum of good faith of producer, digital era can be a serious threat for consumer; 2) still weak sectored regulations that protect consumers. manufacturers of e-commerce including application providers have not fully had good faith in transactions; 3) in addition, there is no protection of personal data of consumers. almost all operators may use consumer personal data for other purposes with their trading partners; 4) many providers insert standard agreements that are very difficult for consumers to understand and harm consumers; 5) aspects of literacy and consumer empowerment are still low. consumer empowerment in indonesia has not dared to complain / complaint. until 2017, the level of complaints related to electronic transactions in ylki rose sharply, occupying the 3rd largest of total complaints of 781 complaints by mail / coming directly, and from 10,038 complaints by phone. from these characteristics it is clear that basically e-commerce is the impact of the development of information technology and telecommunication, and significantly change the way humans interact with their environment, which in this case is related to the trade mechanism (mantri, 2007). the sale and purchase transactions through e-commerce, usually will be preceded by selling offer, buy and sell offer acceptance or buy receipt. prior to that there may be an online offer, for example through website sites on the internet or through posting on mailing lists and newsgroups or through invitations to customers through the business to business model (mantri, 2007). this study intends to discuss two original problem formulations, namely, first, how is the agreement form used in ecommerce? second, how are the forms of legal protection in indonesia against consumers who do e-commerce? it is hoped that with these two original problem formulations, there is a novelty in this study, since the majority of the previous studies only discussed the forms of legal protection of consumers, have not touched on e-commerce, and did not relate to the form of electronic agreements made. consumer protection in indonesia on selling buy transaction through e-commerce 3 2. reasoning the need for consumer protection there are at least four main reasons why consumers need to be protected: 1) to protect consumers is to protect the whole nation as mandated by national development objectives according to the preamble of the 1945 constitution; 2) protect consumers need to avoid consumers from the negative impact of the use of goods and services; and 3) to protect consumers need to produce healthy spiritual and physical persons as agents of development, which also means to maintain the sustainability of national development (wariati and susanti, 2014). another reason why consumers need to be protected is because consumers actually have rights, both nationally and internationally. consumer rights nationally are contained in article 4 of uupk, where it is mentioned, the consumer has the following rights: 1) the right to choose goods and / or services, and to obtain the goods and / or services in accordance with the exchange rate and conditions, as well as the promised guarantee ; 2) the right to be heard of opinions and complaints on goods and / or services used; 3) the right to education and consumer education; 4) the right to compensation, compensation and / or reimbursement, if the goods and / or services received are not in accordance with the agreement or not as they should; 5) rights set forth in the provisions of other legislation (wariati and susanti, 2014). law no. 8/1999 on consumer protection provides a strong legal basis for the indonesian government and nongovernmental consumer protection agencies to make efforts to empower consumers through consumer education (sofie, 2003). under the consumer protection act, article 2, there are principles in the protection of consumers, namely: 1) the principle of benefit, this principle explains that all efforts in the implementation of consumer protection must provide the greatest benefit to the interests of the overall consumer business; 2) the principle of balance. this principle is intended to provide a balance between the interests of consumers, business actors, and governments in a material and spiritual sense; 3) the principle of consumer safety and security. this principle is intended to provide security and safety to consumers in the use, use and use of goods / services consumed or used. 4) the principle of legal certainty. this principle is intended for both business actors and consumers to obey the law and obtain justice in the implementation of consumer protection, and the state guarantee legal certainty (wariati and susanti, 2014). purpose of consumer protection in consumer protection act article 3, it is mentioned that the purpose of consumer protection is as follows: 1) enhancing consumer awareness, ability and independence to protect themselves; 2) to raise the dignity of consumers by avoiding them from negative access to the use of goods / services; 3) to increase the empowerment of consumers in choosing, determining and demanding their rights as consumers; 4) creating a consumer protection system containing elements of legal certainty and information disclosure and access to legal information and information disclosure and access to information; 5) improving the quality of goods / services that ensure the continuity of the production of goods / services, health, convenience, and consumer safety (wariati and susanti, 2014). 3. e-commerce in a legal perspective for many circles e-commerce is a new terminology that is not well known. purbo and wahyudi (2001: 1) describe ecommerce as a wide range of technologies, processes and practices that can transact business without using paper as a means of transaction mechanism. in this process, all of the activity is using internet service, no face to face, and no direct agreement on paper. this can be done in various ways such as via e-mail or via world wide web (www). in general mantri (2007) by quoting david baum explains that "e-commerce is a dynamic set of technologies, applications, and business processes that link enterprises, consumer and communities through electronic transactions and the electronic exchange of goods, services and information. "in other words, e-commerce is a series of business activities that include trade in goods, services, and information that is done electronically based on technology, applications connecting companies, consumers and other communities involved in business activities through electronic transactions. 4 niniek wahyuni indrajit (2001: 3) defines e-commerce very well as it takes from various sources. according to him, e-commerce is the use of computer networks as a means of creating business relationships in which there is a process of purchasing and selling services or products between two parties via the internet or the exchange and distribution of information between two parties in a company using the internet. from this definition it can be understood that e-commerce is a mechanism or business process conducted by two or more people by using electronic means by focusing on business transactions using the internet as a means of exchange of goods or services either in the form of business to business or business to consumer . according to mantri (2007) by taking the definition of eceg-australia (electronic commerce expert group) "electronic commerce is a board concept that covers any commercial transaction that is effected via electronic means and would include such means as facsimile, telex, edi, internet and telephone ". ding (1999), as quoted by mantri (2007) in great detail defines e-commerce as: "electronic commerce or ecommerce as it is also known as a commercial transaction between a vendor and purchase or parties in similar contractual relationship for the supply of goods, services or acquisition of "right". this is the commercial presence of a communications network or system as opposed to a private network (closed system). the public net-work system must be considered on open system (e. g. the internet or world wide web). the transaction concluded regardless of nation boundaries or local requirements ". e-commerce is part of electronic business (business done through electronic media). businesses provide a definition of e-commerce as any form of merchandise or service by using electronic media. electronic media here is not limited to the internet, but because the use of the internet is very popular today the focus of discussion on this thesis is ecommerce on internet media (wariati and susanti, 2014). the position of e-commerce in indonesian law lies in the field of civil law as a subsystem of the treaty law, then ecommerce has the same principles as the general contract law such as: principle of freedom of contract, consensual principle, good faith principle, balance principle, propriety, customary principle. principle of indemnity, principle of coercion, principles of legal certainty and others. due to the enactment of the principles of the treaty law in ecommerce, the provisions on engagement remain in force, so that article 1320 civil code shall apply to the conditions of the validity of a treaty, namely: agree them to commit themselves; able to make a commitment; a certain thing; a ‘halal’ cause (wariati and susanti, 2014). from various definitions offered above, it can be concluded that e-commerce has a characteristic that the occurrence of electronic transactions between two parties, the exchange of goods, services or information, the internet is the main medium in the process or the trading mechanism (mantri, 2007). the scope of e-commerce includes 3 sides namely: a). business to business (b2b), is a business communication system between business actors or in other words electronically between companies conducted routinely and in large capacity or volume of products. b) business to consumer (b2c). business to consumer in e-commerce is an electronic business transactions conducted by business actors and the consumer to meet a particular need and at a certain moment; c) consumer to consumer (c2c) is an electronic business transaction conducted between consumers to meet a particular need and at a certain moment. this c2c scope is more specialized because transactions are conducted by consumers to consumers who need transactions (wariati and susanti, 2014). in an e-commerce system there are at least four components required in online transactions, i.e. store / marketplace, seller and buyer, payment gateway, and shipping services. first, the store / marketplace is the sale of goods needed by the consumer. however, there is a difference between marketplace and online store, that is marketplace is a place on the internet where many parties get together to make the process of buying and selling transactions, there is a want to find a good and there are other parties who want to sell goods. while online store allows buyers can directly order to the seller, and can be interpreted that this is only one store that sells. both are sellers and buyers. the seller is the one who sells his / her goods to the consumer, whereas the buyer is the one who buys the goods for sale. third, payment gateway is a system that authorizes payment process from buyer to seller. fourth, delivery service. if there is no this, how can the items we order up. company or online shopping service provider, must provide courier / delivery service. packing / packaging goods, type and strength of packing is very influential on the goods you will send, whether the goods can be saved without significant damage or not. consumer protection in indonesia on selling buy transaction through e-commerce 5 4. agreement used in e-commerce law number 11 of 2008 on information and electronic transactions is a law that regulates information and electronic transactions or information technology in general. the sale and purchase agreements used in e-commerce transactions are essentially no different from those made in conventional transactions, except that the agreements used in e-commerce are categorized as electronically-created agreements or electronic contracts. electronic contracts are standard contracts that are designed, manufactured, assigned, duplicated, and digitally disseminated via the website unilaterally by contract makers (in this case the undertaking), to be closed digitally by the contract cover (in this case the consumer ) (mantri, 2007). electronic contracts are made during the transaction period. as is known, that in e-commerce there are two periods to be passed, namely: a) pre-transaction period. in the present time an online consumer needs as much information as possible, before finally deciding to buy the product online. this is very important, if later there is a problem then an online consumer will be easier to make a complaint. such information usually revolves around: price certainty, buying and selling mechanisms, type of goods classification or also the problem of timely delivery. b) the posttransaction period. there are things that an online consumer must do after the goods purchased online are received, for example on the issue of warranty, whether there is a warranty period, what matters are included in the warranty guarantee or until when the warranty is valid (wariati and susanti, 2014). article 1 paragraph (17) of the law on the utilization of information technology, clearly states that electronic contracts constitute agreements contained in electronic documents or other electronic media. article 10 paragraph (1) stipulates that electronic transactions set forth in electronic contracts are binding and have legal force as an engagement. from the above understanding, it can be concluded that the agreement electronically is an agreement between the two parties is done electronically, where the parties in the implementation of the agreement does not require face-toface directly. in an electronically contracted contract there are features of the standard contract and also contained features of electronic contracts that are characterized as: can occur remotely, made over the internet, and may extend beyond state boundaries. the type of electronic contract according to mantri (2007) can be divided into two categories, namely: 1) e-contract which has transaction object in the form of goods and or service. in this type of e-contract, the internet is a medium in which the parties communicate in contracting. but it will end with the delivery or delivery of objects and or services that become physical contract object (physical delivery). 2) e-contract having transaction object in the form of information and or service. in this type of e-contract, the internet is a medium to communicate in the form of contracting and also as a medium for sending or submitting information and or services that are subject to contract. the electronic contract itself must at least include: the identity data of the parties; objects and specifications; electronic transaction requirements; price and cost; procedures in the event of cancellation by the parties; provisions granting the rights of the disadvantaged party to be able to return the goods and / or request the replacement of the product if there is a hidden flaw; and the choice of electronic transaction settlement law (khotimah and chairunnisa, 2014). in relation to consumer protection, it is affirmed that business actors offering products through electronic systems shall provide complete and correct information relating to the terms of the contract, the manufacturer and the products offered. in the next paragraph further reaffirmed that business actors are obliged to provide clarity of information about contract offerings or advertisements (khotimah and chairunnisa, 2014) business actors have an obligation to give a time limit to the consumer to return the goods received if not in accordance with the agreement or there is a hidden defect that is felt to harm consumers. in addition, if the goods received are not in accordance with the existing photos on online store ads, then the seller can be said to have wanpretasi on sale and purchase transactions are done on-line. (khotimah and chairunnisa, 2014). common claims issues experienced by consumers in the legal field in e_commerce transactions: 1) authentication of legal subjects making transactions via the internet; 2) when the agreement is in force and has a legally binding force; 3) object of sale transaction; 4) the right transfer mechanism; 5) legal relations and liabilities of parties involved in transactions of both sellers, buyers, and supporters such as banking, internet service providers (isps), etc.; 6) the legality of electronic records documents and digital signatures as evidence; 7) dispute resolution mechanisms; and 8) choice of legal and judicial forums authorized for completion 6 niniek wahyuni according subekti (2000) wanprestasi is negligence or negligence that can be 4 kinds of conditions that is: a) not doing what he is willing to do; b) implementing what it promises, but not as promised; c) do what it promises, but it is too late; and d) to do something which the agreement shall not do. if any of these 4 kinds of circumstances occur, then you may be able to sue online sellers under the pretext of default. according to the indonesian consumers foundation (2017), in relation to agreements in e-commerce, the government needs to do five things: 1) review existing standard agreements in electronic transactions from all operators. articles that harm consumers should be canceled; 2) encouraging online consumer dispute resolution; 3) to encourage and accelerate the birth of the privacy and privacy statement of personal data; 4) encouraging to speed up the regulation of electronic shopping; and 5) to educate and empower the consumers. 5. legal protection results bernada (2016) in his research concluded legal protection of consumer rights in ecommerce transactions can not be provided by a single legal aspect but by a legal system capable of providing simultaneous and comprehensive protection. according akhmaddhian and agustiwi (2016) legal protection against consumers in electronic sale and purchase transactions, can be done by filing a lawsuit wanprestastie, by reason of non-fulfillment law obligations of business actors in electronic contracts. the non-fulfillment of this obligation means that there has been a violation of the rights of the other party (the buyer) and the legal consequence is a loss. legal protection is based on article 38 and article 39 of law no. 11 of 2008 on information and electronic transactions and article 23 of law no. 8 of 1999 on consumer protection. this regulation provides legal payments to people who feel aggrieved towards ecommerce activities. the ratification of the ite law in 2008 is a form of the seriousness of indonesia to provide legal certainty to the public related to the disputes that occur through information technology media, which leads to the achievement of the value of justice and benefit. according to nugroho et al (2015) legal protection is identical with the protection of consumer rights, consumer rights set forth in article 4 of law no. 8 of 1999 on consumer protection. in addition, the form of legal protection against consumers is the settlement of consumer disputes; consumer dispute resolution process is done if in an online transaction violation of consumer rights. the process of resolving consumer disputes can be done through court or out of court, this provision is regulated in law no. 8 of 1999 on consumer protection. according akhmaddhian and agustiwi (2016) explains that electronic transactions involving the parties from within the country namely the state of indonesia, it is not difficult to establish the rule of law in force in case of problems. automatically the applicable law is indonesian law, so both burgelijk wetboek and consumer protection act can be applied to resolve any dispute arising. however, for non-state cross-country trade transactions, dispute settlement will be conducted by forums chosen by the parties using the law that has been chosen by parties in the electronic contract, as described above in the discussion of the choice of law and the choice of forum. in article 38 of law no. 11 of 2008 on information and electronic transactions itself stipulates that "anyone may file a lawsuit against the party that administers the electronic system and or use information technology that leads to losses ". according to this article, the public may file a lawsuit in a representative manner against the party that administers the electronic system and or use information technology that adversely affects the public, in accordance with the provisions of the laws and regulations. further article 39 of law no. 11 year 2008 on information and electronic transactions explained that "civil litigation is conducted in accordance with the provisions of the laws and regulations. in addition to civil settlement settlements, the parties may also settle disputes through arbitration, or other alternative dispute settlement institutions in accordance with the provisions of the laws and regulations. " this is in accordance with the provisions of article 23 of law no. 8 of 1999 on consumer protection stating that business actors who refuse and or not respond and or do not compensate consumers' demands may be sued through consumer dispute resolution bodies or appeal to the judicial chart in the place of the consumer's position. (akhmaddhian and agustiwi, 2016). laws in indonesia govern civil lawsuits that can be made on two grounds, namely wanprestastie and unlawful acts (onrechtmatigedaad). book iii article 1243 bw regulates wanprestastie and article 1365 bw regulates unlawful acts. default occurs because of the agreement between the parties, resulting in legal rights and obligations. when consumer protection in indonesia on selling buy transaction through e-commerce 7 achievement is not met or not implemented or implemented is not as it should, then there is a default. if any interest of a particular party is harmed by the actions of the other party, then there is an unlawful act. case of consumer loss in e-commerce, the settlement can be done in civil, but if the violation contains criminal elements such as forgery, fraud, and embezzlement of goods can be processed criminally. this is stipulated in article 19 paragraph (4) of the consumer protection act stating that "compensation does not eliminate the possibility of criminal prosecution on the basis of further evidence of an element of error". violation of e-commerce law that entered in the criminal domain has been regulated by law no. 11 of 2008 concerning information and electronic transactions, namely article 30 as follows: (1) everyone intentionally and without right or unlawfully access the computer and or electronic system owned by others in any way. article 46 regulates as follows: every person who fulfills the element as referred to in article 30 paragraph (1) shall be punished with imprisonment for a maximum of 6 (six) years and or a fine of not more than rp600.000.000,00 (six hundred million rupiahs) (akhmaddhian dan agustiwi, 2016 ). according to shidarta (2000: 19-26; nugraha, et.al. 2015) consumer rights include, first, the right to safety, consumers are entitled to the security and goods and services offered to them. products of goods and services should not be harmful if consumed so that consumers are not harmed either physically or spiritually consumption. second, the right to be informed. every product introduced to the consumer must be accompanied by correct information either orally, through advertisements in various media, or in product packaging. third, the right to choose. the consumer is entitled to make his choice in consuming a product. fourth, the right to be heard. consumers are entitled to be heard by various complaints. if all such rights are not met then the consumer shall have legal protection as appropriate. on the other hand, business actors have obligations as regulated in article 7 of law number 8 year 1999 concerning consumer protection, namely: (a) have good intention in conducting their business activities; (b) provide true, clear and honest information about the conditions and warranties of goods and or services and provide explanations of use, repair and maintenance; (c) treat or serve consumers properly and truthfully and discriminatively; (d) ensure the quality of goods and or services produced and or traded under the provisions of the applicable quality standards of goods and / or services; (e) provide an opportunity for consumers to test and or try certain goods and or services and to provide warranties and or warranties on manufactured and or traded goods; (f) provide compensation, indemnification and / or compensation for losses arising from the use and use of traded goods and or services; (g) provide compensation, indemnity and / or reimbursement if the goods and or services received or utilized not in accordance with the agreement (nugraha, et.al., 2015). if all the obligations are not fulfilled by the business actor, then the business actor may be sued both civil and criminal, and the consumer shall have legal protection as described in the above explanation. as stated by juniarti (2014: 41) which refers to article 45 paragraph 2 of law no. 8 of 1999 on consumer protection namely "consumer dispute resolution can be reached through court or out of court based on voluntary choice of the parties to the dispute". 5. conclusion general based on the above description, the explanation of the two formulation of the above problems can be summarized as follows. 1) the form of legal protection of the consumer is the creation and enforcement of an online sale and purchase law that can protect the rights and obligations of consumers in online transactions so that they feel more secure and can take a lawsuit in case of crime in e-commerce transactions. in addition, if there is a consumer dispute, the process of consumer dispute resolution is done if in an online transaction violation of consumer rights. the consumer dispute resolution process can be done through court or out of court 2) the form of agreement used in the contract of sale and purchase of e-commerce in indonesia can be divided into two categories, namely e-contract which has the object of transaction in the form of goods and or services and e-contract which has transaction object in the form of information and or service. both forms of agreement can protect consumers in making online transactions so as to minimize the crime rate when making transactions online. 8 niniek wahyuni references akhmaddhian, s & agustiwi, a. 2016. perlindungan hukum terhadap konsumen dalam transaksi jual beli secara elektronik di indonesia. jurnal unifikasi vol. 3 no. 2 juli 2016 barkatullah, a.h dan prasetyo, t 2005. bisnis e-commerce: studi sistem keamanan dan hukum di indonesia, yogyakarta: pustaka pelajar bernada, t. 2017. legal protection for merce transaction’s consumt the digital economy grow indonesia. jurnal hukum dan peradilan, volume 6 nomor 1, maret 2017 : 1 – 24 ding, j. 1999, e-commerce: law and office, malaysia: sweet and maxwell asia gazali, d.s. &usman, r. 2012. hukum perbankan, ctk.kedua, jakarta: sinar grafika hukum on-line. 2017. perlindungan konsumen di era ekonomi digital masih minim. 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elex media komputindo indrajit, r.e. 2001, e-commerce: kiat dan strategi bisnis di dunia maya, jakarta,pt.elex media komputindo shidarta. 2000. hukum perlindungan konsumen indonesia. jakarta: pt grasindo sigit. 2017. perlindungan konsumen dalam e-commerce. http://yoursigit.blogspot.co.id/2011/01/perlindungankonsumen-dalam-e-commerce.html (accesed 13 march 2018) subekti, r, 2000. hukum perjanjian, cetakan ke-viii, jakarta: pt intermasa wariati, a & susanti, n.i. 2014. e-commerce dalam perspektif perlindungan konsumen. pro-bank, jurnal ekonomi & bisnis. edisi nopember 2014 . vol. 1. no. 2 journal of international trade, logistics and law, vol. 7, num. 1, 2021, 130-138 130 international trade relations of turkey and south africa: a historical perspective bisharo ali mohamud istanbul commerce university, tukey cihat köksal istanbul commerce university, turkey received: may 04, 2021 accepted: june 06, 2021 published: june 15, 2021 abstract: south africa attracted the attention of the world with its rich natural resources such as gold and diamonds, followed a closed foreign trade policy until the end of the apartheid period in the 1990s. with the transition to democracy, south africa launched a forward-looking and comprehensive economic development by becoming a member of organizations like the world trade organization (wto) and brics. moreover, international trade policies and financial transactions have been liberalized and simplified. in the early 2000s, turkey began to build and develop its relationships overseas, such as with african countries. turkey has a long tradition of involvement i n africa. the aim of this study is to analyze the international trade relations between turkey and africa particularly south africa from a historical perspective. the results conclude important policy recommendations for increasing the trade potential of the two countries under investigation. keywords: south africa, africa, turkey, international trade, trade agreements 1. introduction in recent years, the increasing interaction of emerging countries like india, china, russia, japan, and brazil has altered africa's connection with western powers on the one hand and provoked a reevaluation of africa's growth potential on the other (bayram, 2020). it can be described as a global economy's transformation, which has increased the need for energy and mineral resources, turning africa into a geopolitical frontline (donelli, 2018). turkey has emerged as one of the new players looking to strengthen its connection with african nations over the last few decades. in the 21st century, the world's, especially emerging actors' interest in africa, mainly in sub-saharan countries, has risen. turkey started reorientating its foreign strategy in africa. in order to strengthen its political, economic, and social connection with sub-saharan countries and africa in general, the ankara government invested in new political, economic, social and humanitarian aid mechanisms. in that context, turkey introduced a programme called "turkey's opening to africa" in 1998, it has proclaimed 2005 as the "year of africa" (dinçer, 2019). additionally, in 2008, turkey joined the african development bank as a non-regional member (wheeler, 2011). since then, new embassies and trade consular were opened, several summits and forums were held that strengthen the economic, political and cultural connection between african countries and turkey. trade volume and foreign direct investment (fdi) between african countries and turkey have increased afterwards. likewise, african studies in academia have risen, although it is lower than expected. due to the absence of colonial history in africa, turkey's relations with african countries have a positive economic and political dimension and are developing rapidly (özkan, 2010). this study tries to investigate the international trade between turkey and african countries, south africa in particular. in the second part, the historical and economic relations between turkey and african countries are explained. the third part analyses the trade volume and fdi between turkey and africa. the fourth part investigates the bilateral trade balance between turkey and south africa and the international trade structure between these two international trade relations of turkey and south africa: a historical perspective 131 countries. the last section concludes the study with recommendations for strengthening and improving the economic ties between turkey and african countries. 2. economic relations between turkey and african countries with its abundant natural resources and a population of more than one billion, the african continent is the target of many countries to trade and invest (arslan, 2012). also, it is now a centre of economic concern for the major actors like european unions and united states of america (usa) and many emerging nations like china, brazil, india, russia, south korea and turkey (donelli, 2018). considering the fact that many african countries have made predictable progress in human development and economic growth in recent years and can become a developing status in the next 20 years, it is expected that africa will turn into an attractive market in the near future (arslan, 2012). moreover, sub-saharan countries have experienced a shift away from reliance on traditional colonial nations toward rising powers, including turkey (donelli, 2018). turkey and africa have strong political, economic, and cultural links dating back to the ottoman empire. the ottoman empire was closely connected to north africa because they share the same history, religion and traditions (gunn, 2020). this area became well known to the ottoman, and their relationships developed for many years (kaya & warner , 2012). the ottoman empire and afterwards the republic of turkey have not given much attention to the other part of africa for many years, particularly the sub-saharan region. during the ottoman era, several, but not constant, relations were developed with african kingdoms and empires like the kanem bornu kingdom and the hausa nations (gunn, 2020). in the south part of africa, the existence of the ottoman empire was noticeable as the ottoman honorary consulate was established in cape town in 1861, and the first ottoman imam abu bakr efendi, was also sent to muslim society in south africa (özkan & akgün, 2010). in the nineteenth century, there had been close relations between turkey and south africa. due to the start of the first world war (wwi), and then the foundation of the republic of turkey and south africa of being under an apartheid sytem until the 1990s (bishku, 2019), historical and political relations of both countries entered into recession (özkan, 2010). it was due to the domestic conditions of both parties, such as (i) the emergence of the new state system and the establishment of democracy in turkey (ii) after a successful independence war (1919-1923), the turkish republic was established and "western vision" was made one of the principles upon which the new nation was to be based on (tepeciklioglu, 2017), (iii) for many years the african continent, in particular sub-saharan, remained in the international system a marginal and unworthy area (dellal & sara, 2018) and (iv) south african government of that time followed up a closed foreign policy (özkan, 2010). although this recession period started to move slowly in the early 1990s, it has regained its vitality during the 2000s (özkan, 2010). following the second world war, african countries began to have their independence after being separated from colonial rule. south africa was excluded as it was under the apartheid system, and turkey's relations have followed a bumpy course. (dellal & sara, 2018) . the majority of these african countries were located in northern africa. the main reason that allowed turkey to build better relationships with these countrıes was their historical, cultural and religional ties developed during the ottoman empire. the majority of northern african countries were under noncolonial rule (tepeciklioglu, 2017). on the other hand, in the late 1960s and 1970s, turkey started to establish relationships through diplomatic relations with most sub-saharan african countries. for example, turkey provided humanitarian assistance to a number of countries, including eritrea, namibia and zambia and signed bilateral trade and cooperation agreements with sierra leone and somalia, including the "technical and economic cooperation treaty" in the 1970s and early 1980s, and made officially travelled to several countries in africa, like tunisia, egypt and ethiopia. (tepeciklioglu, 2017). nevertheless, all these efforts remained limited in the 1990s, when the soviet union was disintegrated (bilgic & nascimento, 2014). the government also initiated a more sustainable foreign policy, allowing the country to further incorporate into world markets (wheeler, 2011). however, turkey's first concrete step of comprehensive policy objectives in africa was by accepting the "africa action plan" in 1998 (türkiye cumhuriyeti dış i̇şleri bakanlığı [mfa], 2018). this plan laid the groundwork for the majority of bilateral relations established with sub saharan africa (kedir, 2016). conversely, due to the coalition management in turkey's domestic politics and the global economic crisis, the actions on the turkey’s opening to africa could not be initiated during this time. in 2003, the ministry of economy strengthened economic ties with african countries and implemented them as part of its policy, marking 2005 as the "year of africa" (bacık & afacan, 2013). thus, after 2005, turkey has begun to bisharo ali mohamud & cihat köksal 132 show an interest and commitment to become a leading player in africa and started to play a critical role in resolving the continent's various problems (ngwa, 2019). also, it has increased its ties with sub-saharan countries through bilateral trade projects and agreements. it shows that political backing for the 1998 agenda became visible. (donelli, 2018). a noticeable example of this recently changing attention to africa has been the visit of the head of the government to ethiopia and south africa in 2005, which was the first visit to sub-equatorial africa made by the turkish government (karaoğan, 2018). for all of these efforts and improved relations between turkey and africa, turkey was also given "observer status" by the african union on april 12, 2005. in january 2008, turkey was accepted as an african union strategic partner at the african union summit in ethiopia (özkan, 2008). the fact that african nations viewed turkey as an important international actor has been reinforced by high levels of participation in the subsequent diplomacy summits. the first one was held in august 2008 in ankara under the phase "solidarity and partnership for a common future" that participated forty-nine african nations, including the south african deputy president mr. mlambo-ngcuka. it was highlighted the importance that economic opportunities, civil rights, democracy and social equality between the continent and turkey needed to be established. also, such summits and meetings are expected to introduce turkey and many african countries as they have little to no prior experience and increase the opportunity to strengthen bilateral ties and explore new avenues for cooperation. on the other hand, if one looks at the participation in the summit, most of them were foreign ministers and senior representatives except few countries. it is a strong display that africans themselves have not understood the advantages of the turkish openness to africans (özkan, 2008). the same year, turkey was approved as an out-of-region partner by the african development bank. by which time, its financial status had significantly improved (wheeler, 2011). that year was seen as the start of a stable and sustainable phase of cooperation. additionally, turkey strengthened its relations with the regional economic communities like the east african intergovernmental authority on development (igad), the economic community of west african states (ecowas), southern african development community (sadc) and subcontinental organization like brics (brazil, russia, india, china, south africa) (dinçer, 2019). additionally, to improve the cultural ties and allow the spread of knowledge between the two countries, turkey started to give african students scholarships, some of them provided great value in turkey and to their home countries. it shows that the current relationship of turkey with africa is far more than just another nation that is approaching africa like traditional colonial actors. colonial actors interested in africa mainly for raw material resource for their industries and market for their final products, do not provide a win-win strategy for african nations, unlike turkey. since 2008, the number of embassies increased to 42 by the end of 2019. similarly, the number of african embassies in ankara, which was ten at the beginning of 2008, has risen to 36 (türkiye cumhuriyeti dişişler bakanliği [mfa] , 2020). also, the insufficient number of diplomatic representations have been increased. additionally, the relation between turkey and sub-saharan countries has been strengthening, reflecting the progressive development of trade and investment between both sides. for example, arçelik's acquisition of defy is the most significant investment made by a turkish company in south africa to date. arçelik is the leading home appliances producer of turkey, and defy is home appliances industry leader of south africa. on the other hand, in 2013, south african company metair purchased turkey's biggest battery manufacturer mutlu akü, with a value of 280 million dollars. it has been the largest investment in turkey coming from south africa (yetkin, 2018). 3. trade volume of turkey and africa although most of the african countries have experienced some problems like internal conflicts, terrorism, poverty, inefficient use of resources that have emerged during the decolonization process and that most of these challenges are still waiting for solutions, its potential natural resources, young population, workforce, emerging technology and modernization made the continent inevitable destination market for developed and developing countries including turkey. (arslan, 2018). like other emerging nations, turkey relies on external markets to maintain its economic development. since turkey declared its opening to africa in 1998, it began to increase its trade volume and investment with african countries, mostly in agriculture, construction and textile fields (donelli, 2018). turkish exporters started to think that africa has a large capacity to fulfil the interest of their business as an alternative export market besides balkan, middle east and european union. in 2011 turkish companies maintain 19% of their business volumes in african countries, particularly those in the areas of construction and infrastructure international trade relations of turkey and south africa: a historical perspective 133 (armagan, 2011). for example, in 2015, limak holding started to establish in mozambique a cement factory with a yearly capacity of 2 million tons, worth 40 million us dollars. since 1970, such infrastructure and construction companies have been involved in projects in north african countries like the ones in libya, egypt, algeria and morroco. however, these projects have recently started in sub-saharan african countries such as ethiopia, congo, nigeria, cameroon and senegal (tepeciklioglu, 2017). although the amount of trade between turkey and africa has been risen since "opening to africa plan" in 1998 and africa year (2005), it has tripled after turkey's opening mutual embassies with african countries, increasing the number of turkish airlines flights to africa, turkey's entrance to the african development bank and expansion of business scope by opening trade consultants with the turkish international cooperation and development agency (tika) are some factors that considered the potential increase of turkey's trade with africa since 2009 (bishku, 2019). furthermore, africa is an important market for turkey in order to reach its 500 billion export target in 2023 (dei̇k, 2018). within the scope of this target, turkey has to increase its trade link with developing countries on the continent like egypt, libya, algeria, south africa, nigeria, kenya and ethiopia. from that point of view, as shown in table 1, this increase in turkey and africa relations reflected in the amount of trade and between 2016-2020. turkey's total trade activities with african countries have increased compared to previous years except 2020. however, this change cannot be described as a sharp increase. for example, turkey's exports to africa was 11.9 billion us dollars in 2016 and rose to 16.6 billion us dollars in 2019. unfortunately, the impact of covid-19 on the global economy decreased the number to 15.2 billion us dollars in 2020. on a more optimistic view, bilateral trade was strengthened between 2016 and 2019. nevertheless, turkey's 50 billion trade target with africa seems like an unrealistic goal, and it is clear that it would not be able to achieve it in the near future considering the rate of annual growth (arslan, 2018). table 1. trade of turkey with africa (2016-2020) total exports of turkey (thousand us $) 2016 2017 2018 2019 2020 149,246,999 164,494,619 177,168,756 180,832,722 169,669,410 total africa 11,903,389 12,237,301 15,088,949 16,623,201 15,240,951 north africa 8,069,446 7,918,462 9,915,077 10,828,878 9,224,276 other africa 3,833,943 4,318,839 5,173,872 5,794,323 6,016,675 total import of turkey 202,189,242 238,715,128 231,152,483 210,345,203 219,509,837 bisharo ali mohamud & cihat köksal 134 source: tüi̇k international trade statistics 2021 as shown in the table 1, total trade volume between turkey and african countries in 2020 is 22.5 billion dollars. 15.2 billion dollars of it are exports, and import was 7.3 billion dollars. although, turkey's exports to africa has been increasing since 2009, in 2020, compared to the previous year, turkey's imports to africa increased, while exports showed a decline. it is due to turkey's trade deficit with sub-saharan countries like south africa increased as they export natural resources to turkey. on the other hand, turkey's main trade partners in africa has not changed. with 2.8 billion us dollars egypt ranks first, followed by algeria ($ 1.8 billion), morocco ( $ 1.5 billion), libya ( $ 0.9 billion ), tunisia ( $ 0.9 billion ), rsa (0.5 billion dollars) and nigeria (0.3 billion dollars) (tüi̇k, 2020). as the table made pretty clear, the trade volume is behind the expectations in many regions, especially in subsaharan countries. throughout the last decade, turkey's interest towards countries in sub-sahara increased trade volume. still, this link remained limited according to the northern part of the continent, where turkey has the same historical, cultural, and religious aspects during the ottoman era. from this perspective, it is very important for turkey to diversify its trading partners in the african continent, for example; with the countries like ethiopia, ghana, ivory coast, nigeria kenya and south africa. these countries are the biggest economic actors in the continent and have great potential in trade, but their bilateral trade with turkey is lower than expected. the main reason is turkey has ignored most of the sub-saharan countries because of not having historical, cultural and religious links like north african countries. the other reason is that turkey has not much information about the countries as they are a lot of clan-group that speaks several languages and have different cultures. the greatest example we can show is that even on official websites like the turkish statistical institute (turkstat) and ministry of trade (dtm) categorize the continent into "north africa" and "other africa" instead of splitting it regionally like north, south, west and east (arslan, 2018). the exports of africa are essential for unprocessed raw materials, such as oil and minerals. the value of oil increases steadily with the growth of the world economy. recently, mines preserved their share in exports with volume and price increases, while the percentage of agricultural and industrial products decreased. african imports are dominated by industrial products. although african countries have significant agricultural resources, they import food products to cover the fundamental food deficit. for example, between 2010 and 2015, the biggest share in total imports of africa was vehicles and transportation vehicles with 63%, while the share of food products was 15%. (uneca, 2017). while turkey's trade volume with sub-sahara in 2003 was $5,47 billion dollars, this figure increased four times in 2014 and reached 23 billion us dollars, also it rised to $16.7 billion dollars in 2016. turkey's total investment in africa is expected to exceed $6 billion dollars. in order to effectively advance economic relationship with africa, turkey has also signed trade and economic relations with some african countries and established 26 commercial representation offices in 26 african countries. turkey has signed some agreements like preventing double taxation (thousand us $) total africa 5,404,555 7,182,389 7,137,423 5,820,748 7,306,375 north africa 3,252,568 4,203,460 4,685,547 4,009,992 4,753,849 other africa 2,151,987 2,978,629 2,451,876 1,810,756 2,552,526 international trade relations of turkey and south africa: a historical perspective 135 and free trade agreements with some african nations, most of them in north africa (karaoğan, 2018). turkey aims to increase the number of such agreements in the near future. 4. bilateral trade balance of turkey and south africa while turkey has historical links with south africa during the ottoman empire like other african countries, this link remained very small after of the fall of the empire and the establishment of the republic of turkey in 1923 and south africa's apartheid era (1948-1994) (bishku, 2019). since the 1970s, the turkish government put effort to diversify its economic and political ties with africa. this way, turkey could improve its connection with north africa in a restricted way but neglected sub-saharan african countries. although turkey and south africa established diplomatic relations only about a decade ago, contact between turks as ottomans and south africa dates back to the second half of the 19th century. the existence of a muslim population in south africa combined with the discovery of massive gold and diamond deposits likely motivated the ottomans to look more carefully at the region at that time (aydın, 2003). over the past 20 years, turkey and south africa have had critical political, social, and economic transformations. both turkey and south africa have taken significant steps to improve their bilateral relations. there are several important reasons behind the increasing ties between the two countries. one of these reasons is that the traditional foreign policies of the two countries have changed, and they have adopted foreign trade-oriented policies. in 1994 south africa and in 2002, turkey had begun to develop their diplomatic and trade relation with strategic actors in global politics (bishku, 2019). turkey's ties with south africa have changed significantly since the 2000s. for example, in 2000, their trade activities that were less than $250 million dollars exceeded $2 billion in 2017. with the turkish lira depreciating its value against the us dollar in 2018, imports dropped to $1.9 billion dollars. their bilateral trade was at the highest level in 2007 and 2008. although these values could not be preserved for several years due to the global economic downturn in 2008, in the last twenty years, the increase in the total amount of trade between the two countries has undoubtedly been a great success (sırdağ, 2017). this success is impressive despite the absence of turkey's africa policy before the 2000s. the total exports of south africa increased from $51,6 million dollars in 2005 to $81 million us dollars in 2015 and $90 million dollars in 2019 (trade map , 2020). similarly, turkey's total exports increased from $73.47 million dollars in 2005 to $150.98 million dollars in 2015 and to $180.83 million dollars in 2019 (trade map, 2020). when these data are taken into consideration, it is clear that the international trade of the two countries have increased, and it is expected to increase further in the upcoming years. table 2. exports and imports between turkeysouth africa (rsa) (1.000$) years turkish exports to rsa turkish imports from rsa trade balance 2002 87,206 211,032 -123,826 2003 121,528 335,713 -214,185 2005 315,739 1,259,978 -944239 2010 369,235 889,635 -520,400 bisharo ali mohamud & cihat köksal 136 2015 489,167 918,541 -429,374 2016 405,990 1,058,114 -652 124 2017 485,070 1,744,438 -1,259,368 2018 534,230 1,381,537 -847,307 2019 552,282 757,524 -205,242 source: tüi̇k international trade statistics 2021 when table 2 is analyzed, we can say that trade ties between turkey and south africa have strengthened each year. for example, in 2002 turkey's export to rsa was $87,2 thousand and imports was $211 thousand. however, when turkey declared the year of africa in 2005, the trade volume between the two countries have risen five times. thus, the amount of export and import exceeded $313,7 thousand and $1,2 million respectively. but the effect of having a coup attempt in turkey in 2016 caused a decline in exports compared to the previous year. bilateral trade has increased again between 2018 and 2019, and the bilateral trade of the two countries reached $1.30 billion in 2019 and south africa accounted for 18% of turkey's total trade volume with sub-saharan africa (türkiye cumhuriyeti dişişleri bakanlığı, 2020). south africa ranks 44th at turkey's total imports and 59th at total exports (trade map, 2020). as shown in table 2, turkey has trade deficit against south africa, but in recent years, turkey is close to cover the deficit by increasing its exports to south africa. turkey's leading export products to south africa are machinery, mechanical appliances, nuclear reactor, mineral fuels, mineral oils, vehicles other than railway or tramway rolling stock, and parts and accessories, electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, rubber and articles thereof. leading import products are machinery, mechanical appliances, nuclear reactors, vehicles other than railway or tramway rolling stock, mineral fuels, mineral oils and products of their distillation, natural or cultured pearls, precious or semi-precious stones, precious metals, iron and steel (trade map, 2020). the imported items and exported items of both countries are almost the same. therefore, we can comprehend that the industrial structure of the two countries is similar. south africa's investment in turkey remained limited on the investment side, while turkey's investments in south africa are increasing but not as desired. about twenty turkish firms have investments in south africa and currently around 70 turkish companies operate in rsa. it is estimated that the amount of investment made by these companies exceeds $500 million (sırdağ, 2017). tourism is a newly discovered area of interaction between south african and turkish people. the number of tourists travelling between the two countries is increasing every year. especially, since the start of direct flights of turkish airlines between istanbul-capetown in october 2015, istanbul-durban in november 2015 and istanbul johannesburg september 2007 the exchange of tourists between the rsa and turkey have increased significantly (türkiye cumhuriyeti dış i̇şleri bakanlığı [mfa], 2018). international trade relations of turkey and south africa: a historical perspective 137 5. conclusions there is an increasing interest in africa by developing countries like china, brazil, india, south korea and russia. in the last 20 years, turkey is also one of those emerging actors with a keen interest in african affairs. the primary reason behind this interaction is that africa is home to natural resources for their industries and market for their final products. although turkey has historical links with africa over most developing countries, its economic capacity is not as big as china and india. despite turkey push to open its door to africa in 1998 with the plan of "turkey’s opening to africa", it made a full connection with the northern part of the continent. it ignored the part below of the maghrib of the continent. the primary factor behind this is that turkey shares the same culture, history and religion with these countries also, geographically, it is nearby to turkey. sub-saharan countries are ignored in turkey’s international trade because either turkey is mainly following the footsteps of the ottoman empire or does not have enough information and infrastructure to enter the markets of sub-saharan countries.turkey is an export-driven country which has a target of $500 billion export for 2023. to achieve this goal, turkey needs to pay full attention to sub-saharan countries as this part of the continent has the most emerging countries and the most prominent young population. in order to strengthen its relation with sub-saharan, the authors recommend turkey to arrange summits and forums to interact with sub-saharan africa and organize intense bilateral meetings and conferences one by one with these countries. sub-saharan countries have big actors like south africa, ethiopia, nigeria, kenya and sub-regional organizations like igad, ecowas, sadc. it would be suitable for turkey to have bilateral agreements like it has done with north african countries or inter-continental agreements like brics that other emerging actors signed previously. in order to learn the culture of these countries, turkey needs to link their exporters with the region. it is clear that it is not easy to have a solid and reliable connection with these societies as they have several cultures and languages. however, promoting tourism activities and establishing new means of exchange programmes for students may help the societies know each other better and will have positive long term effects. 5.1. acknowledgements this paper is derived from the ongoing master's thesis of the first author, currently a student at istanbul commerce university, graduate school of foreign trade, department of international trade under the supervision of the second author. references armagan, z. 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(2018). trade relationship between turkey and south africa a brief overview of the last 20 years. university of pécs journal of international trade, logistics and law, vol. 6, num. 1, 2020, 65-74 65 effects of tax audit on revenue generation endalew gutu tarfa jimma university, ethiopia genfure tarekegn jimma university, ethiopia beyene yosef jimma university, ethiopia received: april 22, 2020 accepted: may 23, 2020 published: june 01, 2020 abstract: taxation is a compulsory payment or transfer of resources from private to public sector levied on the basis of the determined criterion and without reference to specific benefits received in order to accomplish some of the nation’s economic and social objectives. the study was undertaken to address the tax audit practice in jimma and hawassa branches of federal ministry of revenue. to conduct the study a mixed method or quantitative and qualitative approach has been executed to address issues that could not be obtained by adopt ing a single method. further, the study both descriptive and explanatory research design were employed. to achieve the objective of the study, purposive sampling techniques has been employed and the sample size was computed scientifically. therefore, in order to address the research objective, the researchers used the survey data collected through questionnaires. the data collected via questionnaire has been analyzed with the aid of statistical software. accordingly, spss version 20.0 and stata software have been employed. the study revealed that tax audit techniques applied and provision of training to the taxpayers are positive factors affecting the tax revenue generation significantly, on the contrary, an illegal practice of taxpayer is negative factor that affecting the tax revenue generation. it is recommended tha t ministry of revenue should consider factors affecting revenue generation. keywords: revenue generation, illegal practice, tax audit 1. introduction a tax audit is an investigation of whether a taxpayer has correctly calculated and reported their tax liability and fulfilled other obligations (oecd, 2006). tax revenue is defined as the revenues composed from taxes on income and profits, social security contributions, taxes levied on goods and services, payroll taxes, taxes on the possession and handover of property, and other taxes. money received by the state thanks to taxation. it is the leading income for the state, funding public expenditure and other items, tangibly expressing the common efforts of the public (mutarindwa & rutikanga, 2014). rittenberg and schwieger (2005) defined revenue as the enhancements or inflows of assets of a firm or payments of its liabilities during a period from delivery or producing goods, rendering service or other activities that constitutes the entity’s ongoing major operations. all governments, thus, undertake huge community expenditure on behalf of their inhabitants for the provision of basic facilities and other social services. to meet up with these responsibilities, governments thus want plenty amount of funds and taxes are the most significant and greatest reliable funding much more than any other sources (kennedy and john, 2014). for example, as a percent to gross domestic product (gdp), statistics indicate that tax contributes 15% for lowincome african countries, 22.5% for medium income and over 29% for high-income countries (okonjo-iweala, 2013). according to ogbonna (2011), the tax system is a prospect for the administration to raise additional revenue separately from other sources of income, required to transfer out its responsibilities. thus, in order to meet their endalew gutu tarfa & genfure tarekegn & beyene yosef 66 mission in general and revenue collection in specific, every organization in this nation should sort their internal governor including tax audit more vigorous that assume incessant changes that this world is fronting today. tax audit is the checkup of an individual or organization’s tax report by the significant tax authorities in order to ascertain compliance with applicable tax laws and regulations of state (jennings, a.r. & thomson a kircher, 2008). tax audit just like financial audit involves the collecting of material and treating it for determining the level of compliance of an organization with tax laws of the territory. for a effective audit, it is necessary that the auditor categorizes his work in such a way that the assignment is accomplished completely and efficiently (adediran, alade & oshode, 2013). statement of the problem developing countries are in struggle to collect taxes efficiently, because of many serious challenges they face as to tax design and administration (damme et al. 2008). according to ittner et al (2003) study, effective internal control for revenue generation and preservation involves; applicable laws and regulations, regular a review of the reliability and reliability of financial and operating information, a review of the controls employed to safeguard assets, assessment of workers' compliance with management policies, an evaluation of the efficiency and effectiveness with which management achieves its organizational objectives. internal control has a much wider purpose such that the organization level of control problems associated with lower revenues, which explore relations between disclosure of material weakness and fake, earnings management or restatements (doyle et al., 2005). the is three perspectives of scope of tax audit ; one is from tax payers and the second one is, from tax collectors or officers and the third is the tax system that brings payers with the collectors (thomson 2008). the main objective of the study is to assess the effects of tax audit on revenue generation a case of ethiopian ministry of revenue with the specific objectives: a) to examine the illegal practice of taxpayers to tax revenue generation of ethiopian ministry of revenue b) to identify the effects of objective of tax auditing on revenue generation in the case of ethiopian ministry of revenue c) to examine the impacts of providing adequate technical training on revenue generation in the case of ethiopian ministry of revenue d) to analyze the effects of tax audit technique applied on revenue generation in the case of ethiopian ministry of revenue. 2. literature review tax audit is a review of a taxpayer's business registers and financial concerns to guarantee that are the amount of tax described and paid are in harmony with tax laws and regulations. this is an additional audit to the statutory audit and is supported out by tax officials from a relevant tax authority. this is not the same as the statutory audit with respect to the requirement of the company and allied matter act (cama) 1990. it should also be renowned that the standards for selecting cases for tax audit include persistent loses, zero tax returns, refund cases, no submission of returns, low tax yield, suspicion of tax avoidance, fraud or evasion, transfer mispricing, thin capitalization and most often when the taxpayers request for tax clearance certificate among others (bitrus, 2014, okonkwo 2014, oyedokun 2014).tax audit exercise as concluded by okonkwo (2014) is a very important compliance tool in most tax jurisdictions all over the world. it has subsidized immensely in building awareness amongst stakeholders, strengthening of the selfassessment tax system, bringing of more taxpayers into the tax net, increased generation of tax revenue and checking of numerous abuses in the tax system. 2.1. tax audit types there are two types of audit; i. field audit which is conducted at the taxpayer’s principal place of business and generally applies to trades and professions and will involve a comprehensive review of the books, records and returns. ii. desk audit which is conducted at the revenue office and generally applied to investment and rental income 2.2. government revenue generation revenue is defined as all totals of money received by a government from outside sources for example those creating from “outside the government” net of refunds and other improving transactions, proceeds from issuance of debt, the sale of investments, agency or private trust transactions, and intra-governmental transfers (ahmed, 2010). effects of tax audit on revenue generation 67 2 financial resources of government constitute the bulk of its revenue and this relate to monies generated in the economy (obiechina, 2010). olotu (2012) mentioned that today, taxation is already sowing seed of transformation in many states of the federation of nigeria. she pointed that only lost month, tell magazine carried a cover story titled, “the new cash cow”. in that write up the magazine reveals how “more and more states across the country are now turning to taxation to shore up their revenue to finance critical infrastructural projects”. a revenue audit is a checkup of the information and figures revealed by a taxpayer in their tax returns in contradiction of those shown in their business records. therefore, the auditor needs to see all books and records in relation to the tax for the period being audited and these should be available on the first day of the audit. 2.3. objective of tax audit tax audit have different objective. among others, it manages and impose the tax programs in an impartial manner, determines correct reporting of the taxpayers audited, stimulates correctness in self-assessments of taxes by educating taxpayers in the application of tax statutes and regulations of taxpayers through “visibility” of audit presence (audit & compliance division of the new mexico taxation and revenue department , 2009). 3. research methodology 3.1. research design the aim of the study is assessing tax revenue audit practice and to test the hypothesis to meet the goal of the study. a mixed method or quantitative and qualitative approach has been executed to achieve the objective of the study. the purpose of using such a mixed method is to gather data that could not be obtained by adopting a single method. further, the study adopted both descriptive and explanatory research design. 3.2. data sources and collection methods to address the objective of the study primary sources of data has been employed. structured questionnaire has been prepared with a composition of open and close ended questions which is useful for collecting data from management of the ethiopian ministry of revenue jimma branch and hawassa branch, employees, and tax auditors. the questions incorporated in the questionnaire are some of them developed in a statement form and the others a re based on five point likert scale and also with “yes” or “no” questions. 3.3. target population and sample size of the study the target population of the study was employees, officers of each sub-department, tax audit officers and top management of ethiopian ministry of revenue jimma and hawassa branches who are currently working in ministry of revenue at federal level. accordingly, the target population of the study was 156. according to yamane (1967)), sample size can be computed in the formula, n 𝑛 = 1+n(𝑒) …………………………………………………………………………………………………(1) where, n= sample size n= population size of the study e= level of precision sample size determination on the study effect of tax audit on the government revenue generation and effects of tax audit on the taxpayers’ compliance is the same. to these studies the sample size computed as: 𝑛 = 255 = 156 1+255(.052) endalew gutu tarfa & genfure tarekegn & beyene yosef 68 3.4. sampling techniques judgmental sampling technique has been applied for data collection through questionnaires to address the tax officials who have participation in the tax audit practice directly or indirectly. 3.5. model specification the researchers employed multiple regressions to estimate the effect of one variable up on the other. according to alan o, (n.d.), it allows additional factors to enter the analysis separately so that the effect of each can be estimated. therefore, the multiple regression and model equation will be utilized in this study is presented as follows; the model is specified from both dependent (represented by ‘y’) and independent variablesrepresented by x (x1, x2, x3 and x4). y=β0 + β1x1+ β2x2 + β3x3 + β4 x4 + e where: y= tax revenue generation x1= objective of tax audit x2= adequacy of tax audit resource x3 = provision of training to taxpayers x4 = illegal practice of taxpayers β0 – β4 are co-efficient each variable including the constant 3.6. independent variable 3.6.1. objective of tax audit objectives of auditing is to prevent fraud and errors, to detect any form of irregularity, evaluate the effectiveness of the firm’s internal regulator system, support the management in the establishment of effective auditing system, advise on financial matters for efficient decision making by the management, and discover and ensure that an enterprise conform with legal and specialized requirement (adeniji ,2012) . 3.6.2. adequacy of tax audit resource revenue authorities have at a finite level of resources to conduct the day to day business of revenue audit. in some countries, revenue authorities has inadequate option as to how staff resources are to be extent to various areas of work, whereas in others broad decision is given to management to be allocated. regardless of how the overall budget of resources for audit work is arrived at, a key issue for the audit function is how those resources will be spread over the various segments of taxpayers. the roles played by the taxpayer audit function, relatively large proportion of staff resources devoted to this function. in many member countries, the proportion of the revenue body’s overall staff resources devoted to audit and other verification activities exceeds over 30 % (oecd, 2006). 3.6.3. provision of training to taxpayers according to abinet (2016) tax audit is a specialty which entails thorough knowledge of the relevant laws and regulations. it should make available intensive and frequent training for tax auditors taking advantage of the training facilities available in their local tax department’s training institutions. audits can assist clarify the application of the law for individual taxpayers and to identify improvements required to recordkeeping and thus may contribute to improved compliance by tax payers in the future. 3.6.4. illegal practice of taxpayers according to corina miculescu (2010) excessive tax illegal practice on the trend of taxable results in its disappearance, knowing that tax kills tax. in conditions of transition to a market economy, economic and financial legislation was drafted late, adaptation to reality, trying to settle both massive bureaucratic state apparatus and incentives to promote private initiative. the result of illegal practice has resulted in blocking economic system, rejecting large potential investors’ abroad uncontrolled leakage of national wealth and artificial concentration of important material and money in the hands of businessmen. if ignorance is added to these activities by officials of the state apparatus is functioning principles of the market economy and corruption that included tax audit professionals resulting economic and social environment promising for economy. in a market economy, financial authorities are faced with a phenomenon that has corpus scale tax evasion as a result of the trend to evade the law under substantial taxable income. the consequence of imperfect legislation or lack of regulations is the proliferation of illegal acts especially in finance and economics. the concern to the taxpayer to violate tax laws in force is tax fraud. in addition, tax evasion can be national and international. effects of tax audit on revenue generation 69 4. result and discussion the main objective of the study is to assess the effect of tax audit on the revenue generation by employing the qualitative and quantitative approach of the research. the data collected from 136 respondents with the response rate of 87%. both descriptive statistic and regression analysis were employed to analyze the data. the descriptive statistics is used to analyze independent variables that affect contribution of government revenue generation, whereas regression analysis has been employed to identify extent in which tax revenue of the government affected by the independent variables specified. the descriptive statistics such as mean, median, minimum, maximum and standard deviation of the distribution were employed to study and present an overview of both dependent variable (rm) and independent variables objective of tax audit (ota), tax audit technique applied (tata), provision of training to taxpayers (pt) and illegal practice of taxpayers (ilptp) used in the study. for both dependent and independent variables mean value of each respondent has been taken to enter the data in the spss because each variable has five likert scale questions from strongly disagree to strongly agree extents. the following table shows, the descriptive statistical results of corresponding 136 total observations of each variable in the study. table 1.1 descriptive statistics n range minimum maximum mean std. deviation variance statistic statistic statistic statistic statistic std. error statistic statistic rm 136 2.86 1.43 4.29 3.0390 .04438 .51760 .268 ota 136 2.91 1.36 4.27 3.0208 .04960 .57843 .335 tata 136 3.60 1.00 4.60 3.4059 .06314 .73633 .542 pt 136 2.60 2.00 4.60 3.0507 .04505 .52536 .276 ilpt 136 3.40 .20 3.60 1.9118 .06177 .72040 .519 valid n (listwise) 136 source: field survey of 2019 in the output presented above the information requested for each of the variables is summarized. as it has been discussed in the descriptive statistics table above of the dependent and independent variables above, the mean values for revenue mobilization (rm), objective of tax audit (ota), tax audit technique applied (tata) and provision of training to taxpayers (pt) were 3.0390, 3.0208, 3.4059 and 3.0507 respectively which is above the moderate value of 3 with their respective standard deviation of 0.51760, .57843, 0.73633 and 0.52536. the result indicates that, the deviations of data from the mean for 136 respondents were below one and the average value was also above the moderate level of mean value. similarly, the mean value for ilptp was 1.9118 and its standard deviation of 0.72040. the result shows that the mean values of ilptp was below the moderate value of mean and its standard deviation indicates deviation from the mean for 136 respondents was below one. model summary endalew gutu tarfa & genfure tarekegn & beyene yosef 70 model r r square adjusted r square std. error of the estimate change statistics durbin watson r square change f change df1 df2 sig. f change 1 .667a .444 .428 .39163 .444 26.202 4 131 .000 1.869 a) predictors: (constant), illegal practice of taxpayers, objective of tax audit, tax audit techniques applied , provision of training to the taxpayers b) dependent variable: revenue mobilization source: field survey of 2019 the above model summary table shows that tax audit effectiveness on revenue mobilization and four independent variables are significantly correlated with the correlation coefficient r=0.667. the table above also reports the model of effects of tax audit on revenue mobilization with the coefficient of determination 𝑅2 = 0.444. the coefficient of determination indicated that 44’4% of the variation in effect of tax audit on revenue mobilization for the sample of 136 tax officials can be explained by the changes in, ilpt, ota, tata and pt. according to signh (2007), an adjusted r square of above 75 per cent is very good; between 50–75 per cent is good; between 25–50 per cent is fair and below 25 per cent is poor and in the given case therefore, the adjusted r square is 44.4% which is in the range of fair but it is nearest to the range of good. table 14 anovaa of the effect of tax audit on revenue mobilization model sum of squares df mean square f sig. regression 16.075 4 4.019 26.202 .000b 1 residual 20.092 131 .153 total 36.168 135 a) dependent variable: revenue mobilization b) predictors: (constant), illegal practice of taxpayers, objective of tax audit, tax audit techniques applied , provision of training to the taxpayers source: field survey of 2019 the anova table discuses the analysis of variance and f-statistics, which reveals the value of f (4, 131) = 26.202, p value is significant at the 1 % level. the value of f is large enough because f-calculated is greater than table value of f (4, 131) = 3.45 it can be concluded that the set of independent variables (illegal practice of tax payers, objectives of tax audit , tax audit technique applied and provision of training ) as a whole contributing to the variance of revenue mobilization and therefore, the model indicates the actual practice of the effectiveness of tax audit on revenue generation under. table 15 coefficientsa of the effect of tax audit on revenue mobilization model unstandardized coefficients standardized coefficients t sig. 95.0% confidence interval for b correlations collinearity statistics effects of tax audit on revenue generation 71 b std. error beta lower bound upper bound zero order partial part tolerance vif 1 (constant) 1.533 .349 4.396 .000 .843 2.223 ota .229 .060 .256 3.802 .000 .110 .348 .380 .315 .248 .937 1.068 tata .193 .053 .275 3.649 .000 .088 .298 .493 .304 .238 .749 1.335 tpt .170 .075 .173 2.279 .024 .022 .318 .457 .195 .148 .737 1.357 iltp -.190 .055 -.264 -3.467 .001 -.298 -.081 -.504 -.290 -.226 .732 1.367 a) dependent variable: revenue mobilization source: field survey of 2019 econometric model from spss result: rm= 1.533+.256 ota+.275tata + .173 tpt -.264iltp where, rm = revenue mobilization, ota= objective of tax audit , tata = tax audit technique applied , tpt= training provision for tax payers , iltp, illegal practice of tax payers multiple regressions were done to investigate the objective of tax audit, tax audit technique applied, training provision, for tax payers, illegal practice of tax payers to predict effect of tax audit on revenue mobilization . employing multiple regressions necessitate variables to satisfy the assumptions of multicollinearity, outliers and normality (hair et al., 2009). introductory analyses were conducted to ensure violation of the assumptions of normality, outliers, multicollinearity, and data normality. also, the correlations between the predictor variables included in the study have been examined. all predictor variables were statistically correlated with effectiveness tax audit on revenue mobilization which indicates that the data was suitably correlated with the dependent variable for examination through multiple linear regressions. in the table above, all predictor variables were statistically significant with p< 0.01 and p<0.05, (β1 = 256, p=0.000), (β2 = .275, p=0.000), ( β3 = .173 , p=0.024), ( β4 − .264, p=0.000). the results were confirmed the expected sign of hypothesis for all predictor variables. 4.1. objective of tax audit the main objective of auditing is to ensure the financial reliability of any organization. independent opinion and judgment form the objectives of auditing. auditing also helps to ensure that the books of accounts are kept according to the rules stipulated in the companies act and whether the books of accounts show a true and fair view of the state of affairs of the company or not (tutorials, 2017) the tax audit is a technique through which the facts related to acts of a tax nature are verified and analyzed. it is a method used to inspect both companies and individuals, that is, all those subjects who are taxpayers and have tax obligations for the public administration or the state the tax audit has different objectives, based especially on the scope of entity. its objectives is that the balances of the liabilities of the balance correspond to outstanding debts to the public treasury at the closing date of the fiscal year, that the debit balances to the public treasury have been valued according to the accounting principles and the pertinent fiscal regulations, evaluate that the accounts are correctly classified in the balance sheet, between assets and liabilities, check that, if there are claims raised by the public administration that are not resolved at the closing date, they are correctly accounted for and evaluate that the procedures have been carried out in accordance with good faith, ensuring that the established legal regulations have been complied with ( farooq, 2018). as it has been reflected from table labeled coefficient, the objective of that audit was positively related to the effect of tax audit on revenue mobilization with (β1 = 256, p=0.000) thus, expected hypothesis was strongly supported in the study. the result indicates when other predictors are constant, for every increase of probability of being audited, the texa revenue mobilization increases by 0.256 endalew gutu tarfa & genfure tarekegn & beyene yosef 72 4.2. illegal practice of taxpayers tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability. those caught evading taxes are generally subject to criminal charges and substantial penalties (www.investopedia, 2019) tax evasion and fraud is illegal and intentional misrepresentation of tax obligations. it can involve deliberate omission or falsification of income or revenue, as well as efforts to be invisible to tax authorities altogether. this results in the reduction of income that lawfully belongs to the government, and to the people (oecd, 2017). at face value it may appear that aid reduces tax effort: countries with higher aid-to-gdp ratios have a habit of to have lesser tax-to-gdp ratios. in all likelihood, this is basically because poorer countries have lower tax revenues and obtain more aid. other way conditions associated with aid may reduce tax revenue, such as tariff reductions as part of trade reform. in general, aid can support improved public finance management and tax collection systems that over time may increase tax collection (hazel granger, 2013). the coefficient shows that shows illegal practice of taxpayers was negatively related to the effect of taxa audit on the revenue mobilization with ((β2 = −0 .264, p=0.001)) thus, expected hypothesis was strongly supported in the study with p<0.01. the result indicates when other predictors were constant, for every increase of effect of tax audit on revenue mobilization, the revenue mobilization decreases by 0.264. 4.3. tax audit techniques applied evidences are very important for an auditor to form an opinion regarding financial statements. if auditor fails to collect proper evidence, it will reduce the reliability of audit report. the method of collecting evidence is called audit technique that includes confirmation, vouching, testing, reconciliation, analysis, scanning, inquiry, verification of posting, flow chart and observations (tutorials, 2017). the coefficient shows that tax audit techniques applied was positively related to the effect of taxa audit on the revenue mobilization with ((β2 = .275, p=0.000)) thus, expected hypothesis was strongly supported in the study with p<0.01. the result indicates when other predictors were constant, for every increase of effect of tax audit on revenue mobilization, the revenue mobilization increases by 0.275. 4.4. provision of training to the taxpayers the coefficient shows that training provision for tax payers was positively related to the effect of taxa audit on the revenue mobilization with ((β2 = .173, p=0.024)) thus, expected hypothesis was strongly supported in the study with p<0.01. the result indicates when other predictors were constant, for every increase of effect of tax audit on revenue mobilization, the revenue mobilization increases by 0.173. training taxpayers: audits can support to clarify the use of the law by every taxpayer and to identify advances required in book keeping and thus may contribute to improved compliance by taxpayers in the future. audits may bring to light areas of the tax law that are instigating confusion and difficulties to large numbers of taxpayers and thus require further efforts by the revenue body to clarify the laws ‘requirements and/or to better educate taxpayers on what they must do to comply into the future (sarfo, 2015). 5. conclusions and recommendations 5.1. conclusions tax revenue is the income generated and collected by the different level of tax revenue collectors or authorities based on the income generating capacities of the payers. there are variety of indicators that were used by institution to convey different measurements for organization revenue generation and collection performance. i. based on the analysis result of data, illegal practice of taxpayers is negative significant factor that is affecting the tax revenue generation in federal ministry of revenue of hawassa and jimma branch. ii. objective of auditing is to find reliability of financial position and profit and loss statements. it ensures that the accounts reveal a true and fair view of the business and its transactions. whereas, tax audit has objective of ensuring a true and fair view of the business and applicability of tax legislatives. data analysis result indicates that the objective of tax audit is significantly affecting the revenue generation of the government in positive direction. effects of tax audit on revenue generation 73 iii. tax audit may be risk based which is initiated by tax authority or service based that initiated by the taxpayer him/herself. in both cases tax audit ensures the fair presentation of financial statements in line with international accounting standard and tax laws of the country. as per the data analysis result, audit technique applied is positively affecting the revenue generation of the government. iv. training is crucial issue that has multidimensional in order to increase the revenue generation of the government. the result of data analysis indicates that the provision of training for taxpayers positively significant factor that is affecting the revenue generation of the government. v. since illegal practice of taxpayers is negative significant factor that is affecting the tax revenue generation, concerned body should put educative and strong penalty scheme that is applied to the illegal act of taxpayers. 5.2. recommendations i. concerned body should put clear objective of tax audit that taxpayers and tax authority can understand and its benefit to the country in general and to the tax authority in particular. ii. as far as the end result of tax audit is generating tax revenue of the government by ensuring the fairness of the tax payment trend among taxpayers to bring the fair competition among 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(2017). the role of taxpayer awareness, tax regulation and understanding in taxpayer compliance . journal of accounting and taxation, vol. 9(10) journal of international trade, logistics and law, vol. 6, num. 1, 2020, 90-99 90 the effect of financial structure decisions on firms’ profitability: evidence from selected textile and garment factories in ethiopia arega seyoum jimma university, ethiopia ganfure tarekegn jimma university, ethiopia wakuma bora jimma university, ethiopia received: april 21, 2020 accepted: may 26, 2020 published: june 01, 2020 abstract: this study analyzed the effect of financial structure on profitability of textile factories in ethiopia using panel data of eleven textile and garment factories. the study period covers from year 2009 to 2019. the collected panel data were analyzed using fixed effect regression on stata 14 software and pearson correlation to test the relationship between financial structure variables and return on asset (roa). again a random effect was used to test the relationship between financial structure variables and return on equity (roe). the outcome of this research revealed that financial structure has significant and negative effect on the profitability, in terms of return on asset (roa), while it has significant and positive effect on profitability in terms of return on equity (roe) of sampled textile and garment firms in ethiopia. the effect of financial structure, therefore, has brought mixed effects on the profitability of textile and garment firms in ethiopia during the study period. then, based on the findings the researcher recommended that management body of every sampled textile and garment firms should make financial analysis, economic condition of the nation or the region, respecting the majority of shareholders interest and take appropriate financing decision in order to remain profitable and competitive. in doing so, the firms need to strike a balance between their choice of financial structure and their effects on their profitability. keywords: financial structure, profitability, regression, textile factories and ethiopia 1. introduction 1.1 background of the study in the business world, financial decision is highly influenced by subtleties of the business cycles, industry and country specific characteristics, and regulations of financial institutions. when the business cycle is at recession, rough and boom, the managers of companies that need credit financing should aware of preferences of investors financial structure and precisely respond to the conservative behavior of credit providers. according to (fred, 2015) stated even though generally firms have a choice on how to combine debt and equity, managers attempt to ascertain a particular combination that will maximize profitability and firm’s market value. the financial structure is the result of some decisions that managers take in order to support long-term investments, identifying appropriate sources of financing to contribute to the optimal development of the company (masnoon & saeed, 2014, iwaki, 2019). financial difficulties can lead to bankruptcy and can be the result of wrong decisions in choosing the financial structure (moradi & paulet, 2019). the pecking order theory suggested that firms behave in accordance with a financing hierarchy because of the existence of information asymmetry. thus, capital structure has a crucial role to play on determining company’s financial performance and fulfills the expectations of stakeholders who always demand the increase of their company’s value. (goyal, 2013) argued that capital structure decision is critical for any the effect of financial structure decisions on firms’ profitability: evidence from selected textile and garment factories in ethiopia 91 firm for maximizing return to the various stakeholders and also enhance firm’s ability to operate in a competitive environment. (yitayew, 2013) investigated capital structure and financial performance on cement factories for the period 20102014 and found that capital structure has significant positive relationship with return on assets (roa) where as it has significant negative relationship with return on equity (roe) of sampled cement companies. in recent years, researchers come up with different perspectives of their studies regarding the effect of capital structure on firms’ profitability; some revealed the positive relationship between capital structure and company profit (safiuddin et al., 2015) while others revealed the negative relationship (ramezanalivaloujerdi et al., 2015). these controversial results, therefore, reveals that country, industry, and firm level situation provided an opportunity for the researchers to add their knowledge by analyzing the effect of capital structure on profitability of textile and garment factories in ethiopia. 1.2 statement of the problem the general economic growth and improvement of business environment determines the firm’s financial structure decision towards internal sources of financing or external sources or both at a time. according to (kajananthan, 2012), the key elements of the firms’ financial strategy and financial performance was its successful financial sources selection criteria and financial mix decision. a study on financial structure is supposed to cover both types of financing; long term debt to equity ratio and short-term debt to equity sources. in previously conducted empirical studies report a mixed result regarding the effect of financial structure on the profitability of firms. for instance in chinese firms, a negative correlation between leverage and performance, described by the ratio of earnings before interest and tax to total assets, was found in the (huang & song, 2006; chakraborty, 2010). similarly (xu, 2012), addressed that profitability was negatively correlated with leverage. in contrary, a study by (gill et al., 2011) showed that short-term debt to total assets; long-term debt to total assets; and total debt to total assets had positive impact on profitability in terms of roa. similarly, (aryanto & fransiska, 2012) showed that there is a positive relationship between short-term debt and total debt and financial performance (roa), but a negative impact from long-term debt to profitability expressed through return on equity (roe). there was also a study such as (ebaid, 2009), where no significant impact was found between financial structure choices and performance. studies examining the effects of capital structure on the profitability of manufacturing firms specifically textile factories in ethiopia appear scanty. for instance, (yitayew, 2013) investigated capital structure and financial performance on cement factories for the period 20102014 and found that capital structure has significant positive relationship with return on assets (roa) where as it has significant negative relationship with return on equity (roe) of sampled cement companies. even though the investigator came up with a mixed result, his study and finding could only be used in the context of firms that use long term debt and equity financing thereby excluding short term debt to equity financing. according to (birassa, 2016) measured ethiopian manufacturing companies’ profitability based on return on capital employed (roce) which he defined as total assets or total equity of shareholders minus short term debt liabilities and finally he identified that proportions of debt to equity, debt to total asset, short-term debt and long-term debt profile have significant influence on corporate profits. another study examined effects of financial structure decision on financial performance of ethiopian metal and engineering industry and found out that capital structure has a significant and positive effect on financial performance as measured by debt ratio (melese, 2013). but the researcher excluded the aspect of equity financing and therefore their paper findings could not be applicable to those firms that use equity financing in their capital structure. these researchers’ mixed findings were not only show the complex nature of financial structure decision and its effect but also invites for further study on similar topic especially in firms like ethiopian textile and garment factories which are at its infant stage. moreover, the problems of variable insufficiency identified in the above studies need to be addressed. accordingly, the general aim of this study is to investigate how far financial components structure affects the profitability of textile and garment factories in ethiopia using eleven years data starting from 2009 up to 2019. 1.3 specific objectives 1. to evaluate the effect of total debt rate on textile and garment companies profitability 2. to investigate the effect of long term debt rate on textile and garment companies profitability 3. to examine the impact of short term debt to equity on textile and garment companies profitability. arega seyoum & ganfure tarekegn & wakuma bora 92 4. to examine the impact of long term debt to equity on the profitability of textile and garment companies. 5. to investigate the firm’s size effect on the profitability of selected textile and garment companies 6. to analysis the effect of gross domestic product growth on the profitability of selected textile and garment companies. 2. literature review decision on financial structure decision is among the challenging issues facing companies because its decision determines the performance and survival of the company. in several studies previously conducted, there are different views with respect to the financial structures firms in order to maximize the firm’s value. the traditional model assumes that the value of the company is affected in the way it is financed and it better if firms finance decision is at a point where weighted average cost of capital is minimized (frentzel, 2013). according to modigliani and miller theory as cited in (handoo & sharma, 2014) study, there is an advantage for corporations to be financed with debt because of the balance between the tax benefits gained by corporations and costs of bankruptcy due to the risk of taking more debts. on other way, the pecking order theory states that companies should prioritizes their sources of financing, first preferring internal financing, then debt, lastly equity as a last resort. similarly, (maselle, 2016) argued that firms would prefer internal source of finance as compared to expensive or costly external finance and therefore profitable firms that generate earnings are expected to use less debt than those that do not generate earnings. agency theory also states that leverage companies are better for their shareholders because debt level can be used as a monitoring tool for managers hence maximize company performance by lowering inefficiencies and agency costs (chinaemerem & anthony, 2012). (kipesha & james, 2014) argued that business firms especially small ones are said to die or poorly perform due to different challenges facing managers on the financing decisions. thus, which theory works for ethiopian textile and garment factories is still questionable issue. 2.1. empirical literature review several empirical studies have been conducted around the world to measure the relationship between capital structure and company profitability. in most cases, researchers came up with mixed results; some revealed a positive relationship between the variables, others revealed the negative relationship while other researchers revealed the contradictory results between study variables. these results show that the topic is still debatable from country to country, industry to industry and firms to firm’s characteristics. 2.1.1. negative association between capital structure and firm profitability. a study conducted in jordan by (shubita & alsawalhah, 2012), the researcher used roe as performance variable against financial structures structure variables of short-term debt to asset, long term debt to asset, and total debt to asset as independent variables. the study results showed a negative relation between debt finance and profitability. an empirical study to test the effect of capital structure on profitability of a sample of 30 energy american firms by(tailab, 2014) revealed that a negative relationship between debt ratios and performance variables of return on equity (roe) and return on asset (roa) while company size in terms of sales indicated a negative effect only on return on equity (roe) of the energy american firms. in ukraine by (lavorskyi, 2013) on the impact of capital structure decision variable of leverage ratio against performance variables of roa, total factor productivity (tfp) & ebit margin performance and found that firm leverage was negatively affecting firm performance. a panel data of 30 listed manufacturing companies conducted in sri lanka, after regression, showed a significant negative relationship between leverage and return on equity at the same time the relationship between leverage and return on asset showed no relationship(leon, 2013). according to (sarkar, 2017), in pakistan using a sample of 83 companies listed in karachi stock exchange a regression model, revealed financial performance of listed companies were significantly affected by their capital structure decision and their relationship was negative in nature and it also capital structure showed a negative relation with company market value. similarly, another multiple regression analysis model was conducted to test independent variables of debt ratios and against dependent variables of roa and roe and finally discovered strong negative relationship between debt ratios and performance measures (pouraghajan et al., 2012). the effect of financial structure decisions on firms’ profitability: evidence from selected textile and garment factories in ethiopia 93 2.1.2. positive associations between capital structure and firm profitability. another study was done by (babalola, 2012) on the effect of optimal capital structure on manufacturing firms’ performance in nigeria, used a sample of 10 firms from 2000 to 2009. researcher used debt ratio as capital structure variable against company performance, and found that there is a relationship between the distribution of debt ratio and corporate performance and their main conclusion was that the manufacturing industries was consistent with trade off theory. according to (yusuf et al., 2014) a performance variables of return on assets (roa) and return on equity (roe) were used and the outcomes indicated that the relationship between capital structure and return on asset is not significant across all firms and insignificant relationship was shown between return on equity and debt to asset ratio however the results showed the significant relationship between return on equity and debt to equity ratio for all firms. this justifies that a highly geared firm tend to have high profitability. in malaysia a research by (ahmad et al., 2012), on a panel data of 58 firms from 2005 to 2010 results indicated that only short-term debt and total debt had a significant relationship with return on assets (roa), other financial structure variables had a significant and positive relationship with return on equity (roe). a study was conducted to test independent variables firm size, firm age, asset tangibility and growth opportunities against dependent variables of roa and roe and finally discovered a positive relationship between controlling variables and performance variables of the companies (ahmad et al., 2012). another study showing positive relationship was conducted by (nirajini & priya, 2013) who targeted listed trading companies in sri-lanka, and analyzed variables using correlation method and come up with the conclusion that debt to asset ratio and debt to equity ratio of listed companies correlated with gross profit margin, net profit, roce and roe at significant and positive relationship. 2.1.3. mixed results relationship between financial decision and profitability the results of (goyal, 2013) study on listed public sector banks in india validated a strong positive dependence of short term debt to capital with all profitability measures of roa, roe and eps while long term debt to capital and total debt to capital had a negative relationship with return on assets (roa), return on equity (roe) and earning per share (eps). in 2014, another kipesha’s study on commercial banks in tanzania, used fixed effect regression model and the results indicated the a presence of significant negative relationship between total debt to equity and long term debt to equity with bank cost efficiency and return on equity, and he also specified something which implies the presence of negative trade-off between firm leverage and firm performance. the same study indicated a causality relationship between firm leverage and return on asset. (pouraghajan et al., 2012) in tehran used pearson correlation and multiple regression models to test the relationship between independent variables of debt ratios against dependent variables of return on asset (roa) and return on equity (roe). he also used controlling variables of asset turnover, firm size, and asset tangibility and growth opportunity as other independent variables of the study. the results of the study indicated a negative relationship between debt ratio and financial performance. also, results indicated a significant positive relationship between asset turnover, firm size, and asset tangibility and growth opportunity with financial performance measure. due to this conclusion, it was not clear whether capital structure influenced performance or not, for that case the further study on this relationship has to be conducted. 3. research design and methodology to achieve the objective of the study, the researchers used explanatory research design. an explanatory type of research design is used for researches that study a situation or a problem in order to explain the relationships between variables. secondary sources of data for this study were collected from audited financial statements of eleven textile films in ethiopia for the last eleven years from 2009 up to 2019 and the annual audited financial report published by the eleven textile firms. the eleven purposively selected privately owned textiles and garment factories were addis garment (augusta), akaki garment, arbaminch textile, almeida textile, ambassader garment, bahr dar textile, gmm garment, idget garment, kombolcha textile, nazreth garment industrial plc and yirgalem addis textile factory. these privately owned textile and garment firms were selected based on their duration in the industry and capital accumulation they have registered. to strengthen the secondary sources, questionnaires also were used. therefore, the data were a balanced panel data of eleven textile and garment firms in ethiopia. arega seyoum & ganfure tarekegn & wakuma bora 94 3.1. method of data analysis the researcher used the haussman test to get an appropriate method of measuring a balanced panel data between random effect and fixed effect regression model. after testing haussman, the researcher selected fixed effect regression. both tests were employed to compare the fixed and random effects estimates of the coefficients. moreover, pearson correlation was used to measure the relationship between independent and dependent variables of the study. stata 14 software program was used as analyzing tool. 3.2. model specification model1: 𝑅𝑂𝐴𝑖𝑡 = 𝛼𝑖𝑡 + 𝛽1𝑇𝐷𝑇𝐴𝑖𝑡 + 𝛽2𝐿𝐷𝑇𝐴𝑖𝑡 + 𝛽3𝑆𝐷𝑇𝐴𝑖𝑡 + 𝛽4𝑇𝐷𝐸𝑄𝑖𝑡 + 𝛽5𝐿𝐷𝐸𝑄𝑖𝑡 + 𝛽6𝑆𝐷𝐸𝑄𝑖𝑡 + 𝛽7𝑆𝐼𝑍𝐸𝑖𝑡 + 𝛽8𝐺𝐷𝑃𝑖𝑡 + 𝑒𝑖𝑡 model2: 𝑅𝑂𝐸𝑖𝑡 = 𝛼𝑖𝑡 + 𝛽1𝑇𝐷𝑇𝐴𝑖𝑡 + 𝛽2𝐿𝐷𝑇𝐴𝑖𝑡 + 𝛽3𝑆𝐷𝑇𝐴𝑖𝑡 + 𝛽4𝑇𝐷𝐸𝑄𝑖𝑡 + 𝛽5𝐿𝐷𝐸𝑄𝑖𝑡 + 𝛽6𝑆𝐷𝐸𝑄𝑖𝑡 + 𝛽7𝑆𝐼𝑍𝐸𝑖𝑡 + 𝛽8𝐺𝐷𝑃𝑖𝑡 + 𝑒𝑖𝑡 table 1. description of variables variable definition roa net income divided to total asset roe net income divided to equity tdta total debts divided to total asset total debt rate ldta long term debt divided to total asset sdta short term debt divided to total asset  short term debt rate tdeq total debt divided to equity ldeq long term debt divided to equity sdeq short term debt divided to equity size natural logarithm of total asset gdp real gdp per capita growth rate e error term i panel unit (company) t year of observation source; researchers design 4. discussions and results it is important to study which factors have an influence on the financial structure, as this in turn has an influence on the economic and financial performances of firms. to reduce risk and increase performances of firms and shareholders, for managers, identifying an optimal financial structure is one of the very important and pertinent decisions in corporate finance. an imbalance in loans and their ability to generate financial efficiency can lead to financial distress and finally towards insolvency. therefore, to make a precise delineation of the capital proportions, it is vigorous to have a well-adjusted report on the use of equity and borrowed capital as sources of financing, factors that affects financial structure, and their influences. 4.1. descriptive analysis results the descriptive statistics result indicates the mean value of return on asset ratio (roa) was 0.4473% measured from every etb10000 assets employed while the return on equity ratio (roe) was 4.1215% measured on every etb10000 shareholders. this indicate that the sample textile and garment companies have less utilization of assets to generate profit than shareholders fund(equity) during the study period. table 2. descriptive statistics the effect of financial structure decisions on firms’ profitability: evidence from selected textile and garment factories in ethiopia 95 variable observation minimum mean maximum std. deviation roa 121 -2.97341 0.004473 1.049809 0.464251 roe 121 -6.24809 0.041215 2.859598 1.046568 tdta 121 0.211142 0.571016 0.6995 0.145176 ldta 121 0.103638 0.322373 0.436442 0.092458 sdta 121 0.10095 0.248644 0.374029 0.068591 tdeq 121 0.267655 1.552939 2.327787 0.678871 ldeq 121 0.13523 0.879315 1.448207 0.40096 sdeq 121 0.130006 0.673623 1.11536 0.299725 size 121 14.17276 17.66916 21.79819 1.682219 gdp 121 8 10.34727 11.8 1.127604 source: researchers finding, 2019 the study variable total debt to total asset ratio (tdta) 57.1 percent of the company’s assets was financed by debt while the remaining 42.9% financed by the equity. more specifically, from the debt finance ratios, the short-term finance accounts mean value of 24.86% measured by short term debt to total asset ratio (sdta). from this, on average, the long-term debt used to finance company operations covers 32.24 percent. to strengthen the analysis once more, the study further identified a financial structure variable of total debt to equity ratio (tdeq) has mean value of 1.552939, indicating sample selected textile and garment companies have about etb1.60 debt for every etb of equity with standard deviation of 0.678871. this means the greatest proportions of their resources and daily operations or current assets were financed by debt as compared to equity. the proportion of total debt arises the question of efficiency near managers. the greatest standard deviation signifies a great variation among the firms. based on this descriptive result, if the selected textile and garment continue in this manner, the firms might face bankruptcy. the study also considered short term debt to equity ratio (sdeq) as compared to a long term to equity ratio (ldeq) mean was 87.93 percent and found that the sample selected textile and garment companies use less short-term debts mean was 67.36 percent with 29.97 percent standard deviation as their source of finance than long term debts. 4.2. regression and correlation analysis result 4.2.1. correlation analysis result in this study, different post-estimation diagnostic tests were performed to guarantee that the gaussian classical linear regression models (clrm) assumptions are not violated and the estimation results and inferences are trustworthy. therefore, using various appropriate statistical tests and all of the tests were shown us free of multicollinearity, heteroskedasticity, auto-collineaity and normality problems depends on the work of (brooks, 2019) discussions. to perform a correlation analysis, pearson product moment of correlation coefficient was used and presented below including the regression results of the study. table 2: correlation matrix of variables used in this study roa roe tdta ldta sdta tdeq ldeq sdeq size gdp roa 1 roe -0.342 1 tdta -0.329 0.065 1 ldta -0.647 0.224 0.737 1 sdta -0.0508 0.0342 0.528 0.341 1 tdeq 0.0434 -0.1667 0.373 0.207 0.0845 1 arega seyoum & ganfure tarekegn & wakuma bora 96 ldeq -0.1551 -0.0212 0.1754 0.1654 0.073 0.0916 1 sdeq 0.0557 -0.254 0.1091 -0.068 0.132 0.513 0.1435 1 size 0.1283 0.043 -0.081 0.0119 0.0212 0.0331 -0.24 -0.095 1 gdp 0.345 -0.1624 -0.069 -0.068 0.263 -0.42 -0.176 -0.099 0.0606 1 the correlation analysis was undertaken and revealed a negative correlation between profitability in terms of return on asset ratio (roa) and financial structure variables of total debt to total asset ratio (tdta) and long term debt to total asset ratio (ldta) at 5% significant level. while the remaining financial structure variables like short term debt to total asset (sdta), total debt to equity (tdeq), long term debt to equity (ldeq) and short term debt to equity (sdeq) ratios has not significant relationship with profitability in terms of return on asset ratio (roa). the two control variables; real gdp growth rate (gdp) has positive relationship between gross domestic product (gdp) and profitability in terms of return on asset (roa) was consistent with previous studies by (anbar & alper, 2011), (alexiou & sofoklis, 2009). and size of the company is negatively related with profitability of sample selected textile and garment companies. the correction between profitability in terms of return on equity (roe) and financial structure variable of long term debt to total asset ratio (ldta) was positively correlated while short term debt to equity ratio (sdeq) was significantly and negatively correlated. the remaining financial structure variables such as, total debt to total asset ratio (tdta), short term debt to total asset (sdta), total debt to equity (tdeq), and long term debt to equity (ldeq) ratios has not significant relationship with profitability in terms of return on equity (roe). the control variables; size of the companies (size) and real gdp growth rate (gdp) were not statistically significant relationship with profitability measured by return on equity (roe) of sample selected textile and garment companies. 4.2.2. regression analysis result in this study two profitability indicators were used namely return on asset (roa) and return on equity (roe) thus, two set of models were developed. 4.2.2.1. financial structure effect on profitability (roa) the fixed-effect panel least squares result of (roa) model1 obtained by regressing return on asset (roa) on independent variables. the adjusted〖 r〗^2, which measures how well the regression model explains the actual variation in the dependent variable, has a value of 62.80 percent. table 3: model1: financial structure effect on profitability (roa) independent variables coefficient (β) std. err. t p>t constant -22.537688 4.583301 -4.92 0.000 tdta 1.5240574*** 0.418028 3.65 0.000 ldta -3.7523805*** 0.523472 -7.17 0.000 sdta 1.0482214** 0.444596 2.36 0.02 tdeq 0.005786 0.159542 0.04 0.971 ldeq 0.033998 0.028987 1.17 0.244 sdeq -.1290311** 0.057439 -2.25 0.027 size 1.2249969*** 0.213524 5.74 0.000 gdp .24994336* 0.133212 1.88 0.063 prob> f = 0.0000 adj. rsq.: 0.6280 the effect of financial structure decisions on firms’ profitability: evidence from selected textile and garment factories in ethiopia 97 companies = 11 obs. year: 2009-2019 the parenthesis *, **, *** denoted for significant variables at 10%, 5%, and 1% respectively the regression result revealed that total debt to total asset ratio (tdta) is positive and statistically significant at 1 percent. it shows an increase in total debt to total asset (tdta) by one percent, on average, influences return on asset (roa) in positive direction by 152.41% for sample selected textile and garment companies in the study period. long term debt to total asset ratio (ldta) is also statistically significant at 1 percent but negatively correlated to roa. this means, on average, an increase in long term debt to total asset ratio (ldta) by one percent (100 birr) influences return on asset (roa) in negative direction by 375.24 percent (37,524 birr). short term debt to total asset ratio (sdta), indicated when, on average, an increase in short term debt to total asset by one percent influences return on asset (roa) in positive direction by 104.82 percent and short term debt finance is statistically significant at 5 percent significance level. another financial structure variable in this study was short term debt to equity ratio (sdeq) and it was negatively correlated to roa but statistically significant 5 percent. this shows that at average value, the one hundred birr increase in short term debt to equity would decrease the return on asset (roa) by birr 12.90. thus, financial structure in favor of debt financing measured by short term debt to equity significantly influences the profit (roa) of selected textile and garment companies in ethiopia. the two control variables; size of companies (size) and real gdp growth rate (gdp) showed statistically significant at 1 percent and positively correlated to roa during the study period. this indicates that when on average one etb increase in the asset of the company would increase the return on asset (roa) by etb1.2249969. and, on average, an increase in gdp by one percent influences return on asset (roa) in positive direction by 24.99 percent for sample selected textile and garment companies in the study period. 4.2.3. capital structure effect on profitability (roe) table 4: model2: capital structure effect on profitability (roe) independent variables coefficient (β) std. err. z p>z constant 0.252246 3.935267 0.06 0.949 tdta -0.55668 0.479309 -1.16 0.245 ldta 2.0127573*** 0.565521 3.56 0.000 sdta -0.18787 0.514678 -0.37 0.715 tdeq -0.22466 0.175643 -1.28 0.201 ldeq -.0803748** 0.034312 -2.34 0.019 sdeq -0.02532 0.067969 -0.37 0.71 size -0.01809 0.175184 -0.1 0.918 gdp -0.05461 0.150135 -0.36 0.716 𝑝 > 𝑐ℎ𝑖2 = 0.0005 adj. rsq: 0.5060 companies = 11 obs. year: 2009-2019 the parenthesis **, *** denoted for significant variables at 5%, and 1% respectively long term debt to asset ratio (ldta) was positive and statistically significant. it shows that on average, an increase in long term debt to total asset by one etb (ethiopian birr) would increase the profit measured by return on equity (roe) of sample selected textile and garment companies in ethiopia, by about etb2.01 in the study period. therefore, on average, capital structure through debt financing measured by long term debt to asset has positive effect on the profit (roe) of selected textile and garment companies included in the sample for the study period. arega seyoum & ganfure tarekegn & wakuma bora 98 financial structure variable of long-term debt to equity ratio (ldeq) is negative and statistically significant. it shows that on average, an increase in long term debt to equity by one etb would decrease the profit measured by return on equity (roe) of sample selected textile and garment companies in ethiopia, by about etb 0.08037 in the study period. this indicates that on average, capital structure variable of long-term debt to equity has a significant negative effect on the profit of sample selected textile and garment companies as measured by returns on equity (roe) in the study period. 5. conclusion and recommendation the descriptive and statistical regression result showed total debt rate, was the highest proportion in capital structure decision of selected textile and garment companies in ethiopia. even though debt is sometimes the result of growth rate of the firms, but, it statistically and negatively affected the profitability as well as optimum liquidity level of the factories’ assets. therefore, the researchers believe that it is better to balance the factories growth rate with sources financed especially when external sources required otherwise the profitability will be negatively influenced. similarly, the pecking order theory and agency theory also recommends similar point because high debt also affects liquidity of the factories. on the other hand, maintaining an optimal capital structure mix decision decreases the degree of the degree of future financial distress. sometimes, it is assumed that firms will resort to indebtedness to prevent managers from spending from the available cashflow 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(2014). capital structure and profitability of quoted firms: the nigerian perspective (2000-2011). proceedings of international academic conferences, 0202135. journal of international trade, logistics and law, vol. 6, num. 2, 2020, 62-78 62 the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia amsalu chigeto dachito jimma university, ethiopia minyahil alemu jimma university, ethiopia berhanu alemu ambo university received: 22 sept, 2020 accepted: 20 oct, 2020 published: 10 dec, 2020 abstract: unemployment is amongst most pressing economic challenges the ethiopian economy has long been experiencing. though the country succeeded in targeting overall unemployment most recently, graduate unemployment continued trending at higher rates over the years. we examined the impact of government education spending on the rate of graduate unemployment in ethiopia, using yearly series of data over the periods spanning from 1991to 2019. the results of augmented dickey fuller test revealed difference stationarity for all series of interest; while the suggested order of integration was one. the results of johnson’s cointegration test indicated the existence of long-run equilibrium relationships among the variables entered the test model. in determining the impacts of inflation rate (cpi), economic growth (rgdp) and public education spending on graduate unemployment, we employed vector error correction model as it enables us cap ture the short-run and long-run outputs instantaneously. according to vecm regression results, inflation rate and expenditure on education were found to have significant impact on the long-run growth rate of graduate unemployment. while the inflation rate contributed positively, government expenditure has negative influence on the rate of graduate unemployment towards validating the keynesian theory of employment. besides, the impacts of both variables were found to persist in the short-run. both are estimated significant and consistent in sign in the short-run. however, economic growth was found to have a trivial role in explaining the rate of graduate unemployment in both the short-run and the long-run periods. moreover, the results of vec causality analysis revealed a significant unidirectional causality running from economic growth towards public funds available for financing education; but no causality was suggested in reverse. we recommend a drastic measure to advance the education sector through suitable investments in a manner that will help in skills development, productivity enhancement and entrepreneurship growth. keywords: cointegration; ethiopia;gov’t expenditure; graduate unemployment; impact 1. introduction 1.1. background of the study theoretically, the intensity of education defines the development of human capital and economic productivity.education is accredited to intensify worker’s efficiency through enhancing skills and competenciesacross individuals. as a result, it contributes to the growth and development of the general economy; which could absorb idle capacity into the productive system, whereby reducing unemployment rate. barro and lee (2010) have identified three channels through which education influences productivity and economic growth. the first channel identified is efficiency of existing resources. through its positive implication to labor productivity and efficiency of existing resources, education is argued to boost economic growth. secondly, higher education facilitates adoption of technologies created elsewhere, facilitating domestic productivity and growth processes. third, advanced education enables own innovation and enhances creativity, and the resulting productivity fosters economic growth. in the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 63 principle; growing productivity has potentials of absorbing idle capacity in the economy, thus reducing unemployment. thenegative impulse of education to unemployment is suggested through its impact on economic productivity and growth as well (hua, 2016; attahir, 2016; onodugo et al., 2017). grant (2017) identified two basic channels through which education contributes to employment. the first is through enhanced capacity from rising productivity.improvingtechnical as well as managerial efficienciescould be meant to foster productivity and economic growth, whereby leaving space for raising employment demands in the economy. the other way is associated with the role of education to enhancing creativity and entrepreneurships. the later provides multiplier effect to education from extrabases of entrepreneurial activities, besides direct implication to enhanced self-employment. in other words, entrepreneurships serve dual purpose in the short term (selfemployment and newly introduced economic base); and even beyond from medium to the longer term, from external labor employment and direct contributions to outputs. however, the hypothetical gains from education will be achieved only if the right education is provided. education expansions should accompany with raising productivity, skills and creativity in a manner that could foster productivity. the implication here is that, a favor should be more to schooling qualitythan quantity. towards validating a premise, hanushekand kimko (2000)discovered momentous association between quality of education and economic growth, but insignificant impact from quantity dimension.pirim et al. (2014) revealed that, though access to education across developing countries profoundly improved, an economic gain from widespread education isyet puny.their explanation was that, access to education does not necessarily imply quality of education; and concluded that, it is quality that matters more. their explanation extends to reveal profound losses from unproductive education. that is, education expenditures without achieving the intended gains in the longer-term could only produce adverse costs to the country, whereby contracting economic growth and giving rising to unemployment growth. in ethiopia, higher education has remarkably been expanding for the past two decades. both the number of higher institutions as well as higher schooling has improved dramatically. there has also been concurrent growth of funds allocated to the sector during these two decades. as a result, the number of graduates from these institutions has increased enormously over the years; and at the same time graduate unemployment has continued trending at higher rates.weexamine the long-run relations between expenditures on education and graduate unemployment in ethiopia covering temporal period spanning from 1991 to 2019. 1.2. statement of the problem despitethe profound developments in ethiopian higher education, the growth of graduate unemployment continued trending at higher rates. thoughthe country has succeeded in reducing overall unemployment since 2003/04, the number of unemployed people from tertiary education has been increasing over the years (nigusse and mulugeta, 2018; undp, 2014; imf, 2019). impressiverecords in ethiopia’s economic growthwith particular insight since 2003/04,has not been nourishingthe growing job demands in the country. the observed positive trend betweenexpanding higher education and graduate unemployment in ethiopia, contradicts the keynesian hypothesis claiming inverse links between education and unemployment rate. the case can be justified to poor quality of education (rated on international standards), or others restraining economic and employment growth. thepresent study is primarily initiated to test the validity ofkeynesian employment theory; i.e., as to whether investing in education in the context of ethiopian economyis effective in targeting unemployment. why has graduate unemployment to ethiopia been behaving in contrast to universal hypothesis? we were motivated to answering this research question. evidenceson the dynamic relationships between investments in higher education and graduate unemployment remained mixed. while (elvis, 2019; matsumae and hasumi; 2016; umut, 2015; joseph, 2016; austin and ogbole, 2014) found a negative and significant association between public spending and unemployment rate; still some others such as those of (agboola et al., 2018; attahir, 2016; nwosa, 2014) found a positivesignificant impact of education spendingon the rate of unemployment. on top of erraticresults, laokulrach (2013) has confirmed insignificant relationships between education and unemployment. this empirical controversy was another motivation to the present study. thus, we aim to establish the long-run relationships between investments in education sector and the growth rate of graduate unemployment to ethiopia. amsalu chigeto dachito & minyahil alemu & berhanu alemu 64 while highereducation has extensively been investigated both in academia and policy directives with particular focus to quality, graduate unemployment remained overlooked. thus, it’s indispensableto examine the dynamic implication of expanding education expenditures to graduate unemployment. severalstudies such as (amanuel, 2016; broussar and tsegay, 2012; muhdin, 2016; amenu and fufa, 2019; dejene, 2019)examined predictors of youth unemployment, but with education variable overlooked. it is important to note that, the term ‘youth’ constitutes both graduate and non-graduates. weneed to disaggregate ‘youth’ as graduates and non-graduates, due to (nigusse and mulugeta, 2018)since youth need not necessarily fall under the definition of labor force. while aggregating both aspects, previous studies ended up with unreliable results, as the group may constitute those not in the labor force. hence, the present study would be robust improvement over existing literatures in the topic. we therefore aim to contribute to the existing literature by redressing the methodological as well as conceptual weaknesses with previous studies. the most important consideration with the present analysis rests on the definition of graduate unemployment. 1.3. hypothesis of the study we test the bellow hypotheses in line with keynesian hypothesislinkinggovernment spending, unemployment rate and economic growth. theoretically, employment serves a channel through which the positive impulse of government spending transmits to economic growth. a premise follows that, increased government spending enhances employment of more resources and then contribute positively to productivity and growth. improving economy, in turn, creates more space to idle resources, whereby reducing unemployment. we therefore develop the following null hypotheses for this study:  expenditures on education has no significant impact on graduate unemployment rate in ethiopia;  public spending on education does not granger cause economic growth of ethiopia;  economic growth does not granger cause government expenditure on education in ethiopia. 1.4. objectives of the study the ultimate goal with the present study is to establish the long-run relations of investments in higher education and graduate unemployment in ethiopia, usingtemporal data serially ranging from 1991-2019. specifically, the following issues were addressed;  assessing trends ofgraduate unemployment and expenditures on education in ethiopia;  estimating impact of education expenditure on graduate unemployment rate in ethiopia;  analyzing causal relations between economic growth and gov’t expenditure on education. 2. research design and methodology 2.1. research design as long as the present study is concerned basically with the cause-effect analysis, we employ econometric methods employing suitable regression models at various stages. therefore, the research design adopted here is more of experimental type. moreover, the data were collected exclusively in quantitative values. thus, the study employs the quantitative research approach, which is common in experimental research design. 2.2. data source and type the choice of the sample period is based on the availability of yearly time series data, spanning from 1991/92 to 2018/19. the world bank and international monetary fund data home pages are our data sources for all variables involved in the present study. all series were taken as annual growth rates. thus, response variable is annual growth rate of graduate unemployment at time t. the regressors include; gdp proxied economic growth rate, inflation rate measured by the consumer price index (cpi), and the government expenditure on education. the choice of economic growth as an independent variable is due to the keynesian hypothesis that government spending via its negative impact on unemployment rate fosters economic growth. besides, inflation variable was also considered due to the phillips curve, demonstrating inverse relations between unemployment and inflation. the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 65 2.3. the theoretical model the keynesian theory of employment serves a guideline to this study.keynesians maintain that public expenditures are effective to influencing employment and economic growth in the short-run (casey, 2010; anthanasios, 201; and kasau et al., 2015; mankiw, 2010).the path through which economic growth could be influenced by public spending isthrough full-employment. the positive impulse moves to economy only after enhancing the proper utilization of idle resources (including labor input) whereby absorbing idle capacity into the production sector. therefore, the initial impact of public spending immediately gives rise to employment rate, and then to the general economy. the assumption is based on the belief that, rising public spending will induce productive investments requiring large labor, whereby reducing the rate of unemployment in the economy. besides, the additional labor employment produces more and contributes positively towards the economic growth. therefore, the keynesians postulate inverse relationships between public spending and unemployment rate (sangkuhl, 2015; elvis, 2019; casey, 2010; mankiw, 2010).according to this theory; at any given point in time unemployment is a linear negative function of government expenditures. we thus aim at examination of this hypothesis to ethiopia. 2.4. empirical model: vecm specification due to (casey, 2010; sangkuhl, 2015; anthanasios, 2013; elvis, 2019; onodugo et al., 2017; kasau et al., 2015; and samira and khalil, 2015),we exploit the time series dimension of our data employing the error correction mechanism. a beauty with ecm rests on its instantaneous report of the short and long-run results. thus, the function relating unemployment to spending variable specifies the dependent and independent variables is given by; guemtt = f (gexpt)…………………………………… (3.1) where guemt is graduate unemployment; gexp is the government expenditure variable; and t represents time trend in a series of observation. according to the keynesian hypothesis, the relationship in specification (3.1) above is all negative. the autoregressive specification in ecm component is given by; yt = 1+ α1ut-1+∑ 𝛽𝑖 𝑛 𝑖=1 yt-i + ∑  𝑛 𝑖=1 ixt-i+∑  𝑛 𝑖=1 izt-i xt = 2 + α2ut-1 + ∑ 𝑖 𝑛 𝑖=1 yt-i+ ∑  𝑛 𝑖=1 ixt-i+∑  𝑛 𝑖=1 izt-i …………………… (3.2) note that, ecm treats all variables as endogenous. where  is the first difference operator; αi measures the speed of adjustment towards the equilibrium; coefficients of lagged terms indicate the short run effects of corresponding regressors on the associated response variable. if the αi coefficients are negative and significant at predetermined acceptable level, it signifies the existence of systemic convergence towards the equilibrium. that is, α portion of short term deviations will restore back within a year (since we have annual observation in this study). as long as modeling unemployment is our target, we specify ecm using our variables included in the present study as follows; lnguempt = β0+ αεt-i + ∑ lnguemp n i=1 t-i + ∑ lngexpedu n i=1 t-i + ∑ lnrgdp n i=1 t-i+ ∑ lncpi n i=1 t-i + ut……………………………………………………….. (3.3) where  is the first difference operator; ln gives the natural logarithm; ε is the error correction term and its coefficient α measures the speed of adjustment; guemp is graduate unemployment rate, while measures the elasticity of various lagged terms of unemployment; gexpedu is government expenditure on education; rgdp is real gross domestic product; cpi is consumer price index measuring the dynamic impact of inflation on unemployment. ut is the white noise error in ecm regression. however, before we proceed to the estimation of ecm, we need to confirm the necessary conditions in advance. stationarity and cointegration tests are of the basic necessities in time series analysis. accordingly, we have addressed the two in advanced as discussed hereunder; 2.5. stationarity and cointegration tests 2.5.1. stationarity test a priori with time series study is the examination of unit root properties of each series under consideration. the requirement with predictive model is that, all series should be stationary; i.e., must not contain a unit root problem. amsalu chigeto dachito & minyahil alemu & berhanu alemu 66 an important condition with forecasting models is that, all variables used in the analysis should have time invariant mean and variance (gujarati, 2004; wooldridge, 2013). a serious emphasis also requires stability of covariance of each variable. stationarity conditions were examined viathe augmented dickey-fuller (adf) test (dickey and fuller, 1979). adf is based on regression of the first difference of y (δyt) on a constant, time trend (yt-1) and various lags of y, specified as follows; yt = α0 + t + yt-1 + ∑ i k i=1 yt-i + εt…………………………… (3.4) where  is first difference operator; α0 is a constant; γ represents trend coefficient; t stands for time trend; andkrepresents lag length. null hypothesis is, h0: = 0.rejection of the null indicates the presence of unit root problem in y. adf is based on the t-ratio of yt-1. if it exceeds adf critical at any one of the three benchmarks (reported at 1%, 5% or 10%), the null hypothesis will be rejected. nevertheless, if yt is tested non-stationary, the first difference δyt should then be tested for stationarity using the same procedure; and the procedure will continue until it is stationary. but, in most of the cases economic and financial data are stationary at first differences. the length of time lag in regressions of ecm and adf models is often determined empirically; to take sufficient size so that the error term is indeed serially uncorrelated. the suitable lag (k) is set; for instance, based on minimizing akaike information criterion (see gujarati, 2004; wooldridge, 2013; maddala, 1992). in this paper kwas determined based on aic due to (kasau et al., 2015; samira and khalil, 2015; minyahil et al., 2016). 2.5.2. cointegration test a cointegration analysis aims to determine whether there is a long-run relationship between variables of interest. as long as the present study is intended with impact analysis, we need to examine if long term equilibrium path exists for variables entered the long-run model. if no cointegration is confirmed, then no need to proceed further; and the analysis should be limited to the short-run behaviors of the series. johnson’s cointegration test was employed to examine whether the variables share stable long-term equilibrium path. johnson’s maximum likelihood method constructs cointegrated variables directly on ml regression, rather than to rely on conventional least squares. johnson’s method for cointegration depends on rank of the matrix formed from vectors of cointegration equations, and, the associated characteristic roots. the test computes statistics of trace and maximum eigen value. while trace test examine the null hypothesis that, r (= 0,1,2,….k-1) cointegration vectors exist against its alternative of k (number of variables) cointegration vectors; the eigen value tests the null of r vectors against the alternative hypothesis that r+1 vectors exist. the premise is that, in amodel of k endogenous variables, possibly the cointegration rank ranges between zero to k-1 (harry, 2012; nurmadihah et al., 2011). both statistics are directly reported in stata command vecrank for cointegration. building on nurmadihah et al. (2011), both test statistics are developed as follows; trace ( 𝑟 𝑘 ) = -tlog (1-̂) max ( 𝑟 𝑟+1 ) = -t∑ 𝑙𝑜𝑔𝑛𝑖=𝑟+1 (1-̂) …………………………………………. (3.5) while the first specification in equation (3.5) gives the trace test statistic, the second expression provides the same for the maximum eigen approach.every notation in equation (3.5) is as defined earlier. 2.6. diagnostic check vector error correction model involves basically three common post estimation tests. these are lm test for serial autocorrelation, normality and parameter stability tests. langeragean multiplier test for residuals autocorrelation test the hypothesis of no autocorrelation. if the probability values of the computed chi-square statistics are greater than 0.05 at various lag order, then we accept the null hypothesis. on the other hand, the residual normality conditions were examined through the statistics of jarque-bera test, skewness and kurtosis tests.in each case if the probability value exceeds the 0.05 level,then the null will be accepted (gujarati, 2014; wooldridge, 2013; maddala, 1992). we have presented regression outputs on these and other necessary results under the appendix section. the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 67 2.7. variables definition and expectation of their sign unemployment growth rate is a response variable in the specification of ecm. according to international labor organization (ilo, 2014), unemployment is a condition by which people remain without a job. the definition of unemployed includes those who are economically active, but without a job and seeking for a job. the recent extension in the definition includes those individuals who have lost their jobs, and even those groups voluntarily left jobs (world bank, 2013).unemployment rate is, therefore, the proportion of those in labor force but who are currently without jobs. inflation variable was measured by using the consumer price index. consumer price index (cpi)a change in the average price of consumable goods and services. it measures the positive net change in the average price of consumer goods and services.the phillips curve postulates a negative relationship between unemployment and inflation rates, based on the assumption that higher input prices lead to costly production and lower investment undertakings. falling investments could give rise to unemployment upsurge. following the phillips curve hypothesis, we therefore expect negative impact of inflation on unemployment rate. the consideration of economic growth variable in the present study is justified due to keynesian employment hypothesis, claiming that public spending can influence economic growth only after its initial positive impact on employment. economic growth is measured as a percentage point change in consecutive real gross domestic products of the country. the positive impact of economic growth is expected in advance. education expenditure includes the general government expenditure on education (current, capital, and transfers). again, following the keynesian claim we expect negative relationship between expenditures on education and graduate unemployment rate. 2.8. ethical consideration the most important thing with research work rests on the trustworthiness of evidences provided. it then requires the reliability of data sources, method of analysis as well as transparency of researchers. to assure the reliability issues, we have provided our stata outputs in the section for appendix. next, the data were sourced from the wb and imf data bases for which the copy can be submitted where and when needed. moreover, all the materials used in this work are duly acknowledged by providing their details under the section for references. 3. results and discussion 3.1. descriptive information 3.1.1. trends of expenditures on educationand graduate unemployment rate (1991-2019) figure (1) plots the natural logarithmic annual absolute terms of expenditure on education sector and the number of graduate unemployment for the sample period in ethiopia.throughout the sample period of this study,while government spending on education exhibited relatively stable trend, graduate unemployment has been highly volatile (figure 1). during 1991-1994, the rate of graduate unemployment has been trending slow mainly due to the relatively small number of graduates from tertiary education. yet, public spending on education kept on rising at increasing rates. between 1996 and 1998, graduate unemployment has exhibited continuous growth rate following gradual increase in the number of graduates and inadequate economic growth to host the galloping employment demands.however, the rate of graduate unemployment has dropped to its minimum in 2000 following by high rates till the last year of our ample period, except some improvements during 2009 to 2013. from 2014 onwards, graduate unemployment has been trending at increasing rates. amsalu chigeto dachito & minyahil alemu & berhanu alemu 68 figure (1): trends of education expenditure and graduate unemployment source: authors´ compilation based on wb (2020) & imf (2020) however, the growth of public spending on education has revealed quite rising rate. despite to differences in their growth rates, both variables show some evidence of long-term relationship whereby revealing convergence during the final years of the observation period. thus, we hope to confirm significant long-run relations between public education expenditure and graduate unemployment under inferential analysis. in other words, the figure (1) evidences the likelihood of permanent association between expenditures on education and graduate unemployment in ethiopia. 3.1.2. overview of expenditures on education and economic growth (1991-2019) here we aim at overviewing the joint trend of government expenditure on education sector and real gdp growth over the sample period of this study. this sort of analysis has been initiated to grasp evidence on the long-run relations of both variables inspired by the keynesian theory. keynesian economists postulate that, government expenditure through itsnegative impact on the rate of unemployment could foster economic growth rate(mercan and sezer, 2014; elvis, 2019; zoran, 2015; mulugeta et al., 2012; agboola, 2018; and bazezew and alemu, 2014). intensified economic capability, in turn, creates farther employment opportunities whereby reducing the rate of unemployment. besides, positive bidirectional causality is suggested among government spending and economic growth. trend analysis helps understand the overview of long-term trends for both variables; at least in the directions of movements as well as the nature of cycles. figure (2): an overview of gov’t education expenditure and economic growth in ethiopia source: authors’ compilation using stata 14 based wb and imf data (2020) the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 69 evident from the figure above is both variables positively trending overtime, providing evidence of long-term relations between them. the question of whether or not that observed relationship is significant could be addressed later under the section for inferential analysis. this stage we can say only that, both used to trend jointly over the sample period. moreover, the real gross domestic product has been trending higher compared to public spending on education. it means that, throughout the observation periodethiopian economynurtured faster than government spending on education, though both have trended with rising rates. a little improvement in the rate of economic growth might have been contributing to the higher rate of public expenditure on education; otherwise the reverse would have explained the observed trend in line with keynesian hypothesis. to supplement our descriptive analysis, we have computed various summary statistics of both indicators as presented hereunder: table (1): descriptive statistics of expenditure on education and graduate unemployment rate variable obs. mean std. dev. min. max. spending on education 28 1.939 32.70 -22.41 55.83 economic growth 28 6.987 5.95 -8.67 13.57 source: authors’ compilation based on (wb, 2020 & imf, 2020) as it can be observed from table (1), there is large difference in mean growth rates of both variables. for the sample period, ethiopian economy has been growing on average by 7 per cent; while the average growth rate for government education expenditure was reported to be 2 per cent. moreover, the spending variable was found to have a more volatile trend compared to rgdp. this can be understood by a large standard deviation of 32.70 for education expenditure and only 5.95 for economic growth rate, suggesting relative stability of economic growth. while economic growth exhibited relative stability, the education spending variable has been oscillating up and down, manifesting insignificant long-term relation. the same conclusion can be reached from the minimum and maximum growth rates, -22.41 and 55.83, respectively for public spending. realgdp has been trending with a minimum of -8% and maximum of 13.57% rates over the sample period.in conclusion, irrespective of relative stability in the economic growth education expenditure was highly volatile. hence, there might not be significant causality in either side. 3.2. inferential analysis 3.2.1. unit root test results examining the unit root properties of individual variables is a prioriwith any analysis involving time series data. stationarity test may not be necessary if one intends not to generalize the findings out of the sample period. but, time series studies are usually aimed to predict future values, so that testing for stationarity become compulsory.in this test, we need to determine whether or not a series exhibits time invariant mean, variance and covariance over time. as we mostly are concerned with weak stationarity, the first two indicators would be sufficient. the augmented dickey fuller (adf, 1979) test was used to determine unit root properties of all variables under consideration.table (2) reports the result: table (2): adf stationarity test results at level first difference variable intercept intercept + trend intercept intercept + trend order eduexpt -1.963 -1.747 -4.057** -4.120** i(1) guemptt 0.006 -1.308 -6.572** -6.457** i(1) rgdpt -1.374 -1.934 -6.239** -7.079** i(1) inft -1.344 -2.336 -3.884** -3.940** i(1) source: authors’ compilation using stata 14 based on wb and imf data (2020) ** signifies rejection of the null hypothesis at 1 per cent. amsalu chigeto dachito & minyahil alemu & berhanu alemu 70 as presented in table (2) above, all variables were subjected to adf unit root test each four times. that is we have considered the intercept in the first stage and included the trend term in subsequent procedures. however, none was revealed stationary at level values; while all the four variables become stationary at their first differenced terms. the test procedure rejected the null hypothesis at 1 per cent for all variables under consideration. under the adf unit root test, we reject the null hypothesis of non-stationarityof a series when the computed tau statistic is greater than the adf tau criticalvalue.moreover, the inclusion trend terms in adf regression didn’t improve the significance level except to minor differences in the reported coefficient for intercept alone and intercept and the trend terms. therefore, ecm regression considers only the intercept term while estimating the parameters. since the series are all non-stationary (integrated of order one), regression of the basic model uses the first differenced values of all variables under consideration. 3.2.2. leg size determination in time series analysis, choice of the lag size has a detrimental influence on the efficiency of regression outputs. it should not be too large, or too law; rather it is important to decide a priori on the appropriate lag size to be included in model estimation (gujarati, 2004; wooldridge, 2013). there are different approaches for determining the appropriate lags length in econometric analysis, which include; final prediction error (fpe), akaike information criteria (aic),schwarz information criteria (sic), log likelihood (ll), sequential modified likelihood ratio test (lr) and hannan-quinn information criteria (hic).a popular approach with empirical analysis has been to take that sizesuggested by majority of the different criteria(attahir, 2016; onodugo et al., 2017; jaradat, 2013; omitogun andlonge, 2017; minyahil et al., 2016; mercan and sezer, 2014; elvis, 2019; zoran, 2015). table below presents the results for appropriate lag size determination table (3): results for appropriate lag length selection lag order ll lr p-value fpe aic hqic sbic 0 104.427 nr 6.9e-09 -7.43906 -7.38198 -7.24709 1 226.791 244.73 2.7e-12* -15.3178* -15.0324* -14.358* 2 241.49 29.398* 3.2e-12 -15.2215 -14.7077 -13.4937 * reflects the appropriate lag length suggested by the criterion; where, ll: the log likelihood; fpe: final prediction error; aic: akaike information criteria; lr: sequential modified likelihood ratio test (lr); hqic: hannan-quinn information criteria; and sbic: schwarz information criteria source: authors compilation using stata 14 based on wb and imfdata (2020) itcan be seen from table (3) above that, the appropriate lag length suggested by majority of the selection criterion is one. therefore, allsubsequent analyses are carried out using the optimal lag length of one. 3.2.3. cointegration test results the most important condition in long-run analysis is cointegration test; i.e., determining whether or not variables entered the long-run model exhibit long-term relation. johnson’s cointegration methodology requires all variables to be integrated of the same order {(i(1)}, which is already confirmed earlier. thus, johnson’s approach for cointegration has been adopted in the present study. as we have provided details under methodology section, johnson’s cointegration test uses two test statistics; the trace statistics and maximum eigen value. as evidenced with table (4) below, both the trace (λtrace) and maximum eigenvalue values(λmax)rejects the null hypothesis of no-cointegration, while demonstrating the presence of long-run relationships between variables of interest. the summary statistics of both tests have been reflected in the table below; the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 71 table (4): johnson’s unrestricted cointegration rank test maximum rank λmax critical @ 5% λtrace critical @ 5% none 33.78 27.07 92.29 47.21 at most 1 27.49 20.97 58.50 29.68 at most 2 18.69 14.07 31.01 15.41 at most 3 3.76* 12.32 3.76* 12.32 * indicates rejection of the null hypothesis at 5 per cent significance level source: authors’ compilation using stata 14 based on wb and imf data (2020) evident in the above table is both the trace and maximum eigen value tests rejecting the null hypothesis predicting the maximum rank of cointegration to be four. thus, both methods suggest the maximum number of cointegrating rank to be three. there are three ways by which the variables together move longer. both tests reject the hypothesis of no cointegration at four. thus, there is strong evidence that variables under consideration exhibit the long-run relationships. evidence of cointegration in the model allows estimation of long-run model to capture the long-run dynamics of individual variable in the model. 3.2.4.results of the long-run model this time we estimate the long-run elasticity with each regressor in reference to the response variable, which in our case is public spending on education. to obtain the long-run coefficients we have estimated the error correction model as it provides us with both the short and long-run results. parallel to regression of the spending variable on all regressors involved, the long-run parameters were exactly identified and johnson normalization restrictions were imposed. table below reports the long-run coefficients: table (5): the long-run elasticity estimation results ** & *, respectively, rejects the null hypothesis at 1% and 5 per cent. source: authors’ compilation using stata 14 based wb and imf data (2020) as indicated in as foot notes along with the long-run results, all of validity and vecm diagnostic conditions were tested robust. regarding overall significance of our specification, the reported coefficient of determination (r2= 0.71) is fair enough in such a large observation time series analysis, where about 71 per cent of variations in the graduate unemployment has been explained jointly by inflation rate, economic growth and government expenditure independent variables coef. std. err. z-value lneduexpt -0.2345* 0.1009 -2.32 lnrgdpt -0.6010 0.5130 -1.17 lncpit 0.9912** 0.2772 3.58 con_ -7.35 cointegrating term ( _ce1) -1.15 0.2477-4.64 global significance:r2 = 0.71f(4, 24) = 437.61[0.0000] dw(4, 29) = 2. 29 validity test: heteroskedasticity: chi^2(1) = 0.21[0.6486]; reset: (2, 27)= 2.19[0.0847] arch= 3.209[0.0733] diagnostic test jarque-bera test: chi^2(8) = 45.052[0.86427] langerange multiplier test skewness test: chi^2(4) = 18.090[0.74290] chi^2(l1)= 23.057[0.1122] kurtosis: chi^2(4) = 26.962[0.66784] chi^2(l2)= 17.91[0.3287] amsalu chigeto dachito & minyahil alemu & berhanu alemu 72 on education. thus, our model predicts better about graduate unemployment growth rate in ethiopia. moreover, the significant f-statistic also guarantees the global significance of our regression model. besides, none of the validity and diagnostic conditions has failed the test as indicated in table (5). corresponding regression results are presented under the section for appendix. the coefficient of error correction term (ect) terms has a profound implication in times series analysis via vecm methodology. as presented in table (5) above, a negative and significant coefficient of ect is suitable as required for vigorous stability in the system. an implication with the estimated coefficient of error correction term is that, there is stable equilibrium relationship between unemployment, public spending and rgdp and inflation variables in ethiopia; and the reported coefficient revealsthe speed of adjustment towards the long-term equilibrium point. graduate unemployment rate adjusts about 115 percent of previous year systemic distortionsthis year. thus, complete adjustment takes less than a year to restore the long-run equilibrium. evident from table (5) is a negative and strongly significant impact of public spending on graduate unemployment rate in the long-run, demonstrating the validity of the keynesian theory to the context of ethiopian economy.the long-run estimate clearly elaboratesthe effectiveness schemes for government expenditures in significantly reducing the proportion of graduate unemployment over longer period. the long-run elasticity of public spending on education was estimated at (0.23) and significant at 5 per cent level. graduate unemployment bounces inversely to fiscal actions in reference to education sector, and that the reaction was found to be strong. in other words, a percentage point improvement in government spending on education significantly reduces the rate of graduate unemployment by about 23% of the previous year’s level; and vice versa. this finding gives empirical support to keynesian hypothesis, positing that government spending plays profound role in lowering unemployment (keynes, 1936; zoran, 2015; mohseni and jouzaryan, 2015; casey, 2010; anthanasios, 2013; and kasau et al., 2015); hence by rising productivity it fosters economic growth. besides, this particular finding is empirically consistent with most of the previous works; such as those of (elvis, 2019; matsumae and hasumi; 2016; umut, 2015; joseph, 2016; austin and ogbole, 2014). it however contradicts to (agboola et al., 2018; attahir, 2016; nwosa, 2014; and laokulrach, 2013). there is strong evidence that inflation upsurgesthe growth rate of job seekers. inflation has been important in amplifying the long-run rate of graduate unemployment in ethiopia.we estimated a positive and strongly significant coefficient for inflation variable (table 5), whereby challenging the phillips curve premisein this piece of effort. phillips curve tells us that, these two key macroeconomic indicators tend to vary inversely overtime (mankiw, 2010; snowdon and vane, 2005; alisa, 2015); but we found the result contradicting this claim to ethiopia. from our results we see that, an increase in the rate of inflation gives rise to permanent graduate unemployment. table (5) shows a 1% increase in inflation rate raises the rate ofgraduate unemployment by 99 per cent. the case may be explained in two ways; firstly, through its destructive implication to agents’ purchasing power,consistent inflationary pressures might have been disrupting the growth of private investments and then, adversely affect private employment (labonte, 2016; kevin, 2008). secondly, large inflation may lead to high job searching costs which majorities in ldcsare unable to afford (mohseni and jouzaryan, 2015; berentsen et al., 2017; hongo et al., 2019). both cases could positively contribute to the long-run rate of graduate unemployment. our finding, of course, is consistent among others to (ayesha, 2013; umair and ullah, 2013; karaçor et al., 2013; tenzin, 2019; vermeulen, 2017; berentsen et al., 2017). economic growth has no role in determination of long-run graduate unemployment rate. the long-run elasticity of rgdp was estimated at (-0.60), but insignificant at even 10 per cent level. the impact of rgdp though irrelevant has a right sign in line with the keynesian hypothesis. keynesian economists hold that, increase in public expenditures through enhancing effective use of idle capacity and intensifying productivity could foster economic growth (banda, 2016; labonte, 2016; tenzin, 2019). the growing economy, in turn, gives opportunity for farther employment growth and the system functions in the same passion creating externalities to those in need. the ineffectiveness of economic growth in reducing unemployment has been explained in relation to mismatches in the growth rates with both indicators. economic advancements might have not been able to satisfy excessive growth in employment demand overtime. yet, this finding is consistent to the findings of (schubert and turnovsky, 2017;adarkwa et al., 2018; khrais i., and al-wadim., 2016). 3.2.5. vecm short-run estimates the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 73 we have estimated the short-run elasticity of graduate unemployment with respect to changes in public spending on education, economic growth and inflation rate employing vec methodology. the short-run results are presented in the table below: table (6): vecm short-run regression results **&*, respectively indicate significance levels at 5% and 10% level source: authors’ compilation using stata 14 based wb and imf data (2020) the negative impact of public education has also persisted in the short-run, demonstrating its relevance in targeting graduating unemployment permanently. the short-run elasticity of graduate unemployment to changes in public spending was negative (-0.1303) and significant at 10 per cent (table 6). this farther gives empirical support to the employment theory of keynesian economists, conjecturing the effectiveness of government expenditures in reducing employment rate. in line with this hypothesis, we found negative and significant associations between public spending on education sector and the growth rate of graduate unemployment (keynes, 1936; casey, 2010; anthanasios, 2013; and kasau et al., 2015). moreover, this result makes empirical consistency to ((mohseni and jouzaryan, 2015; berentsen et al., 2017; adarkwa et al., 2018; khrais i., and al-wadi m., 2016). table (6) evidences the persistent impact of inflation rate in the short run, signifying its dominant role in determination of graduate unemployment both in short too. a 1 per cent increase in inflation upheld the rate of graduate unemployment by 66.87%, which is the dominant effect in the short-run. the explanations for the positive impact would be as discussed under section (4.4) and conceptually sound across economies of least developed countries like ethiopia. the persistent impact of inflation variable has also been confirmed by (umut, 2015; joseph, 2016; austin and ogbole, 2014; agboola et al., 2018; attahir, 2016; nwosa, 2014). economicgrowth was found to have a trivial role in reducing graduate unemployment in the short-run. it may be that, while economic improvements influence only a few at early stages, soon have the economy been experiencing more graduates at various levels. over longer time horizon, the initial economic benefits could be offset by highly trending rate of unemployment. the insignificant impact of economic growth both in the short and the long-run periods has been explained in two possibilities. firstly, domestic production sector is not able to invite the growing employment demand significantly, and that domestic education may be supported more by external aids(agboola et al., 2018; attahir, 2016; nwosa, 2014; attahir, 2016; nwosa, 2014). besides, the government may not have given significant attention to reduce the continuously mounting graduate unemployment rates, just by allocating significant gdp share to education sector. the latter is less likely to ethiopian context, where the government has been committed to reduce unemployment by placing exceptional focus to education sector. the short-run elasticity in relation rgdp growth rate was consistently reported by (mohseni and jouzaryan, 2015; berentsen et al., 2017; ayesha, 2013; umair and ullah, 2013; karaçor et al., 2013; tenzin, 2019; adarkwa et al., 2018; khrais i., and al-wadi m., 2016). 3.2.6. vec causality analysis for public spending on education and economic growth rate keynesian economists explain the relationship between public spending and economic growth through enhanced employment of idle capacity that could help achieve full-equilibrium in the long-run. the premise is that, increased employment increases the growth of economy; and in turn, fostered economy creates more employment opportunities. towards testing this claim in the context of ethiopia, we used corresponding cointegration independent variable coef. std. err. z-value l1.lnguemptt l1.lneduexpt -0.0907 -0.1303 0.1728 0.0883* -0.53 -1.48 l1.lnrgdpt 1.1893 0.6935 1.71 l1.lncpit 0.6687 0.3015** 2.22 con_ -0.00420.0445 0.00 cointegrating term ( _ce1) -1.15 0.2477 -4.64 amsalu chigeto dachito & minyahil alemu & berhanu alemu 74 coefficients from vecm regression, following (labonte, 2016; tenzin, 2019;zoran, 2015; mohseni and jouzaryan, 2015; casey, 2010). the coefficients of cointegrating equation in vecm regression, where each variablewas individually endogenous is presented in the table below. table (7): vec causality of expenditures on education and economic growth null hypothesis: ecm z decision education expenditures does not granger cause economic growth -0.096 1.26 accept economic growth does not granger cause education expenditure 1.28 2.58 reject source: authors’ compilation using stata 14 based of wb and imf data (2020) in vec granger causality analysis, the decisionas to whether or not to reject the null hypothesis was based the reported coefficients of various ect. from evidences in table (7), the null of no granger causality from public expenditures towards economic growth has been accepted, due to the insignificant coefficient of corresponding ect at five per cent level. but, there is evidence significant granger causality from economic growth to government expenditure on the education sector. consequently, there is forward uni-directional causality from economic growth towards public spending on education in ethiopia. that means, no significant causal influence has been detected from public spending on education to rgdp growth, while causality was confirmed in reverse. the revealed trivial causality from public spending would be a bit straight. in the first place, the forward causality results are in contrast to the keynesian hypothesis. though public spending was effective in reducing long-run rate of graduate unemployment, the economy didn’t benefit from expanding participation of graduate. the case has been associatedwithseveral possibilities; firstly, the education system might have not been contributing to skill and productivity growth of individuals (adarkwa et al., 2018; khrais and al-wadi, 2016).secondly, the possibility of mismatches in profession and work assignments may prevent individuals from giving their best of effort(zoran, 2015; mohseni and jouzaryan, 2015; agboola et al., 2018; attahir, 2016; nwosa, 2014; berentsen et al., 2017; ayesha, 2013; banda, 2016; labonte, 2016; tenzin, 2019). the first case is quality issue, while the second is more of policy and technical concern. 4. summary, conclusions and recommendations 4.1. summary and conclusions this study was intended basically to examine the impact of government education expenditure on graduate unemployment in ethiopia for the temporal coverage spanning from 1991 to 2019. the world bank and international monetary fund data bases were the exclusive sources of the time series data set used in the present analysis.the individual annual series of data collected include; government spending on education, the number of graduate people seeking a job, rgdp and the cpi variables. the unit-root properties of individual variables were examined employing the augmented dickey fuller (adf) test, and all variables were found non-stationary. but, sequential examination provedthat all were difference stationary and the order of integration was one. johnson’s cointegration test was employed to determine whether or not the variable under consideration exhibit long-run relationship. accordingly, the presence of at least three ways that the variables in the system move jointly has been suggested, while demonstrating the existence of stable long-term relationship between the variables. then, the study employed the vector error correction model that simultaneously reports the long-run and short-run coefficients. findingsfrom the long-run model estimation reveal that, public spending on education has a negative and significant impact on graduate unemployment rate. besides, the vecm estimates have also confirmed a negative and significant impact of public education spending on graduate unemployment growth rate. the implication follows thus that, public spending has been effective in reducing graduate unemployment growth in ethiopia. this absolutely gives empirical support to the keynesian theory of unemployment in the context of ethiopian economy. the impact of public education expenditures on graduate unemployment: cointegration analysis to ethiopia 75 inflation was found to have been the dominant driver of graduate unemployment both in the short-run and the long-run. we found positive and strongly significant relationships between cpi proxied inflation and graduate unemployment rates consistently. this rejects the empirical validity of the phillips curve to the context of ethiopian economy. we can then conclude that, the education sector of ethiopian has not been really productive, beyond producing thousands of graduates over the years. that is due to the fact effective education would have given real impetus to economic productivity and economic growth through enhanced skills, creativity and other benefits.if thesehypotheticalgains were true, productivity as well as productions would have boosted profoundly following climbing skilled and creative graduates every year. if it had been a case, inflation wouldn’t have space at all. moreover, the vec causality analysis revealed a unidirectional causality from economic growth to public spending on education. no reverse causalitywasevidenced. the implication is that, the government of ethiopia has been diverting a significant share of national income growth towards the education sector. besides, the revealed trivial backward causality from public spending to the economic growth manifests that, those expenditures have long been unproductive. in conclusion, public spending on education has no longer been effective in targeting economic growth, except the revealed successes in creating job opportunities to significant proportion of graduates over the years. however, the causality analysis provides evidence those achievements in reducing graduate unemployment rates have no role beyond. an economic gain from rising graduate employment was found to be only trivial. it farther reveals that, the education system of the country has not been effective in realizing the hypothetical benefits of education. 4.2. recommendations we suggest the following measures that would help target lower rate of graduate unemployment and as the same time achieve economic gains from widespread provision of higher education in ethiopia.  since the government of ethiopia has been effective, at least, in reducing the rate of graduate unemployment, the recent courtesy to the education sector should be strengthened. there is a need to look for alternative source of cheap funds that could supplement domestic effort in targeting the education sector. however, the pros and cons of external funds should also be given due concern.  there is a need for drastic measures to improve the educational sector through adequate investment in education that will help in skills development and creativity. there is a need to either revise the curriculum or give exceptional emphasis on the way of delivery so as to realize the hypothetical gains from education. established insignificant causality from education to economic growth demonstrates that, the country’s education system was ineffective producing skilled labor force, beyond certifying thousands.  schemes to lower the rate of dynamic inflation are much helpful in reducing graduate unemployment. yet, readjustment in the educational system of the country in a manner that could foster skill and productivity growth through its positive implication to real production is crucial to lower inflation as well as graduate unemployment rate. price shocks associated with real production sector necessitate larger investmentsin agriculture. thus, improved domestic as well as foreign direct investment undertakings in thesesectors could help target lower rate of inflation; and hence graduate unemployment. 4.3. suggestions for the future studies due to inadequate availability of time series data (especially for graduate unemployment rate) before 1991, the present study has 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(2015): “analysis of the impact of public education expenditure on economic growth of european union and brics”, research paper in economics, economic analysis, 48(1-2); pp.19-38 journal of international trade, logistics and law, vol. 6, num. 1, 2020, 33-45 33 lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions sintayehu tulu wondimu jimma university, ethiopia received: april 16, 2020 accepted: may 06, 2020 published: june 01, 2020 abstract: this paper emphasizes the lending patterns and determinants of the microfinance institutions' profitability in ethiopian by taking the different levels and ownership microfinance institutions with survey data in an ordered logistic regression model. the variables of the study such as the loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information and credit repayment period have statistically significant and creates the relationships with the microfinance institutions profitability by holding the positive and negative signs. in the underlying study, the directions of the signs of the variables show that the lending patterns of the microfinance institutions support the profitability status and also the other consequences that affect the microfinance institutions' profitability status. under the results of the study, the lending patterns of the microfinance institutions bring advantages to the microfinance institutions' to recognizes financial sustainability and healthy financial operations. although the microfinance institutions' profitability determinant shares the other financial institutions' determinant of profitability variables. the study recommends for a future line of studies to undertake the on the determinants of the microfinance institutions' profitability, addresses the study with taking into accounts of the lending patterns of the institutions as internal factors and also other financial institutions determining factors to investigate and accomplishes the future dreams of the microfinance institutions. keywords: microfinance institutions, lending patterns, interest rates, ethiopia jel classification: f35, c13, c21 & e43 1. introduction microfinance institutions have evolved since the late 1990s as an economic development tool intended to benefits the low-income groups of people. in line with the economic development goals, the microfinance institutions are taken as a means to address the development objectives through creating job opportunities, reduce poverty, promote the business to diversify of the operations, empower women or disadvantaged groups of people, and encourages new business establishments. in short expression microfinance institutions have been expected to reduce poverty, which is considered as the most important development objective(ledgerwood, 1999). microfinance institutions stand with the 1980s to undertake the responses of the doubts and research findings for the delivery of subsidized credit to the poor people, especially for farmers to improve agricultural activities. the governments and international donors have taken the assumptions of credit for the poor would be cheap and this way may promote agricultural production of the small landholders. in addition to providing subsidized credit for agricultural the donors set up credit unions inspired by the raiffeisen model developed in germany in 1864. the focus of these cooperative financial institutions was mostly on savings mobilization in rural areas in an attempt to teach poor farmers how to save(ledgerwood, 2000). in general speaking, the microfinance institutions are addressed unbanked clients and economically low-income people that are unable to access credit from banks with presenting collaterals. microfinance institutions work for the economically active poor people who might be expected to take loans to run a small business(ledgerwood, 2013). in 1976 the grameen bank introduced in bangladesh with the concept of micro-credit to alleviate the poverty and this sintayehu tulu wondimu 34 experiment conducted by muhammad yunus with the focus of credit on the very poor people to alleviate the poverty. in this perspective the microfinance institutions in the last decade experienced on booming of innovations of lending products, partly powered by donors who see microfinance as the next promise to alleviate poverty in the period. in general, the microfinance institutions aim to reduce the vulnerability of clients although in another direction contributes to asset creation, improving repayment rate and sustainability of the services. the product of microfinance institutions innovations typically results from organizations striving to extend outreach, increase impact, and promote sustainability(giné et al., 2006). different authors defined the term microfinance institution with having the similar essences on the microfinance institutions. ledgerwood(2000)defined microfinance institutions as financial services for poor and low-income people to alleviate from poverty with the credit terms of the institutions. microfinance institutions provide financial services including credit and savings, insurance and payment services. also in accordance to united nations defines microfinance institutions in a broad sense as provider of small-scale financial services such as savings, credit and other basic financial services to poor and low-income people. in this context microfinance institution implies that a wide range of organizations dedicated to providing these services and includes ngos, credit unions, co-operatives, private commercial banks and state-owned banks. microfinance is a dynamic field and there is clearly no best way to deliver services to the poor and hence many delivery models have been developed over a period of time(nasir, 2013). in addition to availing the financial services microfinance institutions provides the financial intermediation and social intermediation services such as group formation, development of self-confidence, and training in financial literacy and management capabilities among members of a group(ledgerwood, 2013). the words microcredit and microfinance are often used interchangeably to indicate the range of financial services offered specifically to poor, low-income households and micro-enterprises(stewart et al., 2010). although they have different characters and loosely attached to contrasting beliefs about the state of rural finance and the nature of poverty. in the contextual meaning have a small difference whereas in opinion wise big differences between microcredit and microfinance. in the practices of grameen bank would be taken as microcredit that is initially focused on giving loans to the very poor people. in this context microcredit focus was explicitly on poverty reduction and social change. in comparison the microfinance came with the recognition of households benefit from access to financial services; in broader senses, their focus was mainly on savings and not just credit for microenterprises (chatterjee et al., 2006). in comparisons to the traditional banks the microfinance institutions in their nature characterized by the high quality on the loan portfolio, savings mobilization, loan-approval system, loan recovery performance, and similar performance indices (ledgerwood, 2000). 2. literature review microfinance institutions own the largest development program in worldwide to meet both the financial terms and the number of poor targeted people to alleviate from poverty. the microfinance institutions perform the microcredit, micro-savings, micro-insurance, and money transfers, and have been attributed with enabling microentrepreneurs to build businesses and increase their income, as well as improving the general economic wellbeing of the poor. however, in sub-saharan africa the lending and saving patterns of the microfinance institutions insignificant and this shows that the difficulties of the formal financial sectors in mobilizing savings and providing financial services, especially for poor people(van rooyen, stewart and de wet, 2012). this indicates that the same is true in ethiopia financial institutions, in terms of addressing economically lower income segmented clients and financial facilities are very much poor in comparison to other world practices of financial institutions. the ethiopian government presently liberalized the financial institutions in the financial policy to improve the infrastructures of the financial sectors of the country. nowadays provides licenses and supervisions for banks, insurances, microfinance institutions and other financial institutions to operates in the country’s financial sectors. while the microfinance institutions in ethiopia is a recent phenomenon after the issuances of the proclamation number 40/1996 for the establishment of microfinance institutions. presently microfinance institutions engaged on providing financial services in line to the perspectives of programs the worldwide programs of the microfinance institutions. in ethiopian microfinance institutions legally registered with the national bank of ethiopia, abide by and meet all relevant policies and directives issued by national bank of ethiopia (nbe) (ethiopia, 1996). microfinance institution programs stand to provide financial services for low-income groups of people to alleviate poverty. although faces the challenges to address the programs concerning in relation to the costs of the loan, loan lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 35 terms, loan sizes or amounts, collateral requirements, interest rates, and other fee charges, lending methodologies, credit information or exposures, pieces of knowledge and values of the credit and credit repayment frequency to overcome the profitability of the institutions. under different scholars’ judgments the challenges that adhere to the microfinance institutions for profitability grouped into problems plaguing microfinance institutions, namely highinterest rates, sustainability issues, and ability of institutions to help the poor to generate income (auwalin, no date). in line with this perspective the authors argued on microfinance institutions as instead of helping poor people, the loans from microfinance institutions often becomes a burden to poor people. the argument implies that the microfinance institutions usually impose high-interest rates on the loan to resolve the default risks of institutions to finance the poor people (ghosh et al, 2001), as cited in (auwalin, no date). microfinance institutions provide financial services for low-income people per the programs of microfinance institutions. yet, the growths influenced by the regulatory and operational factors would hinder the smooth functions of microfinance institutions. the challenges faced with the microfinance institutions in financing the rural poor people the recognition of low profitability and high transaction cost while trying to maximize the reaching to the needy in terms of small credit at regular intervals(prathap, subrahmanya and harisha, 2018). in addition to that, the challenges of microfinance institutions also evolved from the programs of the microfinance institutions as emphasized concerning cost-effectiveness of the organizational structures and the appropriateness of the organizational structures from the former financial services when working under non-government organizations and transformation to banks. this implies that when transformed microfinance institutions to commercial activities and concerned the hybrid forms of an organization evolves in the microfinance systems(prathap, subrahmanya and harisha, 2018). while under the sharma m (2011) study cited in (prathap, subrahmanya and harisha, 2018) stated the challenges for banks are to establish a network of agents that can provide profitably as well as reliable services to lower-income people and such segments who do not have access to other banking facilities. banks are expanding a wide range of services and are now looking range of services and are now looking to drive lending facilities through agents. even this will depend on the microfinance institutions that understand this segment of people. microfinance institutions are crucial means to come up the financial inclusion services for low-income groups to access financial services(prathap, subrahmanya and harisha, 2018). financial inclusion refers to people and businesses having access to appropriate and affordable financial services within a given proximity to the lower income groups of people(ledgerwood, 2013). knowingly the financial inclusions measured with the access, usage, quality and welfare. while at the same time required from the institutions becomes sustainable and profitability financially to avail the expected services from the institutions(hermes and hudon, 2018). nowadays owing the limited literatures on the microfinance institution profitability although the microfinance institutions offers banking services to poor. existing empirical literature expressed the profitability of a financial intermediary as the return on assets (roa) or the return on equity (roe). this is measured as a function of internal and external factors. internal factors are influenced by management decisions or within the control of firm management. such factors include firm size, capital adequacy, credit risk provisioning, and efficiency in the management of operating expenses. the external factors include macroeconomic and industry-specific which reflect the economic, legal and business orientation within the context where the financial institution operates(muriu, 2017). the determinants of the microfinance institutions drawn from the industry-specific and macroeconomic variables. in line with these perspectives, we can state several explanatory variables would be proposed for both categories depending on the nature and purpose of each study. the economy posts the negative reports on the microfinance institutions in developing countries like in sub-saharan african countries even though the microfinance institutions recognized large average profitability whereas dispersed the earned profit with corruption(muriu, 2017). nowadays the microfinance attempts to provide financial services to households and micro-enterprises that are excluded from traditional commercial banking services(beck, 2019). in undertaking the financial services, the microfinance institutions required to design the lending products to meet demands and to keep up the financial performances as well as profitability. in designing the lending product for the microfinance institutions taken into accounts of the loan amounts, loan terms, collateral requirements, interest rates, and fees, compulsory savings or group contribution requirements, lending methodology, credit information or exposures, knowledge, and values of credit (ledgerwood, 2000). most of the time lending products designed based on the cash patterns, loan terms, and payment frequency, collateral, and loan pricing to overcome the financial performances and sustainability of the institutions(ledgerwood, 2000). in microfinance institutions, the loan price determines the institutions' profitability sintayehu tulu wondimu 36 and taken as the basis to design the lending products. in microfinance institutions, the determinants of the lending product would be the loan interest rate charged on loans and this determines the costs of loan structure of the microfinance institutions. costs of the microfinance institutions determined based on financing costs, operating costs, loan loss provision and cost of capital(ledgerwood, 2000). the cost component of the microfinance institutions loan probably affects the financial viability of the institutions. knowingly microfinance institutions are a very effective means for financial inclusion and alleviating poverty from the country’s low-income groups of people(prathap, subrahmanya and harisha, 2018). whereas offering financial services to poor people in developing countries is an expensive business and the reason happened due to the recognition of the biggest costs in comparison to traditional financial institutions. microfinance institutions designed lending products in accordance with commercial business operations to recognize the expected profit from the ongoing operations. although faces the challenges to overcome the profitability of microfinance institutions impacted from the nature of the clients’ business, networking and information exchanges, costs of processing loans or transaction costs of the loan(nagarajan and mcnulty, 2004). nowadays the scholars stated the determinants of the microfinance institutions' profitability variables grouped into the firm-specific and macroeconomic. the determinants of the microfinance institutions' profitability concluded in the study of cull, demirgüc-kunt, and morduch (2007), cited in muriu(2017) as the impact of operational costs on the profitability of mfis depends on an institution’s lending methodology. also advanced this study under hollis and sweetman (2007), cited in muriu(2017) find that higher net income is associated with higher salaries and other non-interest costs which is consistent with expense preference theorem. in most of the studies derived the determinant of the microfinance institutions' profitability from the conventional financial institutions’. although the business natures of the microfinance institutions’ and traditional financial institutions completely differed in their nature of the business operations. even though this study shows the possibly conduct to a meaningful analysis on the determinants of mfi profitability concerning the lending patterns of the microfinance institutions (muriu, 2017). moreover, the study addresses the determinants of microfinance institutions' profitability to some extent to overcome the limited literature faced on the determinants of microfinance institutions' profitability. 3. research design and methodology research design is a plan for a study to provides the overall framework for collecting data (leedy, 1997), as cited in (van zyl, 2012). research methodology also a theory of how an inquiry should proceed. it involves analysis of the assumptions, principles and procedures in a particular approach to inquiry(schwardt, 2007), as cited in (van zyl, 2012). in line to the general perspectives of the research design and methodology for this study developed the mixed research approach undertaken to conduct the study on lending patterns and its impact on profitability of microfinance institutions in ethiopian with the ordered logistic regression model. 3.1. sources of data, types of data and methods of data collection this study uses the primary data, gathered through designed survey instruments. the instruments consist of open and close-ended questions. open-ended questions allow the respondents to write the opinions without restrictions and also cover the ideas might not be included in the instruments. closed-ended questions designed with the five point likert scale measurements. the scales represented as (1) strongly disagree, (2) disagree, (3) neutral, (4) agree, and (5) strongly agree. close-ended instruments support to access a high degree of response rate from the expected sample respondents. 3.2. target population, sample size and sampling techniques target population of the study taken from the ethiopian microfinance institution registered under the national banks of ethiopia requirements in a proportionately. in the study undertaken the sub-classifications of a sample to address the required analysis, variation, precision, availability, and cost of investigations(singh and masuku, 2014). in the determination of sample size as well as to draw the appropriate sample size taken into accounts the level of precision, confidence, and degree of variability(singh and masuku, 2014). the study uses the equation to determine sample size of the study in accordance to cochran (1963, 1975), as cited in (d.israel, 2003), developed the equation to yield a representative sample for proportions of a large sample of the study and presented the equation as follows; lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 37 where n is sample size, z2 is abscissa of normal curve cutoff an area α at the tails (1 α equals desired confidence level is 95%), e is desired level of precision, p is estimated proportion of attribute and q is 1-p. per the above equation determined sample size and proportional random sampling method was employed to select a sample from each state and city administration of the nation with taking as a stratum. where: n sample size, n target population the target population of the study would be 7856 selected from active microfinance institutions of the country. in accordance to the above equations would be determined the sample size of the study as follows; proportional simple random sampling method was employed to select the sample respondents from each microfinance institutions on the basis of the clients’ holding from each stratum. 3.3. methods of data analysis after gathering data undertaken the descriptive and econometric data analysis with the aid of statistical software. in parallel to the descriptive analysis conduct the econometric analysis with the statistical regression model known as ordered logistic regression for the study. 3.3.1. model specification: ordered logistic regression model (ologit) when the outcome variable is ordinal and the relative ordering of response values is known and have the exact distance between them then the most popular method is the ordered logistic regression model, which is also known as the proportional odds model(williams, 2016). unfortunately, experience suggests that the assumptions of the ordered logistic model are frequently violated indicated the situations most of experts studies as (long & freese, 2014), cited in (williams, 2016). the ordered logistic model is a regression model for ordinal response variables. the model is based on the cumulative probabilities of the response variable: in particular, the logistic of each cumulative probability is assumed to be a linear function of the covariates with regression coefficients constant across response categories(michaels, 1989). it is tempting to analyze ordinal outcomes with the linear regression model, assuming equal distances between categories. however, this approach has several drawbacks which are well known in literature as (mckelvey and zavoina, 1975; winship and mare, 1984; lu, 1999), cited in (michaels, 1989). when the response variable of interest is ordinal, it is advisable to use a specific model known as the ordered logit model. questions relating to the lending patterns and its impact on profitability of microfinance institutions are usually ordinal in nature. under this study the ordered logistic model would be uses to estimate the relationships between ordinal responses on the lending patterns and its impact on profitability of microfinance institutions and selected exogenous variables of the study. the collected responses are categorical as well as ordered them sequential from the small magnitude to the large magnitude with setting an equal distance between each other’s’, the responses expressed as strongly disagree [1], disagree [2], agree [3] and strongly agree [4]. let 𝑌𝒾 be an ordinal response variable with 𝒞 categories for the 𝒾 − 𝑡ℎ subject, alongside with a vector of covariates 𝒳𝒾 . a regression model establishes a relationship between the covariates and the set of probabilities of the categories 𝑝𝑐𝒾 = 𝒫𝑟(𝑌𝒾 = 𝑦𝑐 |𝒳𝒾 ), 𝒸 = 1, … , 𝒞. usually, regression models for ordinal responses are not expressed in terms of probabilities of the categories, but they refer to convenient one-to-one transformations, such as the cumulative probabilities of ℊ𝑐𝒾 = pr (𝑌𝒾 ≤ 𝑦𝑐 |𝑋𝒾) 𝒸 = 1, … , 𝒞. note that the last cumulative probability is necessarily equal to 1, so the model specifies only 𝒞 − 1 cumulative probabilities. 𝑛0 = 𝑍2 𝑝𝑞 𝑒 2 𝑛0 = (1.96)2 (0.5)(0.5) (0.05)2 =384 𝑛 = 384 1+ (384 −1) 7856 = 366 sintayehu tulu wondimu 38 an ordered logistic model for an ordinal response 𝑌𝑖 with 𝒞 categories is defined by a set of 𝒞 − 1 equations where the cumulative probabilities ℊ𝑐𝒾 = pr(𝑌𝒾 ≤ 𝑦𝒸 |𝑋𝒾 ) are related to a linear predictor 𝛽 ′𝑋𝒾 = 𝛽0 + 𝛽1𝑋1𝒾 + 𝛽2𝑋2𝒾 + ⋯ through the logit function: 𝑙𝑜𝑔𝑖𝑡(𝑔𝑐𝒾 ) = log ( 𝑔𝑐𝑖 1−𝑔𝑐𝑖 ) = 𝛼𝑐 − 𝛽′𝑋𝑖 , 𝒞 = 1,2, … , 𝒞 − 1. (1) the parameters 𝛼𝑐, called thresholds or cut-points, are in increasing order (𝛼1 < 𝛼2 < ⋯ 𝛼𝑐−1). it is not possible to simultaneously estimate the overall intercept 𝛽0 and all the 𝒞 − 1 thresholds: in fact, adding an arbitrary constant to the overall intercept 𝛽0 can be counteracted by adding the same constant to each threshold 𝛼𝑐 . this identification problem is usually solved by either omitting the overall constant from the linear predictor (i.e.𝛽0 = 0) or fixing the first threshold to zero (i.e.𝛼1 = 0 ). the vector of the slopes 𝛽 is not indexed by the category index 𝒞, thus the effects of the covariates are constant across response categories. this feature is called the parallel regression assumption: indeed, plotting 𝑙𝑜𝑔𝑖𝑡(𝑔𝑐𝑖 ) against a covariate yields 𝒞 − 1 parallel lines or parallel curves in case of a non-linear specification. in model (1) the minus before 𝛽 implies that increasing a covariate with a positive slope is associated with a shift towards the right-end of the response scale, namely a rise of the probabilities of the higher categories. some authors write the model with a plus before 𝛽: in that case the interpretation of the effects of the covariates is reversed. from equation (1), the cumulative probability for category 𝑐 is 𝑔𝑐𝑖 = exp(𝛼𝑐 − 𝛽′𝑋𝑖 ) 1 + [exp(𝛼𝑐 − 𝛽′𝑋𝑖 )] = 1/(1 + exp (−𝛼𝑐 + 𝛽′𝑋𝑖 ) the ordered logistic model is also known as the proportional odds model because the parallel regression assumption implies the proportionality of the odds of not exceeding the 𝑐 − 𝑡ℎ category 𝑜𝑑𝑑𝑠𝑐𝑖 = 𝑔𝑐𝑖 /(1 − 𝑔𝑐𝑖 ): in fact, the ratio of these odds for two units, say 𝑖 and𝑗, is 𝑜𝑑𝑑𝑠𝑐𝑖 𝑜𝑑𝑑𝑠𝑐𝑗 = exp [𝛽′(𝑋𝑗 − 𝑋𝑖 )]], which does not depend on 𝑐 and thus it is constant across response categories. 4. results and discussions 4.1. descriptive statistics of the study table 1: summary of the endogenous variable responses in their categories profitability of mfis freq. percent cum. strongly disagree 15 4.10 4.10 disagree 20 5.46 9.56 agree 10 2.73 12.30 strongly agree 321 87.70 100.00 total 366 100.00 source: author’s survey data, 2019 the above table shows that the endogenous variable responses distributions from the sampled respondents of the study. per the respondents' responses, the strongly disagree equal to 4.10 %(15), disagree 5.46 %(20), agree 2.73 %(10), and also strongly agree with 87.70%(321). the statistical output implied that most of the respondents respond as strongly agree on the profitability of microfinance institutions. the average sample respondents agreed on the recognition of the microfinance institutions’ profitability from their business operations. table 2: descriptive statistics for the endogeneous and exogeneous variables of the study variables obs. mean std. dev. min max profitability of mfis 366 3.740437 .740865 1 4 loan term 366 3.34153 .8323448 1 4.625 collaterals 366 3.432719 .4982402 1.25 5 knowledge for credit 366 3.795082 .7578469 1 5 cost of loan 366 3.257377 .8375357 1 4.4 lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 39 interest rates 366 3.760929 .7077483 1 4.5 loan size 366 2.738919 .4314397 1.222222 4.111111 lending methodology 366 3.035939 .3969795 1.461539 3.769231 credit information 366 2.215847 .8208717 1 4 credit repayment period 366 2.437158 1.0069 1 5 source: author’s survey data, 2019 table 2 presents the summaries of the endogenous and exogenous variables of the study undertaken in the ordered logistic model. in the above table listed the numbers of sampled respondents of the study mean, standard deviations, minimum and maximum values of the categorical variables of the study given the responses from the selected respondents of the study. the expected value of the dependent variable, known as the profitability of microfinance institutions is closed to 3.740 and its standard deviation also closed to 0.741. this value implies that the sample respondents' responses would deviate in between agree and strongly agree on the scales of measurements. the expected values of the independent variables namely, the loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information, and credit repayment period presented on the above table. the expected value of the loan terms equal to 3.342 from the given responses of the sample respondents whereas the standard deviation equal to 0.832. the expected value of the collaterals equal to 3.433 and also the standard deviation equal to 0.498. the expected values of knowledge for credit equal to 3.795 and although the standard deviation equal to 0.758. the mean values of the cost of the loan equal to 3.257 and its standard deviation equal to 0.838. the expected values and standard deviations of the interest rates equal to 3.761 and 0.0.708. the expected values of loan size, lending methodology, credit information, and credit repayment period equal to 2.739, 3.036, 2.212, and 2.437, and their standard deviations also equal to 0.0.431, 0.397, 0.821 and 1.007 respectively. the expected values of the variables imply that the respondents' responses agree on the situations for the average responses above 2.5 expected values. know the profitability of microfinance institutions, loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information, and credit repayment period variables are ready to undertake the data analysis with the specified econometrics model. according to the measures of the central tendency especially the mean values and standard deviations indicate that the distributions of the data would be concentrated to the center and also their standard deviation indicates that the data distributions closed to the mean values. 4.2. ordered logistic model estimation results 4.2.1. evaluating ordered logistic model fit table 3: the pearson chi-square tests for the model fit dependent variable independent variables df pearson chi-square p-values profitability of mfis loan term 36 342.9106 0.000 profitability of mfis collaterals 39 833.2655 0.000 profitability of mfis knowledge for credit 9 429.0612 0.000 profitability of mfis cost of loan 45 678.1674 0.000 profitability of mfis interest rates 18 643.6533 0.000 profitability of mfis loan size 45 9481.7 0.000 profitability of mfis lending methodology 39 743.3251 0.000 profitability of mfis credit information 9 19.7426 0.020 profitability of mfis credit repayment period 12 41.5276 0.000 source: author’s survey data, 2019 the above table presents the pearson chi-square tests, addressed the null hypothesis tests for the fit of the model undertaken to know the associations of the studied variables. under the pearson chi-squares tests for each of the independent variables with the dependent variable observed that from the above-given table shows an association sintayehu tulu wondimu 40 between the studied variables, which the outcome variable with an endogenous variable. in addition to that, the pvalues from each dependent and independent variable less than 0.05 or the value of alpha. these situations suggest to accept the research hypothesis and also in another direction required to reject the null hypothesis of the study. 4.3. discussion 4.3.1. ordered logistic model interpretations with the coefficients iteration log: this is a listing of the log-likelihoods for each of the iteration. the ordered logistic regression uses the maximum likelihood estimation, which is an iterative procedure. the first iteration for the iteration of zero is the loglikelihood of the null or empty model; that is, a model with no predictors. next to the zero iteration, the predictors are included in the model. the iteration of the log-likelihood increases because the goal is to maximize the loglikelihood. when the difference between successive iterations is very small, the model is said to have converged, finally the iterating stops, and the results are displayed, under these expressions, the model iteration converged to 86.850555 contextual in the model. model summary ordered logistic regression number of obs = 366 lr chi2(9) = 194.64 prob > chi2 = 0.0000 log likelihood = -86.850555 pseudo r2 = 0.5284 number of observations: this shows that the number of observations undertaken in the ordered logistic regression model. the number of observation equal to 366 and there is no missing value from the data sets. lr chi2 (9): this is the likelihood ratio (lr) chi-square test that at least one of the predictors’ regression coefficients is not equal to zero in the model. the number in the parenthesis indicates that the degree of freedom of the chi-square distribution undertaken to test the lr chi-square statistics and defined by the number of predictors in the model. the lr chi-square statistics calculated as; -2(l (null model) l (fitted model)) = -2[(-184.16995) -(86.850555)] =194.64. where l (null model) is from the log-likelihood with just the response variable in the model (iteration 0) and l (fitted model) is the log-likelihood from the final iteration with all the parameters. in general speaking, the lr chi-square (9) shows that the model fits the data well as compared to the null hypothesis. pro > chi2: this is the probability of getting an lr test statistics as extreme as, or more so than the observed under the null hypothesis of the regression coefficients in the model are equal to zero. in other words, this is the probability of obtaining these chi-square statistics (194.64) if there is, in fact, no effect of the predictor variables. this p-value is compared to a specified alpha level, this is the willingness to accept type i error, which is typically set at 0.05 or 0.01. the small p-value from the lr test, <0.0001, would lead us to conclude that a least one of the regression coefficients in the model is not equal to zero. the parameter of the chi-square distribution used to test the null hypothesis is defined by the degree of freedom in the prior line, chi2 (9). in this study, the p-value shows that a highly significant for the exogenous variables of the study, and this implies that the loan term, collaterals, knowledge for credit, costs of loan, interest rates, loan size, lending methodology, credit information and credit repayment period statistically significant effects on the profitability of the microfinance institutions. pseudo r2: this is mcfadden’s pseudo r-squared logistic regression does not have an equivalent to the r-square that is found in ols regression. then the value of mcfadden r2 (aka pseudo r2) would be computed as follows; mcfadden r2 (aka pseudo r2) is 𝑃𝑠𝑒𝑢𝑑𝑜 𝑅2 = 𝑀𝑜𝑑𝑒𝑙 𝐿𝑅 𝐶ℎ𝑖2 𝐷𝐸𝑉0 = 194.64 368.3399 = 0.5284 (remember, 𝐷𝐸𝑉0=-2*𝐿𝐿0 = -2*-183.77464 = 368.3399) according to the above expressions the pseudo r2 of the model output as well as the computed values of pseudo r2 with an equation obtained an identical value. lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 41 table 4: parameter estimates profitability of mfis coef. std. err. z p>za [95% conf. interval]b loan term .9450301 .3083497 3.06 0.002 .3406757 1.549384 collaterals 1.360526 .3911492 3.48 0.001 .5938877 2.127165 knowledge for credit 1.059208 .2939877 3.60 0.000 .4830026 1.635413 cost of loan -1.390924 .6034216 -2.31 0.021 -2.573609 -.2082398 interest rates 2.350355 .430718 5.46 0.000 1.506164 3.194547 loan size -4.251117 .6834061 -6.22 0.000 -5.590569 -2.911666 lending methodology 2.750517 .7650238 3.60 0.000 1.251098 4.249936 credit information -.655219 .3190299 -2.05 0.040 -1.280506 -.0299319 credit repayment period -.502205 .2017494 -2.49 0.013 -.8976265 -.1067834 /cut1 3.415438 1.503341 .4689435 6.361933 /cut2 5.711946 1.579228 2.616715 8.807177 /cut3 6.525228 1.616962 3.356041 9.694416 source: author’s survey data, 2019 coefficients’ of the variables: the above table shows that the ordered log-odds (logistic) regression coefficients of the study variables. undertaken the interpretation of the coefficients variables inline to the standard interpretation of the ordered logistic coefficient, accordingly as the one-unit increase in the predictor, the response variable level is expected to change by its respective regression coefficients in the ordered log-odds scale while the other variables in the model held constant. knowingly the interpretation of the ordered logistic estimates is not dependent on the ancillary parameters; the ancillary parameters used to differentiate the adjacent levels of the response variables. however, the ordered logistic model estimates one equation overall the levels of the dependent variable, a concern is whether one-equation of the model is valid or a more flexible model is required. under the ordered logistic regression model the exogenous variables are statistically significant. the results of the model interpreted as per the standard interpretations of the model. under the model output, the positive coefficient variables are the loan terms, collaterals, knowledge for credit, interest rates, and lending methodology; this implies that the likelihood of the lending pattern variables supports the microfinance institutions' profitability. whereas the negative coefficient variables are the costs of the loan, loan size, credit information and credit repayment period; this implies that the likelihood of the lending pattern variables may not supports the microfinance institutions profitability rather impacts for the reductions of microfinance institutions profitability and adds extravagant costs to the institutions. independently interpreted the coefficients of the variables as follows; loan terms: when increases one unit to the microfinance institutions profitability, then the loan terms expect to 0.945 increases in the log-odds of being the microfinance institutions profitability, given all of the other variables in the model are held constant. this implies that the loan term as the lending patterns of the microfinance institutions influences the microfinance institutions profit. collaterals: when increasing one unit to the microfinance institutions' profitability, then the collaterals expect to 1.361 increases in the log-odds of being the microfinance institutions' profitability, given all of the other variables in the model are held constant. this implies that the collaterals would be a significant contribution as well as a key factor for the overcoming of institutions' profitability and to improve the credit practices of the institutions. knowledge for credit: when it increases one unit to the microfinance institutions' profitability, then the knowledge for credit of the creditors increases to the expected values of 1.059 in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that the knowledge for the microfinance institutions credit improved when financial sustained on the microfinance institutions' operations. cost of loan: when increases one-unit to the microfinance institutions' profitability, then the cost of loan declines with 1.391unit in the log-odds of the institutions' profitability, given all of the other variables in the model are held sintayehu tulu wondimu 42 constant. this implies that the cost of processing the loan of the microfinance institutions influences negatively the microfinance institutions profit status. interest rates: when it increases one-unit to the microfinance institutions' profitability, then the interest rate of the microfinance institutions increases to the expected values of 2.350 in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that the interest rates as a lending pattern of the microfinance institutions have a direct impact on the institutions' profit status. loan size: when loan size of the microfinance institutions declines to the expected values of 4.251, then the microfinance institutions' profitability declines with one-unit, in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that as the lending patterns of the microfinance institutions the loan size negatively affects the profitability of the institutions and the creditors may not use the credit for productive purposes and this probably increases the microfinance institutions' credit defaults. lending methodology: when it increases one-unit to the microfinance institutions' profitability, then the lending methodology of the microfinance institutions increases to the expected values of 2.751 in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that the lending methods of the microfinance institutions improve the microfinance institutions' profitability and also matters to minimizes the credit defaults of the microfinance institutions. credit information: when the credit information of the microfinance institutions declines to the expected values of 0.655, then the microfinance institutions' profitability declines with one-unit, in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that the credit information not well awarded to the clients the credit processing is too long and increases the costs of the institutions and also may affect the credit transparency of the institutions. credit repayment period: when the credit repayment period of the microfinance institutions declines to the expected values of 0.502, then the microfinance institutions' profitability declines with one-unit, in the log-odds of being the lending patterns of the microfinance institutions, given all of the other variables in the model are held constant. this implies that the credit repayment period too short and affects the business operations of the client customers and the consequence also affects the institutions' profit status. ancillary parameters: these refer to the cut-points (a.k.a. thresholds) used to differentiate the adjacent levels of the response variable. in this study the threshold points for the endogenous variable would be discrete and easily observable to distinguish them; this may result in the different observed values on the proxy variable. _cut1: this is the estimated cut-point on the endogenous variable used to differentiate strongly disagree of taxing of an informal economy from disagree, agree and strongly agree taxing of an informal economy when values of the predictor variables are evaluated at zero. subjects that had a value of 3.415 or less on the underlying endogenous variable that gave rise to the taxing of an informal economy variable would be classified as strongly disagree of taxing of an informal economy. _cut2: this is the estimated cut-point on the endogenous variable used to differentiate strongly disagree and disagree taxing of an informal economy from agree and strongly agree of taxing of an informal economy when values of the predictor variables are evaluated at zero. subjects that had a value of 5.712 or less on the underlying endogenous variable that gave rise to the taxing of an informal economy variable would be classified as strongly disagree and disagree of taxing of an informal economy. _cut3: this is the estimated cut-point on the endogenous variable used to differentiate strongly disagree, disagree and agree taxing of an informal economy from strongly agree of taxing of an informal economy when values of the predictor variables are evaluated at zero. subjects that had a value of 6.525 or less on the underlying endogenous variable that gave rise to the taxing of an informal economy variable would be classified as strongly disagree, disagree and agree of taxing of an informal economy. in general, speaking the marginal effects of the outcome variable the probabilities of the categories to be becoming of the strongly disagree (1), disagree (2), agree (3) and strongly agree (4) would be indicated as 0.00114367, 0.010108720, 0.01377165 and 0 .97497595 respectively. this implies that the respondents of the sampled study would be responded to for the microfinance institutions profitability as strongly agreed. while, the post estimations of the marginal effects would be run after the running of the ordered logistic regression, would have obtained the probabilities of the given categories. lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 43 std. err.: this shows that the standard errors of the individual regression coefficients of the ordered logistic model. they are used in the calculation of the z test statistic, the superscript a in the model output, and the confidence interval of the regression coefficient, superscript b in the model output. z and p>|z|: this shows that the test statistics and p-value, respectively, for the null hypothesis of an individual predictor’s regression coefficient is zero given that the rest of the predictors are in the model. the test statistic z is the ratio of the coefficient to the standard error of the respective predictor. the z value follows a standard normal distribution which is used to test against a two-sided alternative hypothesis that the coefficient is not equal to zero. the probability that a particular z test statistic is as extreme as, or more so, than what has been observed under the null hypothesis is defined by p>|z|. under the z test statistic of each predictor’s such as the loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information and credit repayment period would be 3.06, 3.48, 3.60, -2.31, 5.46, -6.22, 3.60, -2.05 and -2.49 with an associated p-value approximately for all exogenous variables less than 0.05. if we set our alpha level to 0.05, we would reject the null hypothesis and conclude that the regression coefficient for the loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information and credit repayment period is statistically different from zero in estimating taxing of an informal economy. [95% conf. interval]: this is the confidence interval (ci) for an individual regression coefficient given the other predictors is in the model. for a given predictor with a level of 95% confidence, we would say that we are 95% confident that the true population regression coefficient lies in between the lower and upper limit of the interval. it is calculated as the coef. ± (zα/2) *(std. err.), where zα/2 is a critical value on the standard normal distribution. the ci is equivalent to the z test statistic: if the ci includes zero, we would fail to reject the null hypothesis that a particular regression coefficient is zero given the other predictors are in the model. an advantage of a ci is that it is illustrative; it provides a range where the true parameter may lie. 5. conclusions and recommendations the study undertaken on the lending patterns and determinants of the microfinance institutions profitability in ethiopian with taking survey data from the ethiopian microfinance institutions of the different levels of the microfinance institutions. the lending pattern variables of the microfinance institutions determine the profit status of the microfinance institutions. under the study output, the lending patterns of the microfinance institutions influence the microfinance institutions' profitability status. the variables of the study like loan term, collaterals, knowledge for credit, costs of the loan, interest rates, loan size, lending methodology, credit information and credit repayment period as a whole show that the significance on determining the institutions' profit status withholding the positive and negative signs and also statistically significant in determining the microfinance institutions profit. per the results of the study, concluded as the microfinance institutions' profitability brings advantages to the microfinance institutions' financial sustainability and to operate healthy financial operations. the microfinance institutions to overcome the mission drift in the developing as well as developed countries required to undertake carefully the lending patterns of the institutions. although most of the pieces of literature emphasize the determinants of the microfinance institutions made comparability with the banking industries, while the business natures of the microfinance institutions somehow operate the businesses in a different circumstance of the banking industry. this implies that the determinants variables of the microfinance institutions' profitability described with the institutions' lending patterns in addition to the regularly influencing factors of the other sector financial institutions. in general, speaking the microfinance institutions' profits would be determined by the lending pattern of the institutions in line to the financial institutions determining factors of profitability. in this perspective, the microfinance institutions determining factors of profitability may not be measured solely with the financial institutions determining factors although to some extent the lending patterns also expressed in other financial institutions determining factors of profitability. in this context the microfinance institutions profitability shares the other financial institutions determining variables, this means the microfinance institutions determined with the institutions' lending variables as well as the external factors to recognizes the expected profits in the institutions. sintayehu tulu wondimu 44 references auwalin, i. 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(2012) ‘chapter 4 : research design and methods’, (2003), pp. 117–154. lending patterns and determinants of microfinance institutions profitability in ethiopian microfinance institutions 45 appendix: ordered logistic regression model output journal of international trade, logistics and law, vol. 6, num. 2, 2020, 90-105 90 determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia lalisa adugna metu university, ethiopia getachew kebede jimma university, ethiopia negese tamirat mulatu jimma university, ethiopia received: 02 oct, 2020 accepted: 20 nov, 2020 published: 10 dec, 2020 abstract: this study was aimed at investigating the determinants of rural women economic empowerment in agricultural activities of nunu kumba district of oromia regional state, ethiopia. the study can be useful to reduce women discrimination, ministry of child and women’s affairs in its effort to formulate and implement gender policies. a multistage sampling procedure was used to take sample of 342 women household respondents using random sampling technique from selected rural kebeles. for the study both primary and secondary sources of data were conducted. primary data was collected through structured questionnaires, key informant interviews and focus group discussions. the collected data was analyzed using both descriptive and logistic regression model. descriptive analysis was conducted to discuss the behavior of rural women economic empowerment in agricultural activities and performed using frequencies, percentage, means, standard deviation, maximum and minimum values. the logistic regression result reveals that out of thirteen explanatory variables eleven variables age, size of family, educational status, farm income, off-farm income, access to credit, access to and control of economic resources, access to information, rural women participation in community affairs, lack of gender awareness and domestic violence were statistically significant. the findings of the study recommended that the policy makers effectively implement the rights of the significant number of ma rginalized rural women for full participation in all levels of human activity. this will play a paramount role in eradicating poverty and hastening economic growth of ethiopia. keywords: economic empowerment, women, child, logistic regression, growth, ethiopia 1. introduction a major overlooked feature of ldcs and particularly in africa is the women’s crucial role in agricultural activity. in sub-saharan africa where subsistence farming is predominant and shifting cultivation remains important nearly all tasks of subsistence food production are performed around 70 to 80 by rural women (desai, 2010). agriculture is the back bone of ethiopian economy where the vast majority of the population of the country depends on it as a source of livelihood and shares substantial proportion of the total gdp of the country. rural development in ethiopia cannot be imagined without the active participation of women (csa , 2014/15). the sector is more dominated by mixed farming where crops and livestock play major roles in serving dual purposes for domestic consumption and foreign currency earnings. the sector contributes about 50% of the gross domestic product (gdp) and 90% of the national export earnings. although it is the leading source of foreign exchange earnings, the sector is dominated by traditional subsistence and cultural perception of abundant human labor. empowerment of rural women is the implication of expanding women’s rights and capabilities to participate in negotiate, influence, control and hold accountable of the institutions that affect their lives (fao, 2015). rural determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 91 women empowerment in agriculture is generally defined as women’s ability to make decisions on matters related to agriculture as well as their access to the material and social resources needed to carry out those decisions. in agriculture rural women are now considered as the main actors of the nation starts developing faster and more widely (alkire et al, 2013). women empowerment means giving power to women in all aspects including finance and productive resources. it brings economic change and results in poverty reduction, influence decisions on economic activity, increased self-confidence and better living standards (firafis .et.al, 2016). empowerment of rural women increases women’s real power over economic decisions and having the power to make major household decision that influence their lives and priorities in society. it refers women control over economic resources, others opportunities equally with men and the elimination of structural gender inequalities in the labor market including a better sharing of unpaid care work (sida, 2018). among other determinants of economic development, women empowerment is identified as a one of the most significant aspect of development (world bank, 2011). then, by doing so, it is possible to make women independent of income from their husband and then their family members can be financially benefited (undp, 2014). women empowerment can be achieved through women equally participating with men on every activity such as selfdependent, household decision, family expenditure, giving them freedom of mobility, access to economic opportunities and formal education (iqbal, 2015). it is one of the key drivers in promoting their abilities, rights and well-being which subsequently reduces poverty and increases economic growth, productivity and efficiency (golla et al., 2011). empowerment is necessary for poor as whole and marginalized women more to improve their ability to manage their lives in all aspects. therefore, empowerment of rural women is about strengthening of their innate vitality which should enable the women to realize their full right and power in all spheres of life and also ensure their equal participation with men in the development process. there are different types of women empowerment which targets for the development of women in different aspects like social, economic, political, legal and educational. however, women economic empowerment is a key determinant for overall women empowerment (shabbeer, 2016). rural women help in carrying out all other farm operations such as compost making, sowing, weeding, application of fertilizer and manure, application of irrigation, protection from birds, harvesting, threshing, winnowing, drying, stacking and carrying (moa, 2018). oromia regional state in general and the study area in particular, the power of rural women to control over economic resources remains low due to women are still backward in education, social status, economic background, political matters. most of rural women have no power to make household decision. this is due to the fact that information to resist men’s dominance, social bias and traditional norms. in rural area women are responsible for most of the household activities this limits women’s capacity to engage in income-earning activities and later they dependent on their husband’s income. therefore, this study conducted to assess the determinants of rural women economic empowerment in agricultural activities in the study area. 2. statement of the problem women around the world suffer from discrimination, violence and lack of recognition of basic human rights, and do not fully and effectively participate at all levels of decision-making. rural women in particular confront a serious burden as they are faced with discrimination based on socio-economic conditions, and gender making them victims of inequalities and violence both inside and outside their communities. they are frequently prevented from playing an active role in political activities and participating on major household decision (fao, 2016). however, their main roles have not always been recognized by societies. in ethiopia unequal participation of women with men in political, economic, social rules and regulations prevent women from enjoying the fruits of their labor. without providing equal opportunities rural women cannot compete with men in all fields of self-advancement. for eradicating gender inequality in all aspect’s active participation of rural women in the society is required for bigger decision-making process (ayferam, 2015). ethiopian rural women are marginalized from economic, social and political empowerments due to multifaceted reasons. most of the time they have limited to control over economic resources and their productivity remains low relative to their potential. in addition, the dominance of men in various income generating activities particularly affects the economic empowerment of rural women. even though women are doing a great job in production, reproduction and community management, yet they do not have the right to make decision on economic resources. they earn low wage in agriculture and limited land inheritance. women in lalisa adugna & getachew kebede & negese tamirat mulatu 92 rural area facing lack of land for farming, access to information, credit facilities, skill training and education. they play significant role in agriculture but their major contributions in agriculture are not acknowledged (messay, 2012). women enjoy a little freedom and equality in all dimensions due to lack of awareness in our society, women’s role has not been recognized. they are suffering from economic poverty, social discrimination, political disenfranchisement, and cultural subjugation and even some times considered as non-citizens. they are still facing negative treatment from their family, community, and even from their similar sex partners. in ethiopia where rural women are facing political, social and cultural challenges that undermine their human worth, dignity and right (helina, 2015). women also provide most of the unpaid labor with heavy workload due to their high responsibility in caring for the family, fetching water and firewood while handling other productive and responsibilities in the community (fao, 2019). rural women are not treated equal to men due to they have limited household decisionmaking, limited access to and control over household resources, heavy domestic workloads, restricted mobility, inadequate knowledge and skills that leading to women’s vulnerability. according to their study of sado et al. (2014), reveals that women’s participation in household decision-making is the principal indicator of women’s economic empowerment. women empowerment is recognized as one of the building blocks to combat poverty and achieve sustainable improvement in ethiopia (ogato, 2013). however, still, the presence of traditional attitudes, cultural values in community, high illiteracy, low commitments from concerned government bodies are some of the factors that hinder the full-fledged women’s empowerment in ethiopia. the achievement of women empowerment in ethiopia is mainly affected by policies that lack effectiveness (tefera, 2017). the government of ethiopia has made a number of efforts towards effective and smooth implementation of women economic empowerment (wakitole, 2013). however, most rural women are disempowered and facing discrimination. the study conducted by ogato (2013) in ethiopia indicates, most governing bodies are dominated by men. therefore, there are significant gap between policy advancements and actual practice at the community level. as far varies study conducted in ethiopia but limited empirical literature on determinants of rural women economic empowerment. therefore, this study was conducted to investigate the determinants of rural women economic empowerment in agricultural activities in the study area. 3. literature review 3.1. theoretical literature review in the new global economy women’s empowerment has become a central issue for every country to be able to achieve development goals such as economic growth, poverty eradication, health, education and welfare (golla et al., 2011). women empowerment is an active multidimensional process which should enable women to realize their full rights and powers in all spheres of life. it would consist in providing greater access to knowledge and resources, greater autonomy in decision making, greater ability to plan their lives, greater control over the circumstances that influence their lives (shabbeer, 2016). this is also fundamental to the achievement of gender equality in which women with economic power is referred as control of income, key economic resources, gain more equality and control over their own lives (babita, 2010). women’s empowerment has been considered as a driving force in ensuring improved maternal healthcare (sado, et al. 2014). achieving women’s empowerment is one of the key drivers in promoting their abilities in politics, social and economic rights, and well-being which subsequently expect to eradicate poverty, enhance economic growth, productivity and efficiency. recently, it has become a central issue for countries to be able to achieve development goals such as economic growth and social welfare (golla et al., 2011). to empower rural women government initiatives alone are not enough however, society must take initiative to create awareness in order to solve gender discrimination, promote opportunities of self-decision making and participating in social, political and economic life of the country with a sense of equality (rajeshwari & shettar, 2015). women economic empowerment is a capacity of women to participate in contribute to and benefit from economic growth and development in ways that identify the value of their contributions respect their dignity and make it possible to negotiate a fairer distribution of the benefits of economic growth. the primary factor of women economic empowerment is the ability of women to involve into employment, self-employment, access to education, access to credit, and control over economic resources. women economic empowerment can be realized via an increase in women’s control of household resources and an increase in women’s access to borrowing in the financial markets (bassam. et al , 2015). it gives them the freedom to choose the way they live and how to influence the determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 93 society. this process of empowerment is contingent upon the availability of resources and the ability to use access to economic opportunities and control over economic benefits. empowering women economically will reduce the impacts of the economic crisis and will lead to economic growth (bassam. et al , 2015). majority of women particularly in developing countries are below the poverty line and are very often in situations of extreme poverty, household and social discrimination. national policies and poverty eradication programs will address the needs of women and effectively work to solve these problems. there will be implementation of program which are already women oriented with special targets for economic empowerment of women. among this, microfinance and bank have the responsibility of mobilizing poor women by offering them economic opportunity to enhance their capabilities. in order to enhance women’s access to credit, the establishment of new and strengthening of existing micro-credit is enhanced (shabbeer, 2016). the development of microfinance increases rural women’s income and create a positive change in their perception of health and education. 3.2 empirical literature review the study conducted by ayevbuomwan, et al. (2016) on the analysis of women empowerment in rural nigeria using logistic regression reveals that there is a positive relationship between age of women and the probability of being empowered. this is confirmed by the findings of qurra, et al.( 2015), where their finding revealed an increase in empowerment status of women in india as their ages increase. the study of aregu et al. (2017) employed binary logit model to examine the impact of microfinance on woman’s empowerment. their finding indicates, age was statistically significant and positively affects economic empowerment of women. according to the study of (didana, 2018), using binary logistic regression, age has positive influence on rural women economic empowerment. the study conducted by (didana, 2018) employed binary logistic regression to investigate determinants of rural women economic empowerment. according his finding reveals that, family size has negative influence on rural women economic empowerment. according to the study conducted by ayevbuomwan, et al. (2016) on the analysis of women empowerment in rural nigeria using logistic regression model, household size is statistically significant and negatively affects women economic empowerment. the study conducted by didana (2018) and wakitole (2013) reveals that, education has positive influence on rural women economic empowerment. the study of margaret (2015) employed correlation coefficient to examine determinants of economic empowerment of women in nyeri municipality, nyeri, kenya. the study finding of margaret reveals education is statistically significant and positively affects women economic empowerment. the studies done by (samari & pebley, 2015) shows that among all other factors, education proved to be a very strong factor in making women empowered not only at household level but also in whole society and who concluded that education is one of the strong determinants of women empowerment. (ashar and hussain, 2016), empirically investigated in pakistan using binary logistic regression and they found that education is statistically significant and positively affects women economic empowerment. the study of zhera (2014) applied tobit model to investigate women economic empowerment through agricultural extension services the case of meskan woreda in snnprs of ethiopia indicates that the household farm size is direct determinant of women economic empowerment. khan et al. (2015) conducted a research on determinants of women’s empowerment and poverty reduction: a case study of rural faisalabad, punjab. their finding revealed that income of household is statistically significant and has positive effect on women empowerment. the study conducted by aregu et al, 2017 indicates that the household income is statistically significant and positive influence on economic empowerment of rural women. (didana, 2018) employed binary logistic regression. according his finding household income is statistically significant and has positive influence on economic empowerment of rural women. the study of didana (2018) reveals, off-farm income is statistically significant and has positive influence on economic empowerment of rural women. income obtained from nonfarm activity is the most important for improving the living standards of rural women. access to credit is a crucial factor and plays a significant role to determine the empowerment of rural women. according to the study of wakitole (2013), access to credit is statistically significant and positively affects rural women economic empowerment. (wakitole, 2013), employed ols to investigate determinants of rural women economic empowerment the case of guduru district. his finding reveals that access and control over economic resources is statistically significant and positively affects rural women economic empowerment. access represents the right to use a resource and control represents the right to make decisions about the use of a resource or benefit. the study of margaret (2015) indicates that there is a positive relationship between control of economic resources and women economic empowerment. (ashar and hussain, 2016), employed binary logistic regression, their finding lalisa adugna & getachew kebede & negese tamirat mulatu 94 shows that control over economic resources has positive influence on women economic empowerment. empirical results imply that extension contact has a fundamental influence on farm households’ adoption of new technology (huria, 2014). the model result of huria shows that, extension service is statistically significant and has positive influence on women empowerment. (ibidapo and oso, 2015), employed binary logistic regression and empirically investigated determinants of rural women economic empowerment in ondo state, nigeria. their study implied that self-esteem is statistically significant and positively affects women economic empowerment. the study of rathiranee (2013) argued that decision making power of women at household level is one of the most crucial factors in women’s empowerment and has positive relationship with women empowerment. in several studies; samarakoon & parinduri, 2015), decision-making power of women is considered as the main indicator of empowerment. the study of (margaret, 2015) identified that there is a positive relationship between employment and economic empowerment. level of employment facilitates economic empowerment of rural women. (ashar and hussain, 2016), empirically investigated in pakistan using binary logistic regression. their finding shows that employment is statistically significant and has positive association with women empowerment. access to information is the window to the world that can play a significant role in acquainting the women about their rights and updating them in accordance with the present dynamic world. consequently, rural women access information is a key to get the supply of input production and to sell their product in the market. the study conducted by didana (2018), empirically investigated in damot gale woreda using binary logistic regression reveals that access to information is statistically significant and has positive influence on economic empowerment of rural women. the study of (wakitole, 2013) also identified access to information is statistically significant and positive influence on rural women economic empowerment. rural women participation in community affairs increases their democratic rights and direct beneficiaries from the development activities. the study conducted by didana (2018) and wakitole (2013) implies that participation in community affairs is statistically significant and has positive influence on economic empowerment of rural women. according to adegoroye (2008) harmful cultural practices prevent rural women economic empowerment. the study conducted by wakitole (2013) reveals, traditional harmful practices negatively affect rural women economic empowerment. lack of gender awareness refers to lack of woman’s ability to express her opinion with regard to existing gender inequality and discrimination against women in the society. so that rural women lack of gender awareness is a serious problem in achieving women empowerment. 4. methodology 4.1 description of the study area the study was conducted in nunu kumba woreda, east wollega zone, oromia region of ethiopia. nunu kumba woreda is one of 180 woredas in the oromia region of ethiopia, located at 232km at west of addis ababa and 66km at north of nekemte. the latitude and longitude of the woreda is 8° 39' 59.99" n and 36° 44' 59.99" e respectively. in 2017, the total population of this woreda was 84,048 of whom 41,132 were men and 42,916 were women. the estimated area of 607.19 square kilometers of the woreda has an estimated population density of 104 people per square kilometer, this is greater than the zone average of 81.4. the total land size of the woreda is 60,719 hectares. a survey of the land in this woreda shows that 75.9% is cultivable out of this 32.4% under annual crops, 10.9% pasture, 4.9% forest, and the remaining 8.3% is considered swampy, mountainous or otherwise unusable. the altitude of this woreda ranges from 1500 to 2664 meters above sea level. the annual rainfall of woreda ranges from 800 to 1000 mm. woreda status of weather condition lowest is 15°c, medium 25°c, and highest 30°c. agriculture is the main economic activity though the area is potentially productive of food crops, cash crops and livestock. in terms of total consumption cereal crop production is the dominant means of livelihood. therefore, the woreda is characterized by mixed farming system. determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 95 figure 1: geographical map of nunu kumba woreda 4.2 types and sources of data this study was used both qualitative and quantitative method of primary data sources. the study was used both primary and secondary data sources. to get the required primary data different methodological approaches such as questionnaires, key informant interviews and focus group discussion were employed. to address a specific objective of the study, the study was used structured questionnaire prepared with open and close ended as the main tool of data collection from the respondents targeted on the demographic and socio-economic factors. the questionnaire was prepared in english and translated to local language afan oromo the language spoken by the population in the study area. secondary data were obtained from different sources including journals, statistical reports broachers, annual reports, office of the study area, and related literatures. secondary data was used in this study as supplementary. 4.3. sampling techniques and sample size multistage sampling methods were employed to select sample respondents for the study. purposive sampling techniques were applied to select nunu kumba woreda from all woredas of east wollega zone. in the first stage, the research was randomly selected four rural kebeles (dila koye, harko gudatu, jamo and bildima) of nunu kumba woreda based on population density, farming system, location, elevation range and homogeneity of the living condition of population. in the second stage, 342 total rural women respondents were calculated using simple random sampling as a representative sample for the study. the research was used (yamane, 1967) formula to get sample size. n = n/1 + n (e) 2 = 2383/1+2383(0.0025) = 342. hence, to select the proportional number of households from each kebele, population proportional size (pps) sampling technique was employed and systematic sampling method was used to select individual respondent in each kebele. in the third stage, sample size from each kebeles were determined. to determine sample size from each kebeles, the sample size determination formula of (israel, 1992) was applied. that is ns= (nh/ns) *n, where: ns = sample size from each stratum, nh = total population in each stratum, ns =total population of the sum of strata for study and n = total sample size of population from the study. it was briefly explained in the following table 1: lalisa adugna & getachew kebede & negese tamirat mulatu 96 table 1: sample frame and sample size kebeles sample frame ns= (nh/ns) *n sample size dila koye 375 375/2383) *342 54 harko gudatu 1350 (1350/2383) *342 194 jamo 331 (331/2383) *342 47 bildima 327 (327/2383) *342 47 total 2383 (2383/2383) *342 342 4.4 method of data analysis data analysis has been done after all the relevant data have been gathered from the respondents. data analysis was carried out using descriptive statistics and logistic regression model. to measure the empirical relationship between dependent variable and independent variables, the research was applied binary logistic regression model because the dependent variable was rural women economic empowerment is binary take the value 1 if rural women empowered and 0 if disempowered. a logit model was used to identify the factors that determine rural women economic empowerment in agricultural activities. 4.5 model specification the research was reviewed different literatures to identify the appropriate model for logit and probit models are almost the same and choice of the model is arbitrary. therefore, the statistical similarities between the two models make the choice between them difficult. however, logit model has certain advantages over the others and it provides a meaningful interpretation. in addition to this even though the result of logit and probit model is identical, the logit model is easier in estimation. 4.5.1 the logit model based on the above evidence the research was used logit model to investigate the determinants of rural women economic empowerment in agricultural activities. the model provides consistent, efficient, asymptotically normal estimates, yield very similar prediction results in an empirical work, assume that the error term ei normally and logically distributed. logistic regression analysis is statistical technique examines the influence of various factors on a dichotomous outcome by estimating the probability of the event’s occurrence. it describes the relationship between a dichotomous response variable and a set of explanatory variables. binary logistic regression model used when the dependent variable was rural women economic empowerment is binary. in binary choice models, it is implicitly assumed that the dependent variable is binary in nature, taking 1 or 0 values. the mathematical formulation of the logit model is as follows: pi = ezi 1+ezi ………............................................................................................................... (1) where: pi represents the probability that represents an individual “i” is economically empowered and it ranges from 0 to 1. e represents the base of natural logarithms. zi=is a function of n-explanatory variables which is also expressed as: zi = β0 + β1x1 + β2x2 + β3x3 + ⋯ β13x13 ………........……………........…… (2) where: β is column vector of parameters (coefficients) to be estimated (i.e. β1, β2, β3 … β13) and β0 is the intercept term, constant. the probability that rural women belongs to disempowered is: 1 − pi = 1 1 + ezi =…………………………………..………………..…….……....…….. (3) the odds ratio is simply the ratio of the probability of being empowered (pi) to the probability of disempowered (1pi). therefore, the odds ratio becomes: pi 1−pi = 1+ezi 1 + e−zi = ezi .…………………………………………………..….………… (4) now pi 1−pi is simply the ratio of the probability of being empowered (pi) to the probability of disempowered (1-pi). finally, by taking the natural log of equation 2 the log of odds ratio can be written as follow: determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 97 zi = ln( pi 1−pi ) = β0 + β1x1 + β2x2 + β3x3 + ⋯ β13x13 ………….....……. (5) as p goes from 0 to 1, the logit goes from -∞ to ∞. by adding disturbance error term on equation 2, the logit model becomes: zi = β0 + ∑ βixi + ui13i..1 ………………………………………....………….….. (6) where i = 1, 2, 3, ⋯, 13, βo=intercept, βi = regression coefficient to be estimated or logit parameter, u = a disturbance term, xi = column vector of independent variables, β1, β2 +. β13x13 = slope of the equation in the model, and zi=rural women economic empowerment. 4.6 summary of definitions and hypothesis of explanatory variables the dependent variable was rural women economic empowerment which is dummy indicating 1 for empowered and 0 for disempowered. socioeconomic and demographic factors were explanatory variables influences rural women economic empowerment. explanatory variables are continuous, binary and categorical in their nature. table 1: summary of definitions and hypothesis of explanatory variables s.no variable name variable type variable description and its measurement expected sign dependent variable economic empowerment of rural women binary 1 if women economically empowered, 0 if economically disempowered explanatory variable 1 age continuous in years + 2 educational level categorical in years of education schooling + 3 household size continuous in numbers + 4 household farm income continuous etb + 5 off-farm income continuous income earned from off-farm activities + 6 land/farm size continuous hectares + 7 access to and control over economic resources dummy 1=yes, 0=no + 8 access to information dummy 1 if rural women access to information, and 0 otherwise + 9 participation in community affairs dummy 1 if rural women participate in community affairs and 0 otherwise + 10 access to credit dummy 1 if rural women lack gender awareness, 0 otherwise + 11 lack of gender awareness dummy 1 if rural women lack gender awareness, 0 otherwise 12 domestic violence dummy 1 if domestic violence is there at household level, 0 otherwise 13 extension service dummy 1 if rural women access to extension service, 0 otherwise + source: own construct 2020 lalisa adugna & getachew kebede & negese tamirat mulatu 98 5. results and discussions 5.1 descriptive analysis the descriptive analysis discusses basic information about the demographic and socio-economic characteristics of respondents using descriptive statistics such as mean, standard deviation, frequency and percentage of distribution. the section also describes the outcomes achieved and compares the outcomes of empowered and disempowered rural women using with the relevant statistical tests such as t-test and 2value. chi-square and t-test were used to test the statistical significance for both dummy and continuous variables respectively. table 3: descriptive statistics of sample respondents for continuous variables variables respondents (342) disempowered (159) empowered (183) mean difference tvalue mean (std.dev) mean (std.dev) mean (std.dev) age 47.75731 (8.5057) 48.1635 (8.81660) 47.4043 (8.234235) .7592 0.8228 fsze 6.02924 (1.3105) 6.4088 (1.29367) 5.6994 (1.236954) .7094 5.1779*** frmsze 1.468567 (.78400) 1.2814 (.643087) 1.6311 (.8575856) -.3497 -4.2141*** hfrmin c 11238.01 (5484.9) 8915.723 (1515.09) 13255.74 (6750.52) -4340.014 -7.9337*** ofrmin c 5378.327 (1131.5) 4832.075 (1087.33) 5852.94 (940.9706) -1020.864 -9.3081*** source: computed from survey data 2020; *** significant at 1% probability level. table 3 showed that the mean age of the empowered rural women is lower than that of the disempowered and the difference was statistically insignificant at (t=0.8228) level. however, compared to older rural women, younger rural women were economically empowered. there was a significant mean difference of family size between empowered and disempowered women at 1% probability level. the significance mean difference of the family size implies that small family size was more empowered than disempowered women. the mean farm size for the empowered was 1.6311ha and 1.2814ha for disempowered. there was a significant mean difference of farm size between empowered and disempowered women at 1% probability level. this shows that empowered women have more farm size than disempowered women. there was a significant means farm income and off-farm income difference between empowered and disempowered rural women at 1% probability level. the significance means difference of the computed farm income and off-farm income implies that empowered rural women have more farm income and offfarm income than disempowered women. the mean differences between the empowered and disempowered women were significantly differ in ages, family size, farm size, farm income and off-farm income. the result of the t-test depicted that the mean difference of family size, farm size, farm income and off-farm income between empowered and disempowered rural women was statistically significant at 1% significance level in the study area. table 4: descriptive analysis of both categorical and dummy variables variables respons e disempowere d empowered 2value frequency percent frequency percent education illiterate 144 90.56 69 37.7 1-4 class 10 6.3 64 35 5-8class 4 2.51 43 23.5 101.4912*** 9-12class 1 0.63 7 3.8 determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 99 access to credit no 71 44.65 25 13.7 yes 88 55.35 158 86.3 40.4755*** access to and control over economic resources no 112 70.44 23 12.56 yes 47 29.56 160 87.44 119.2632*** access to information no 130 81.76 66 36 yes 29 18.24 117 64 72.6124*** participation in community affairs no 136 85.54 38 20.77 yes 23 14.46 145 79.23 142.8097*** lack of gender awareness no 55 34.6 72 39.4 yes 104 65.4 111 60.6 0.8233 domestic violence no 30 18.8 137 74.87 yes 129 81.2 46 25.13 106.7642*** extension service no 26 16.35 15 8.2 yes 133 83.65 168 91.8 5.3632** source: computed from survey data 2020; *** & ** means significant at 1% and 5% probability level respectively table 4 indicates that the proportion of educated respondents was greater in empowered women than that of disempowered. the chi-square result (χ2 =101.4912) shows that existence of statistically significant between empowered and disempowered rural women at 1% probability level. disempowered rural women were more illiterate than empowered rural women. in terms of respondent’s access to credit empowered rural women were more access to credit than disempowered women. regarding access to and control over economic resources, access to information, participation in community affairs and domestic violence empowered rural women were better than disempowered women. according to extension service of respondents, 83.65% of disempowered rural women were access extension service and 91.8% of empowered women were access extension service. this revealed that empowered rural women were more access to extension service than disempowered women. however, lack of gender awareness was statistically insignificant between empowered and disempowered rural women. results of χ2 value revealed that educational level, access to credit, access to and control over economic resources, access to information, participation in community affairs, domestic violence and extension service were statistically significant in the study area. 5.2 test for multicollinearity and heteroscedasticity before running logit model variance inflation factor (vif) was applied to test for the presence of multicollinearity problem among the continuous explanatory variables. variance inflated factor (vif) = 6.51 which is less than 10. this indicates, there is no problem of multicollinearity. for all discrete variables, their values are less than 0.75. heteroscedasticity was detected by using breuschpagen test (hettest) in stata. this test resulted the existence of heteroscedasticity hypothesis as (p= 0.0456) and there was need to make the standard error robust. using robust standard error, the problem of heteroscedasticity was corrected since the robust standard errors of all explanatory variables were less than 3. 5.3 estimation results of logit model the chi-square is used to statistically test whether including a variable reduces badness-of-fit measure. if chi-square is significant, the variable is considered to be a significant predictor in the equation. to assess how well a logistic model fits the data for the study used log-likelihood method. whereas the linear regression parameters are estimated using the least-squares method the logistic regression model parameters are estimated using the maximum-likelihood method. so that, the value of log likelihood is -84.495431 this indicates that as much as possible small value of log lalisa adugna & getachew kebede & negese tamirat mulatu 100 likelihood is a goodness of fit indicator that is large numbers mean poor fit of the model to the data; similar in idea to a large residual sum of squares statistic for a linear model. the value of pseudo r2 in the model used to measure by how much percent the independent variables explained the dependent variable. however, this measure of fit is not directly comparable to the r2 computed for linear regression models. so that, as observed from the table 5 below pseudo r2 indicates that about 64.23% of change on dependent variable is explained by independent variables incorporated in the model. the remaining 35.77% determined by outside the model. thus, one concluded that these variables collectively good determinants. table 5: results of logit model for explanatory variables variables coefficient standard error z pvalues marginal effect age .0736333 .0304117 2.42 0.015** .0054627 family size -.3011635 .177465 1.78 0.090* -.0223429 education 1-4 class 1.04366 .5862605 1.78 0.075* .0920883 5-8class 1.559769 .8155587 1.91 0.056* .1384479 9-12class 1.514016 2.581681 0.59 0.558 .1343135 farm size .2659151 .3702892 0.72 0.473 .0197279 household farm income .0002682 .0001298 2.07 0.039** .0000522 off-farm income .000703 .0002093 3.36 0.001*** .0000522 access to credit 1.044682 .4876697 2.14 0.032** .0775034 access to and control over economic resources .8877473 .454374 1.95 0.051* .0658607 access to information 1.010168 .4467327 2.26 0.024** .0749429 participation in community affairs 2.060995 .5222492 3.95 0.000*** .1529023 lack of gender awareness -1.799728 .4786829 -3.76 0.000*** -.1335193 extension service .2803998 .9123933 0.31 0.759 .0208025 domestic violence -1.094135 .436237 -2.51 0.012** -.0811723 constant -9.908883 2.414557 -4.10 0.000*** source: computed from survey data 2020; number of observations=342; lr chi (13) = 303.44; prob>chi2=0.000; pseudo r2= 0.6423; log likelihood = -84.495431: ***, ** and * are represents of statistically significance at 1%, 5% and 10% respectively therefore, the logit model of rural women economic empowerment shown as: zi = -9.908+0.073age 0.301hhsze+1.043edu1+1.559edu2+1.514edu3+0.265frmsze +0.0002hfrminc+0.0007ofrminc+1.044acsscdt+0.887accoer+1.010accinf +2.060pcmafr-1.799lgdrawr+0.280extnsrc-1.094dmcvle 5.4 determinants of rural women economic empowerment the logistic regression results in table 5 above shown that out of thirteen explanatory variables eleven variables were statistically significant and the remaining two variables were statistically insignificant. the main factors identified were age, family size, educational level, household farm income, off-farm income, access to credit, access to and control of economic resources, access to information, rural women participation in community affairs, lack of gender awareness and domestic violence were significantly influencing rural women economic empowerment. age: the result of logit model revealed that age has positive influence on rural women economic empowerment and statistically significant at 5% probability level. the marginal effect showed that as age of women increases by determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 101 additional one year on average, the probability of women to become economically empowered increases by 0.5% marginal change ceterus paribus. this result is consistent with the result of didana, (2018), khan, et al. 2015, ayevbuomwan, et al. (2016), and qurra et al. (2015), but inconsistent with the result of aregu, et al. (2017) which indicates that age is negatively affect economic empowerment of women. family size: the logit model showed that family size has negative influence on dependent variable and statistically significant at 10% probability level. this implied that the large household sizes reduce the empowerment of rural women. this inverse relation implied that the more increase in the household size, the narrower opportunity to be rural women economically empowered. large family size can be exposed rural women to provide extra expenses and puts more pressure on consumption and expenditure in the family. the marginal effect of the logit model implied as number of household size increases by additional one, the probability of women to become economically empowered decreases by 2.2 % marginal change holding all other factors constant. this means having more family resulted to more expenditure for household in the study area. this result is consistent with the findings of didana, (2018), ayevbuomwan, et al. (2016). educational level: the result identified the education level of rural women have a positive effect on the rural women economic empowerment but the significant level was different with different levels of education. here, from education category illiterate was taken as the base category. accordingly, there was a statistically significant difference between illiterate rural women and those who have attended 1-4 class at 10% probability level. the result of marginal effect implied that rural women who have acquired 1-4 educational level are more economically empowered than illiterate women by 9.2%. similarly, the finding result indicated that there was a statistically significant difference between illiterate rural women and those who have attended 5-8 education level regarding rural women economic empowerment at 10% probability level. the result of marginal effect implied that rural women who have acquired 58 educational level are more economically empowered than illiterate women by 13.8%. the result of this study is consistent with the findings of didana, (2018); ashar and hussain (2016) and aregu, et al. (2017). but this result is inconsistent with the result of zhera, (2014) which indicates that no definite conclusion can be drawn about the relationship between education and economic empowerment of women. farm size: the result of logit model revealed that no association found between farm size and women economic empowerment. so that no conclusion or interpretation is given for this variable. the result of this study is similar with the finding of (didana, 2018). but this finding of the study is inconsistent with result of (tadele et.al., 2017). household farm income: the result of the logit model has showed that household farm income has positive influence over the dependent variable and statistically significant at 5% probability level. the marginal effect of the model showed that as income of household increases by additional one birr on average, the probability of rural women to become economically empowered increases by 0.001% marginal change ceterus paribus. this result of the study is consistent with results of studies done by didana, (2018), aregu et al (2017). 0ff-farm income: the result of the binary logit regression model indicated that off-farm income has positive relationship with rural women economic empowerment and statistically significant at 1% probability level. the marginal effect of the model result revealed that as offfarm income of rural women increases by additional one birr on average, the probability of rural women to become economically empowered increases by 0.005% marginal change ceterus paribus. this result is consistent with results of studies done by didana, (2018) and aregu et al (2017). access to credit: the result of the logit model indicated that access to credit has positive influence over the dependent variable and statistically significant at 5% probability level. the marginal effect of the model showed that rural women who access to credit are more economically empowered than rural women who do not access to credit by 7.7% marginal change ceterus paribus. this result is consistent with findings of (didana, (2018) and margaret (2015) but inconsistent with the result of zhera (2014). access to and control over economic resource: the result of logit model showed that control over economic resource is positively influence economic empowerment of rural women and statistically significant at 10% probability level. the marginal effect of the model showed that rural women who have the power and ability to access and control over economic resources are more empowered than rural women who have no power and ability to access and control over economic resources by 6.5% marginal change ceterus paribus. this result is consistent with findings of didana, (2018) and margaret (2015). lalisa adugna & getachew kebede & negese tamirat mulatu 102 access to information: information can play a significant role in empowering women with the present dynamic world. the result of the logit model revealed that access to information has positive influence over rural women economic empowerment and statistically significant at 5% probability level. the marginal effect of the model showed that rural women who access to information are more empowered than women who do not access to information by 7.4% marginal change ceterus paribus. this finding is consistent with results of studies done by didana, (2018), margaret (2015), and (wakitole, 2013). participation in community affairs: the result of the logit model indicated that participation in community affairs has positively influence over rural women economic empowerment and statistically significant at 1% probability level. the marginal effect of the model has showed that rural women who participate in community affairs are more empowered than rural women who do not participate in community affairs by 15.2% marginal change ceterus paribus. this result is consistent with the findings of studies done by didana, (2018), zhera (2014) and (wakitole, 2013). lack of gender awareness: lack of gender awareness can be obstacle to empower rural women economically. as expected, the result of the logit model indicated that lack of gender awareness is negatively affected rural women economic empowerment and statistically significant at 1% probability level. the marginal effect of the model showed that the rural women who have gender awareness are more empowered than rural women who have no gender awareness by 13.3% marginal change ceterus paribus. domestic violence: as expected, the result of the logit model indicated that the domestic violence negatively affects rural women economic empowerment and statistically significant at 5% probability level. the marginal effect of the model showed that the rural women who exposed for domestic violence are less economically empowered than those who are not by 8.1% marginal change ceterus paribus. this finding is consistent with the finding of (wakitole, 2013). extension service: the result of logit model indicated that there is no association found between extension service and dependent variable in the study area but possibly significant in other study area. so that there is no conclusion or interpretation is given for this variable. the result of this study is similar with the result of (didana, a.c, 2018). however, this result is inconsistent with the finding of (huria, 2014). huria finding revealed extension service has positive influence on women empowerment. 5.5 the role of women in agricultural activities the foundation of agriculture and agricultural development in ethiopia is rural development, without it all efforts at agricultural development will be useless. women play a pivotal role in advancing agricultural development and indispensable role in agriculture. according to the result of this study, all respondents identified the active role of women in agriculture like clearing, preparation of farm land, compost making, sowing, weeding, application of fertilizer and manure, application of irrigation, protection of crops from birds and monkey, harvesting, preparing the threshing grounds, winnowing, drying, stacking and carrying. particularly, there are highly witnessed weeding in which women participate in cooperation with their neighbors as the type of tasks they do at field work. as paid activities they participate in employment, trade and marketing. in addition to this, they also perform various unspecified and miscellaneous tasks as unpaid activities related to home management such as collecting and carrying fuel from distance, fetching water for cooking and drinking and caring for family members. indeed, the roles of rural women agriculture are the bridge that progress from poverty to prosperity. without the support of women, the role of men alone gives non-sense in agriculture. therefore, the role of women in agricultural activity should be recognized at global level. 6. conclusion and recommendations 6.1. conclusion this study has focused on investigating the determinants of rural women economic empowerment in nunu kumba woreda of east wollega zone, oromia national region state of ethiopia. the objective of the study was to identify determinants of rural women economic empowerment in agricultural activities. the study was used primary and secondary data sources. primary data were collected from interview questionnaires, key informant interviews and focused group discussion. total sample of 342 were selected using simple random sampling. descriptive and logit model were applied as methods of data analysis. descriptive analysis was used to compare the demographic and determinants of rural women economic empowerment in agricultural activities: evidence from nunu kumba district of east wollega zone, ethiopia 103 socio-economic characteristics of the empowered and disempowered rural women. logit model was used to identify the factors that affect rural women economic empowerment in agricultural activities. the result of logit model indicated that among 13 explanatory variables, eleven variables age, educational level, household farm income, offfarm income, access to credit, access to information, control over economic resources, participation in community affairs were positively and significantly influenced rural women economic empowerment while family size, lack of gender awareness and domestic violence are negatively influenced rural women economic empowerment in the study area. consequently, their empowerment is mandatory as it enables them to fully use their potential, creativity, and talent, which are instrumental for the economic development of the country. 6.2. recommendations as observed from the study education level has a positive influence on rural women economic empowerment. even if rural women are unable to attend due to domestic activities, it’s better if woreda education office encourages rural women as they acquire formal education particularly those who are illiterate. consequently, the woreda education office should take the responsibility of offering formal education for rural women in order to reduce number of illiterates. however, teaching rural women is not sufficient to empower them but teaching both rural men and women is more productive. indirectly, increased education may have an impact on changing gender roles. its better if woreda highly work to increase farmer’s income via giving awareness for farmers how they can be improving their farm income using fertilizer. if woreda provides training for farmers with the help of developmental agents, their agricultural productivity improved and rural women’s income also increased. it’s better if woreda gives awareness about the advantages of accessing information for rural women since information brings rural women to better understanding about their democratic right and women empowerment. considering the growing numbers of community in rural areas of woreda, access to information is an encouraging result. concerning rural women lack of gender awareness, it’s essential if woreda office of woman’s affairs undertakes training deeply on the issues of gender awareness for rural women. effectively delivering training concerning gender awareness for rural women will play a paramount role to achieve rural women economic empowerment. in the study area rural women household decision making power was less than men. accordingly, in the study area it’s better to encourage rural women decisionmaking power at household level which is important for their economic and social empowerment. women’s participation in decision making can increase the overall status of women and is the key for their empowerment. to empower rural women beside government initiatives society must take initiative to create a climate in which there is no gender discrimination, women have full opportunities of self-decision making and participating in social, political and economic life of the country with a sense of equality. references adegoroye, a. a. 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(2014). assessment of women empowerment through public agricultural extension services:the case of meskanworeda in the southern nations, nationalities and peoples' region of ethiopia. master thesis, haramaya university. harar, ethiopia. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 100-105 100 tax and subsidy policy model for achieving a tobacco-free nation sisay tolla whakeshum jimma university, ethiopia received: april 24, 2020 accepted: may 19, 2020 published: june 01, 2020 abstract: tobacco use or cigarette smoking has predominantly unenthusiastic effects on human wellbeing causing diminished overall health welfare, minimized labour productivity and efficiency, and augmented health care cost. recognized health and socio-economic outlays of smoking, countries began to intervene in the market of tobacco by the use of price and tax procedures with the intention of tumbling tobacco consumption and exposure. however, these interventions have featured some controversies on essential issues like freedom and utility concern from consumers and unemployment worries from producers and vendors. therefore, to address these arguments the researcher developed intervention policies entitled “policy model of tax and subsidy to achieve sustainable tobacco control” well-thought-out tax and subsidy policies as a complement rather than substitute strategies to have a comprehensive campaign on controlling tobacco consumption and exploitation. furthermore, the developed model can openly apply to other damaging products like khat, cocaine, etc. keywords: tax policy, subsidy policy, tobacco control 1. introduction cigarette smoking and other tobacco use accounts for one of every ten adult deaths even though tobacco consumption is the most needless cause of death in the world. given this drift, about half a billion people alive today will die ahead of time owing to tobacco usage, almost one billion deaths from tobacco alone anticipated during the 21st century and about 80 % of these losses will be in low and middle income countries, including those in african continent. developing countries, particularly on the african continent, have since the preceding decade received supreme attention from global governmental institutions including world health organization following a continual upsurge in tobacco consumption incidence. this supplement is principally driven by the tobacco industry’s vow to create new-fangled tobacco markets in the developing countries (savedoff et al., 2015). any form of tobacco usage epitomizes the leading avoidable cause of disease called cancer worldwide. principally, tobacco smoking is rampant and wraps all ages, upsetting over a billion people wide-reaching. the overpowering of tobacco practise can be most realized by precluding youngsters and children from starting use in our days. and the fundamental infections instigated or triggered by tobacco use are lung cancer, emphysema, stroke, heart disease and attack, clogging and narrowing of arteries, mouth and throat cancer, stomach bleeding, gum disease and tooth loss, low birth weight, ear infections, truncated sexual performance and greater susceptibility to tuberculosis. generally, the harmful effects of tobacco consumption are not limited to users, but also people exposed to second-hand tobacco consumption are at greater danger for lung cancer, coronary artery disease and other persistent health problems (who, 2015). given the socio-economic and health cost of smoking, many countries’ government began to intervene in the tobacco market through tax measures with the intention of reducing tobacco usage. the underpinning reasons behind raising taxes on tobacco and associated products lies in the particular traits of the product: i) the demand for this product is relatively inelastic, so tobacco users are addicted to the products and consequently have little sensitivity towards a price change; ii) the product is not considered as a rudimentary essential for survival; iii) relatively tobacco production is controlled by few companies, which makes administration and tax assortment by the government comparatively easy; and iv) the product generates undesirable externalities (smith, 2013). substantial tax and subsidy policy model for achieving a tobacco-free nation 101 increases in taxes on cigarette and other tobacco products are commonly considered to be a highly helpful mechanism to reduce tobacco production and encourage quitting tobacco consumption. consequently, health and socio-economic costs caused by tobacco usage and production will be lessening. in several forums, tobacco taxation has also been tinted as a means of activating local or domestic resources to finance health and other important development activities. in july 2015, the united nations general assembly en¬dorsed the addis ababa action agenda regarding to tobacco control. in this agenda, the united nations accredited that “price and tax measures on tobacco can be efficient and important tools to reduce tobacco consumption and health-care expenses, and represent a revenue stream for financing vital development sectors in many countries. consequently, in september 2015, the 2030 agenda for sustainable development which include 17 sustainable development goals was also adopted in a united na¬tions general assembly. and it is to make sure healthy lives and endorse well-being for all ages, includes reducing premature mortality from non communicable diseases by one third and strengthening country-level realization of the world health organization’s framework convention on tobacco control (who, 2016). 2. justification of the study the effect of tobacco usage is overwhelming and responsible for millions of death. tobacco accounts for the greatest load among non-communicable diseases, corresponding to a vast healthcare and economic burden, alongside the social and emotional expenses associated with anguish and premature death. furthermore, tobacco use enforces financial costs on national health systems and the population in general. tobacco use has been portrayed as the most policy-sensitive area of concern. reducing any form of tobacco usage is one of the utmost helpful strategies to help countries achieve the world-wide objectives set forward to avert and control non-communicable diseases. and governments of different countries have taken tobacco control measures through intervention mechanism specially by imposing significant amount of tax on tobacco products. besides the important contributions of tobacco tax on discouraging its destructive impacts, it has high potential to raise large amounts of revenues easily. and these proceeds from tobacco tax can be applied to subsidize tobacco control activities such as implementation of tobacco control procedures, information campaigns for awareness and access creation toward tobacco usage cessation, and elimination of illegitimate trade in tobacco industry. similarly, revenue from tobacco tax can be employed to correct for the adverse externalities triggered by tobacco usage and production, such as the wellbeing or health consequences of exposure to tobacco smoke among non-smokers, or the financial costs of publicly financed healthcare services in handling diseases caused by tobacco consumption alone. moreover, tobacco tax revenue can be a major source of government subsidy expenditure in low-income countries as a way to make tobacco control sustainable. however, tax and price policy interventions for controlling tobacco usage have faced some resistance on important issues like moral concern from consumers or users and income and unemployment worries from producers. indeed, there is a vast evidence-based confirmation that tobacco control efforts need to be comprehensive and lasting so as to be effectual, therefore comprehensive investigations and policy tools are required. taking in to account these realities, the researcher developed “model of tax and subsidy policies for achieving a tobacco free nation” in a compressive way considering the existing empirical and theoretical concepts. the developed model tried to fill the break of tax policy campaign which is manifested by the existence of inelastic demand in tobacco sector. generally, this model is crucial and timely for countries that are ratifying world health organization framework harmony on tobacco control. 3. model analysis and interpretations the subsequent figure gives clear trace for theoretical and mathematical explanation of policy model of tax and subsidy for achieving a tobacco-free nation. sisay tolla whakeshum 102 figure.1. policy model of tax and subsidy for achieving sustainable tobacco control 3.1. basic pillars of the model  market and information failures including lack of awareness about risk of tobacco usage particularly among youth groups, addictiveness of nicotine, health care cost and adverse effect of secondhand smoke are the main rational for the need of tax and subsidy policy to control tobacco.  initially there is significant amount of tobacco usage and production including importation of tobacco product and input  tobacco producers can be purchaser of raw tobacco, producers of raw tobacco, or importers of raw tobacco  tobacco production sector is controlled by few enterprises as compared to others sectors which makes administration and tax assortment by the government legitimately easy  by fluctuating or changing the tax rate, tax policy can affect tobacco control  tobacco tax rate=tax rate on tobacco products + tax rate on tobacco inputs (raw tobacco like tobacco leafs)  higher tax rate on tobacco products can diminish the demand for tobacco consumption by tumbling the -elimination of tobacco exposure -tobacco dependence and cessation measures information and public wareness low demand for tobacco product consumption and importation higher tax on tobacco products (high price on tobacco products) subsidy policy sustainable tobacco control tax policy -elimination of illicit tobacco trade or smuggling -support for tobacco producers and sellers for sector substitution low potential for tobacco production and raw tobacco importation (low supply) higher tax on raw tobacco (higher price on inputs of tobacco) tax and subsidy policy model for achieving a tobacco-free nation 103 purchasing power of the consumers  high tax rate on raw tobacco discourages importers of raw tobacco and local producers of tobacco.  the higher tax rate on tobacco products and inputs has dual impact on the issue of achieving a free tobacco nation that is; it reduces the demand and supply of tobacco, and provides revenue for subsidy  the revenue generated from tax directly goes to subsidy for tobacco control as tobacco tax collection cost is insignificant  subsidy=tax revenue from tobacco product + tax revenue from tobacco inputs (raw tobacco)  the amount of adequate subsidy is determined by the amount of both raw and finished tobacco and tobacco tax rate  tax policy can reduce both: demand for tobacco consumption by raising the price of tobacco products at least, and supply of tobacco products via augmenting the price of raw tobacco inputs or production cost.  subsidy policy can diminish both demand for tobacco consumption and supply of tobacco production  using subsidy and tax policy jointly has dual impact on both demand and supply of tobacco products  tax rate is determined by its effect on sustainable tobacco control (tobacco production or consumption can vary from zero level to some optimum or minimum level).  the optimum or minimum level of tobacco consumption or production is based on the determination of country’s policy on tobacco control  no need to use other funds except subsidy that will be derived from tobacco taxation to control tobacco 3.2. theoretical explanation of the developed model the vision of realizing a tobacco free nation is very likely if there is a defined intervention of government through subsidy and tax policies. and these two policies should be considered as basic and complement strategies to have a comprehensive campaign on controlling tobacco. levying significantly high tax on tobacco products is a crucial tool to increase the price of tobacco which in turn diminishes the plea or demand for tobacco outputs. higher tobacco product price decrease incidence by escalating interest in quitting, leave efforts and victorious cessation. higher prices can lessen tobacco usage among remaining smokers via diminishing consumption by daily smokers. fortunately, children, teenagers and people on low incomes are more reactive or sensitive to increases in price. therefore, the influence or impact of tobacco tax measures is paramount amongst the exposed or susceptible population groups. if tax upturns on tobacco products can prompt cessation or reduced consumption among the poor or vulnerable groups, it can also discharge limited resources for other necessary needs like food, housing, and others. correspondingly, high tax lobbing to the producers and importers of tobacco inputs (raw tobacco) can reduce the potential and desire of importers and producers to invest in tobacco sectors. substantial escalations in taxes of tobacco products such as cigarette can extensively be distinguished as a highly effective mechanism to lessen tobacco usage and, consequently, the death, disease, and socio-economic costs caused by tobacco consumption and production. tobacco levies high opportunity cost to smokers, families and the society in general. tobacco users could allocate tobacco outlays to purchase other healthy goods and services which would augment the welfare of the society at large. generally, the foremost aim of tobacco input and product taxation is to diminish production and consumption by making tobacco inputs and products progressively less affordable. however, there is argument in opposition to high tax both on tobacco products and inputs since higher tobacco tax cause a considerable unemployment or permanent job losses and loss of revenue (i.e. attributable to drop in demand and sales due to price increase) among workers in tobacco industry. furthermore, higher tobacco tax penalizes more poor people as people on low incomes are usually more receptive to price increases and tobacco taxes can also result in more cigarette smuggling. therefore, these limitations of high tobacco tax suggest the need for other harmonizing policy that is subsidy. the source of subsidy is the revenues generated from tax on tobacco inputs and products. besides the important contributions of tobacco tax on discouraging its destructive impacts, it has high potential to raise large amounts of revenues easily to offset the costs to the healthcare system of treating tobacco related diseases at least. and the proceeds from tobacco tax can be employed to subsidize or support tobacco control activities; for instance, execution of tobacco control policies and strategies, mass media information campaigns for smoke free messages, sisay tolla whakeshum 104 awareness and access creation toward tobacco usage cessation, eradication of illegal trade in tobacco sectors, mobilizing financial resources for health promotion and other public education movements by warning the health risks of tobacco smoking. subsidy from tobacco taxation can be used to advocate for updates taking into account innovations in tobacco industry tactics as well as for compliance monitoring and enforcement training. because of information asymmetry, predominantly teenagers are not fully conscious of or undervalue the threats of morbidity and premature mortality due to tobacco consumption and exposure to tobacco smoke. similarly, this revenue can be used to correct for the externalities caused by tobacco use, such as the health consequences of exposure to tobacco smoke among non-smokers, or the financial costs of publicly financed healthcare services in treating diseases caused by tobacco. moreover, tobacco tax revenue can be a major source of government subsidy expenditure in low-income countries as a way to make tobacco control sustainable. supply side efforts motivated by crop substitution entails farmers switching from tobacco to other crop with less negative health allegations are possible to be effective as a means of controlling tobacco use with other chained supply and demand measures. providing subsidy to tobacco suppliers in order to make them to involve in another alternative productive sector is a solution for the problem of job and income loss that created by high tobacco taxation. labor-intensive crops and value-added activities can be the most promising alternatives. for example, cassava, sugar cane, cotton and soya beans are the main available alternative marketable crops. while making transition to other healthy crops, information about soil characteristics, field size, rainfall patterns, topography, necessary machinery complements, and managerial proficiency can help farmers to cope up soon. in general, in this era of dynamism, blended policies of taxation and subsidy could be the solitary way of achieving a tobacco-free nation. last of all, a well-designed tax and subsidy policy model is not sufficient if the tax and subsidy administration agencies are lacking the technical and human capacity needed to implement and reassess the developed model. straightforwardness and transparency in tax and subsidy structure and administration reduce administrative and compliance costs, as well as opportunities for corruption, leading to greater and sustainable tobacco control campaign. tax and subsidy administration should be effective in the sense of ensuring high observance, and efficient in the sense that administrative costs are low relative to income collected. better communication among main parties and evolving technologies should be employed as apparatuses to enhance enforcement and reduce the size of the illicit market and smuggling. 3.3. mathematical proof of the developed model according to the developed model, tobacco taxation is mandatory as long as there is production, importation and consumption of tobacco. hence, lessening in tobacco consumption, according to the model, is reflected by lower amount of tobacco tax income. e=error terms which reflect all occurrences against the developed model 0 (zero) implies that there is no autonomous tobacco consumption as tobacco consumption is not basic need for human being survival. since the entire tobacco tax directly goes to tobacco subsidy, , then tax and subsidy policy model for achieving a tobacco-free nation 105 and this equation shows that if we use the entire tax from tobacco taxation as tobacco subsidy, the impact on tobacco reduction will be double. tobacco tax income is determined by tobacco tax rate and amount of taxed tobacco. given the fact that there is tobacco taxation as long as there is production, importation and consumption of tobacco, when implies that when income from tobacco tax turns into zero, the level of tobacco control become successful (zero level of tobacco consumption). likewise, drop in tobacco consumption, according to the model, is reflected by lower amount of tobacco tax income. in general, the following equation is mathematical figure of “policy model of tax and subsidy for achieving sustainable tobacco control” which implies the impact of tax and subsidy policy on tobacco control. 4. conclusion and recommendations tobacco consumption is the single most avoidable source of death in the globe and the most significant public health concern of our time. since many countries are victims of health and socio-economic impact of tobacco consumption, tobacco is one of the discouraged commodity items in the world. these issues encouraged the researcher to develop an economic policy tool for controlling tobacco usage entitled “policy model of tax and subsidy to achieve sustainable tobacco control”. the developed economic policy model assures the hallucination of a tobacco free nation. “policy model of tax and subsidy to achieve sustainable tobacco control” reflecting the necessity of chained tax and subsidy policies as the merely potential intervention to achieve a tobacco free nation. and the developed model can straightforwardly be relevant for the other injurious goods like khat, cocaine, etc. to actualize the developed model, therefore, government as a key player should create national coordination of tax and subsidy policies to maintain information on promoting tobacco cessation. and government can smooth the work through disseminating the developed model targeting main stakeholders for best possible outcomes. strategic leadership for the developed model should occur in decentralizing and flexible way with an official mandate to develop tobacco control infrastructures and coordinate model implementations. furthermore, establishing a system of monitoring and evaluation of the model is fundamental to make tobacco control sustainable. apart from government bodies, producers and consumers of tobacco products and inputs, non-governmental organizations and even the general public should support the campaign of a tobacco free nation due to direct and indirect health, social and economic disturbances of tobacco consumptions and productions. references savedoff, w., & alwang, a. (2015). the single best health policy in the world: tobacco taxes. washington: center for global development. smith, k. e. (2013). who technical manual on tobacco tax administration. public health, 127(2), 193. world health organization. (2015). who report on the global tobacco epidemic 2015: raising taxes on tobacco. world health organization. world health organization. (2016). world health statistics 2016: monitoring health for the sdgs sustainable development goals. world health organization journal of international trade, logistics and law, vol. 5, num. 2, 2019, 70-80 70 an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul mustafa özyeşi̇l i̇stanbul aydın university received: nov 15, 2019 accepted: dec 04, 2019 published: dec 30, 2019 abstract: managerial decision-making involves a difficult and complex process. since executives shape the future of the company by making strategic decisions, it is vital that the decisions taken are accurate and efficient in terms of sustainability in the long term. many managerial decision-making methods have been developed for companies to make the most accurate selection under multiple parameters and alternatives. in this study, the topsis method, which is one of these methods, will examine how investors will choose the most reasonable one for investment from multiple companies.ween china and eu, we need to further strengthen china-eu comprehensive strategic partnership. keywords: borsa i̇stanbul, topsis method, financial ratios, decision making, portfolio management, reits 1. introduction the adventure of decision making has become more difficult and complex over the years. because of globalization in economic, sociological, cultural, financial fields, the convergence between countries has increased and the economic borders have disappeared. with the globalization and the huge advances in information and communication technologies, increasing competition, changing consumer profile and differentiating business models, managerial decision making process requires more parameters to be managed and controlled at the same time compared to previous years. increasing competition among firms has reached a more destructive dimension and has shortened the life expectancy of firms. therefore, many strategic decision-making methods are being applied in order to increase the managerial decision making ability. one of these methods is topsis (technique for order preference by similarity to ideal solution). the topsis method is a technique that allows the best selection of among alternatives according to various criteria. it was developed in 1981 by hwang and yoon. this method can be used in response to the problems encountered in daily life as well as in scientific studies. when deciding with this method, it is expected that a selected alternative should be close to the ideal solution and be far from the negative ideal solution. if financial return is in question, closeness to the ideal solution means maximization of return, and distance to negative ideal solution means minimization of cost. while the desired alternative is expected to be close to the ideal solution, it is expected to be as far from the negative ideal solution. among the alternatives, the one close to the ideal solution, the one away from the negative ideal solution is selected. in this study, the most suitable investment among the cement companies whose shares are traded on borsa istanbul will be determined based on the selected financial indicators with topsis method. an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul 71 2. literature review shih et al. (2007) developed a classic topsis model and proposed a new model. they observed that the model they developed provide more successful results under different situations. they are not interested in weighting the criteria used in the topsis method. their focus is to develop the topsis method, according to which weighting is already done at the beginning of the topsis method. they stated that they did not discuss the interaction with other groups in their studies. cascales and lamata (2012) stated that topsis method can produce reversible sequence results as in many other qualified decision making methods. in their study, they first analyzed and ranked the 4 alternatives, and then observed that the ranking of the other remaining 3 alternatives changed as the last alternative was eliminated from the valuation. they found out that these changes violated the principle of invariance of utility theory and therefore stated that the validity of the topsis method should be questioned. they found that this was caused by two factors: negative ideal solution (nis) and positive ideal solution (pis). sarraf and bazargani (2013) emphasized that many firms are trying to create competitive advantages by using knowledge management (km) efficiently. in their study, they tried to find out how firms can select and apply better km strategies. they conducted an extension of topsis called multi – attribute decision making (madm) technique. topsis is very beneficial technique for sorting and choosing of a number of externally determined options based on distance measures. according to their findings, among the six criteria evaluation, the most suitable km strategy to be conducted is personalization. bai (2013) proposes an intuitive fuzzy topsis method based on the score function to solve multi-criteria decisionmaking problems in which information about all preferences of scoring is provided to decision makers. in order to determine the relative proximity coefficient, the scoring function was applied to calculate the separation / deviation measurements of each alternative from positive and negative ideal solutions. he stated that the best option could be chosen in the decision-making process by sorting the alternatives according to the proximity coefficient values. two explanatory examples were used for multicriteria fuzzy decision making problems of alternatives in order to reveal the application and effectiveness of the proposed decision making method. shahrabi et al. (2007) propose a new model for the project selection problem using fuzzy ahp and topsis techniques. in order to compare investment alternatives, nbd, cost benefit method and payback period were examined and used them as criteria in the ahp tree. in the analysis, firstly the weight of each criterion was calculated by using fuzzy set theory and developed analytic hierarchy process. in the next stage, topsis algorithm was applied and the projects were evaluated. jadidi et al. (2010) applied topsis method in supplier selection process. they stated that supplier selection is a critical issue and is one of the most important activities of the purchasing department in particular. they emphasized that the selection of suppliers becomes more difficult because the managers who are the decision makers in the supplier valuation process do not have precise and complete information. during the selection process of the suppliers, they carried out a detailed comparison analysis of the topsis method with other methods. 3. sample construction and methodology the data was obtained through interviews with experts in this study. as a result of the interviews conducted with 100 experts, the geometric mean of the responses received regarding financial indicators was used in the analysis. as a result of these data, comparison matrix was formed. the companies included in the study are reit companies whose shares are traded on borsa i̇stanbul a.ş. using the financial data of 34 reits, the most suitable ones for the investment will be determined. since the data of some firms in the sample could not be provided for the relevant period, they were excluded from the analysis. thus, the number of firms in the final sample decreased to 22. as a result of the interviews, it was concluded that the indicators reflecting the financial performance of the firms should be taken into consideration separately for short and long term investment analysis. for the short-term investment, as market-performance ratios, price / earnings (p / e) ratio and market value / book value (m / b) ratios are used in this study. for the purpose of investment, the most attractive ones whose price performance is increasing while their above mentioned financial multipliers is decreasing. suitable stocks will be determined based on this condition to clarify mustafa özyeşi̇l 72 cheaper (discounted) but have a significiant growth potential. since p/ e and m / b financial multipliers become flat or even decrease in response to observing increasing substantial in stock prices, it will suggest that these sample firms’ financial statement performance is higher than their price performance. based on this finding, it will be available to underline that purchasing or holding this stocks will be reasonable decision for the investors. analytical hierarchy process (ahp) (saaty, 1994) was used to weight the financial indicators used in the study. in ahp, both quantitative and qualitative variables are analyzed together. the determination of quantitative and qualitative variables is based on the priorities and feedback of individuals. after determination of variables and weights, topsis method is applied. in the basic logic of topsis, which is a multi-criteria decision making method, the alternatives that are closest to the positive ideal solution and the farthest away from the negative ideal solution are selected. the steps of the topsis method are shown below (mahmoodzadeh, 2007: 273-274): 1establishing of decision matrix for ranking: 𝐵 = [ 𝑏11 𝑏12 … 𝑏1𝑛 𝑏21 𝑏22 … 𝑏2𝑛 … … … . . . … … … … … … … … 𝑏𝑛1 𝑏𝑛2 𝑏𝑛3 𝑏𝑛4] (1) the rows in the decision matrix represent the alternatives presented for the investors and the columns represent the evaluation criteria and b11 in the matrix reveals the real value of the 1st alternative in the matrix according to the 1st criterion (shih et al., 2007: 805). 2creating a normalized decision matrix: in order to calculate normalized decision matrix the following equation will be used: 𝑏𝑖𝑗 √∫ 𝑏𝑖𝑗2 𝑛 𝑗=1 (2) 3calculating of weighted normalized decision matrix: the weighted decision matrix is calculated by multiplying the normalized decision matrix by the associated weights. the weighted normalized value vij is calculated as follows: 𝑉𝑖𝑗 = 𝑤𝑖𝑗 ∗ 𝑟𝑖𝑗 (3) 4calculating positive and negative ideal solutions: the best value of the weighted decision matrix represents the positive ideal solution and the worst value represents the negative ideal solution, and the positive and negative ideal solutions are calculated as follows (baykal, 2007: 27): 𝑉+ = {𝑉1+, 𝑉2+, 𝑉3+, … … … . . , 𝑉𝑁+} (4) {( 𝑀𝑎𝑥 𝑣𝑖𝑗| 𝑗 ∈ 𝐽 ), ( 𝑀𝑖𝑛 𝑣𝑖𝑗| 𝑗 ∈ 𝐽 ) } 𝑉− = {𝑉1−, 𝑉2−, 𝑉3−, … … … . . , 𝑉𝑁−} (5) {( 𝑀𝑖𝑛 𝑣𝑖𝑗| 𝑗 ∈ 𝐽𝚤 ), ( 𝑀𝑎𝑥 𝑣𝑖𝑗| 𝑗 ∈ 𝐽𝚤 ) } an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul 73 in equations 4 and 5, j stands for positive and j 1 stands for negative. 5calculating of separation measures: equations 6 and 7 show the distance from the positive and negative ideal solution, respectively. di+ = √∫ (vij − vj+)2̇ n j=1 , i = 1, … … … . m (6) di− = √∫ (vij − vj−)2̇ n j=1 , i = 1, … … … . m (7) 6calculating the relative closeness to the ideal solution: the relative closeness of alternative b to the positive ideal solution is calculated by the following equation: 𝜋 𝐶i̇ = 𝐷𝑖− 𝐷𝑖+ + 𝐷− (8) π/ci̇ takes values between 0 and 1. the higher the value of the index refers that related alternative provides a better solution than other alternatives. 4. test result findings table 1. shows reits price performance, p /e and m / b financial multiplies as follows: table.1: descriptive information of sample firms equity codes stock price performance % (annual basis) p / e m / b agyo -8,33 12,9 0,6 akfgy 36,36 1,8 0,5 akmgy 38,29 8,8 3,7 aksgy 12,72 1,4 0,3 algyo 18,66 2,4 0,4 avgyo 27,27 3,7 0,5 dzgyo 12,17 5,3 0,7 ekgyo -13,7 9,7 0,4 hlgyo 46,88 2,3 0,4 isgyo -14,81 3,9 0,2 klgyo 6,86 5,2 0,2 krgyo 13,11 5,6 0,8 msgyo -13,73 22 0,8 mustafa özyeşi̇l 74 ozkgy 8,97 2,9 0,3 pagyo 22,55 5,6 0,4 rygyo 108,7 1,5 0,3 srvgy 10,21 7,8 0,6 tdgyo 14,96 23,9 0,9 trgyo 3,31 1,3 0,2 vkgyo -10,26 10,7 0,4 yggyo 41,09 5,5 0,8 ykgyo 8,14 9,1 1 ratios are caculated based on financial indicators reported in financial statements as of 6/2019 based on table 1 above, what first thing that should be done is determining maximum and minimum objective definitions. among the criteria, stock prices should be maximum while other criteria refer to minimum. based on topsis method approach, following calculations will be performed respectively: step-1 : calculation of normalized decision matrix normalized decision matrix is shown in table 2 as follows: table.2: normalized decision matrix equity codes stock price performance % (annual basis) p / e m / b agyo 0,06 0,30 0,13 akfgy 0,25 0,01 0,11 akmgy 0,26 0,06 0,82 aksgy 0,09 0,01 0,07 algyo 0,13 0,02 0,09 avgyo 0,18 0,03 0,11 dzgyo 0,08 0,04 0,16 ekgyo 0,09 0,07 0,09 hlgyo 0,32 0,02 0,09 isgyo 0,10 0,03 0,04 klgyo 0,05 0,04 0,04 krgyo 0,09 0,04 0,18 msgyo 0,09 0,15 0,18 ozkgy 0,06 0,02 0,07 pagyo 0,15 0,04 0,09 rygyo 0,73 0,01 0,07 srvgy 0,07 0,05 0,13 tdgyo 0,10 0,16 0,20 an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul 75 trgyo 0,02 0,01 0,04 vkgyo 0,07 0,07 0,09 yggyo 0,28 0,04 0,18 ykgyo 0,06 0,06 0,22 step-2 : calculation of weighted normalized decision matrix weighted normalized decision matrix is shown in table 3 as follows: table.3: weighted normalized decision matrix equity codes stock price performance % (annual basis) p / e m / b agyo 0,02 0,10 0,04 akfgy 0,09 0,00 0,03 akmgy 0,09 0,02 0,25 aksgy 0,03 0,00 0,02 algyo 0,04 0,01 0,03 avgyo 0,06 0,01 0,03 dzgyo 0,03 0,01 0,05 ekgyo 0,03 0,02 0,03 hlgyo 0,11 0,01 0,03 isgyo 0,04 0,01 0,01 klgyo 0,02 0,01 0,01 krgyo 0,03 0,01 0,05 msgyo 0,03 0,05 0,05 ozkgy 0,02 0,01 0,02 pagyo 0,05 0,01 0,03 rygyo 0,26 0,00 0,02 srvgy 0,02 0,02 0,04 tdgyo 0,04 0,06 0,06 trgyo 0,01 0,00 0,01 vkgyo 0,02 0,03 0,03 yggyo 0,10 0,01 0,05 ykgyo 0,02 0,02 0,07 mustafa özyeşi̇l 76 step-3 : calculation of i̇deal best (positive ideal solution-pis) and i̇deal worst (negative ideal solution – nis) values ideal best and ideal worst values are calculated according to each criteria’s objectives. table.4: ideal best and ideal worst values v+ 0,26 0,00 0,01 v-0,04 0,10 0,25 v+ and vrefer to pis and nis respectively. step-4 : calculating of separation measures by subtracting pis and nis from each value included in the matrix, separation measures can be calculated as follows: table.5: separation measures equity codes stock price performance % (annual basis) p / e m / b di+ di agyo 0,02 0,10 0,04 0,30 0,21 akfgy 0,09 0,00 0,03 0,17 0,26 akmgy 0,09 0,02 0,25 0,29 0,15 aksgy 0,03 0,00 0,02 0,23 0,26 algyo 0,04 0,01 0,03 0,21 0,25 avgyo 0,06 0,01 0,03 0,19 0,25 dzgyo 0,03 0,01 0,05 0,23 0,23 ekgyo 0,03 0,02 0,03 0,29 0,23 hlgyo 0,11 0,01 0,03 0,15 0,28 isgyo 0,04 0,01 0,01 0,29 0,25 klgyo 0,02 0,01 0,01 0,24 0,26 krgyo 0,03 0,01 0,05 0,23 0,22 msgyo 0,03 0,05 0,05 0,30 0,20 ozkgy 0,02 0,01 0,02 0,24 0,25 pagyo 0,05 0,01 0,03 0,20 0,25 rygyo 0,26 0,00 0,02 0,01 0,38 srvgy 0,02 0,02 0,04 0,24 0,23 tdgyo 0,04 0,06 0,06 0,23 0,20 trgyo 0,01 0,00 0,01 0,25 0,26 vkgyo 0,02 0,03 0,03 0,28 0,23 yggyo 0,10 0,01 0,05 0,17 0,25 ykgyo 0,02 0,02 0,07 0,24 0,21 an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul 77 step-5 : relative closeness to the ideal solution (performance score) performance scores of each alternative can be represented in table 6 as follow: table.6: performance score of each alternatives equity codes stock price performance % (annual basis) p / e m / b di+ dici agyo 0,02 0,10 0,04 0,30 0,21 0,41 akfgy 0,09 0,00 0,03 0,17 0,26 0,61 akmgy 0,09 0,02 0,25 0,29 0,15 0,34 aksgy 0,03 0,00 0,02 0,23 0,26 0,53 algyo 0,04 0,01 0,03 0,21 0,25 0,54 avgyo 0,06 0,01 0,03 0,19 0,25 0,57 dzgyo 0,03 0,01 0,05 0,23 0,23 0,50 ekgyo 0,03 0,02 0,03 0,29 0,23 0,45 hlgyo 0,11 0,01 0,03 0,15 0,28 0,66 isgyo 0,04 0,01 0,01 0,29 0,25 0,46 klgyo 0,02 0,01 0,01 0,24 0,26 0,51 krgyo 0,03 0,01 0,05 0,23 0,22 0,49 msgyo 0,03 0,05 0,05 0,30 0,20 0,40 ozkgy 0,02 0,01 0,02 0,24 0,25 0,52 pagyo 0,05 0,01 0,03 0,20 0,25 0,55 rygyo 0,26 0,00 0,02 0,01 0,38 0,98 srvgy 0,02 0,02 0,04 0,24 0,23 0,50 mustafa özyeşi̇l 78 tdgyo 0,04 0,06 0,06 0,23 0,20 0,47 trgyo 0,01 0,00 0,01 0,25 0,26 0,51 vkgyo 0,02 0,03 0,03 0,28 0,23 0,45 yggyo 0,10 0,01 0,05 0,17 0,25 0,60 ykgyo 0,02 0,02 0,07 0,24 0,21 0,46 based on performance scores of each alternative, alternatives can be ranked as descending as shown in table 7. table.7: ranking of alternatives equity codes stock price performance % (annual basis) p / e m / b di+ dici ranking agyo 0,02 0,10 0,04 0,30 0,21 0,41 20 akfgy 0,09 0,00 0,03 0,17 0,26 0,61 3 akmgy 0,09 0,02 0,25 0,29 0,15 0,34 22 aksgy 0,03 0,00 0,02 0,23 0,26 0,53 8 algyo 0,04 0,01 0,03 0,21 0,25 0,54 7 avgyo 0,06 0,01 0,03 0,19 0,25 0,57 5 dzgyo 0,03 0,01 0,05 0,23 0,23 0,50 12 ekgyo 0,03 0,02 0,03 0,29 0,23 0,45 19 hlgyo 0,11 0,01 0,03 0,15 0,28 0,66 2 isgyo 0,04 0,01 0,01 0,29 0,25 0,46 16 klgyo 0,02 0,01 0,01 0,24 0,26 0,51 10 krgyo 0,03 0,01 0,05 0,23 0,22 0,49 14 msgyo 21 an application of topsis method for financial decision making process : a research on real estate investment trusts listed in borsa istanbul 79 0,03 0,05 0,05 0,30 0,20 0,40 ozkgy 0,02 0,01 0,02 0,24 0,25 0,52 9 pagyo 0,05 0,01 0,03 0,20 0,25 0,55 6 rygyo 0,26 0,00 0,02 0,01 0,38 0,98 1 srvgy 0,02 0,02 0,04 0,24 0,23 0,50 13 tdgyo 0,04 0,06 0,06 0,23 0,20 0,47 15 trgyo 0,01 0,00 0,01 0,25 0,26 0,51 11 vkgyo 0,02 0,03 0,03 0,28 0,23 0,45 18 yggyo 0,10 0,01 0,05 0,17 0,25 0,60 4 ykgyo 0,02 0,02 0,07 0,24 0,21 0,46 17 according to the above results, the most suitable company for investment in the short term according to the financial ratios prepared on the basis of financial statements dated 30/6/2019 among the reit companies traded in bist is reysaş reit corp. 6. conclusion in today's world of competition, there are many internal and external factors that affect the decisions of businesses. making accurate and effective decisions requires managing a much more difficult and complex process than ever before. managers take benefits from their own professional experience, intuition, and knowledge of other experts and consultants in the decision-making process. however, they also apply various types of quantitative techniques to approach to the problem analytically during the decision-making process. one of these methods is topsis method. this method focuses on choosing the most appropriate of the available alternatives in line with the predetermined purpose and the criteria established for this purpose. in this study, it is tried to select the most suitable stock among the 34 reit companies that shares are traded on the bist for the short term investment by using the data that covers financial ratios calculated on the financial statements dated 30/06/2019 and stock price performance. as a result of the interview with the experts, the financial ratios to be used in the short-term stock portfolio preferences are determined as price / earnings (p / e) and market value / book value (m / b) ratios. the objective of the study is to find the stocks that these ratios still give cheap / discounted signals after performing high price performance. for this purpose, a decision matrix consisting of 3 criteria (include stock price performance, p / e and m / b ratios) and investment alternatives (include 34 reit companies) was prepared and analyzed through the topsis method. as a result of the analysis, for short-term investment, the most suitable stock for investment among the reit companies in bist is determined as rygyo. rygyo performed more than 100 increase but it has still upside approximately %300 upside potential according to financial multiplies. it is worth noting that the result calculated in the study was obtained according to the objective function determined as a result of the 100 capital markets and stock exchange experts interviewed. in line with the answers received from mustafa özyeşi̇l 80 the experts, the main purpose of the study was to find the stocks whose financial ratios still give cheap signals despite the high price performance. in addition, investment analysis horizon is defined as short term in this study. in the medium to long term, this result may be misleading. the results of this test may be different depending on the selected term and the desired objective function. references bai, zhi-yong, (2013), “an interval – valued intuitionistic fuzzy topsis method based on an improved score function”, hindawi publishing corporation, the scientific world journal, p.1-6 jadi̇di̇, o., fi̇rouzi̇,f., bagliery e., (2010), “topsis method for supplier selection problem”, world academy of science, international journal of social, behavioral, educational, economic, business and industrial engineering 4(11), p.2.198-2.200 garcia -cascales, m.s., lamata, m.t., (2012), on rank reversal and topsis method, 56, p.123-132 hwang, c.l. and yoon, k. (1981) multiple attribute decision making: methods and applications. springerverlag, new york. mahmoodzadeh, s., shahrabi, j., pariazar, m., zaeri, m.s., (2007). “project selection by using fuzzy ahp and topsis technique”, world academy of science, engineering and technology, international journal of industrial and manufacturing engineering, 1(6), p.270-275. sarraf, a.s., mohaghar, a., bazargani̇, h., (2013), “developing topsis method using statistical normalization for selecting management strategies”, journal of industrial engineering management, 6(4), p.860875 saaty, t.l. (1994), “how to make a decision: the analytic hierarchy process”, interfaces, vol. 24 no: 6, pp. 19-43. shih, hsu-shih, shyur, huan-jyh, lee, e.s., (2007), an extension of topsis for group decision making, mathematical and computer modeling, 45, p. 801-813 journal of international trade, logistics and law, vol. 4, num. 1, 2018, 9-22 economic development – a prerequisite for democratization case of kenya and uganda giola cami, (ma candidate) istanbul commerce university, turkey received: april 02, 2018 accepted: may 30, 2018 published: june 1, 2018 abstract political changes transforming an authoritarian regime into a democratic one is conditional on the ground of factors inciting the process. economic development of a country is a prerequisite condition to shape democratic changes in a country modern democracies have come into existence in economically developed countries. for a non-democratic country to become democratized the structure responsible for the shift of regimes is capitalism responsible for the distribution of the produced wealth and creates middle class so needed for seeking accountability of governance. wealthier countries have a predisposition to be “more democratic” which allows the average citi zen to have access to resources, unlike “less democratic” regimes where access to resources is limited, not merit based and questionable. keywords: political changes, structure, capitalism, democratic, resources 1. introduction since xix-th century to nowadays three waves of democratization, followed by two reverse waves, became the ground work of modern concept of democratization. twentieth century offers a rich legacy on democratic transitions as the modern states started to take form and alongside the democratization phenomenon described as the three waves of democratization followed with counter waves (huntingon, 1991), the theoretical approach about the process was to be built. concept of democracy is nothing new in the process, but now in an explanatory and analytical pattern concept of transition –theoretical frame, conditions required for it to take place and measurement was to be built. theoretical approaches in the field of democratization, beside differences, forms what is called ‘‘paradigm of transition‘‘, where transition is understood as the changing from one inferior status to a superior one. democratic transition seems to be considered as a new concept, but in fact it is not such – we can detect the changes in antique greek cities which explored different types of governments from aristocracy, monarchy, tyranny, oligarchy and democracy .part of ‘‘ paradigm of transition‘‘ is the debate for the causes of democratic transition ,with an emphasis on the theory developed by lipset in 1959 enhancing economic development as a chain effect developer , solely able to support regime changes. this paper analyses economic factor’s capacity to address such changes on the study case of kenya and uganda, which in the postcolonialism years started their way toward democratization .kenya who was able to have a more developed economy rather than uganda has achieved more than uganda in the democratization process of the country. 10 giola cami 2. literature review authors, who take economic development as an argument to explain trends of democratization, analyse this correlation in two dimensions: economic development as a trigger to democratization process economic performance as a factor which supports the legitimacy of an already established democracy. modernization theory, founded on lipset’s theory, claims that modern democracies have come into existence in economically developed countries; therefore for a non-democratic country to become democratized through modernization, it is capitalism the structure that is responsible for the distribution of the produced wealth and creates middle class (lipset 1959: 78). lipset established the democratization explanatory theory based on economic data, positively correlating economic development and legitimacy of institutions with the degree of democracy (lipset 1960: 46). according to author ‘the more well-to-do a nation, the greater the chances that it will sustain democracy’ (lipset 1959: 75; 1960: 48–50), lipset relates the degree of economic development with the degree of democracy. according to author, from the greek antique the level of democracy has been labelled with societies in which the difference between the rich and the poor is light, with a wide middle class which has access to wealth; and that societies characterized by an rich elite and poor massive population are subject to oligarchy and tyranny (lipset : 75). author relates economic development with four ingredients: wealth, industrialization, urbanization and education, which when tested with empirical data lipset argues that average wealth, degree of industrialization and urbanization, and the level of education is much higher for the more democratic countries rather than those countries which score lower in democracy evaluation indicators. wealthier countries have a predisposition to be “more democratic” which allows the average citizen to have access to resources, unlike “less democratic” regimes where access to resources is limited, not merit based and questionable. according to lipset education -basing his argument in bryce’s theory that education if it does not make men good citizens makes it a least easier to become so (lipset :79) , author empirically establishes his argument that the more literate a society is , the more it will be tolerant to minority groups, opposition and tend to establish democratic regimes. also lipset bases his theory on tocqueville’s (1835) argument that lawful institutions have a crucial importance in controlling and checking centralized government power. daniel lerner in his work “the passing of traditional society: modernizing the middle east” (1958) draws a correlation between democratic regimes and economic development, taking in basis the variables of lipset and argues that a society firstly swimming in the waters of urbanization, is followed by a rising wave of literacy, rising media participation and finally therefore is produced democracy, standing solid on the above factors. gary mark and diamond do further reinforce the argument of lipset, after analysing 30 years after lipset’s first argument on the issue, only to enrich and support the solid and strong correlation between economic development and democracy, as the authors agree that the evidence shows, with striking clarity and consistency, a strong causal relationship between economic development and democracy’ (marks and diamond 1992: 6) . yet, diamond puts an emphasis more on human development index as a better indicator rather than gdp, who argues that the argument of lipset has still validity and has proven its self in the tests of the time, but notices the increase of the importance of human rights as a more adequate variable to explain democracy stating that ‘the more well-to-do the people of a country, on average, the more likely they will favour, achieve, and maintain a democratic system for their country’. the author projects a positive trended relation between democracy and political and social characterized by a high level of human rights .authors base their argument on the ground of holding lipset’s argument of a positive relationship between economic development and democracy as not linear as it has been subject of weakening and reversal in middle class (gary & diamond, 1992:3), while as human development continues to be an adequate and proper predictor on the like hood of democracy. economic development –a prerequisite for democratization case of kenya and uganda 11 robert a. dahl in the same line with lipset’s argument associates polyarchy with economic ingredients as high level of income, wealth per capita, continuous growth of income and wealth, increase in urbanization, a decreasing trend in the agricultural populations, growing literacy level (dahl 1989: 251). for samuel huntington regimes –democratic and non-democratic ones – are legitimized by prospering economically (huntington 1991: 34-36), when concluding that almost all wealthy countries are democratic and almost all democratic countries are wealthy (huntington 1991: 34).yet, according to huntington, if a regime will fail economically it might undermine the regime, but on the same line economic success of an authoritarian regime will legitimize it. robert barro in “determinants of democracy” (1999) supports and confirms lipset/ aristotle hypothesis which concludes that the higher the standard of living the more democracy is promoted. democracy, according to barro, is closely measured with electoral rights, civil liberties, standard of living by capita gdp, the gap between male and female schooling and middle class (barro 1999: 182). 3. kenya’s economic development in 1964 kenyan government decided to project economy under a capitalist framework aiming to empower and vitalize economy, though in practice it was a mix of state and private sectors presence to ensure high rate of growth (zeleza, 1991: 36). private sector was focused on agriculture and industry, trying to support enterprises toward farming and cooperatives and producing goods due to their raw materials. these policies built an economy depended on western countries as technology, foreign investments and markets came directly from them. aiming fi, government applied liberal policies which created a soft environment for foreigners who were asked to put capital into kenya. redistribution policy through growth harvested increment in investment creating thus stable income source (zeleza, 1991: 37). during late 80’s due to political oppression of kenyan government to opposition fi were cut until 1991 when multiparty system was sanctioned in the new amendments made to constitution. kenya’s economy during the years has adopted a market-free economy with little state ownership in infrastructure enterprises, making it the hub of east and central africa. home to financial , communication and transportation services, since the early days of post-independence the liberal policies for foreign investments has created a reputation as friendly hub for investments. agriculture is the backbone of the economy, which produces 1/3 of gdp.75% of population works in this sector mainly in the farming structures. horticulture by 23% and tea by 22% are the columns of income via exports in agriculture. fishing relies on lake victoria and magadi which in early 2000s provided up to 128,000 metric tons of fishes, but due to pollution and illegal fishing incomes from this sector have been decreasing over the last years. industry sector for now is not as developed as agriculture because poor infrastructure is a present obstacle toward growing industrial enterprises. it is focuses on food and customer goods production and government is working to export more processed goods. in eastern africa it is the most developed country in terms of technology and lacks in trade logistics, but to attract fi it needs investments especially in energy sector which is not doing great for now. government has introduced vision2030 package of reform and investment to empower industrial sector in kenya, which includes investments up to usd 300 million to achieve a 6.8% growth in this sector, establishing a good spot as a middle income economy and a regional trade hub. 3.1. exports and imports both are significant indicators of income and outcome of national fund policies, drawing a map of one country’s potential and projecting thus its competing abilities in an international hub. export relies mostly on agriculture products like tea, coffee and horticultural products; petroleum products, cement and fish are some of the exports goods from kenya. import is mostly focused on aluminium steel, petroleum products, resins, plastics and transportation equipment. export partners are uganda, tanzania, united states, united kingdom, netherlands, zambia, pakistan and uae; main import partners include india, china, uae, saudi arabia, 12 giola cami egypt and south africa. the following graph compares export and import from 1995-2015, data acquired from world bank official site. figure 1.kenya: export and import 1995 – 2015 source: observatory of economic complexity, 2015 both exports and import from 1995 to 2005 have increasing trend, but exports seem to have slow improvement, while as imports have a breakthrough starting 2005. from 1995 – 2005 export’s growth is usd 2.6 billion, while as import’s growth is usd 2.3 billion. in the timetable of 2005 – 2015 export is increased with 37%, while import by 174% or usd 11.9 billion. 3.2 gdp per capita gross domestic product, referred as gdp, is the indicator in dollar value of a country’s wealth which includes the goods and services during a certain timetable. because it provides specific data unified in the same structure for countries, it creates standing base for comparison. evaluating kenya’s economy magnitude starting from postindependence 1964 to 2018, the following data generated by world bank shows these trends: figure 2.kenya’s gross domestic product 1964 – 2016 source : world bank national accounts data, 2016 starting off with less than one billion dollars in 1964, gdp has been growing continuously with ups on the way, except 1982-1984, 1992-1994 and 1998-2000 were some light decrease in economy takes place. these fall downs happen to be before or after presidential elections: 1983, 1992 and 2002 elections. the biggest breakthrough takes economic development –a prerequisite for democratization case of kenya and uganda 13 place in 2006 were an increase of 9 (nine) billion dollars becomes the new financial reality in kenya’s economy and such trend has been building same path ever since. 3.3 hdi human development index is considered to be an important indicator for the prosperity of a country despite gdp, focusing on people and their abilities which can channel government’s national policies. it is built on three dimensions: health, education and standard of living which respectively are measures by life expectancy at birth, years of schooling and gross national income per capita. kenya’s data on hdi shows the following trends: figure 3.kenya’s human development index 1990 2015 source: united nations development programme, 2015 ranked worldwide 146-th out of 188, kenya is labelled as member of medium human development group, just one step above low human development group. hdi’s annual growth has been slow in change, stable in poor results toward achievement in the standard of people’s lives. there is a fall down of life expectancy from 1990 – 2010, which is the starting point of the increase of lei from 58.8 (2010) to 62.2 (2015), approximately 10.5% growth. education index (ei) more or less shares the same features as trending years; since 2010 it has been the same of 11.1 values and it marks an 8.1 % growth since 1991 – 2 more years of schooling. gni per capita from 1990 has targeted 8% growth from 2,287 to 2,881 and this is an important achievement impacting therefore positively chances to further support middle class . hdi itself has seen an improvement from 0.473 to 0.555, translated in 8.5% growth in the last three decades. change is slow, but promising in increasing steps. 3.4 public debt considered to be the most crucial indication of a nation’s struggle with its finances, public debt in kenya has been increasing because of the emerging need of investments in public policies to support economic growth. 14 giola cami figure 4.kenya’s public debt as a percentage of gdp source: country economy, 2016 peak of pd was in 2002 when it reached 61.84 of gdp; in the following years it started to fall dawn reaching the lowest rate in 2007 being 38.37% of gdp. from 2007 it has drawn increasing trend which by 2016 makes 53.47% and if comparing with 1998 there is actually a decrease of 0.6 percentage point. kenya’s economy is promising to pursue growth and enrich prosperity in the country. agriculture makes 75% of the country’s gdp, but government is working to implement public policies which support industrial development. recently project vision2030 has been introduced as part of the efforts government is doing to empower industrial sector as an important column of economy. being considered as a regional trade hub, it’s a legacy that has been relying on the continuous governmental efforts to make kenya a suitable and warm business environment for fi, by conduction labour regulations and investment laws which give foreigners same treat as local ones. not to forget that its transportation infrastructure –despite in a need for more investmentshas lead country to be a cross-international route for regions transportation logistics, referred as “preferred entry point to east africa”. energy sector absolutely is in need for attention and government has planned to invest usd 1.4 billion on geothermal power plants with a capacity of 280 mw. its population of nearly 50 million configures promising median age of 19.2 years old and as kenya is offering secondary education for free in order to promote working skills of its citizens , creating thus a well-educated workforce – an advantage to its neighbours. in a graphical view, kenya’s economic potential would be: figure 5.kenya’s potential for foreign investments source: business sweden in kenya, 2017 economic development –a prerequisite for democratization case of kenya and uganda 15 4. uganda’s economic development after gaining independence from britain in 1962, uganda’s economy was primarily based on agriculture sector. from 1962 to late 1980s political situation in the country has was characterized by turmoil, instability, issues with human rights and coup d’état which caused economy to perform poorer with no significant growth. years characterized of political and economic chaos, including civil war in the north, impacted country’s finances till late 1980s. yet, it is to be taken in consideration that growth has been stable despite slow progress. increasing inequality, unemployment especially among youth generation, high rate of corruption have halted uganda to achieve a flagship as a middle income country, while 83% of population is rural and industrialization process has not made enough advancement to increase urban population. home to natural resources like copper, cobalt, hydropower, limestone, salt, arable land, gold and oil uganda baptized as “the pearl of africa” has received international attention especially for its oil presence. recently 6.5 billion barrels of oil are discovered, out of which according to world bank 1.4 billion are recoverable. oil production is expected to start in 2020 and the following licensed companies to operate are: total e & p uganda, tullow uganda and china national offshore oil corporation (cnooc) which operate in 6 (six) blocks/ areas as indicated in the picture: figure 6.uganda’s oil licensed companies source : nogtec, 2014 4.1. export – import both are significant indicators of income and outcome of national fund policies, drawing a map of one country’s potential and projecting thus its competing abilities in an international hub. uganda is ranked 126th largest export economy globally, a rank due to 2016 exports which reached usd 11.7 b. exports lately have been led by gold which covers 22% of exports or usd 697 m , followed by coffee 14% or usd 413 m . other export goods include raw tobacco, cocoa beans, raw sugar, fish, cement, corn, rice, plants, dried legumes, flowers. imports, like exports, in 2016 hit the numbers as with an increase of usd 5.58 b from 2015 to usd 11.7 b. imported goods are mostly industrial products which uganda itself cannot produce for the moment due to the lack of technology and funds and they include: refined petroleum 12%, medicaments 5%, telephones 4.4%, palm oil 3.4%, cars 2.2%, wheat2.2%, delivery trucks 2%. 16 giola cami figure 7.uganda: exports and imports 1995 -2016 source: observatory of economic complexity, 2015 from 1995 to 2005 exports have been increased by 41.3% or usd 310 m, while imports have been increased by 100% or usd 1 b. from 2005 to 2015 exports have been increased by 477% or usd 5 b and imports have been increased by 449 %. the difference between imports and exports is relatively high – only in 2016 this gap was usd 558 m. 4.2. gdp three gross domestic product’s data for uganda can be found from 1960 to 2016 from world bank national accounts data and oecd national accounts data, which provides official numbers in usd value, allowing ground for comparison. figure 8.uganda’s gross domestic product, 1960 -2016 source: world bank national accounts data, 2016 economic growth from 1960 to 1980-s has been slow due to the mix economy system presented by obote 1 regime, who introduced a socialist approach to economic development with the main focus of delivering social services to people. “common man’s charter” was founded on the policy on nationalization of corporations, thus diminishing private sector enterprises in the market. while 90% of population relied on agriculture as main source of living, growth on gdp from 1960 to 1970 raised annually approximately 5%. economic development –a prerequisite for democratization case of kenya and uganda 17 during amin’s regime 1971-1979 who came into power via military coup economy shrunk due to the policy of expulsion of ugandans with asian origin that covered most of the enterprises in the private sector. delivery of social services failed while obote 1 state enterprises were totally inefficient. post amin era 1979 – 1986 six governments came into power mining any ground of political stability which would allow economic development instead of shrinking pattern which continued till early 1990. when current president museveni came into power he applied successful package of reforms aiming liberalization of economy such as economic recovery programme and structural adjustment programmes empowering private sector and from 1992 each year gdp has been growing. 4.3 hdi human development index is considered to be an important indicator for the prosperity of a country despite gdp, focusing on people and their abilities which can channel government’s national policies. it is built on three dimensions: health, education and standard of living which respectively are measures by life expectancy at birth, years of schooling and gross national income. uganda’s data on hdi shows the following trends: figure 9.uganda’s human development index, 1990 – 2015 source: united nations development programme, 2015 ranked worldwide 163-rd out of 188, uganda is labelled as member of low human development group sharing the same spot with haiti. over the last 25 (twenty-five) years of hdi evaluation lei is increased from 45 to 59.2 ,which means nowadays ugandans’ life expectancy has been increased with 14.2 years , while education index has achieved a 4.3 additional years of studying . gni has been increased by 120% from usd 759 million to usd 1.67 billion. hdi value last half century with light ups and downs has the same scoring and uganda is considered to be the last group of hdi global ranking with little progress. comparing to the region uganda is below the average of sub-saharan african countries’ average of 0.523 and below “low human development” group average scores. 4.4 public dept. considered to be the most crucial indication of a nation’s struggle with its finances, public debt in kenya has been increasing because of the emerging need of investments in public policies to support economic growth. 18 giola cami figure 10.uganda’s public debt 19972014 source: country economy, 2014 uganda’s case when it comes to public debt is promising; due to the hard work it took to decrease debt during mid 2000s when from 60% in 2003 it fell down to 18.8% in 2009. years following 2010 have shown an increasing trend, yet no more than 30% of its gdp, regionally distinguished for its performance. uganda’s economy relying mostly in agriculture has produced a rural population and due to the lack of investments necessary funds to support industrial enterprises, technological development and telecommunication effect negatively economy in the course of a industrialized global economy. in 2020 oil production is expected to start which if treated carefully and corruption is pushed away will give a push up to economy to make crucial reforms toward industrializing economy and subsequently imports which are mainly based on industrial products will decrease and the gap with exports will be positive. a more developed economy would empower education by increasing quality, supporting education system by offering free secondary education and creating thus a middle class, much needed for democratic reformation. urbanization however is conditional on the basis of a developed transportation system because as of 2017 the primary form of transport is walking, while only 20% of roads are in a fair condition (haas, 2017). 5. comparing kenya and uganda economic development is strongly related with the political changes in both countries, as certain regimes have worked upon building economic institutions toward either state centralized economy or free market. since obote took over the rule of country in 1964 he worked for the implementation of a liberalized economic system, projected economy under a capitalist framework aiming to empower and vitalize economy, though in practice it was a mix of state and private sectors presence to ensure high rate of growth (zeleza, 1991: 36). generally kenya’s economy has adopted a market-free economy with little state ownership in infrastructure enterprises, making it the hub of east and central africa. home to financial , communication and transportation services, since the early days of post-independence the liberal policies for foreign investments has created a reputation as friendly hub for investments. uganda, like kenya, is an agriculture focused economy but at the rate of 75% 90%. the starting point was the same for both countries, but while kenya developed a liberalized market , uganda was more of state centralized enterprises and due to political turmoil from 1971 to 1986 every economic institution build by obote regime was destroyed, further economic development was not supported. economic development –a prerequisite for democratization case of kenya and uganda 19 figure 11.kenya and uganda: comparing export data, 1995 – 2015 source: observatory of economic complexity, 2015 in terms of exports, uganda has been exporting mostly agriculture products and has been performing poorer than kenya and has seen been shrunk from 2014. same trends follows kenya, but at better number of exporting. as far as imports data following suggests that kenya’s imports have been greater than uganda’s one – it mostly imports industrial goods, as its technologic development is insignificant. figure 12.kenya and uganda: comparing import data, 1995 – 2015 source: observatory of economic complexity, 2015 while measuring economic growth in terms of gdp, data suggests that kenya has done better progress than not industrialized uganda: 20 giola cami figure 13.kenya and uganda: comparing gdp in capita, 1980 – 2016 source :world bank national accounts data, 2016 the same results come even when comparing their ranking and scores in human rights index. kenya has achieved slightly a better position than uganda: kenya is considered as a “middle human development” group member, while as uganda is a “low human development” group member. comparing to the region uganda is below the average of sub-saharan african countries’ average of 0.523 and below “low human development” group average scores. figure 14: kenya and uganda: comparing hdi values, 1990 – 2015 source: united nations development programme, 2015 the post-independence period from1963 – 2018 indicate kenya performing financially better than uganda, as political environment has been a key factor on shaping reforms which restored financial policies be those for good or bad. kenya’s economy is promising to pursue growth and enrich prosperity in the country. government is working to implement public policies which support industrial development. project vision2030 has been introduced as part of the efforts government is doing to empower industrial sector as an important column of economy. being considered as a regional trade hub, it’s a legacy that has been relying on the continuous governmental efforts to make kenya a suitable and warm business environment for fi, by conduction labour regulations and investment laws which give foreigners same treat as local ones. not to forget that its transportation infrastructure –despite in a need for more investmentshas lead country to be a cross-international route for regions transportation logistics, referred as “preferred entry point to east africa”. energy sector absolutely is in need for attention and government has planned to invest usd 1.4 billion on geothermal power plants with a capacity of 280 mw. economic development –a prerequisite for democratization case of kenya and uganda 21 current governments museveni in uganda is actually empowering economy, with a growing perspective of exports and a public debt that is much better than the other part of the region. biggest obstacle that uganda faces is the lack of industrialization, technology and very poor transportation means. it’s reported that “walking” is the most used mean of transportation. government is looking forward to investing in the above fields, and the funds might soon be available as of 2020 oil production will come into being with already six blocks in the western part legalized to work at. in both countries economy is a prerequisite to democratic development to support institutions, fight corruption and empower their selves regionally for more interaction in a globalized world. a better economy means a better education, middle class and citizens eager to require accountability. of course in these countries where governments have been flourishing in a culture of “leader having no share of power”, if international factor will not push for democratic development in the country, economic stability as well might become a shelter for a non-democratic regime. comparing democracy in kenya and uganda to show which of one has applied a more liberal, democratic country than the other the following graph shows each country’s score by freedom house. political rights and civil liberties are the columns on which the evaluation is based: table 15.kenya and uganda: comparing freedom house’s scores, 2001 – 2018 source: freedom house reports, 2018 a more economically developed kenya a more democratized country; a less developed uganda a less democratized country. in their whole history of evaluation , except year 2002 when they have been evaluated same, kenya has scored less than uganda ( scoring scales varies from 1 to 7 , with 1 to stand for free democratized countries and 7 for not free, non-democratic countries). kenya and uganda offer a great example to study correlation between economic development and democracy as they both had the same starting point, same political legacy but since their independence it has resulted that kenya, more developed financially than uganda, has been able to perform more democratic reforms rather than uganda. 6. conclusions there is a correlation between economic development and democracy showing a positive relationship. more democratic countries allow the average citizen to have access to resources like the contribution of wealth, unlike “less democratic” regimes where access to resources is limited, not merit based and questionable. with clarity and consistency, a strong causal relationship between economic development and democracy is also an explanatory pattern of the differences of democracy between uganda and kenya. being economically developed includes having a strong middle class which attains accountability claims toward governments. education, industrialization, poverty and human rights are crucially important to build a democratic society. 22 giola cami kenya and uganda – two countries in the eastern africa with the same colonial legacy – respectively in 1963 and 1962 gain their independence and since then their starting point has been the same but progress different. kenya which was able to create early post-colonialism institutions to support private enterprises in the agriculture and industrial sector succeeded to shift toward successful economy. uganda on the other hand did not go on the same path, its progress was short lighted and the events after would bring total destruction of any institution. for uganda economic development started somewhere around 1986 and so did its democracy, while an early developed kenya accelerated stability and democratic reforms in the country. 7. references barro, r. (1999) determinants of democracy , journal of political economy, pp.182 country economy (apr 15, 2018) general government gross debt (apr 15, 2018) https://countryeconomy.com/national-debt dahl, r. (1989) polyarchy :participation and opposition, yale university press, pp. 251 freedom house (apr 10, 2018) freedom in the world 1991 -2018 : country reports https://freedomhouse.org/report/freedom-world/freedom-world-2018 huntington, s. (1991) the third wave –democratization in the late twentieth century, university of oklahoma press, pp.34-36 lerner, d. (1958) the passing of traditional society: modernizing the middle east, new york, free press of glencoe lipset, s.m. (1959) some social requisites of democracy: economic development and political legitimacy, american political science review (53) , pp.75-79 marks, g. & diamond, l. (1992) seymour martin lipset and the study of democracy, american behavioural scientist, 35, pp.6 nogtec (2014) , uganda signs mou with oil firms over production http://www.nogtec.com/uganda-signs-mou-with-oil-firms-over-production/ observatory of economic complexity (apr 10, 2018) , country profile https://atlas.media.mit.edu/en/profile/country/ken/ the swedish trade and invest council (2017) business sweden in nairobi: the infrastructure sector in kenya, nairobi. united nations development programme (apr 15, 2018) , country reports http://hdr.undp.org/en world bank national account data (apr 8 , 2018) https://data.worldbank.org/indicator/ny.gdp.mktp.cd zeleza, p.t. (1991) visions of freedom and democracy in postcolonial african literature, pp.36-37 journal of international trade, logistics and law, vol. 4, num. 1, 2018, 138-146 138 the critical success factors of erp selection and implementation: a case study in logistics sector volkan yildirim istanbul commerce university, turkey ali osman kuşakçi ibn haldun university, turkey abstract: today’s competitive business environment requires much greater interaction between customer and business. this means that the organization must be closely linked to both supplier and customer in order to produce goods and provide faster deliveries. in order to achieve this, the organizations need to have efficient planning and control systems in all the processes of the organization. in this case, information technology is one of the sources which organizations can apply. especially, enterprise resource planning (erp) is just at the heart of daily operations of a company, which leads to efficient processes. in this study, how enterprise resource planning (erp), which enables such sources as workforce, machine and materials needed for the production of goods and services in organizations to be used efficiently, was founded and the problems that organizations face with during foundation were explained. in the study, qualitative analysis method was used. at the end of the study, problems during implementation of erp system was determined and suggestions regarding to the solutions were presented. keywords: erp, logistics, software implementation, critical success factors 1. introduction innovations in information and communication technologies (ict) have made the mark in this era. the innovations in ict have not only contributed to people's lives, but also helped to create a new business infrastructure and business understanding. firms have developed new approaches with the developments in information and communication technology, and the use of enormous computation power has increased day by day. one of these developments affecting the conventional practices in operations management is enterprise resource planning (erp). erp is a comprehensive software package that can incorporates in all business processes in any organization. although the concept of erp initially began to be used in production environments, today erp systems span to a much wider area. they can collect all the basic operations of an organization under its own structure, regardless of the business domain or name of the implementing organization. erp represents information systems that can help multiple processes work together in an organization, helping to improve planning in the creation of resource management. furthermore, erp is a software system that enables realization of supplies, provision of production, and planning of financial resources in an effective manner. a further benefit of erp system is the creation of a business environment enabling an effective information flow through the operational entities in the organization. the fact that information provided by erp is real-time is crucial for taking necessary steps while organizing production and distribution processes smoothly. in this context, erp is an important factor that enables the transfer of knowledge locally. to sum up, erp has positive impact in the organization that facilitates proactive planning, smooth communication between departments, intelligent operational competence. in figure 1, conceptual framework of an erp system on organization’s performance is depicted (al-masharl, m., 2003). the critical success factors of erp selection and implementation: a case study in logistics sector figure 1: conceptual framework of erp system (njihia, evans, mwirigi, and mugambi, 2014) logistics is an effective and efficient way to plan, implement, move, and store and control all kinds of flow of products, services and information from the starting point of the raw material to the end point where the product is consumed. logistics sector has been experiencing a booming period in recent years. it has an important role in both growth potential and in achieving economic targets in turkey. turkey has a suitable basis for logistics sector with its suitable geographic structure, suitable cost structure and manpower (yased, 2012: 138). upon viewing logistics firms in turkey, it is seen that 3000 organizations are active. many logistics organizations effective in global markets have increased their practices as a result of investments in geographic regions close to turkey. the share of logistics sector in gross domestic product of logistics sector gazes around 15%. on the other hand, its share in public investments is seen as 46% (afatoğlu, 2013: 21). logistics exist as a sector the importance of which is gradually increasing in that of ensuring competitive advantage in turkey. the year, 2017, was a historical year for turkish logistics sector. in 2017, a lot of processes were made by overcoming decline in 2015 and 2016. the reason of improvement in logistics was specified as increases in exports. according to global competition index prepared by world economic forum, turkey ranked as 55 among 137 countries in 2016-2017 term. in 2017-2018 term, it rose to rank, 53. however, it never turned back its rank in 45 in 2013-2014 term. the aim of this study is to highlight the importance of erp in logistics sector. while doing this, a case study is conducted where an interview is designed and shared with the employees of a major turkish logistics company. both formal and semi-formal interviews are conducted and responses are collected. finally, the obtained data are subjected to critical success factors and the results are evaluated. in the first section of the study, erp system was defined and a literature review regarding to the improvement in erp system in 1960s was conducted in the second section. in the literature review regarding to the study, stud ies regarding to erp system were analyzed, which was discussed in the third section. a suggestion was developed by combining each study and a case study was conducted regarding to the suggestion in logistics sector. 2. literature review the rapid progress of technology has created an environment of harsh competition. thus, a challenging process awaits business organizations in order to achieve success in a competitive environment. therefore, for pure and simple survival, organizations have to adapt to the new competition elements that have been evolving over time. a organization structure complexities employee’s support financial resource availability regulatory factors compliance top management support improved organization’s performance volkan yıldırım 140 practically effective adaption strategy is following the best practice. in this framework, organizations have moved away from the existing classical systems and aimed to create a system suitable for the structure of the company. the only way is that erp system can ensure the plans within the enterprise resource (umble, haft, and et al., 2003). in simple terms, erp is a system that collects the organizational entities under a single umbrella and allows data sharing among horizontal and vertical structures in the firm. a conventional erp system contains multiple modules such as material requirements planning (mrp), manufacturing resources planning (mrpii), distribution resources planning (drp), customer relationship management (crm), total quality management (tqm), supply chain management (scm), and human resources management (hrm). within these systems, a single integrated system is designed. a chronological summary of erp process is depicted in figure 2. figure 2: chronological development of erp (altınkeser, 1999) according to the figure, mrp emerged as a computer-based approach to material supply and production in 1960s. mrp alleviates the computational burden faced while organizing the manufacturing process and thus, build a basis for today's erp system. then, in the 1970s, mrp ii was developed to control all the export activities in the organization. all material movements are regularly followed by this system. in the 1980's, important developments in the field of product design and manufacturing were recorded through the agency of computers and cim system became operational with this development. at the same time, drp system was developed to ensure that organization can control product distribution channels, and these three systems were widely used at that time. later, to create a more integrated structure in order to prevent disorganized operations erp systems were introduced in the 1990s. enterprise resource planning (erp) is a fully integrated business management system that covers the functional areas of enterprises such as logistics, production, finance, accounting and human resources. the implementation of this system requires considerably higher costs. therefore, achieving corporate goals is very important when the time and resources used are taken into consideration. the complexity of the system leads to many difficulties in measuring productivity. in this respect, many studies are conducted in the literature. park and kusiak (2005) stated that the successful integration and implementation of erp software could not guarantee that the system would always work with full performance. any erp system can generate proper solutions for complex problems. çelik (2011) tried to determine the effect of erp systems on the accounting processes by conducting a questionnaire to firms that are traded in borsa istanbul. according to the research, the use of the erp system has made significant changes in the production of decisions based on accounting information such as cost center separation, general production budgeting, financial analysis and product profitability analysis, and has had a positive impact. rendulic (2013) showed the financial performance of erp in logistics activities using data gathered from 52 large firms in the research conducted in croatia. however, findings show that erp does not directly contribute to the success of the firms. ononiwu (2013) observed that strategic business value could not increase thanks to erp system because the firms could not effectively use the software. tian and xin xu (2015) observed three years (2001-2003) data collected from 2.127 firms in the manufacturing and service sectors and measured the performance of erp over firm risks. they concluded that an erp system in which the functional and operational the critical success factors of erp selection and implementation: a case study in logistics sector modules are planned and applied effectively is a very important assistant in reducing the operational risk of the company. abukhader (2015) examined the use of erp in private hospitals in saudi arabia. according to the study, 83% of the hospitals in the country use erp. they reported that spending of 77% of hospitals that have implemented any erp software decreased while their incomes increased. bulut et al. (2015) examined the feasibility of erp in order to make and mass production firms and found that erp was more difficult to implement in order to make firms. they stated that the main reason for this was that erp modules were not suitable. in such companies erp has provided performance improvement but it has not provided any increase in total efficiency. as can be seen in literature survey provided, firms prefer erp systems in order to facilitate access to information and strengthen communication links within the organization. due to the high installation costs of erp systems and the existence of hidden costs, the impact on the total cost of the firm is not always positive. however, efficient use of resources is inevitable due to the reduction of costs in the long run and the 3. methodology in this work, we analyzed a major international logistics company established in 2009. during the data gathering stage, interview participants were selected by intentional sampling method. in this context, both formal and semiformal interviews were conducted with these employees. participants in different departments in the organization provided that they are able to use erp system integrated into the company. the aim of this research is to identify critical success factors and difficulties during the integration. after the interviews, obtained data are analyzed. as a result, the difficulties of using erp systems are determined. thus, the critical success factors associated with drawbacks of new integration, which are encountered while implementing an erp system, have been examined. qualitative analysis is seen as one of the information production process aiming at understanding lifestyles, stories, behaviors, organizational structures of people and changes in communities (strauss and corbin, 1990). in contrary to quantitative analysis based on statistical data analysis, in qualitative studies responds are sought to the questions what kinds of meaning people ascribe to events and how they describe events (dey, 1993). a qualitative study was defined as one of the ways of information production that individuals have developed to solve their own secrets and to discover down deep of communal systems that are shaped by their own efforts (storey, 2007). content analysis, being a qualitative analysis method, aims at presenting a problem systematically and objectively. a number of problems are presented to researcher by content analysis regardless of what special aim of the study is and which discipline it is conducted in. thanks to this method, responds are sought to the questions what the universe is, how much sample should be taken in the universe, whether studies will result in consistent results in replications, whether the study can be replicable and whether predictions are assessed or not (holsti, 1969). the stages of content analysis are given below. determining the aims, -defining the concepts, -determining the units of analysis, -determining the places where data regarding to topic are, -developing a logical structure, -ensuring the sampling plan, -determining coding categories, -data analysis. content analysis was the main tool we adopted. the main goal in content analysis is to reach concepts and correlations that enables us to explain the obtained data. content analysis can be useful when the research requires gathering data via interviews. attempts are made to clarify the subject by using the themes determined frequently in the basis of content analysis that is made before. in content analysis, the obtained data is detailed and regulated. at the end of this, these results are described and interpreted. in this work, the data obtained from interviews are grouped in appropriate situation and the results are interpreted. 4.results the interview stage is conducted with six top level employees. according to the content analysis findings of the interview, the following aspects related to the erp implementation process have been identified in the case study. volkan yıldırım 142 especially, the critical success factors are addressed while focusing on the difficulties encountered during the implementation process. the main difficulties faced by the employees in the logistics firm are shown in table 1. table 1: the difficulties encountered by the participants difficulties 1 2 3 4 5 6 + errors made in the initial plan + + 2 the oppressive attitude of the boss + + + + 4 inadequate number of staff at department + + + 3 resistance to the new system + + + 3 implementation of the system without knowing the business + 1 old work habits + + + + + 5 staff circulation + + + 3 breakdown between units + + + + + + 6 inexperience of project leader + + + 3 inaccuracies and inadequacies in the training plan + + + + + 5 errors in data entry + + + + + + 6 difficulties in designing reports + + + + + + 6 not solving some problems by using software + + 2 difficulty of using the program + + + + 4 as shown in table 1, the difficulties that are determined by taking into consideration the previous content analysis encountered by the interviewees are gathered under 14 items in terms of the frequency of those difficulties. the main findings of content analysis can be summarized as follows. most of the interviewees stated that there were mistakes in the initial plan and there was lack of motivation because the targets determined in practice were not reached in time. obviously, this problem is solvable. as mentioned before, there are critical success factors that should be considered before installation and implementation of the erp system in order to get the best result. these critical success factors can also be used to solve the mistakes in the initial plan. for example; slevin and pinto (1987) defined a factor like “clearly defines vision, goal, business plan and performance measure” in 1987 so this factor can be thought for this situation in the interview. the organization should determine why it will use erp system, how to implement it, how to achieve the targets efficiently. thus, targets and gains can be provided by considering that factor in the beginning of implementation. more than half of the staff stated that the boss followed a repressive policy. the participants who stated that company owner put pressure on the staff to get all reports in a short time. however, erp system requires long time to install and to implement. in this context, it is possible to consider “top management support” as a critical success factor defined by bingi, sharma and godla in 1999. restructuring is a powerful tool in the rapid and efficient design of business processes in order to create competitive advantage for the organization. the development of approaches to strengthen communication between employees and managers through the transition of the institution to the new system and to spread the vision of the institution is an important critical success factor in the project life cycle of erp projects. the critical success factors of erp selection and implementation: a case study in logistics sector half of the participants mentioned the inadequate number of staff at department as the main difficulty has had to confront. they stated that this would lead to the failure of integrating an erp system. therefore, they worried that it would cause a decline in their performance. at this point, bingi, sharma and godla (1999) address “project management: the choice of project manager and team” factor under critical success factors and it can be taken into consideration to address this issue. project management observes and quides the ongoing activities from the start to the end of the project. effective project management requires the coordination of all units of the organization. even if there is inadequate number of staff at department while implementing erp system, the interaction between staff can provide useful synergy, and the lack of staff problem can be overcome. participants have mentioned the employees show resistance to the new system. statements such as “system will be useless”; “the previous system was better than the new one”; and “it is wasting money and time” refer to the existing resistant approach to the change among the employees. change management is a priority issue in erp implementation. resistance, complexity and other mistakes are unavoidable because a new erp system revolutionizes the establish business flows and prescribes a wide-ranging, radical change process. in case the organizations do not attach sufficiently enough importance to change management, the expected returns from erp implementation are barely achievable. in business process reengineering and technology implementation projects, effective change management is critical. it is necessary to adopt change management in order to successfully implement erp system. the critical success factor “change management” is of essence to avoid this issue during erp system implementation (grover, jeong, kettinger and teng, 1995). at the initial stage of the erp systems installation, process analysis is carried out. during this analysis, it is necessary to determine the current state of the business so that a smooth integration in the organization is possible. when the current situation is revealed, the complete set of business processes should be described. training plays a facilitating role in the projects done in the field of management information systems. it is a frequent problem that users are not fully aware of the consequences of lack of training, changing business processes and how to implement them. these are the important causes of failure in erp implementations. training allows employees to learn more about functions while informing them about erp. comprehensive training in erp implementation allows acquisition of necessary knowledge that employees can exploit in describing and resolving problems they encounter in the system flow. it helps adoption of a common language and erp culture in the organization (cooke and peterson, 1998). participant whom we interviewed stated that they were not able to leave their old business habits. the workers have argued that it will take certain time until they get used to use the new system. obviously, this fact again refers to the critical success factor related to resistance. half of the participants stated that the staff circulation is one of the difficulties they faced during the installation and implementation phases. it has been stated that when a worker leaves his or her job, the work done by another employee and it takes a long time to adapt to the new job. on the other hand, the training has caused some troubles as well. according to the result of the research done, all participants stated that the breakdown between the units creates great difficulties in the installation of the system. according to the old system in operation, the units receive the information they need from the other units and accordingly there is no common database. on the contrary, it is said that a step taken in the new system has also affected other units, and the mistakes made by the employees who are unfamiliar with this issue cause the loss of time in the installation phase. robinson and dilts (1999) explained that one of the critical success factors called as communication and cooperation between units. communication is the key component in the success of erp projects. the lack of communication between the project team and the other units in the process of redesigning the processes and erp installation is a vital problem, and creation of smooth communication channels, keeping it open and streaming the precise information has an enabling effect in solving it. cooperation and participation are critical because of the attempts to integrate different functions of erp systems. therefore, a strong coordination has an important influence on achieving the goals of erp system (robinson and dilts, 1999). furthermore, it has been stated that the project leader is inexperienced and cannot provide motivating leadership. in addition, the project leader was not able to communicate properly with the software company and some problems identified were not addressed properly. according to the results of the research, participants stated that there were mistakes in the training plan given before and during the installation of the system and the trainings were inadequate. they argued that the purpose of the volkan yıldırım 144 trainings could not be precisely defined and the trainings were blocked at certain points by employees who did not know the system. moreover, it is stated that the daily duration of the training programs is kept too long, so number of participants to the trainings remained limited. all participants stated that some mistakes happened during data entry stage. fixing these mistakes takes more time than a new entry. all departments used a common database, so it was noted that an erroneous entry in one department affected other departments. for instance, it was stated that some information was entered incorrectly on the stock cards. although management wanted to correct them afterwards, the stock cards were deleted and recreated by the system. in order to achieve the expected benefits from erp software, the data must be timely and adequately structured. the main causes of failure in organization are the difficulties in providing human and financial resources needed in the process of redesigning. the difficulties in determining the necessary data during the project phase often play a decisive role. for this reason, it is important to regulate data entry correctly at the beginning of the installation (grover, jeong, kettinger and teng, 1995). one of the most important features of the erp system is the reporting feature. according to the obtained reports, the operators make necessary evaluations and try to make decisions accordingly. thus, it is necessary to put this information in the reports in the design phase. all of the participants stated that they had difficulties while creating reports during the design phase. although there are a large number of reports within the system, the vast majority of these reports do not contain the desired information and it is difficult to make an evaluation based on the information in the reports. according to the result of the research, participants highlighted that the installed software cannot solve some problems. especially in the production department, they experienced troubles. choosing the right erp software means that the selected software can be adapted to the enterprise information and processes with minimal modification. the choice of the wrong software will lead to incompatibility between system architecture and the institution's strategic objectives and / or business processes. the selection of the software package that provides the most suitable solution for the needs of the organization is the most important factors of the erp implementation phases. some software may be suitable for large organizations, while some other software may be suitable for small size enterprises. some packaged software has a worldwide standard and position where some others are good in local integration (janson and subramanian, 1996). employees who participated to the interview said that the program had a complicated structure and they had difficulties in using and adapting. specifically, the employees in the foreign trade and procurement departments are mostly suffering. it is widely acknowledged that there will be some initial problems in almost every software implementation process. in erp implementations, institutions should solve software problems with consultant and supplier cooperation (janson and subramanian, 1996). 5. conclusion organizations must be able to make strategic decisions that are vital for survival. the field and role of the logistics has begun to change significantly in recent years. logistics, in general, has played a supporting role for business functions such as marketing and production. in recent years, logistics has come to be known as a critical factor to emerge in a more prominent way to provide competitive advantage to businesses. logistics, which was initially limited to transportation and storage, includes supply chain management, purchasing, distribution, inventory management, order management and processing, packaging, parts and service support, production programming, replicas, demand forecasting, waste recycling and disposal, and even customer service. in this context, a control system must be required in order to manage all process in the organization. in this field, erp systems are of gre at use in order to provide the best business practices. this system makes the organization process easy. an erp system is a management information system tool that plans all resources of the institution and aims to meet all information needs. erp systems are one of the applications of today's advanced information technology that enable the organization to integrate in all needs. the investment costs of erp systems are high and installation requires a long process. before deciding to implement erp systems, companies should undertake a feasibility study. while doing this, they should take into account that there are many failed erp projects in the market. thus, if the project fails, the enterprises face with great losses and even face the danger of default. the critical success factors of erp selection and implementation: a case study in logistics sector as a large-scale project, it requires careful planning, expertise and experience. obviously, we may not claim that every erp system application will be successful. when certain critical success factors are observed the strategic goals of the firm can be achieved. erp systems are, first and foremost, information technologies projects and they reflect the typical characteristics. however, given the targeted integration, there are also elements far beyond ordinary information technology projects, as the entire organization is focused on doing business. the greatest factor in the success of erp implementation in an organization is the continuous and strong support of top management. other important factors are the redesign of business processes and the compatibility between the system and the way they do business. the management of change is also extremely vital. due to the high cost of erp system implementations and their long-term spread, the continuity of the enterprise support to the project is a prerequisite for success. selecting the most appropriate erp system for their organizations, establishing a strategic road map for implementation, providing training for their employees, carrying out cultural exchange within the company are other contributing factors to the success of the erp system. finally, logistic is an important trading tool between countries. especially in turkey, logistic field has developed in recent years in parallel with the steady growth in the sector and increasing foreign trade. long production and business processes are involved in logistics sector. for this reason, erp system is preferred to execute these processes within certain rules. the difficulties, which are mentioned above, can be reduced by using erp. in briefly, erp system can provide maximum productivity and eases the process flow. this work presents a case study that examines erp system and its implementation in logistics sector, where both critical success factors and difficulties are analyzed and solutions are proposed. references afatoğlu, a. 2013. lojistiğin 2013 atılımı. turkishtime, mayıs. al-masharl, m. 2003. enterprise resouce planning (erp) systems: a research agenda. industrial management &data systems (103:1), p.22. çakmak, z., taşkın e., şaylan, o. 2013. kurumsal kaynakplanlaması (erp) 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(p. 51-64). los angeles: sage publications. journal of international trade, logistics and law, vol. 7, num. 2, 2021, 30-43 30 the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey mehmet sağlam istanbul commerce university, turkey maram jarrar istanbul commerce university, turkey received: augt 14, 2021 accepted: oct 25, 2021 published: dec 01, 2021 abstract: buying product or services online has become a common practice among millions of people around the world. in this process, it is a matter of curiosity what factors affect the behavioral intentions of consumers. the purpose of this study to examine the effect of e-trust, esatisfaction and e-loyalty on consumer behavioral intentions dimensions (purchase intentions, word of mouth communication and complaining intention). the study is a quantitative study and the online questionnaire form was used as data collecting tool. in the study, convenience sampling methods were used and the data were collected via an online questionnaire on google forms. the study was carried out on 239 participants. spss 21 was used to analyze the data. the regression analys was applied to examine to our research hypotheses. according to the results of the research, it was determined that e-trust, e-satisfaction and e-loyalty had a positive effect on word of mouth communicaiton, e-loyalty had a positive effect on purchase intention, e-satisfaction and e-loyalty had a negative effect on complaining intention. keywords: e-satisfaction, etrust, e-loyalty, word of mouth communications, purchase intention, complaining intention. 1. introduction we are moving gradually but steadily towards everything online. buying things online has become a common practice among millions of people around the world. recently, the number of people buying goods and services online has grown more than ever. around 2.14 billion people worldwide purchased goods online in 2021. that same year, global e-retail sales amounted to $ 2.8 trillion. if that's not enough to blow you away, projections show that global e-retail sales will rise to $ 4.8 trillion by 2021. the resulting figures show how the online commerce volume is increasing day by day. 63% of shopping opportunities start online (statista, 2021). this means that no matter where customers finally buy (online or at a brick and mortar store), the customer journey begins online. the way of purchasing is not exactly the same for two online shoppers. that's why if you own an online store, it's essential to understand what you can do to customize the online journey for customers. with the advancement in digital technology, it's no surprise that today's consumers are in control of the way they buy. they are open to discover as many categories, brands and products as they want. gaining online customers can be achieved with satisfaction and trust based on quality service. as a result, the importance of customer loyalty is once again emerging in the online commerce environment, which is increasingly decreasing the share of traditional marketing. in this year one of the biggest changes in shopping behavior is undoubtedly due to the impact of the coronavirus, the number of online shoppers. moreover, the period of the pandemic has made our future clearer about the transition to the online age. in this context, the purpose of this study is to examine the effect of e-satisfaction, e-trust and e-loyalty on consumer behavioral intentions (word of mouth communication, purchase intention and complaining intention). the article is organized as following: first we explain problem statement and research objectives; second we review relevant the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 31 literature and place conceptual framework; third review hypothesis development process and the research model is developed and the hypotheses are proposed and fourth we specify research methology and; fifth we present research findings and finally we present significant research results and discuss implications of those findings. 1.1. problem statement undoubtedly, consumer behavior consists of many features that constitute a barrier to direct access to customer loyalty (odabaşı and barış, 2002). as we can say, consumer behavior is a constantly changing factor. especially nowadays, due to the internet age, which further complicates consumer behavior. therefore, being loyal online requires a deep understanding of consumer behavior. based on previous studies that show that the concept of trust is related to consumers' intentions, and is relatively complex as it differs from one individual to another and from one community to another, especially online trust issues. in addition to the issues of trust that are increasing with the increasing relative ease that characterizes the online market at the present time. on the other hand, with the increasing competition in the online market, it becomes more difficult to achieve online customer satisfaction because the ceiling of expectations is relatively escalating. therefore, this study was conducted taking into consideration the online consumer behavior with the satisfaction and trust factors for loyalty in the online shopping market. 1.2. research objective  to determine the main effect of e-brand loyalty levels on consumer behavioral intentions (word of mouth communication, purchase intention, complaining intention) on online shopping sites.  to examine the effect of e-satisfaction on consumer behavioral intentions (word of mouth communication, purchase intention, complaining intention) on online shopping sites.  to examine the effect of e-trust on consumer behavioral intentions (word of mouth communication, purchase intention, complaining intention) on online shopping sites. 2. conceptual framework the conceptual framework of thıs study is as shown in figure 1. figure 1: research model mehmet sağlam & maram jarrar 32 2.1.e-brand loyalty e-brand loyalty is a concept resulting from the internet era, researchers have described it from various angles. in general, brand loyalty is a positive response to a particular brand due to the satisfaction and trust usually associated with the desire to repeat the purchase (eid, 2011). when moving to the electronic concept, what applies to brand loyalty in the traditional situation it also applies in the case of loyalty to the e-brand. in this context, it means the response associated with the desire to repeat purchasing from the related website not from the traditional store (liu, 2012). online loyalty is also associated with many dependencies, such as good reputation, influence of word of mouth online and gaining many followers on social media who are waiting for any new products / services (pratminingsih et al., 2013: 105). based on previous studies, it is difficult to change a customer's loyalty to a website they feel satisfied and trusted, so it will remain a constant priority for them in their search lists (audrain-pontevia et al., 2013). a customer's experience plays a fundamental role in shaping their loyalty or belief in the brand (chen and barnes, 2007). 2.2.e-trust trust in the seller is the main key in the shopping process in general (jarvenpaa et al., 1999; urban et al., 2000; gefen, 2002; kim and kim, 2005), and in the case of online shopping, it becomes more difficult to build trust relatively due to what it requires to share financial information and personal data (egger, 2006). moreover, electronic trust is not limited to providing customers' financial information in the purchasing process, but rather goes beyond anything that causes the customer to establish a new intention to replicate the purchasing experience from the same website (jarvenpaa et. al., 1999; gefen and straub, 2004). in contrast, the process of building online trust is associated with several risks, including: financial risks, product risks, privacy and security threats, and risks associated with the delivery process. therefore, the customer prefers to make online purchases from reliable sites. which means working on building a triangle whose angles are trust first, satisfaction, then loyalty (jin and park, 2006; kim, jin and swinney., 2009; ghane et al., 2011). as a result, the customer's trust that the value to be obtained is greater than the risk concerns they would face if they made an online purchase from this site, this means that this enables the intention to repurchase from the same site (chen, 2012). 2.3 esatisfaction the first purchasing experience of any website makes a huge impact. however, oliver (1999) explained that online satisfaction is fundamentally related to the customer experience that is based on the repetition of a series of purchases from the website. in general, satisfaction increases profits (bansal, et al., 2004), therefore having a negative customer experience means that they have an opportunity to quickly switch to a new service provider (gummerus et al., 2004; tversky and kahneman, 1974). as a result, the customer service department plays an important role, especially in the current situation. moreover, prompt customer response provides satisfied and loyal customers, and that means building electronic trust (wu, 2013). 2.4. consumer behavioral intentions the online consumer can be thought of as an individual or institution that uses the internet to meet its consumption needs (tiryaki, 2008). consumer behavioral intentions are related to what kind of behavior the consumer can engage in during shopping. in generally behavioral intention includes four dimensions (zeithaml, berry and parasuraman 1996). in this research, on the online platforms, three consumer behavioral intentions are highlighted, including: online consumer purchase intention: any human behavior is related to its intention to occur. for example, the desire to cry precedes the occurrence of crying behavior. what applies to crying behavior also applies to buying behavior. as a result, the purchasing intention of the consumer is seen as the desire of the consumer to purchase a certain product or service. the existence of the consumer's purchase intention does not guarantee the occurrence of purchasing behavior. on the other hand, it is accepted as the basic basis for the formation of consumer purchasing behavior. for example, a consumer may want to purchase a product or a good, but does not buy it due to the surrounding factors that prevent it from performing the buying behavior (sağlam, 2014). today, building loyalty-based behavior is based on trust and satisfaction that push customers to seek the product / service they want from their favorite brand, and all this works to push the customer, as well as follow this brand on all social media sites and maintain this close relationship. also their involvement in repetitive buying behavior on this the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 33 site will be the answer to many when asked "because they trust the site, they feel satisfied and connected to the site," and why they bought this site from one website instead of others. online word-of-mouth communication: it is assumed that word-of-mouth communication often plays an important role in influencing consumer attitudes and purchasing intentions (xia and bechwati, 2008; sen and lerman, 2007; chevalier and mayzlin, 2006). the literature shows that word-of-mouth communication is more effective than editorial suggestions or advertisements (trusov et al., 2009; smith, satya and sivakumar, 2005) because of its credibility and persuasion (mayzlin, 2006; godes and mayzlin, 2004; gruen, summers and acito, 2000). we live in an age of speed and expansion, each of us transferring their experiences to the other, and there are easy technical tools for these ideas to spread very quickly. for this reason, companies are working on the most popular marketing techniques in this period, that means working with the ambassadors and influencers who can transfer their experiences to their followers through social media, thus giving users reliable promises from the people they trust and feel loyal to them. online consumer complaining intention: based on the literature, the intention to make a complaint is based on three main factors:  customer dissatisfaction: although there are many studies confirming that customer dissatisfaction does not generally lead to complaint behavior, it is accepted as a key component associated with complaint behavior (jacoby and jaccard, 1981; singh, 1988).  response: this response includes a behavioral response or a non-behavioral response (jacoby and jaccard, 1981; singh, 1988; maute and forrester, 1993).  a negative experience that results in different reactions from non-behavior to negative complaints and reviews (day, 1980; day et al., 1981; jacoby and jaccard, 1981). today, the customer's intention to complain is not just related to their experience with the product / service. it may also include trying it out on the online shopping site. therefore, corporate governance should provide sufficient areas of expression for customers. in other words, the customer can add comments expressing the shopping experience to the website, as well as presenting the option to complain at any stage before and after the purchase (yılmaz, 2004: 14). 3. hypothesis development the process of developing study hypotheses requires a deep analysis of the relationships of these factors among them. according to previous literature, a positive relationship was observed as a behavioral intentions between purchasing volume and customer loyalty. in other words, the greater the purchasing power of a customer, the more they will be associated with their preferred product/service and thus less likely to convert them from another seller. trust is a mediating variable between customers and companies in e-commerce. in other words, if customers trust the site where they buy their products and services, this increases the power of electronic loyalty and thus electronic satisfaction (singh and sirdeshmukh, 2000). in addition, customer loyalty is related to behavioral intention to repurchase (garland and gendall, 2004). in this context, having an element of trust and loyalty improves behavioral intentions. moreover, the effect of satisfaction on the previously mentioned repetitive behavioral intentions, there are several studies confirming its positive role in positive word-of-mouth communication within the realm of online shopping (duarte, silva and ferreira, 2018; fang, shao and wen, 2016; gounaris, dimitriadis and stathakopoulos, 2010; kassim and abdullah, 2010). based on the term electronic loyalty in previous literature has been associated with three determinant outcomes: repeated purchase intentions, positive word of mouth, and willingness to pay more (kumar, pozza, and ganesh, 2013; liao, wang, and yeh, 2014; srinivasan, anderson, and bonavolo, 2002). finally, the study by erçetin and arıkan (2020) showed that designing websites that guarantee the advantage of providing complete trust to customers creates thereby improving positive word-of-mouth communication. the complaint is about the attitude of the public for three main reasons: dissatisfaction, unhappiness or disappointment in expectations (rutter, 2007: 28). therefore, it is related to the inverse state of satisfaction. if the complaint is also answered satisfactorily, it will increase customer loyalty, otherwise the result will be separated and transferred to another brand (barış, 2008: 25). for this reason, it can be said that disappointment in expectations mehmet sağlam & maram jarrar 34 causes the trust barrier between the company and its customers to be broken. therefore, companies in their customer service departments must work to restore customer trust by responding positively to customer complaints. 3.1.research hypothesis within the scope of the information obtained from the literature, 9 main hypotheses have been proposed. h1: e-satisfaction has an effect on word of mouth communication. h2: e-satisfaction has an effect on purchase intention. h3: e-satisfaction has an effect on complaining intention. h4: e-brand loyalty has an effect on word of mouth communication. h5: e-brand loyalty has an effect on purchase intention. h6: e-brand loyalty has an effect on complaining intention. h7: e-trust has an effect on word of mouth communication. h8: e-trust has an effect on purchase intention. h9: e-trust has an effect on complaining intention. 4. research methodology 4.1. sample method this survey is aimed at online shoppers. it was conducted based on convenience sample method within turkey and is mainly centered on istanbul. where the questionnaire was distributed via social media tools (facebook whatsapp instagram) and data were collected from 240 participiants and analyzes were conducted on 239 of them. before starting the data collection process, necessary approval form was obtained from the istanbul commerce university ethics committee (issue: e-65836846-044-202523). 4.2 research instruments this study is considered a quantitative study, as a questionnaire was used to test the conceptual framework of the research and the hypotheses placed on it. the questionnaire was designed by google form and distributed to online shoppers. it must be noted that this questionnaire was mainly based on the five-point likert type scale, which ranges from a "strongly disagree" with a value of 1 to a rating of "strongly agree" with a value of 5.  e-satisfaction and e-trust scales were adapted from safa and solms'(2016) and ting et al. (2016) and includes 7 items  e-loyalty scale was adapted from zeithaml, berry and parasuraman, (1996) and gremler (1995) and includes 7 items  consumer behavioral intentions scales were adapted from zeithaml, berry and parasuraman (1996) and it includes four items and 13 items. 4.3. data analysis the data collected from the questionnaire were analyzed using ibm spss 21 software. descriptive statistics, factor analysis were performed over the data obtained. reliability test was carried out to test the research scales. followed by correlation and regression tests were used to reveal the effects of variables on each other and to reveal the degree of correlation. 5. findings 5.1. demographic analysis table 1: sample demographic characteristics variables f % income level f % gender under 1000 tl 50 20,9 female 152 63,6 1000-3000 tl 65 27,2 male 87 36,4 3001-5000 tl 44 18,4 total 239 100 5001-7000 tl 35 14,6 the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 35 age 7001-9000 tl 16 6,7 0-17 1 ,4 9001 tl and above 24 10,0 18-24 77 32,2 missing 5 2,1 25-34 109 45,6 total 239 100 35-44 39 16,3 do you shop online 45-54 6 2,5 yes 235 98,3 55-64 6 2,5 no 0 0 missing 1 ,4 missing 4 1,7 total 239 100 total 239 100 educational level primary level 3 1,3 high level 12 5,0 associate's degree 9 3,8 bachelor 103 43,1 master 85 35,6 phd 25 10,5 missing 2 ,8 total 239 100 table 1 shows the demographic characteristics of the participants (see table 1 for details.) the final part of the demographic section includes that it is found that more than 98% of the respondents use online shopping, which confirms the fundamental importance of this type of research at the present time. 5.2. factor analysis results table 2. factor analysis total explained variance amounts results no. variables disclosed variance ratio of variables 1 e-satisfaction 62,00 2 e-trust 55,11 3 e-brand loyalty 54,34 4 consumer behavioral intention 59,24 from table 2, the total variance amounts of the factors belonging to the data collection tools used in the study are esatisfaction 62.0%; e-trust 55.11%; e-loyalty is calculated as 54.34% and consumer behavioral intention is 59.24%. other references that should be checked for factor analysis are kaiser-meyer-olkin (kmo) and bartlett test. the kmo test tests whether the partial correlations are small and whether the distribution is sufficient for factor analysis. before starting the factor analysis, it is necessary to check whether bartlett's test of sphericity is also significant. the barlett test reveals whether the correlation matrix provides significant correlations between at least some variables in a data set, which is a prerequisite for the study of factor analysis (bartlett, 1951). mehmet sağlam & maram jarrar 36 table 3: kmo and bartlett's test values variables kaiser-meyer-olkin test bartlett's test of sphericity e-satisfaction ,902 870,084* e-trust ,839 880,550* e-loyalty ,848 714,069* consumer behavioral intention ,758 1145,192* *(p<,001) kmo test value is perfect as the value found approaches to 1, unacceptable below 0.50 (excellent at 0.90, very good at 0.80, average at 0.70 and 0.60 and bad at 0.50 (tavşancıl, 2010). in this study, kmo values were found to be within acceptable ranges, usually by fitting very good levels. barlett's test result is 870,084 (sig <,001) for esatisfaction; 880,550 (sig <,001) for e-trust; it was calculated as 714,069 (sig <,001) for the e-loyalty and 1145,192 (sig <,001) for the consumer behavioral intention. the significance of bartlett's values also supports the hypothesis that the data come from multivariate normal distribution (revelle, 2016). table 4: factor analysis component matrix results scale items e-satisfaction e-trust e-loyalty behavioral intentions 1 2 3 4 ss1 ,724 ss2 ,839 ss3 ,699 ss4 ,827 ss5 ,821 ss6 ,791 ss7 ,800 st1 ,615 st2 ,554 st3 ,702 st4 ,787 st5 ,809 st6 ,816 the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 37 st7 ,860 sl1 ,823 sl2 ,716 sl3 ,834 sl4 ,766 sl5 ,729 sl6 ,795 sl7 ,827 si1 ,791 si2 ,828 si3 ,770 si4 ,753 si5 ,657 si6 ,598 si7 -,541 ,579 si8 ,588 ,605 si9 ,509 ,583 si10 ,709 si11 ,812 si12 ,712 si13 ,442 in table 4 shows the component matrix chart for all variables where the dependent variable consists of behavioral intentions that include word of mouth communication, purchase intention, price sensitivity and complaining intention. on the other hand, the independent variables are e-satisfaction, e-trust, and e-loyalty in principal component analysis, the high factor loading values in the factor in which the items are grouped mean that they measure the desired phenomenon or structure together. for this, the factor loading values are expected to be higher than the ,40 score. in addition, items are expected to give a high factor loading value in a single factor, and there mehmet sağlam & maram jarrar 38 should be a difference of at least .10 level between the factor loading values received from other factors (büyüköztürk, 2003: 118). in this study, price sensitivity, as the third factor of the behavioral intention level scale, was excluded because it did not meet this requirement. as seen in the table 4, when the price sensitivity factor, which is the 3rd factor, is removed, the 1st factor of the behavioral intention scale is word of mouth communication, the 2nd factor is in the purchase intention and the 4th factor is in the complaining intention factors, and in other factors, it carries a factor loading value higher than 0.10 difference. therefore, it was deemed appropriate to continue the analysis with the 3-factors structure of the behavioral intention scale. 5.3. reliability analysis reliability analysis refers to the consistency or stability between successive measurements. cronbach alpha is one of the most preferred reliability analysis. the range 0<α<,40 is unreliable; the range of ,40< α <,60 is interpreted as low reliability, the interval of ,60< α <,90 is interpreted as highly reliable, and the range of ,90< α is interpreted as highly reliable (tavşancıl, 2010). table 5. cronbach alpha coefficients for the scales variables items cronbach’s alpha e-satisfaction 7 ,894 e-trust 7 ,861 e-brand loyalty 7 ,839 word to mouth communication 3 ,865 purchase intention 3 ,782 complaining intention 4 ,702 based on cronbach's alpha values, reveal that the internal consistency of the scales is sufficient. therefore, the values obtained as a result of validity and reliability studies show that the scale is usable and reliable. 5.4. correlation analysis correlation analysis is an analysis that determines the strength and direction of the relationship between the study factor structures. pearson correlation coefficient is used because the data conforms to the normal distribution. therefore, the pearson correlation coefficient is used to analyze whether the relationship between factors is statistically significant (çokluk, şekercioğlu and büyüköztürk, 2012: 35). table 6: pearson correlation analysis results pearson correlation coefficients 1 2 3 4 5 6 (1) e-satisfaction 1 ,571* ,491* ,613* ,355* ,179* (2) e-trust 1 ,467* ,565* ,369* ,015 (3) e-loyalty 1 ,658* ,586* -,067 the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 39 (4) word of mouth communication 1 ,546* ,029 (5) purchase intention 1 -,006 (6) complaining intention 1 *p< ,05 according to the results of the correlation analysis, we find that electronic satisfaction have a moderate positive relationship with all variables except complaining intention factor, which have a relatively weak positive relationship. looking at the electronic trust factor and the electronic loyalty factor, it appears from the table 6 that there is a moderately significant positive relationship with all variables, except for the complaining intention variable, which was found to have no relationship with both e-trust and e-loyalty. it means that an increase in some or all of the independent variables leads to an improvement in the dependent variables. when the relationships between the dependent variable sub-dimensions were examined, it was determined that only word of mouth was positively related to purchase intention. 5.5.regression analysis regression analysis was performed to determine the effect of the independent variable (e-satisfaction, e-trust, and eloyalty) on the dependent variable (word of mouth communication, purchase intention and complaining intention). a p (sig) value less than .05 in the regression analysis indicates that the regression model is significant, while the square of the correlation coefficient (r2) indicates the rate of explaining the change on the dependent variable. in the regression analysis, the significance of the model is tested firstly. if the p value of the anova test is less than 0.05, the model is assumed to be significant. the r2 value is used to determine how much of the change in the dependent variable is explained by the independent variables (büyüköztürk, çokluk and köklü, 2013: 122). the standardized beta coefficients in the regression equation show how much effect two or more independent variables have on the dependent variable. in other words, a standard deviation change in the independent variable indicates how much the dependent variable will change with the unit of standard deviation (bryman and cramer, 1999 cited in cevahir, 2020: 132). table 7: multiple regression analysis results of word of mouth communication factor model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -.482 .270 -1.781 .076 e-satisfaction .390 .074 .290 5.289 .000 e-trust .246 .065 .203 3.763 .000 e-loyalty .488 .059 .420 8.248 .000 r=,75 r2=,56 f=103,416 sig=,000 5.5.1. dependent variable: word of mouth communication according to the standardized regression coefficients, it was determined that e-loyalty (β=.488, sig<,05); esatisfaction (β=.390, sig<,05) and e-trust (β=.246, sig<,05) had an effect on the word of mouth communication. mehmet sağlam & maram jarrar 40 table 8: multiple regression analysis results of purchase intention factor model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .900 .289 3.110 .002 e-satisfaction .049 .079 .042 .619 .536 e-trust .109 .070 .103 1.561 .120 e-loyalty .527 .063 .518 8.319 .000 r=,59 r2=,35 f=43,355 sig=,000 5.5.2. dependent variable: purchase intention according to the results of the regression analysis, it was found that only e-loyalty has an effect on purchase intention (β=,518; sig<,05). table 9: multiple regression analysis results of complaining intention factor model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 3.101 .402 7.707 .000 e-satisfaction .427 .110 -.314 3.893 .000 e-trust -.095 .097 -.078 -.982 .327 e-loyalty -.217 .088 -.185 -2.471 .014 r=,26 r2=,06 f=5,663 sig=,000 5.5.3. dependent variable: complaining intention according to standard regression coefficients, it was determined that e-satisfaction (β= -.314, sig<,05) and e-loyalty (β = .185, sig<,05) had an effect on complaining intention. 6. conclusion and recommendation according to the results of the research, behavioral intentions in online shopping is based on e-trust, e-satisfaction and e-loyalty levels. the arrangement of these dimensions according to their impact on achieving behavioral loyalty is as follows: electronic loyalty, electronic satisfaction, followed by electronic trust. in this study, the price sensitivity factor was excluded as a behavioral intention measure. thus, based on the regression results of this research, the following results can be summarized as follows:  electronic loyalty has a positive effect on purchase intention.  electronic loyalty has a positive effect on word of mouth communication.  electronic loyalty has a negative effect on complaining intention.  electronic satisfaction has a positive effect on word of mouth communication. the effects of e-satisfaction, e-brand loyalty and e-trust levels on consumer behavioral intentions: a study on online shoppers in turkey 41  electronic satisfaction has a negative effect on complaining intention.  electronic trust has a positive effect on word of mouth communication. according to the results, we find a relatively moderate positive effect of electronic loyalty, electronic satisfaction and electronic trust on word of mouth communication. in addition, the effective positive impact revolves around electronic loyalty and purchase intention. on the other hand, the results show an inverse relationship between electronic loyalty and complaining intention. based on previous results, it can be said that the interpretation of the results of this study is consistent and logical with those stated in the previous literature. therefore, electronic trust, electronic satisfaction and electronic loyalty is generally influencing consumer behavioral intentions. initially, electronic loyalty is associated with outcomes that encourage positive word of mouth and lead to a solid brand reputation. it also directly relates to future repetitive buying behavior. on the other hand, the inability to respond positively to online users' complaints results in their electronic disloyalty. for this reason, companies should develop the concept of e-loyalty and pay more attention to this concept when we move to the choice of online shopping. secondly, the electronic satisfaction factor can be said to serve as a measurement tool for both word of mouth communication and complaining intention. finally, electronic trust is also positively associated with positive oral communication resulting in brand reputation. therefore, it is imperative to work on achieving the three dimensions in any online shopping process. it should be noted that there are many previous studies looking at achieving one or more of these dimensions (trust, satisfaction or loyalty) on consumer behaviors. in previous literature, the term electronic loyalty has been associated with three determinant outcomes: repeated purchase intentions, positive word of mouth, and willingness to pay more (kumar, pozza and ganesh, 2013; 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(1996). the behavioral consequences of service quality. journal of marketing, 60(2), 31-46. journal of international trade, logistics and law, vol. 3, num. 2, 2017, 65-74 transportation of dangerous goods: turkey model murat şencan alışan logistics, turkey haki yavuz alışan logistics, turkey received: dec. 11, 2017 accepted: dec. 28, 2017 published: jan. 02, 2018 abstract: the shortcomings in the implementation of hazardous substances transport in the world and in our country lead to very serious hazards. these problems lead to life, property and very serious environmental disasters. this is not only a matter of transportation, but also of the chemistry, textile and fuel industries. this study provides information on the legislation on dangerous goods transport in turkey. it also contains technical information on hazardous substances, following the search of the relevant literature for the province of hazardous goods. keywords: logistics, transportation, dangerous goods transportation 1. introduction explosives, radioactive substances, such as chemical and/or physical characteristics that cause damage to the environment and the environment with qualities that are defined as "hazardous materials". due to the nature of the contents of each of these items, each of which is classified by the united nations experts committee, it is necessary to carry out transportation, and according to certain rules, unlike other materials. these special items, which require a separate sensitivity in all logistics processes, are often confronted frequently in our daily lives. the processes f rom the production of hazardous materials to the end-user are controlled by international legislation. with the developing technology, factory materials that are miles away from suppliers in different parts of the world are shipped, while products made in factories are shipped to customers in various parts of the world. in this process, dangerous substance transport is a real problem because of the risks involved. the risks posed by accident possibilities in the transport of dangerous goods are diversified and various risk models are established in order to minimize these risks. there are two conflicting roles in the transport of dangerous goods. the first one is managers who aim to minimize the risks, and the second one is the ones that aim to minimize the costs. when the literature is examined, it is seen that besides the studies on which the risk is assessed, the optimization problems that deal with risk and cost are also examined. dangerous goods transport can be done by land route, railway, sea road, airway, inner waterway and pipe transportation. in turkey, the most widely used type of transport is road transport. however, as the importance of green logistics is heightened, various studies are being done about railway transportation and these projects are aimed to increase the efficiency of railways. 2. conceptual framework 2.1. identification, movement and legislation of hazardous materials hazardous goods are defined as explosives, radioactive substances, substances which have chemical and / or physical characteristics such as their physical and chemical properties that can cause harm to the environment. dangerous materials; (explosive, poisonous) according to their chemical structures (flammable, pressurized), their murat şencan & haki yavuz forms (solid, liquid, gas) and their hazards. dangerous goods are defined by the united nations committee of experts in nine classes.  explosive materials,  gases,  flammable liquids,  flammable solids; self-reactive substance , substances which in contact with water emit flammable gases  oxidizing substances and organic peroxides,  toxic and infections substance ,  radioactive material,  corrosive substances,  miscellaneous substances and articles, including environmentally hazardous substances (iata, 2013). 2.1.1. dangerous goods classes class 1: explosives sheltered storage should be provided from the staff area and away from the facilities. this class includes: black powder, flares, fog bombs, ammunition, and dynamite. figure 1. label used for explosives according to imdg code class 2: gases a) class 2.1. flammable gas: they must be stacked away from any sources of heat and away from the personnel site. this class includes: acetylene, ethane, ethylene, methane, hydrogen, lighter gas. b) class 2.2. non flammable non toxic gases: they must be stacked away from any sources of heat, personnel, and food items. this class includes substances such as: ammonia, fluorine, prussic acid, chlorite, carbon monoxide. c) class 2.3. toxic gases: it should be stored in well-ventilated cool places. tubes filled with these gases expand when they receive heat, which is very dangerous because it causes explosions. this class includes: argon, helium, carbon dioxide, air gas, oxygen. figure 2. label used for flammable gases according to imdg code class 3: flammable liquid the flammable liquids are separated into 3 groups according to the combustion point of the gas which evaporates in the form of heat. a) combustion point is lower than 18.0 c. it should always be stacked outdoors. b) combustion point is between 18.0 c and 23.0 c. stacked in the open or in the building. transportation of dangerous goods: turkey model c) burning point is between 23.0 c and 61.0 c. stacked in the building. figure 3. label used for flammable liquid according to imdg code class 4: solids a) class 4.1. flammable solid: they should be stacked outdoors or in the building. it should be kept away from life spots. this class includes: aluminum powder, celluloid, naphthalene, red phosphorus, films, naphtha, dry fibers. figure 4. label used for flammable solid according to imdg code b) class 4.2. spontaneously combustible: stacked in well-ventilated locations, stacks should be constructed to provide air circulation. these include: dry grass, charcoal. figure 5. label used for spontaneously combustible according to imdg code c) class 4.3. dangerous when wet: they are burning properties when they come into contact with water or when they are wetted. it should be kept in well-ventilated dry places and avoid contact with water absolutely. this class includes: alkaline alloys, such as barium, carbide, ferro silicon, natrium, magnesium. figure 6. label used for dangerous when wet according to imdg code class 5: oxidizing substances a) class 5.1. oxidizing agent: the materials entering this class bring oxygen to the environment by facilitating combustion. because of these properties, they should not be stacked next to flammable materials. this class includes: nitrates, artificial fertilizers, ammonium sulphate, barium chloride. figure 7. label used for oxidizing agent according to imdg code b) class 5.2. organic peroxide: the materials entering this class may be explosive, as well as being flammable. the open area should be covered with dry and cool places. this class includes: all peroxides are included in this class. murat şencan & haki yavuz figure 8. label used for organic peroxide according to imdg code class 6: toxic a) class 6.1. toxic: poisonous substances can enter the human body by mouth and kill the human being. for this reason, food, beverages, living quarters and tobacco should be stacked away from substances such as moisture. this class includes: arsenic, aniline, barium oxide, phenol, nicotine, lead, cyanide, mercury products. figure 9. label used for toxic according to imdg code b) class 6.2. infectious substance: these substances cause diseases because they contain microbes. they must be stacked away from food, drink and life quarters. in the event of a hazard, the nearest health authority should be notified. this class includes: bone, bone oil, compressed meat wastes, animal dander, blood soda, and so on. figure 10. label used for infectious substance according to imdg code class 7: radioactive these materials are transported in special containers and without damage. they should be stacked outdoors in the open area, from the staff's area, from foodstuffs, unfiltered films, medicines and chemical substances. figure 11. label used for radioactive according to imdg code class 8: corrosive these substances are substances which are abrasive, thinning effect on human skin for a certain period of time. materials with corrosive effects on steel and aluminum also fall into this category. abrasive materials, organic tissue erosion, or some metals can cause corrosion. this class includes: sulfuric acid, hydrochloric acid, potassium hydroxide, sodium hydroxide. figure 12. label used for corrosive according to imdg code transportation of dangerous goods: turkey model class 9: miscellaneous they are dangerous substances that are harmful to human health, such as anesthetic or other harmful substances and temperature-graded substances, or dangerous substances that do not enter other categories from substances which are at risk of marine pollution. this class includes: asbestos, air bag inflators, dry ice. figure 13. label used for miscellaneous according to imdg code 2.1.2. packing groups of dangerous goods dangerous goods are generally divided into three groups. packing group is determined according to the degree of risk of the material and sets forth the safety measures to be taken for the packages.  high dangerous  medium dangerous  less dangerous. first class explosives, second class gases, 5.2 organic peroxides and seventh grade radioactive substances are not allocated to the dangerous goods packaging group. third grade flammable liquids, 4.2th grade self-extinguishing materials, substances that produce flammable gases when contacted with 4.3th grade water, substances with burning properties of 5.1th grade, toxic substances of 6.1th grade, corrosive substances of grade 8, acidic substances it is also reserved for the packaging group. 4.1 flammable solid materials and 9 other hazardous materials are divided into two groups as medium and less dangerous. class 6.2 infectious substances enter the medium dangerous packaging group. 2.1.3. legislation in the case of hazardous materials transport, in case of accidents, the quality and quantity of the products transported may produce various physicochemical effects (thermal flux, overpressure, toxic radiological and corrosive effects, etc.) (chollet et al., 2013). for this reason, the relocation of dangerous goods is regulated under the control of authorities and specialized agencies in an institutional framework determined by national and international laws. in the world, all modes of transport are harmonized with laws. the names of the specialized agencies and international regulations by type of transport are given in table 1. table 1. expert institutions and international agreements by type of transport type of transport responsible expert institution international agreement roadway un economic commission for europe (unece) adr seaway international maritime organization (imo) imdg-code railway office central transport internationaux (octi) rid airway international civil aviation organization (icao) icao-ti airway international air transport association (iata) dgr inland seaway accord européen relatif au transport international des marchandises dangereuses par voie de navigation du rhin adnr-adn murat şencan & haki yavuz turkey is a party of hazardous substances used in the transport of international treaties and agreements in our country is presented below hazardous materials used in transportation. a. european agreement on international transport of dangerous goods by roadway (adr): the transport of dangerous goods must be regulated to prevent accidents that may harm people, neighborhoods, property and other property, and any damage that may occur because of the improper construction of the land. for this purpose, the united nations, in 1957, signed the "european agreement on international carriage of dangerous goods by land" (original name "accord européen relative au transport international des marchandises dangereuses par route") in geneva. as of now, 47 countries are adr. turkey became a party to the adr agreement on 22 march 2010 (aytekin, 2011). the objectives of the adr are as follows:  increasing the safety of international transport by land,  based on the united nations recommendations on the transport of dangerous goods, the provisions on the classification, packaging and labeling and testing of hazardous substances, including hazardous wastes, should be in accordance with other modes of transport (sea, air, rail)  determination of the conditions for the construction, equipment and operation of vehicles carrying dangerous goods by land. the general characteristics of the adr convention are listed as follows:  rules for loading, transporting and discharging hazardous materials with flammable and explosive properties,  the minimum duration of training the drivers must attend, the training curriculum and conditions for obtaining an adr license,  signs and signs indicating that the vehicles used in the adr carriage must be carried visibly,  adr must have the necessary technical characteristics of trucks, tractor trailers, semi-trailer vehicles, containers and similar freight containers,  regulations regarding adr carriage and documents required to be kept during transport,  the responsibilities of the vehicle owner, the driver and the driver within adr,  accident and emergency measures and procedures to be taken,  the equipment which is required to be kept on the vehicle and the additional equipment which it is obliged to keep and use the driver,  an agreement that regulates the specification, marking, and registration of freight containers and containers with all details (m.e.b., web, 2011). b. international maritime dangerous goods code (imdg): the international maritime dangerous goods code (imdg) is a detailed publication prepared and regularly updated by a subcommittee of the international maritime organization (imo), the body of the united nations dangerous international marine. turkey is also a party to this code 1974. the code is intended; to provide safety and environmental and safety of life and property at sea and coastal facilities by having the infrastructure to provide safe, undamaged and shortest access to the places of consumption of the loads from the coastal facilities handling dangerous cargo ships and such items. the code covers the packaging and packaging of packaged dangerous goods to be transported by sea, the loading and unloading of ships, the loading and unloading of ships, the handling and storage of dangerous goods in port areas and logistics centers and the measures to be taken against dangerous situations and first aid procedures it is determined. c. international civil aviation transport organization (icao): objective of the international civil aviation transport organization (icao); in order to ensure that international civil aviation can be developed safely and regularly and that civil aviation services can be operated in a robust and economical manner by registering on the basis of equal opportunities. turkey became a party to the agreements referred to law no. 4749 and june 5, 1945 date. d. international air transport association (iata): the international air transport association (iata) is an international trade organization, where only airline companies can become members. iata has dgr rules (dangerous good regulations). all freight forwarding cargo companies must comply with these rules regarding the transportation of dangerous goods: turkey model transport of dangerous goods. these rules require; responsibility for the transport of dangerous goods by air belongs to all parties involved in the transmission and transport system. 2.2. the importance of transportation of dangerous goods dangerous items are items that can be found in every area of life, as can be understood from their definitions. today, materials transported by rail, road, sea and pipelines are dangerous and play an important role in international trade. the logistics process, especially transport and storage, increases the size of the hazardous materials dangerous to people, animals, the environment and the assets of the property. the obligation to eliminate the deficiencies in the eu candidacy process rapidly became clear after the 2000s in our country. accelerating efforts to establish a system that can reduce the risks of dangerous substances the most, to train and develop personnel and to create more professional working environments. 3. literature review the literature review on the transport of dangerous goods is under investigation under three headings and consists of thirty-five articles and a thesis study. in the first part, fourteen papers on roads, in the second part eleven papers and in the last part ten papers on multimodal transport and a thesis work are summarized in chronological order. erkut and verter (1998) emphasize that different risks can be defined in different ways using traditional risk. the risk associated with the transport of dangerous goods is expressed not only by the substance itself, but also by features such as road network and road network along the selected route. four different risk model comparisons are made by developing a conventional risk model for hazardous substance transport, starting with the generated unit path segment risk and edge risk. in the traditional approach, the probability of an accident is 10-6 per mile. erkut and ingolfsson (2000) introduce three different disaster-avoidance models. in the first model, disaster avoidance is achieved by minimizing the maximum population impact. in the second model, variance decision is included as route result. in the third model, an explicit malignancy function is used. all three models aim to minimize in a standard shortest path problem. the transport network in every mode is preventing high population areas. in this study, similarities and differences between models are discussed with examples. mills and neuhauser (2000) present simple methods for statistical significance of differences in roots, histograms, and methods for comparing populations and racial / ethnic compositions using chi-square tests. these methods are presented in two examples: two routes are compared and a route is compared with the environment. first, a compact area (silicon valley) is compared with two alternative roads, and secondly, a route without sudden alternatives is made. in this case, a close population (eg population within a certain band width on the road) is compared with the population of the population to which it passes. a quantitative method based on the new gis effective capability and the chikare test for the improvement of adaptation of the two distributions is being developed in order to create distribution of population data on the way of transportation. fabiano et al. (2002) develop a unique site-focused framework that is generally applicable at the local level in route selection, according to the risks involved in transporting hazardous materials. field data are obtained from systematic research and road data reporting. the developed technique is implemented in a pilot region, taking into consideration the individual risk and social risk, when the atifft is provided to flammable and explosive substances scenarios. risk assessment of sensitive route features and population exposure is recommended, thus reducing general uncertainties in risk analysis. kara and verter (2004) develop a two-level programming formulation for the network design problem. in the delivery of dangerous goods, all people are exposed to the risk of evacuation at the relevant distances of the roads used by the trucks. for this reason, using the gis based model, the exposure areas are determined around each link for 800 meters and 1600 meters of evacuation distances. the populations in the impact area are estimated by the gis-based model, and the values of each road connection (number of affected people) and (linkin length) are estimated. in the study western ontario, an application of the method developed with canada data is presented. huang et al. (2004) develop a new approach integrated with gis and genetic algorithms (ga) to assess the risk of transportation of dangerous goods. in this study, a set of evaluation criteria are used to identify and identify vehicles murat şencan & haki yavuz carrying hazardous materials. accepted criterion is; safety, cost, and more importantly, security. gis is used to measure factors on each link in the network. ga is used to determine the weights of the factors. for this reason, a general cost function is created which is comparable to the hazardous substance transport suitability of each road. the proposed route evaluation method is shown in a typical part of the singapore road network. fabiano et al. (2005) form a risk model for road transport and present a theoretical approach to emergency planning and settlement based on graph theory. the model focuses on evaluating the expected frequency of accidents and is aimed at finding the expected number of deaths for the arc between the two nodes. in this study, djikstra algorithm is used as the shortest path algorithm. erkut and alp (2007) formulate the tree design problem as an integer programming problem with the aim of reducing the total transport risk due to hazardous material flows on the network. although the risks are slightly increased by developing intuition to expand the solution of the tree design problem by adding road segments, there are options to guide the vehicle to reduce costs. thus, a method can be used to describe the ways in which dangerous goods are transported in large population centers, and a formulation for ocst (optimum communication spanning tree problem) is presented. milazzo et al. (2009) focuses on the emergency management of a terrorist attack in the transport of hazardous materials in urban areas. a high-security urban area is a potential target for terrorist attacks. since it is not possible to predict where and when an attack will occur, the risk associated with terrorism is complex. it is possible to determine critical points for the potential actions that this countermeasure should be applied to. the use of dynamic geoevents gives the possibility of having a dynamic evolution of the instantaneous location of the event on the georeferenced map and the number of scenarios and related contacts. in this study, dynamic scenario-ending simulation code output (aloha and effects-gis) and a gis software are used. guo and verma (2010) investigate the traditional riskie effect of trucks carrying flammable materials such as gasoline or explosives on a given route and with different capacities. a us-based problem case is solved in order to gain managerial insights by creating three scenarios to improve the preference conditions for a particular vehicle size under two assumptions of neutral risk and one avoiding risk. yang et al. (2010) assess 322 accidents and their consequences in china during the transportation of dangerous goods by road between 2000 and 2008. according to these results, an increase in accident frequency occurred between 2000-2007. the most common types of accidents are in the form of spills (84.5%), gas clouds (13.0%), fires (10.2%), dangerous hazards (9.9%) and explosions (5.9%) due to timely measures. in the study, the spatial distribution of the accidents, the causes and the results related to the population (for example, the number of people who were killed, injured, evacuated or poisoned) and environmental elements were analyzed. approximately 16.9 accidents lead to an explosion, 9.8 accidents lead to a fire, and 40.2 accidents result in a fire and explosion. the driver error-road accident (46.6%) is followed by the driver error-the false emergency response (13.7%) and the management failure-overload (9.0%), in the total of 322 accidents. it is stated that a good database is needed to develop specific security measures in land transport of dangerous goods in china. changing and others (2012) establish dynamic equations for deviations of vertical, horizontal, rolling, pitch and vibration modes for vehicle loading based on china's technical standards in rail transport. the relationship between the height of the center of gravity of the loaded vehicle and some operated safety indices is also investigated by making calculations for the loaded vehicle body. to provide a suitable method for railway transport, the loaded vehicle is built on the basis of body dynamics equations, multi-body system dynamics and vehicle-component dynamics. in dynamic equations, the loaded vehicle-body is regarded as the position of the center of gravity. safety indices are estimated to have the same tendency as the rising center of gravity of the loaded vehicles. samanlıoğlu (2013) develops a multipurpose location and punctuation model for managing hazardous waste and waste residues. the model which aims at risk and cost optimization is applied in the marmara region. minimizing the total cost, including the total fixed costs and total transportation costs, resulting from the establishment of production, treatment, disposal and recycling centers of hazardous waste and waste residues; minimizing the risk of total exposure associated with the exposure of the population present along the access roads of hazardous waste and waste residues; and to minimize the total risk for the population around treatment and destruction centers (site risk). a lexicographic weighted tchebycheff formulation is developed and cplex software is used for the solutions. the transportation of dangerous goods: turkey model data for the marmara region are obtained using arcview 9.3 gis software and the marmara region geographical database. 4. conclusion one of the important constraints in the planning of transportation is the nature of the contest. all transportation plans are based on these constraints. the shortcomings in the implementation of dangerous substances transport in the world and in our country lead to very serious hazards. these problems lead to life, property and very serious environmental disasters. this is not only a matter of transportation, but also of the chemistry, textile and fuel industries. for this reason, the transport of dangerous goods is a highly strategic and important type of transportation. both done in the framework of the safety of the transport of dangerous goods transportation constraints and rules in the world and turkey is important both in terms of environmental factors. the spread of this consciousness in the country and worldwide will bring with it significant company profits and a cleaner environment and therefore a cleaner world. references andersson, s.e. 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"a survey on hazardous materials accidents during road transport in china from 2000 to 2008", journal of hazardous materials 184.1: 2010, 647-653. journal of international trade, logistics and law, vol. 5, num.2, 2019, 17-30 17 impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia tesfaye melaku merra, jimma university, ethiopia jemal abafita jimma university, ethiopia esuablew ayalew jimma university, ethiopia received: oct 14, 2019 accepted: nov 23, 2019 published: dec 30, 2019 abstract: in a subsistence agriculture and low income developing countries, microfinance provision to rural areas is taken as a mechanism to reduce poverty and to empower women economically. mfi have made important contributions to poor people particularly to women, by providing a financial service to those who are excluded from the formal financial sector. the study aims to assess the impact of microfinance on women economic empowerment with a case study of omo microfinance institution in gimbo woreda. by using multi-stage sampling method, the primary data was collected from a total of 200 rural women of which 115 of them are non-clients of omo microfinance institution, which are used as control group. the control groups are future clients that are very similar to clients in their overall characteristics. the empirical analysis of this research was carried out both by descriptive statistics and regression analysis. the regression analysis part was used propensity score matching method of analysis. the estimated logistic regression result depict that women’s involvement in major decision making is significantly affected by age, women’s spouse level of education, number of family size, head of the house hold, being member of other mfi and amount of initial wealth. women’s level of education, marital status and ecology were variables that are insignificant in affecting women’s economic empowerment. the propensity score matching estimation result r eveals that omfi has significant effect in increasing average yearly household income and personal cash saving of its client but it is insignificant in affecting positively women’s access and ownership and control over assets. thus, the program intervention has been resulted a positive impact on women’s economic empowerment in the study area. therefore, it is recommended that credit provision of omfi should give priority in asset formation, access to resources, acquire asset and able to control over it. keywords: microfinance, empowerment, propensity score matching 1. background of the study gender discrimination, marginalization, unequal treatment and unequal access to resources between women and men hinder women’s progress. due to these inequalities women are still vulnerable to poverty and they are marginalized from different economic, social and political activities (batliwal, 1994). gender equality is a means to promote growth, reduce poverty and particularly to empower women (world bank, 2001). in subsistence agriculture and low income developing countries, microfinance provision to rural areas is taken as a mechanism to handle poverty and to empower women’s economically (gebrat, 2013). the term empowerment stands for a broad range of concepts and has different meaning in different contexts (baden, 1997; malhotra et al., 2002). different authors define the word empowerment according to the need of their tesfaye melaku, jemal abafita, esuablew ayalew 18 work in different ways. empowerment is the enhancement of assets and capabilities of diverse individuals and groups to engage, influence and hold accountable to the institutions which affect them (bennett, 2002). women’s empowerment is a means to promote growth, reduce poverty and promote better governance (world bank, 2001). economic empowerment is defined as women’s access to savings and credit which gives them a greater economic role in decision making through their decision about savings and credit (mayoux, 2005). economic empowerment looks for guarantee of skills, capabilities, resources and access to secure and sustainable incomes and livelihoods as well as access to assets and resources (luttrell, 2009). today, in many developing countries microfinance plays crucial role in alleviating poverty. it is a real development instrument for the improvement of the economic life of the poor, particularly women. ethiopia is one of the poorest countries in the world and to address this challenge, the government is implementing different developmental programs like licensing the formal credit sector to reach the rural poor at the grass root level. providing financial services to the poor particularly for women is central to economic empowerment. the establishment of formal credit sector in ethiopia dates back to 1995. particularly, the licensing and supervision of microfinance institution proclamation of the government encouraged the spread of microfinance institutions in rural areas (getaneh, 2005). the microfinance industry in ethiopia has shown a significant qualitative and quantitative growth since its establishment. the formal base has been laid by the issuance of proclamation no. 40/96 which established the licensing and supervision of mfi as share companies in accordance with the commercial code of ethiopia (al-bagdadi and bruntrup, 2002). microfinance contributes to poverty reduction through increasing income, accumulations of capitals, and diversification of income sources for investment (tesfay, 2003). in ethiopia studies show that, microfinance programs benefited the poor in terms of increased income, employment creation, changing the saving habits of households and their expenditure pattern drastically increased on different goods and services (haymanot, 22007; balamurugan, 2012; gebrat, 2013). as client of microfinance institutions, women’s income was increased proportionally as men income increased (gebru and paul, 2011). omo mfi is one of the mfi established in ethiopia in the south nations nationalities and peoples region (snnpr) following the proclamation no. 40/1996 in 1997, which is intended to fill the shortage of formal financial institutions by meeting the needs of the poor households and small scale borrowers in income generating schemes. omfi is operating in all zones and woredas of the region. according to balamurugan (2012), omfi serves more than 872,000 loan and saving clients. microfinance is one tool to empower women, though it is not given emphasis in the past. however, currently governments and various organizations have began to recognize microfinance as an important intervention in empowering the poor particularly women. the impact of microfinance on women empowerment is still debatable. though microfinance plays a great role, there is no agreement that microfinance programs have positive effects on economic status of women (aghion and morduch, 2005). some empirical findings show that microfinance has positive impact on women’s economic empowerment while others argue that microfinance has negative impact on women’s empowerment. optimist advocators of microfinance argue that microfinance has positive impact in empowering women through an increase in household consumption expenditure, ability to make small and large purchase, control over assets, involvement in family decision making, mobility and freedom from family domination are listed as channels through which women could be empowered (hashemi et al., 1996; schuler et al., 1996; pitt and khandker, 1997; kato and kratzer, 2013; awojobi 2014). similarly, studies in ethiopia depict that microfinance has significant impact on women’s empowerment (tesfay, 2003; haymanot, 2007; balamurugan, 2012; ahmed, 2013). on the contrary, other studies on microfinance show that microfinance has insignificant effect on women empowerment. they argue that women have little or no control over their loan and the loan is controlled by male relatives, a number of borrowers were to lose their property for repaying the loan. thus opponents of microfinance argue that microfinance has negative impact on women empowerment (vengroff and creevey, 1994; goetz and gupta, 1996; ilo, 1998; kulkami, 2011). according to tesfay (2003), in ethiopia microfinance services have limited impact on entrepreneurial development, microenterprise sustaining and profitability.a study conducted by yimer (2011) on rural microfinance and women empowerment indicates that one third of the respondents included in the study did not perceive meaning full changes in their life and the impact of microfinance is not same and alike to all matured women clients. impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia 19 thus, there is no uniformity among scholars and researchers on the impact of microfinance on women economic empowerment. therefore, this study is conducted to fill the existing literature gaps where there are inconclusive findings by including additional variables on previous studies. on the other hand, the researcher couldn’t find any research undertaken on the research question at hand in the study area. so, the finding of this study will help to visualize the impact of microfinance on women economic empowerment in the study area. the general objective of this study is to analyze the economic impact of omo microfinance institution in empowering women. the specific objectives of this study are:  to assess the impact of microfinance on women’s access to resources and their control over assets.  to investigate the contribution of microfinance on women’s participation in household decision making.  to examine the effects of microfinance on women’s income and on the saving habits of women. 2. empirical literature various studies within the country or across countries may find different results on the impact of microfinance in empowering women. some studies argue that microfinance has significant role in empowering women while other argues that microfinance has no role in empowering women. even if microfinance plays a great role, there is no agreement that microfinance programs have positive effects on economic status of women (aghion and morduch, 2005). microfinance credit provision by grameen bank and bangladesh rural advancement committee (brac) argues that microfinance has significant effect in empowering women through increased mobility, economic security, involvement in major decision making, ability to make large purchase, freedom from family domination, political and legal awareness, participation in public protests and political campaigning (hashemi, et al., 1996). impact participation by gender three group based credit programs, grameen bank, bangladesh rural advancement committee (brac) and bangladesh rural development board’s (brdb) on women and men in general find that significant effect on the well-being of the poor household but the effect is greater if women are the program participant (women annual household expenditure increased more than men) (pitt and khandker, 1997). a study by roxin et al (2010), on impact of microfinance in sierra leone revealed that mf had improved clients’ business expansion, increased their income and expenditure. their study depict that microcredit has considerable impact on economic empowerment but it has only initial impact on social empowerment. at the same time their finding reveals no impact on women political empowerment. different scholars argue that, microfinance has no role in empowering women since women have little or no control over their loan and the loan is controlled by male relatives, a number of borrowers were to lose their property for repaying the loan (vengroff and creevey, 1994; goetz and gupta, 1996). the study in tigray region on the impact of microfinance on poor women shows that directly or indirectly, microfinance services provided by dedebit credit and saving institution (decsi) are contributing to the sustenance and improvement of the life of the poor women and their households. this study was conducted using multi-stage sampling with descriptive method of analysis. the evidence from this study depict that microfinance has positive impact in increasing income, diversifying sources and reducing variability of income. it also show that increased consumption, improved living condition in terms of house repairs and expansions, medical services and capital accumulation in the form of increased saving. this study critically depicts that women empowerment in terms of improved attitude and respect of their husband, increased self-confidence and self-image (tesfay, 2003). a research conducted at amhara credit and saving institution (acsi) indicates that microfinance participant women are much better than non-participants in terms of household asset holding, yearly average off farm income, and involvement in decision making process in the household. the study was conducted using simple random sampling method with logit econometric method of analysis. similarly, the estimation result of the logit model indicates out of 23 explanatory variables used 15 of them are significant (gebrat, 2013). the study by haymanot (2007), using descriptive statistics and binomial logit regression method of analysis reveals that microfinance has a positive impact on women economic empowerment in terms of increased participation of women in the household decision making, and improved living standard condition of its clients. matured clients of acsi have improved their household incomes, asset possession level, and saving habit; thereby positively affecting their ability to fully participate in household decision making. tesfaye melaku, jemal abafita, esuablew ayalew 20 a study by yimer (2011), at acsi using explanatory research method, show that in majority cases matured women clients have gone substantial change in many dimensions, to mention some indicators, like change in terms of skills essential for making and managing businesses, level of confidence and self-esteem and worth, personal cash assets, level of financial independence, income and diversifying income sources. but one third of the respondents included in the study did not perceive meaning full changes in their life. therefore, the impact of microfinance is not same and alike to all matured women clients. the study in snnpr of omfi by balamurugan at wondogent indicates that microfinance has significant effect on women empowerment. the descriptive statistics and regression analysis of the study was conducted using before and after method of analysis. omfi contributes to social and economic empowerment of women in the study area. women’s hope and self-confidence improved through active participation in omfi. wondogent omfi gives to women significant changes in terms of employment creation and income generation, saving habits and decision making. therefore the study concludes that wondogent omfi affects women in terms of social and economic empowerment (balamurugan, 2012). 3. research methodology primary data was collected by means of a structured questionnaire responded by omfi matured clients (being clients 3 to 5 years), incoming clients (clients for 1 to 2 years), and non-clients (loan applicants but yet not given) in gimbo woreda. at the same time, semi-structured interviews were held with clients to get additional information of respondents’ opinions, perceptions and attitudes to verify information given by clients. an interview of different officials and experts was conducted at different levels. this study was also used secondary data obtained from various sources like reports, manuals, abstracts etc. mainly quantitative data was used. 3.1. sampling design and technique the survey was used cross-sectional data. under this study, multi-stage and purposive sampling methods were used. at the first stage gimbo woreda is selected because it has huge clients than others. the second stage was selecting tree clusters out of five clusters in the woreda and finally randomly selecting clients from the list file of the institution. to determine the sample size, the researcher tried to consider information from prior studies in the same topic, the available budget at hand for the study and time frame to accomplish this study within the calendar were considered. prior studies like haymanot (2007), balamurgan (2012) and ahmed (2013) used their sample size 171, 120, and 123 respectively. in addition by taking into account my budget, time and its feasibility, for this study data was collected from 200 women. of the total samples 115 of them are non-clients which are used as a control group for the study. 3.2. method of analysis the empirical analysis of this research was employed both descriptive statistics and regression analysis. the descriptive statistics was used measure of dispersions (mean, sd, variance), percentages, tables and maps. the regression analysis was employed logit to estimate propensity score matching using stata software. propensity score matching (psm) the justification for choice of psm method over other impact analysis method like did method was that, psm method uses only cross-sectional data collected at point of time while did method needs baseline data. another justification for the use of psm method was that, self selection bias can be best controlled or minimized by using psm and psm reduces dimensionality. in non-experimental data, psm compares treatment effects across participant and matched non-participant units. psm assumes selection bias is based on only observed characteristics (not account for unobserved factors). because of the above reasons, psm method is chosen for this study. the psm is defined as the conditional probability of receiving treatment (participant) given pre-treatment characteristics (rosenbaum and rubin, 1983). p(x)=pr(d=1 /x) =e{d/├ x}┤ where d= (1, 0) is the binary variable indicating whether a woman has empowered (=1) or not (=0) and x is a multidimensional vector of pre-treatment characteristics (observable characteristics) and p(x) is the propensity score. att of an individual i can be expressed as: impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia 21 att=e(wi1/b=1-e(wi0/b=1)) the e (wi0/b=1) from the above equation is unobservable outcome known as counterfactual. in other words e(wi0/b=1) is the average outcome of treated individuals had they not received the treatment). in estimating propensity scores, all variables that affect participation in microfinance are included. therefore, the average treatment effect on those treated conditional on propensity score p(x) is given as: att=ep(x)/b=1{e [wi1/b=1, p(x)]-e [wi0/b=0, p(x)] att is the difference between expected outcome values with and without treatment for those who actually participate in treatment. att is average treatment effect on treated (i.e the effect of treatment) if the woman participate in microfinance (b=1) and otherwise (b=0). according to becker and ichino (2002), the assumption of common support region falls between 0 and 1 (i.e. 0 p(x) 1). this implies that the test of balancing propensity is performed only on the observations whose propensity score belongs to the common support region of the propensity of treated and control groups. those individuals that lay outside the common support region would be excluded in treatment estimation and this improves the quality of matching to estimate att. estimation of the propensity scores the probability of women clients to be empowered (women’s involvement in major decision making), pi is given as; pi=e(y=1/xi)=1/(1+e^(-(β1+β2xi)) ) the logistic representation of women’s involvement in major decision making is; pi=1/(1+e-^zi ) = the probability of women’s does not involve in major decision making is given as; 1-pi= 1/(1+e^zi ) ……… (9) p_i/(1-p_i )= (1+e^zi)/(1+e^(-zi) )=e^zi…………(10) p_i/(1-p_i )= the odds ratio in favor of women’s involvement in major decision making, i.e. ratio of the probabilities that women participate in major decision to the probabilities that not participate in decision making. taking the natural logarithm; li=ln(p_i/(1-p_i )) =zi = β0+β1β1+β2x2+β3x3+…. +βnxn by taking the error term in to consideration, the log odds ratio model becomes zi=β0+β1x1+β2x2+β3x3+...+βnxn+ui…(12) where  pi is the probability of participating in a programme  zi is a function of explanatory variables (xi)  xi is the explanatory variables  βo is an intercept  β1,β2…βn’s are slopes of the equation in the model  li is log of the odds ratio which is linear in xi’s and b’s  ui is the disturbance/error term here z, takes two possible values i.e. z=1 women’s are economically empowered means participates in major decision and z=0 if not. 4. result and discussion this section presents both the descriptive and econometric result and findings of the study. the study examined the impact of omfi on women’s economic empowerment based on primary data collected from women clients and non-clients in the study area. the questionnaire was designed in line with the pre-determined objectives of the study and distributed to the sampled respondents. the information given in the questionnaire was checked with semistructured interview from randomly selected sampled respondents. from the total sampled respondents, the data was collected from 196 respondents. of the total respondents 84 of them are clients of omfi while remain 112 of them are non-clients. non-clients are those respondents that came to the organization for loan after they fulfill the requirements but not yet given loan. regarding the response rate of the questionnaire, 98.8%of client respondent returned the questionnaires while 97.3% of the control groups were tesfaye melaku, jemal abafita, esuablew ayalew 22 returned the questionnaire. of the total respondents 2% of women were not willing to give information because some of them were on work and some others were not available at the time. the t-test result of descriptive statics indicates that, the mean difference on asset ownership between client and nonclients is 0.0803571 and the p-value is 0.1233 which is insignificant at 10% significance level. this leads us to accept the null hypothesis that there is no difference between clients and non-clients in asset ownership. so, t-test analysis depict that omf has limited impact on access and control over asset between program participants and nonparticipants. this is because of their unwise use of loan for consumption expenditures and their limited entrepreneurship on the use of loan. the t-test result for average yearly household income depict that, the mean difference between clients and nonclients average yearly income is -59094.64 and the p-value is 0.0000 which is highly significant at 1% significance level. this leads to reject the null hypothesis that there is no difference between clients and non-clients average yearly household income. the implication is that clients of omfi earn better average yearly household income than nonclients. the result is consistent with the findings of (tesfay, 2003; haymanot, 2007; roxin et al, 2010; gebru and paul, 2011; balamurugan, 2012; gebrat, 2013and ahmed, 2013; kato and kratzer, 2013). sampled respondents explained their saving experience before they were client of omfi as follows. among 84 clients 92.77 % of respondents explained that they didn’t have saving account at any institution before they join omfi. only 7.23% of clients reported that they have saving account in cbe with their male partner. 80.52% of clients explained that they haven’t knowhow or awareness about saving while 14.29% and 5.19% of the clients indicated that lack of money and distance of financial institutions affect them not to save. on the other hand, 92.86% of non-clients explained that they haven’t saving account at any institution. they said that we opened saving account after the selection or recruit of omfi agent in the near past for the purpose of loan. only 7.14 % of non-clients have saving in the form of equb and account at cbe. 70.48% of non-clients explained that they haven’t knowhow or awareness about saving while 12.38% and 17.14% of the clients indicated that lack of money and distance of financial institutions affect them not to save. from the t-statistic test, the mean difference on personal cash saving between clients and non-clients is –0.698799 and the p-value is 0.0000 which is highly significant at 1% significance level. this leads us to reject the null hypothesis that there is no difference between clients and non-clients in personal cash savings. this implies that clients of omfi have better cash savings than non-clients. in general, omfi has improved clients saving habits than non-clients and this finding is consistent with (haymanot, 2007 and ahmed, 2013; kato and kratzer, 2013). estimation of econometric model to estimate the effect of propensity scores, logit model is employed because there is no difference on result between logit and probit model (caliendo and kopeinig, 2005). before looking the econometric regression result, it is better to cheek the fitness of the model usually the problem of heteroscedascity and multicollinearity. accordingly, the problem of heteroscedascity which is common in crosssectional data was checked and solved by robustness of standard error before the estimation of the model. propensity scores from the total sample, propensity score matching estimation result discards three observations from clients but it doesn’t discard any observation from non clients. as indicated from table 11 below, 112 of non-clients (untreated) are on common support region and 81 of the clients (treated) are on common support. table 4.11 distribution of common support impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia 23 source: own computation, 2016 fig 4.1 presentation of common support region before matching source: own computation, 2016 the minima and maxima criterion deletes all observations whose propensity score is smaller than the minimum and larger than the maximum propensity scores (caliendo and kopeing, 2005). fig 4.2 presentation of common support region after matching source: own computation, 2016 psmatch2: treatment assignment psmatch2: common support off suppor on suppor total untreated 0 112 112 treated 3 81 84 total 3 193 196 tesfaye melaku, jemal abafita, esuablew ayalew 24 accordingly, the result of estimated propensity score varies in between 0.000 to 0.998 with the mean of 0.103 for untreated and from 0.119 to 0.999 with the mean of 0.85 for the treated. that is, clients whose estimated propensity scores less than 0.119 and larger than 0.998 are not included in the matching exercise. that is [0.119, 0.999] and [0, 0.998] are propensity scores for treated and untreated respectively. therefore, by minima and maxima criterion, taking the minimum propensity score from the treated and the maximum score from the untreated forms the common support region. thus, the common support regions lie between [0.119, 0.998] which show none of observations was dropped from non-clients in the sample. table 4.12 distribution of estimated propensity scores observations mean std. deviation minimum maximum untreated 112 0.103501 0.2233307 0.0000207 0.9981149 treated 84 0.8531177 0.1776374 0.1190692 0.9997642 total 196 0.4247653 0.424432 0.0000207 .9997642 source: own computation, 2016 fig 4.3 (a) kernel density estimate for non-clients (i.e. most of non-clients are found in the left middle left partly fig 4.3 (b) kernel density estimate for clients (i.e. most of clients are found in the right hand side middle left partly) impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia 25 the above graphs depicts that there is wide area in which the propensity score of clients are similar to those non clients. choosing matching algorithm different matching estimators can be used to match the treated and the untreated in the common support region. the question of choosing matching algorithm depends on the pseudo-r2, balancing test and number of matched observations (dehejia and wahba, 2002). so that for this data kernel 0.5 is chosen based on the above criteria i.e. low pseudo r2 (pseudo r2= 0.184), the balancing test that balances all explanatory variables (6 insignificant explanatory variables) after matching and the largest matched number of observations (193) are considered. table 4.13 results of checking matching algorithms matching algorithm balancing test * pseudo r 2 number of matched observation nearest neighbor (nn) nn (1) 2 0.344 193 nn (2) 2 0.331 193 nn (3) 3 0.263 193 nn (4) 4 0.236 193 radius 0.1 5 0.730 193 0.25 5 0.730 193 0.5 5 0.730 193 kernel 0.1 3 0.315 193 0.25 4 0.243 193 0.5 6 0.184 193 source: own computation, 2016 4.1. testing the balance of propensity score and covariates after matching, every covariates mean between the two groups in the matched sampled has been reduced and pseudo-r2 should be relatively low (caliendo and kopeinig, 2005). the major aim of propensity score estimation is to balance the distributions of relevant variables in both groups. below from table 13 before matching age, women level of education (wle), number of household size (nhsize), being member of other microfinance institutions (bmofi), and amount of initial wealth (amtinw) were significantly different for the two groups of respondents. but after matching these significant variables were insignificant which indicates that the differences in covariates mean between the treated and untreated groups was eliminated and now the covariates between the groups is balanced. table 4.13 propensity scores and covariates balancing variable mean unmatched matched treated control t-test t p>t _pscore unmatched matched .86771 .86288 .09922 .72158 26.12 0.000 4.40 0.000 tesfaye melaku, jemal abafita, esuablew ayalew 26 age unmatched matched 31.262 31.494 35.848 37.751 -2.82*** 0.005 -3.73 0.000 marital status (mrsta) unmatched matched 2.1905 2.1975 2.1696 2.2011 0.22 0.827 -0.03 0.975 women level of education (wle) unmatched matched 1.3929 1.3951 .60714 1.1783 5.08*** 0.000 1.17 0.246 spouse level of education (sle) unmatched matched 1.9167 1.9383 1.6518 2.0588 1.63 0.105 -0.77 0.442 no. household size (nhsize) unmatched matched 4.8095 4.7778 4.1696 4.6985 2.26** 0.025 0.23 0.820 head of the family (hhd) unmatched matched 1.7262 1.716 1.5536 1.5296 2.11** 0.036 2.19 0.030 being member of microfinance (bmofi) unmatched matched .9881 .98765 .15179 1.022 19.34*** 0.000 -0.66 0.512 ecology (eco) unmatched matched .90476 .90123 .91071 .89853 -0.14 0.887 0.06 0.955 amount of initial wealth (amtinw) unmatched matched 16145 15015 8114.8 10657 5.59*** 0.000 2.36 0.020 source: own computation, 2016 *** and ** show level of significance at 1% and 5% respectively (before matching ). the fairly low pseudo-r2 and the insignificant likelihood ratio tests supports the hypothesis that both treated and non-treated groups have similar distribution in covariates x after matching (i.e. there is complete balance in the characteristics in both groups). after this procedure, we can compare observed outcomes for participants with control groups that lie in the common support region. table 4.15 ch-square test for the joint significance of variables sample pseudo r 2 lr chi2 unmatched 0.720 192.80 matched 0.184 41.24 source: own computation, 2016 the result of all the above tests indicate that the matching algorithm being chosen and used is comparatively best for this data and thus, now it is possible to estimate att for clients of omfi. estimating average treatment effect on treated (att) impact of micro-finance on women’s economic empowerment: a case study in gimbo woreda, south nation, nationalities and peoples region, ethiopia 27 to meet the objectives of this study, this part evaluates the program’s impact on the outcome variable (i.e. average yearly income, personal cash saving and asset owner ship) for their significant effect on women clients (participant), after pre-intervention differences were controlled table 4.16 average treatment effect on the treated variable sample treated controls difference s.e. t-stat average income(ayhi) att 8141.23457 3750.04694 4391.18762 1989.43316 2.21** personal cash saving (pcs) att 3937.03704 1399.70352 2537.33352 905.841628 2.80** asset owner ship (ownast) att .888888889 .780704869 .10818402 .120760812 0.90 source: own computation, 2016; ** show the level of significance at 5% table 4.15 depict the estimation result of the outcome variables in which out of the three outcome variables two of them (i.e. average yearly income and personal cash saving) are statistically significant while one variable (asset ownership) is statistically insignificant but positive att. thus, the program intervention has resulted in a positive and statistically significant mean difference between the client and non-client women in terms of increase in income and cash saving. from the above table, the result of att is positive indicating that average yearly income, personal cash saving and owning asset has been improved because of microfinance program in the study area. therefore, microfinance program in the study area has been improved women’s economic empowerment as shown from table 4.15 and the mean difference value of the outcome variables between client and non-client women was positive. 4.2. sensitivity analysis the sensitivity analysis was carried out on the estimated average treatment effect for the outcome variables and the matching estimator result depict that there is significant effect on the program participants. the sensitivity analysis result indicates that there was no unobserved variable that affect estimates of att or progamme participants. thus, it can be concluded that the impact estimates of att are insensitive to unobserved selection bias and clearly indicates that omfi has positive impact on its clients. 5. conclusion and recommendation being the general objective of this study, is to analyze the economic impact of omo microfinance institution in empowering women, the findings of the study explicitly depict that, with its limitation, omfi had a positive impact on women’s economic empowerment in the study area revealed by both descriptive and econometric result. as a policy indicator, the intervention of microfinance program is expected to improve and empower the living standard of the poor’s particularly women at the grass root level and hence reduces poverty. as such the economic status of women and their level of participation in decision making will significantly improve. the econometric result depict that att has statistically insignificant effect on women’s accesses to resources and control over asset. thus, it can be concluded that, omfi has limited impact on women’s accesses to resources and control over asset. credit provision of omfi should give priority in asset formation, access to resources, acquire asset and able to control it. taking these actions reduces their level of poverty and empowers women’s economic capacity. omfi should take appropriate measures to ensure its organizational mandates, objectives and commit to benefit women from its services by providing training, advisory services and continuous follow-up to assist women’s economic empowerment. linkages with other governmental organizations like women and children offices and agricultural offices should be made to work cooperatively and address problems. 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(2003). the impact of microfinance on women: a case study dedebit credit and saving institution. ma thesis of addis ababa university, ethiopia undp (2011). “gender inequality index and related indicators.’’ human development report’’ tesfaye melaku, jemal abafita, esuablew ayalew 30 world bank (2001a). engendering development: through gender equality in rights, resources and voice. world bank policy research report, oxford university press. world bank (2012). a guide to regulation and supervision of microfinance consensus guidelines cgap: washington d.c. vengroff, r. and creevey, l (1994). evaluation of project impact acep component of the community enterprise development project: the university of connecticut. yimer, a.(2011). rural microfinance and women’s empowerment: a case study on rural women clients in dessie zuria district, ethiopia, international journal of rural development and management studies, vol-5,no.1. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 135-146 135 selecting the best pipeline of yemen oil fields & transportation via ahp rasheeq fadhl istanbul commerce university, istanbul, turkey emin başar baylan istanbul commerce university, istanbul, turkey received: jan 27, 2020 accepted: march 10, 2020 published: june 01, 2020 abstract: analytic hierarchy process (ahp) is a decision-making algorithm developed by dr. saaty. it has many applications as documented in decision support system literature. the importance of decisions in the oil pipeline industry is reflected in the magnitude and nature of the industry. worldwide, pipelines transport natural gas, crude oil, and finished oil products over long distances within countries and across borders to meet energy needs. within this proposal for decision to select the best option between multi-band variable options to arrange pipeline for transportation oil safely with lowest cost from selected point in shabwah production oil fields s1, s2 by using ahp. in connection with current oil export terminals and pipelines available routs in yemen, pipeline to rass issa port via safer companyoption(1). shabwah -safer mareb, pipeline port of al shahr (al daba) via petro masila company option (2). shabwah pipeline to port (bir ali) via mops block 4 ycom company option (3),shabwah selected point to mops, pipeline to aden port via aden refinery option (4),shabwah -aden refinery. in this study, we trying to select the best way to build a new pipeline for the shabwah region for transportation of oil from shabwah production fields to exports safely with lowest cost by using ahp method for comparison and pairwise selection between options and studying the criteria of comparison which was listed with the following criteria of pairwise comparison-according to:-length and distance,land nature and uses,risk assessment, cost of construction, maintenance operation,geopolitical parameter. keywords: oil and gas industry, pipeline construction, pipeline route selection,yemen region 1. introduction recent study in the application of integrated decision-support systems (dss) in the oil pipeline industry utilizes the analytic hierarchy process[1,4] (ahp). yemen’s crude oil production was reported at 31.800 barrel/day, in dec 2017. this records an increase from the previous number of 24.200 barrel/day, for dec 2016. yemen’s crude oil: production data is updated yearly, averaging 340.300 barrel/day, from dec 1995 to 2017, with 23 observations.the data reached an all-time high of 456.900 barrel/day, in 2001 and a record low of 24.200 barrel/day, in 2016.yemen’s crude oil:production data remains active status in ceic and is reported by organization of the oil exporting countries.the data is categorized under world trend plus’s association: oil and gas sector. [2,3,5] yemen started producing crude oil in 1986 at low levels and gradually increased its production, reaching its peak in 2001, but started declining steadily after 2001 by about 6.8% per year on average during 2001-2014 as a result of maturing fields, limited exploration, and frequent sabotage of oil infrastructure that sustained 78 attacks during 2012-2013, compared with 62 attacks during the preceding 20 years. this had affected oil refining, production and exporting activities. attraction of foreign oil investments to yemen has been disrupted as well. yemen’s crude oil production declined in 2015 by 76.8%, compared to 2014, due to the departure of foreign oil companies from yemen and the suspension of crude oil exports since april 2015. yemen had plans to produce 61.8 million barrels in 2015, but the preliminary actual data indicates that the total crude oil production in 2015 amounted to only 13.2 rasheeq fadhl & emin başar baylan 136 million barrels. as a result, the lost opportunity cost of total crude oil production is estimated at about $2.5 billion in 2015 (not including the cost of physical damage in the oil sector). [6] oil production in yemen declined steadily after peaking in 2001, but beginning in 2009, the country began producing commercial quantities of natural gas for domestic use and for exports as lng. this development could help the country stabilize its economy even without an extremely high oil export price. however, replacing oil export revenues with lng export revenues does not reduce the country's dependence on its hydrocarbons sector. crude oil production in yemen remained unchanged at 16 bbl/d/1k in december from 16 bbl/d/1k in november of 2018. crude oil production in yemen averaged 281.16 bbl/d/1k from 1994 until 2018, reaching an all-time high of 466.29 bbl/d/1k in february of 2001 and a record low of 11 bbl/d/1k in january of 2017.consider an ahp decision-maker who is uncertain about his or her preferences. in fact, suppose he or she is only able to specify unbiased estimates of these preferences. then given the decision-maker's final pairwise comparison matrix having a consistency ratio less than 0.10, is it possible for the reliability of the analysis to be improved by using some artificial means to lower the consistency ratio (i.e. a minimum perturbation of pairwise comparison matrix elements that reduces the consistency ratio by a given amount)? in this paper, we argue that the answer to this question is yes. to make our point, we employ a monte carlo simulation of a decision-maker who picks random judgments out of a distribution centered at his or her true judgment. the simulation results suggest that, if the final consistency ratio is less than 0.10, additional artificial manipulation to lower the consistency ratio will improve, on average, the reliability of the analysis. [7] 2. literature review in yemen there are lots of production oil sites were stable produced and transportation of production are continuing by trucks /pipeline. then due to the country situation and civil war was suspended and all people in yemen started looking for best way for transportation safely with sustainable flow,there are four available pipeline in yemen : 1. pipeline safer option (1), 2. pipeline to al shahr option (2), 3. pipeline to bir ali option (3) 4. pipeline to aden refinery option (4). during this study and case use analytic hierarchy process used as a decision-support system in the oil pipeline industry and studied the six parameters, which gives more contribution and effect in the decision of the best selection from available options 1. length and distance 2. land nature and uses 3. risk assessment 4.cost of construction 5. maintenance operation 6. geopolitical parameter’s all above factors interact with all according to the following basis:-geography, demography, religion, history, tribes, economic development, government and political policy , yemen oil policy and all available transportation service and judicial and legal system of the country and welfare in addition to health and safety and security, csr and all other parameters. result of ahp method indicates that shabwah region is the best route for pipe construction.many reserchers are writting about oil and gas pipelines situations worldwide? some of them writes about pipelines construction in the oil and gas business ,and there are too many reserchers writing about the using of analytic hierarchy process as decision-support system in the oil pipeline industry, sam nataraj, ph.d., morehead state university, evaluation of the construction and investment process of a high-pressure gas pipeline with use of the trenchless method and open excavation method. analytic hierarchy process (ahp).urszula kwastkotlarek and maria hełdak operator gazoci was identifedd all factor listed as refence for such projects worldwide ,at the end after studing all factor with all avialble optioion recheing to select the best way of piplines for transportion oil safely . the following factors are involved in the oil investment legislation selecting the best pipeline of yemen oil fields & transportation via ahp 137 geography, demography, religion, history, tribes and tribalism, economic development, government and political system, yemen oil policy diversify the source, legal &judicial system, and welfare, the importance of hsse csr importance, environment, workers& employees and business principles &social responsibility. 2.1. method of decision making with the analytic hierarchy process (ahp) analytic hierarchy process is a decision-making technique developed in the 1970s by mathematician thomas l. saaty[9], analytic hierarchy is one of multi criteria decision making method that was originally developed . in short, it is a method to derive ratio scales from paired comparisons. analytic hierarchy process (ahp) is one of multi criteria decision-making method that was originally developed by prof. thomas l. saaty. in short, it is a method to derive ratio scales from paired comparisons. the input can be obtained from actual measurement such as price, weight etc., or from subjective opinion such as satisfaction feelings and preference. ahp allow some small inconsistency in judgment because human is not always consistent table.1 all availble oil transport terminal -yemen pipe lines specification pipeline to rass issa port via safer company-option (1). shabwah –safer mareb. this port is located on the red sea in hot areas as a suitable floating reservoir for networks of area 439, approximately 9 kilometers in the mangalore to connect with the ship saffron in the red sea, its capacity is 3 million barrels, diameter 24-26 inches. rass-issa offshore terminal and mareb-rass issa pipeline rass issa offshore export terminal lies in the red sea and is connected to the mareb-rass issa pipeline. pipeline port of al shihr (al daba) via petro masila company option (2). shabwah -masila hadramout the port is located on the arabian sea with its presence in the middle east, east shabwah (sector 10), oil 32 and other neighbouring fields (53) and (51), the port has 5 tanks with a total capacity of 5 thousand barrels. it also has the largest reservoir with a capacity of one million barrels and the port's capacity in 1993. ash shahir export terminal and masila-ash shahir pipeline the masila-ash shahir pipeline is 145 km long and has a capacity of 300,000 barrels per day. it terminates at the ash shahir export terminal in the gulf of aden. pipeline to port (bir ali) via mops block 4 ycom company option (3). shabwah selected point to mops this port is located on the arabian sea in the qualified area of shabwah in the west ayad area (sector 4) in 1990. bir ali terminal and shabwah-bir ali pipeline. the shabwah-bir ali pipeline is 209.3 km long and terminates at the bir ali terminal in the gulf of aden. it has a capacity of 135,000 barrels per day option 3. s1, s2 –block 4 mops rout. pipeline to aden port via aden refinery option (4). shabwah aden refinery this port located at aden city south of yemen, located at aden refinery area. option 4 to transfer from block s1, s2 to aden refinery. source: oil pipelines available in yemen [8] rasheeq fadhl & emin başar baylan 138 fig1. all availble oil transport terminal -yemen fig.2.the analytic hierarchy process 2.2. how the ahp works the ahp considers a set of evaluation criteria, and a set of alternative options among which the best decision is to be made. it is important to note that, since some of the criteria could be contrasting, it is not true in general that the best option is the one, which optimizes each single criterion, rather the one that achieves the most suitable trade-off among the different criteria. 2.3. using ahp to select the better way for oil transportation from shabwah region the best way to select good option between multiband variable options to arrange pipelines for transportation oil safety by using ahp.the analytic hierarchy process (ahp), is an effective tool for dealing with complex decisionmaking, and may aid the decision maker to set priorities and make the best decision. 2.4. checking the consistency when many pairwise comparisons are performed, some inconsistencies may typically arise. one example is the following. assume that 4 criteria are considered, and the decision maker evaluates that the first criterion is slightly more important than the second criterion, while the second criterion is slightly more important than the third criterion. an evident inconsistenc. selecting the best pipeline of yemen oil fields & transportation via ahp 139 fig.3.the analytic hierarchy process for instance, that the first criterion is more important than the third,forth criterion, =4.2692, ci = 0.0897, cr = 9.97% < 10% (acceptable) application of the case study -ahp selection from multicriteria with available options table.3. data and sample related comparison and pairwise of selection best pipeline of transportation pairwise comparison-according note: ahp scale: 1equal importance, 3moderate importance, 5strong importance, 7very strong importance, 9extreme importance (2,4,6,8 values in-between). sr. criteria (1) length and distance (2) land nature and uses (3) risk assessment (4) cost of construction (5) maintenance operation (6) geopolitical parameters rasheeq fadhl & emin başar baylan 140 table.4.comparison of the six creteria used with ahp criteria priority rank (+) (-) 1 length and distance 13.4% 3 5.5% 5.5% 2 land nature and uses 6.8% 6 3.1% 3.1% 3 risk assessment 27.7% 2 11.9% 11.9% 4 cost of construction 38.2% 1 13.2% 13.2% 5 maintenance operation 7.0% 4 2.6% 2.6% 6 geopolitical parameter’s 6.9% 5 1.8% 1.8% number of comparisons = 15 , consistency ratio cr = 5.9% pairwise comparison-according to length and distance table.5. six pairwise comparison-according to length and distance to define possible pipeline routes from the identified production fields at shabwah region oil production fields s2 and s1 to the oil terminal transportation. (ahp) length &distance criteria (1) land nature and uses criteria (2) risk assessment criteria (3) maintenance operation criteria (5) geopolitical parameters criteria (6) option #1. shabwah – mareb-safer cost of construction criteria (4) option#4. pipeline to aden port via aden refinery -shabwah aden refinery option #3 pipeline to port (bir ali) via mops block 4 ycom company option #2. pipeline port of al shahr (al daba) via petro masila options criteria’s selecting the best pipeline of yemen oil fields & transportation via ahp 141 criteria priority rank (+) (-) 1 pipeline safer option (1) 15.4% 3 6.3% 6.3% 2 pipeline to al shahr option (2) 6.4% 4 3.6% 3.6% 3 pipeline to bir ali option (3) 49.3% 1 19.9% 19.9% 4 pipeline to aden refinery option (4) 28.9% 2 5.5% 5.5% number of comparisons = 6 , consistency ratio cr = 9.4% these are the resulting weights for the criteria based on your pairwise comparisons, maintenance &operation was considered in this part of comparison. table.6. result of pairwise comparison-according to length and distance category priority due to length rank 1 pipeline safer option (1) shabwah– safer block 18, 120 kms., 438 km from safer to rass issa port 49.9% 1 2 pipeline to al shahr option (2), shabwah–petro-masila, 380 km,269 km from petromasila –alshihr 28.1% 2 3 pipeline to bir ali option (3), shabwah–block4 mops, 34 km to cpu, (54 km to mops shabwahblock 4, mops cpu, 207 km shabwahbir ali). 8.7% 4 4 pipeline to aden refinery option (4), shabwah-aden 498 km. blacktop road 13.3% 3 number of comparisons = 6 ,consistency ratio cr = 8.6% pairwise comparison-according to land nature and uses table.7. six pairwise comparison-according to land nature and uses these are the resulting weights for the criteria based on pairwise comparisons with following land uses and the nature of the land, tribes located in these areas. in the following ahp criteria ,these are the resulting weights for the criteria based on your pairwise comparisons. table.8. result of pairwise comparison-according to land nature and uses criteria priority due to high uses of land rank 1 pipeline to ras isa port via safer option (1) 42.4% 1 2 pipeline port of al shahr (petromasila)option (2) 33.9% 2 3 pipeline to port (bir ali) via mops bk 19.4% 3 criteria priority rank (+) (-) 1 pipeline safer option (1) 62.1% 1 13.3% 13.3% 2 pipeline to al shahr option (2) 20.1% 2 3.8% 3.8% 3 pipeline to bir ali option (3) 12.5% 3 2.3% 2.3% 4 pipeline to aden refinery option (4) 5.3% 4 1.1% 1.1% number of comparisons = 6 ,consistency ratio cr = 2.3% rasheeq fadhl & emin başar baylan 142 4 option (3) 4 pipeline to aden port -option (4) 4.3% 4 number of comparisons = 6 , consistency ratio cr = 7.9% pairwise comparison-according to risk assessment according to the calculated risk level, specific recommendations have been added in the worksheet, when required; since it is a feasibility phase, recommendations included both risk reduction measures to be implemented in the project and/or further detailed studies to be performed in the following design phases, considered necessary to address in detail the potential risk level related to some specific identified hazards (preventing the cause from occurring, detecting the cause before it develops into a hazard, mitigating consequences and alerting operators so that remedial actions may be taken).the process has been completed once all the guidewords have been applied to all the options. when a guideword has not been considered applicable to the node under analysis, it has not been included in the minute of the meeting (worksheets) pipeline option no. 3 was confirmed to be the best option among the four alternatives under study from all thetechnical points of view. therefore, it should be taken into account in the next design phases.the possible option alternatives have been compared each other considering the risk of the identifiedhazards on the following aspects [11] (criteria):people safety,environment,technical challenge, impact on schedule.risk levels of hazards identified for all the options (option no. 3 is the base case, differenc ) table.9. pairwise comparison-according to risk assessment criteria ranking people safety environment technical challenge risk on schedule of constructio n pipeline safer option (1) 6 8 13 6 pipeline to al shahr option (2) 13 27 24 26 pipeline to bir ali option (3) 57 9 57 56 pipeline to aden refinery option(4) 24 56 6 12 these are the resulting weights for the criteria based on your pairwise comparisons: table.10. result to pairwise comparison-according to risk assessment criteria priority rank (+) (-) 1 pipeline safer option (1) 71.2% 1 32.0% 32.0% 2 pipeline to al shahr option (2) 15.4% 2 6.0% 6.0% 3 pipeline to bir ali option (3 ) 8.1% 3 2.4% 2.4% 4 pipeline to aden refinery option (4) 5.3% 4 1.6% 1.6% table.11. result to pairwise comparison-according to risk assessment criteria priority due to high rank selecting the best pipeline of yemen oil fields & transportation via ahp 143 risk weight 1 pipeline safer option (1) 59.1% 1 2 pipeline to al shahr option (2) 25.8% 2 3 pipeline to bir ali option (3) 8.8% 3 4 pipeline to aden refinery option (4) 6.2% 4 number of comparisons = 6 ,consistency ratio cr = 7.4% pairwise comparison-according to cost of construction the construction of a oil pipeline is a complex, extremely capital-intensive project with many decision variables. ahp has been integrated within a decision-support system, creating a framework for the planning phase of pipeline construction. as a response to the limitations of the conventional approaches to project planning, studies have developed a mathematical model for project planning as applied to a oil pipeline project [12]. this model enables project management to “establish an adequate relationship between the essential design parameters (technical requirements, construction schedules, investment planning and related expenditures) and to create reference documents (time schedules, cost estimation and specifications) at the early feasibility states of the project” it is in the work breakdown structure that ahp is applied in this model to measure risk; this value is then analytic hierarchy process as a decision-support system in the oil pipeline industry . each component is a work package, which is then broken down into factors and subfactors relative to that overall goal. in this very each work package is then assigned a high, medium, or low total risk. the work breakdown structure is then combined with the organization breakdown structure that has been defined through a traditional matrix structure. the two together form the project breakdown structure, with the level of risk assigned to each work package defining the degree of control for implementation. six pairwise comparison(s). resulting priorities these are the resulting weights for the criteria based on your pairwise comparisons: decision matrix the resulting: table.12. pairwise comparison-according to cost of construction criteria priority to high cost rank 1 pipeline safer (option #1) 48.5% 1 2 pipeline to al shahr (option #2) 33.6% 2 3 pipeline to bir ali (option #3) 5.1% 4 4 pipeline to aden refinery (option #4) 12.8% 3 number of comparisons = 6 , consistency ratio cr = 4.7% pairwise comparison-according to maintenance operation pipeline maintenance is an important aspect of the oil pipeline industry because of the correlation between maintenance with safe and failure-free operations. historically, maintenance policies have been based on experience, but current trends are toward a more organized, proactive methodology [13]. pipeline operators are utilizing data analysis and in-house studies to target areas of the pipeline for maintenance. this is a task because of the prevailing system lengths. ahp provides a methodology for risk analysis, which, when applied to pipeline failure potential, creates a “cost-effective, customized, flexible, and logical maintenance plan”the focus of the hierarchy is the probability of failure for a pipeline or pipeline segment. the level i goal is to determine the probability of failure. the level ii criteria include likelihood of corrosion, external interference, construction or material defects, or acts of god [14].following the procedure for applying the analytic hierarchy process, each factor has subfactors identified at level iii. the level iii subfactors include, but are not limited, to internal or external corrosion, third-party activity or malicious activity, poor construction or low-grade materials, earthquakes, floods, and human or operation error. pairwise comparisons are made between each level i criterion and then between each level ii criterion to establish a risk factor for each pipeline. level iv is each pipeline segment represented in the analysis. the pipelines are then ranked according to likelihood for failure. at this point, the pipeline identified as most likely to have failure potential rasheeq fadhl & emin başar baylan 144 can be broken into segments of equal length and the process repeated to further isolate the location most likely to fail. when dividing the pipeline into segments for further analysis, “the length and number of segments should be based upon the similarity of conditions from the point of view of failure probability, instead of arbitrarily dividing the pipeline into four equal segments”. it is evident that this type of analysis that allows for comparisons made on a sequentially smaller area can be valuable in isolating areas most likely to fail, creating a proactive maintenance program.6 pairwise comparison(s). table.13. result to pairwise comparison-according to cost of construction criteria priority rank (+) (-) 1 pipeline safer option (1) 28.5% 2 8.7% 8.7% 2 pipeline to al shahr option (2) 21.3% 3 4.7% 4.7% 3 pipeline to bir ali option (3) 8.4% 4 1.9% 1.9% 4 pipeline to aden refinery option (4) 41.8% 1 12.1% 12.1% number of comparisons = 6 , consistency ratio cr = 3.9% pairwise comparison-according to geopolitical parameters there are examples of geographical structures, mountains, oceans, rivers lakes, and how these geographical features effect the migration of people. an example is a country landlocked with no natural buffers. the land might have a flat topography and receives intemperate rainfall. the geopolitics of the land,geopolitical factors affecting national boundaries, [15] geopolitics refer to the different geographic (either physical or human) influences on political and international relations.different geographic influences, or geopolitical factors, can affect the way a country handles or even defines its national boundaries.six pairwise comparison(s). table.14. result to pairwise comparison-according to geopolitical parameters criteria priority rank (+) (-) 1 pipeline safer option (1) 9.7% 4 1.4% 1.4% 2 pipeline to al shahr option (2) 29.1% 2 4.2% 4.2% 3 pipeline to bir ali option (3) 49.5% 1 10.7% 10.7 % 4 pipeline to aden refinery option (4) 11.7% 3 3.2% 3.2% number of comparisons = 6 , consistency ratio cr = 2.2% 3. conclusion based on the above comparison tables and analysis: rout pipeline option 3. is it the first candidate option to be chosen for its close? proximity, good maintained relation with locals through the implemented projects. low cost of construction, low distance, low required maintenance and operation and low risk assessment comparing with other three options, followed by rout pipeline option pipeline 4. rout pipelines option 1& 2. these two options are the second candidates in comparison with the rout option 4. which is highly recommended to be excluded for its being highly risky and hazardous. these two options have the same direction with the same advantages and disadvantages, the third option has its own extra advantage: blacktop road until the end of the roadblock 14 though it is 50 km longer than the second option, which have more than a hundred km desert road.the better road is absolutely the first option, which goes through the desert from a csr prospective.it is expected that road/blocks will be frequent at the beginning of the trucking operations in these new territories due to new tribal demands in which the trucks are passing. contractor should lead in resolving equipment's hiring demands or issues related to his contract with close monitoring from shabwah to interfere when required. contact with the governorate officials should be established before the movement of the oil trucks, and new establisment for oil pipline construction then use selecting the best pipeline of yemen oil fields & transportation via ahp 145 block 4 mops pipeline , therefore need to take advantage of this and coordinate with the authorities in shabwah to ensure their full support. a discussion about the result of problem to perform an alternative ranking meeting based on the analytic hierarchy process just after the hazard identification session has been disclosed to be a very powerful approach to select the best alternative when several solutions and different criteria are concerned. the possibility to collect the opinions of many specialists having very different background, already gathered for performing the hazid, allows to perform a “broad-spectrum” selection, optimizing the schedule, minimizing the costs and, above all, taking advantage to the full of the experience of many several specialists involved in the project methodology applied to the judgments collected during the alternative ranking meeting, followed by a simple “benefits to costs ratios” analysis, allows to have a complete picture of the situation under analysis, given not only indications on which is the best solution, but also explaining the reasons why it is the most promising one and how another solution can overpass the goodness of the alternative which at the moment seems to be the best one. especially, the feasibility phase of oil & gas projects, when hazid session is usually already foreseen, to plan the alternative ranking meeting as the final section of hazid session is extremely suggested and useful to facilitate the right selection of which solution to be developed during the following design phases, because of an objective and full analysis. crude oil shipments from yemen have resumed on a small scale after stalling since early last years because of the continuing civil war. "with the resumption of production and exports from mas¬ila oil field, the national economy is back on its own two feet. table.15. result to pairwise comparison-according to all six createrai and final decision to select best pipline option no#3. criteria priority rank 1 pipeline to port (bir ali) via mops bk 4. option (3) 50.1% 1 2 pipeline port of al shahr (petromasila) option (2) 27.8% 2 3 pipeline to ras isa port via safer company option (1) 14.9% 3 4 pipeline to aden port option (4) 7.2% 4 references sam nataraj, volume vi, no. 2, 2005, analytic hierarchy process as a decision-support system in the oil pipeline industry, volume vi, no. 2, issues in information systems. data presented in the text are the most recent available as of september 25, 2014. update: july 6, 2017, us energy information and administration newsletter. oil and gas journal, jan.2010, oil sector in yemen, vol: na, pag.3. thomas l. saaty, vol.1 no.1, 2008, decision making with the analytic hierarchy process, int. j. services sciences. katz graduate school of business, university of pittsburgh, pittsburgh, pa 15260, usa. peter salisbury, october, 2011, middle east and north africa programme paper mena pp 2011/02, yemen’s economy: oil, imports and elites. guanghua qi, june 2011, the application of ahp in oil and gas pipeline route selection, china university of oil qingdao, china, corresponding author. pag3. rasheeq fadhl & emin başar baylan 146 us energy information cyclopedia, 2017, yemen country analysis brief, vol:1, edition:1, us energy information cyclopedia, usa, pages 9. oil pipelines, terminal, production encyclopedia, 2008, psas in yemen information on oil pipelines & terminals, production activities, pag,472 yang, september/october 1997 volume 15 241–254an ahp decision model for facility location selection university of north dakota, grand forks, north dakota, usa. stefania benuccia and fabrizio talloneb auriga, june 2014, oil & gas projects alternative selection using analytic hierarchy process a case study. consulting s.r.l., rome, italy saipem, fano, italy dey, p. k., ogunlana s.o., gupta s.s. & tabucanon m.t. (1998). a risk-based maintenance model for crosscountry pipelines. cost engineering, 40(4), 24-30 dey, p. k. & gupta s.s. (1999). decision support system for pipeline route selection. international journal of project management, 41(10), 29-35. l. saaty, 2008, decision making with the analytic hierarchy process int. j. services sciences, vol.1, no.1, pp. 8398, (2008) hassan iqbal*, solomon tasfamariam, husnain haider, rehan sadiq,2016, structure and infrastructure engineering journal, inspection and maintenance of oil and gas pipelines, a review of policies. school of engineering, the university of british colombia. cavit emre aytekin, 2017, the human factor in geopolitics, hacettepe university the graduate school of social sciences the department of international relations. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 116-125 116 analysis of personal and conceptual factors that impact entrepreneurial intent emine banu bi̇lgi̇seven istanbul commerce university, turkey murat kasimoğlu istanbul commerce university, turkey received: april 28, 2020 accepted: may 21, 2020 published: june 01, 2020 abstract: in this study, we aim to determine all the factors that impact the entrepreneurial intent and attitude. for that purpose, we consider risktaking propensity emotional intelligence and entrepreneurial self-efficacy, as the most important characteristics as well as attitudes towards entrepreneurial behavior as the most influential cognitive factor that impacts entrepreneurial intent and attitude in the literature. we try to determine which of the factors (characteristic and cognitive) is more influential in the process forming the entrepreneurial intent by examining them on start up enterprises the study has been conducted on start-up enterprises founded as part of technoparks and the entrepreneurial platform, with 344 entrepreneurs. a structural equation model has been used in the study. as a result of structural equation analyses, entrepreneurial self-efficacy is found to have a positive impact on attitudes towards entrepreneurial behavior, which in turn has a significant effect on entrepreneurial intent. on the other hand, no significant findings have been obtained as to the relation between emotional intelligence and attitudes towards entrepreneurial behavior. also, it is found that the risk-taking propensity does not significantly affect entrepreneurial intent. keywords: emotional intelligence, entrepreneurial self efficacy, risk-taking propensity, attitudes towards entrepreneurial behavior, entrepreneurial intent. 1. introduction while entrepreneurship was perceived as setting up a new business with one’s own capital, nowadays, it has started to gain a new meaning. the concept of intent is one of the most important premises of entrepreneurial behavior. the question of why some people prefer to work in an institutional workplace while others prefer entrepreneurship led researchers to study the factors impacting entrepreneurship. in early studies, personality factors were primarily examined, but later on, entrepreneurial intent models have been developed and cognitive factors have also been included. people with a high level of self-confidence, emotional intelligence, and self-efficacy have the upper hand in entrepreneurship. according to literature, high levels of risk-taking propensity is another positive indicator as it affects entrepreneurial activity and intent to a great extent. the attitude towards entrepreneurial intent is also the most important conceptual factors that impact entrepreneurial intent. studies in different disciplines related to the concept of entrepreneurship, for example in economics, psychology and economic antropology, have been started (çarıkçı ve koyuncu, 2010: 6). the phenomenon of entrepreneurship; acoording to brockhaus (1982), sexton ve bowman-upton (1988), hisrich (1988), stevenson ve harmelin (1990), bygrave ve hofer (1991), blenker (1992), hornaday (1992), bowman ve steyaert (1992), johannisson (1992), veciana (1999), nueno (2005), genesca ve diğ. (2003), has become increasingly important in research in the last century, both numerically and in thought (guzma´n-alfonso ve guzma´n-cuevas, 2012:721). analysis of personal and conceptual factors that impact entrepreneurial intent 117 2. literature review 2.1. entrepreneurial intent prosperity and growth of a country, or in other words, their development are measured by the strength of people’s intent to set up their own business (autio et al., 1997:101). this increases the importance of entrepreneurial intent and studies done about it. according to krueger and carsrud, (1993); kolvereid, (1996); and van gelderen et al., (2008), the concept of entrepreneurial intent was used as of the late 1980’s in the literature. the concept of intent was considered by lee et al. (2004) as the first step in starting the business (kibler, 2013: 293). when compared to demographic and personal trait factors, entrepreneurial intent is known as the best indicator of behavior (sabah, 2016, p. 88). during the early periods of entrepreneurship studies, research that focused on personality traits and situational variables stand out (xu et al., 2016: 626). later on, however, (carsrud and braanback 2011: 10) state that researchers directed their attention to what differentiates managers from leaders and entrepreneurs, and focused on the entrepreneurial process and activities. 2.2. risk-taking propensity a risk-taking propensity is expressed as one of the most important personal factors influential on entrepreneurial intent in the literature. it is even possible to say that the concept of risk is the first one that comes to mind together with entrepreneurship and entrepreneurship studies. people’s perception of risk also affects their risk-taking propensity. according to renn and rohman (2000), the perception of risk expresses the risks people are exposed to, or are likely to be exposed to (timuroğlu and çakır, 2014: 124). the concept of entrepreneurship is always related to risk-taking propensity. research results demonstrate that people who take high risks also have higher entrepreneurial intent (ozaralli and rivenburg, 2016: 9). on the other hand, zhao et al. (2010) claim that risk-taking propensity is the most important indicator of entrepreneurial intent when compared to other entrepreneurship traits. 2.3. entrepreneurial self-efficacy entrepreneurial self-efficacy, on the other hand, was defined by boyd and vozikis, (1994); baron et al., (1999); baum et al., (2001) as people’s self-confidence related to assignments in the entrepreneurial process. it was defined by, chen et al. (1998), segal et al. (2005), tsai et al. (2016) and bahadır (2018) as a person’s faith in their ability to perform roles and duties related to entrepreneurship (tsai et al, 2016: 447; ağırman and naktiyok, 2018: 3254). studies over the past years have demonstrated that self-efficacy is a very important factor in terms of decision making for entrepreneurial activity. boyd and vozikis (1994), krueger and brazeal (1994), zhao et al. (2005), drnovsek and erikson (2005), and barbosa et al. (2007) claim that self-efficacy is a critical variable in the development of entrepreneurial intent in their previous studies (laviolette et al., 2012:723). it has been found appropriate to use the concept of entrepreneurial self-efficacy instead of just self-efficacy in this study. 2.4. emotional intelligence in academia, emotional intelligence was first defined by salovey and mayer (1990) as “a kind of social and personal intelligence that involves controlling emotions and observing emotions of others, differentiating between emotions, and an ability to guide people in understanding the thoughts and actions of others” (mortan et al., 2014: 98). ). zampetakis et al. (2009) claimed that emotional intelligence impacts entrepreneurial behavior in two ways. the first one is self-evaluation. employees with a high level of emotional intelligence can display a high level of tolerance for environmental stress factors. the second one is a high level of proactive behavior. it involves people with a high level of emotional intelligence who can display entrepreneurial behavior in highly emotional and creative situations. 2.5. attitudes towards entrepreneurial behavior attitudes towards entrepreneurial behavior are quite effective as a cognitive factor on entrepreneurial intent. attitudes towards the display of behavior are defined by ajzen (1987) as the perception of a desire to behave a certain way. this depends on people’s expectations and beliefs in connection with the personal effect of their behaviors and their consequences (husna et al., 2010: 3). so, in short, we can say that if the attitude towards behavior is positive, the intent towards behavior is stronger (sabah, 2016: 90). in the literature, many studies deal with the relationship between cognitive factors and entrepreneurial intent. previous studies on the subject ( kolvereid, 1996; krueger et al., 2001; autio et al., 2001; souitaris et al., 2006; gelderen et al., 2008; and gird and emine banu bi̇lgi̇seven & murat kasimoğlu 118 bagraim, 2008) demonstrate that there is a positive correlation between attitude and intent towards the behavior. autio et al. ’s (2001) study measured that every attitude strongly affects entrepreneurial intent. similar results were also reached in studies done by kolvereid (1996), krueger et al. (2000), soutaris et al. (2006), and gird and bagraim (2008) (husna et al., 2010 : 3). 3. methodology 3.1. sample and data i̇stanbul technoparks is chosen as the research venue. three technoparks in istanbul, as well as an entrepreneurial platform, were chosen as research sampling. the reason these technoparks were chosen is that they are the best representatives of their venue as they are the biggest and most comprehensive technoparks in istanbul. in the study, new enterprises were targeted. in this sense, data was collected from entrepreneurs in start-ups not older than five years located in pre-incubation, incubation, and advanced incubation centers. the sampling technoparks are technopark i̇stanbul (cube incubation), i̇stanbul chamber of commerce information commercialization center, i̇stanbul technical university arı teknokent core and i̇stanbul technical university arı teknokent magnet. the chosen entrepreneurship platform is startup grind. i̇stanbul technical university arı teknokent core is the preincubation and incubation center. i̇stanbul technical university arı teknokent magnet is the advanced incubation center. its analysis was done total of 344 questionnaires. 3.2. measures emotional intelligence scale was developed by carson et al. (2000) and adapted into turkish by aslan (2013). the turkish version of the scale was used in the study. table.1. emotional intelligence scale aspects of emotional intelligence scale items empathy 6 items mood adjustment 3 items interpersonal relationships 4 items inner motivation 5 items self-awareness 2 items entrepreneurial self-efficacy scale was developed by de noble et al. (1999) and kickul and d’intino (2005). it consists of 6 aspects and 35 items. (in the turkish version calculations were done over 33 questions) (başol et al., 2011: 13). it was adapted to turkish by naktiyok et al. (2010). table 2. entrepreneurial self efficacy scale aspects of entrepreneurial self efficacy scale items the main objectives are to define 6 items analysis of personal and conceptual factors that impact entrepreneurial intent 119 deal with unexpected challenges 6 items create an innovative environment, 5 items develop new products and market opportunities 8 items initiate contact with investors 3 items decide on the basic human rsources 5 items risk-taking propensity scale was translated from hisrich and peters’ (2002) scale by alpkan et al. (2002), and was used by ören and biçkes (2011). the scale has one aspect and 6 items. attitude towards the entrepreneurial behavior scale was developed by linan and chen (2009). it has one aspect and 5 items. entrepreneurial intent scale has one aspect and 6 items. it was translated into turkish by şeşen and basım (2012), and was used in this study. 3.3. research hypotheses and model h1: risk-taking propensity has an impact on entrepreneurship intent. h2: a high level of self-efficacy affects attitudes towards entrepreneurial behavior. h3: a high level of emotional intelligence affects attitudes towards entrepreneurial behavior. h4: a strong attitude towards entrepreneurial behavior helps bring about a strong entrepreneurial intent. figure 1. research model emine banu bi̇lgi̇seven & murat kasimoğlu 120 3.4. data analysis and results factor analysis, confirming factor analysis was carried out, and found to be 0.60 and 0.85 for the empathy aspect of the emotional intelligence scale; between 0.52 and 0.8 for the mood adjustment aspect; between 0.47 and 0.98 for interpersonal relations aspect; between 0.73 and 0.81 for the inner motivation aspect; and between 0.44 and 0.94 for the self-awareness aspect. ei 17 factor, an item in inner motivation was removed because it measured low. for the entrepreneurial self-efficacy scale factor, the cfa result was found to be between 0.52 and 0.68 in defining main objectives. it was found to be between 0.51 and 0.72 in dealing with unexpected challenges. for creating an innovative environment, it was found to be between 0.43 and 0.85. for developing new products and market opportunities aspect, it was found to be between 0.48 and 0.75. for initiating contact with investors aspect, it was found to be between 0.66 and 0.82. for the aspect of determining basic human resources, it was found to be between 0.48 and 0.77. as a result of cfa, the factor weight of the scale was found to be between 0.54 and 0.66. the rtp 2 and rtp 3 items in the scale were removed from the analysis as their factor weights turned out to be low. as a result of cfa, the factor weights of attitudes towards the entrepreneurial behavior scale were found to be between 0.70 and 0.84. the factor weights of the entrepreneurial intent scale were found to be between 0.42 and 0.91. the fact that all scales and their questions in the study have their factor weights above 0.45 qualifies their structural validity. as a result of cfa, it was found out that the scales satisfy the criteria of acceptable fitting quality ; and that cfa results are compatible with the data set. cfa fitting quality values are listed in table 3 below. table 3. cfa fitting quality values variable χ2 df χ2/df gfi cfi tli rmsea acceptable criteria ≤5 ≥,90 ≥,90 ≥,90 ≤,08 emotional intelligence 341,601 146 2,34 0,907 0,938 0,927 0,062 entrepreneurial self-efficacy 820,264 442 1,856 0,873 0,916 0,906 0,05 risk taking propensity 5,162 2 2,581 0,992 0,983 0,95 0,068 attitude towards entrepreneurial behavior 6,578 4 1,645 0,993 0,997 0,993 0,043 entrepreneurial intent 17,049 6 2,841 0,984 0,989 0,972 0,073 reliability and correlation analysis, yielded the alpha coefficient as 0.667, which proved the risk-taking scale to have medium reliability. the alpha coefficient of emotional intelligence was found out to be 0.786, which proved the scale reliable. the alpha coefficient of the self-efficacy scale was found out to be 0.924. the alpha coefficient of attitude towards entrepreneurship scale was found to be 0.885. the alpha coefficient of the entrepreneurial intent scale was found to be 0.836. so, as all these three alpha coefficients were above 0.80, we can say that they are reliable. as a result of the correlation analysis done to determine the direction and degree of the relationship between variables, it was found that there is a significant relationship between entrepreneurial self-efficacy and risk-taking; between attitudes towards entrepreneurial behavior, entrepreneurial intent and emotional intelligence (p-value = 0,01); and between entrepreneurial intent and emotional intelligence (p-value = 0,01). the results of realibility and correlation analysis are listed in table 4 below. emotional intelligence, ei, entrepreneurial self-efficacy, ese, analysis of personal and conceptual factors that impact entrepreneurial intent 121 risk taking propensity, rtp, attitude towards entrepreneurial behavior, ateb, entrepreneurial intent; eint. tablo 4. realibility and correlation analysis medium sd ese rtp atep eint ei ese 4,0229 ,44858 (,924) rtp 4,0988 ,70326 ,459** (,667) ateb 4,3459 ,64685 ,503** ,355** (,885) eint 4,2471 ,63352 ,474** ,322** ,737** (,836) ei 3,7742 ,43107 ,581** ,381** ,335** ,284** (,786) figure.2. structural equation model emine banu bi̇lgi̇seven & murat kasimoğlu 122 structural equation model findings are shown in figure 2. the model was set up to test the research hypotheses. the result of the structural equation model was found to be below df squared value 5. cfi value was found to be above 0.90; rmsea value was found to be below 0.8. all these show that the model satisfies the acceptable fitting quality criteria, which are listed in table 5 below. table 5. structural equation model fitting quality values variable χ2 f 2/df fi fi li msea acceptable criteria ≤5 ≥,90 ≥,90 ≥,90 ≤,08 structural equation model 3070,338 016 ,523 ,791 ,905 ,899 ,039 as a result of the structural equation model analysis, it was found that risk-taking propensity does not significantly affect entrepreneurial intent, so hypothesis h1 is rejected. it was found that entrepreneurial self-efficacy significantly and positively affects attitudes towards entrepreneurial behavior. the standardized coefficient was estimated to be 0.544. this finding means that if entrepreneurial self-efficacy increases by 1 unit, the attitude towards entrepreneurship will also increase by 0.544 units. according to these results, hypothesis h2 is accepted. as a result of the analysis, it was found that emotional intelligence does not significantly affect attitudes towards entrepreneurial behavior, so hypothesis h3 is rejected. it was also found that attitudes towards entrepreneurial behavior positively affects entrepreneurial intent, and the standardized coefficient was estimated to be 0.835. this finding indicates that if attitudes towards entrepreneurial behavior increase by 1 unit, entrepreneurial intent will also increase by 0.835 units. so, attitudes towards entrepreneurial behavior have a high impact on entrepreneurial intent. according to these results, hypothesis h4 is accepted. structural equation model regression weights are listed in table 6 below. table 6. structural equation model regression weights tested method standard ized estimati on standar d deviati on critical ratio p attitude towards entrepreneur ial behavior <- entrepreneur ial selfefficacy 0,544 0,216 5,34 *** attitude towards entrepreneur ship <- emotional intelligence 0,097 0,166 1,225 0,22 entrepreneur ial intent <- attitude towards entrepreneur ship 0,835 0,088 7,475 *** entrepreneur ial intent <- risk-taking 0,048 0,048 0,903 0,366 analysis of personal and conceptual factors that impact entrepreneurial intent 123 4. conclusion and discussion according to the analysis results, it was found that risk-taking propensity does not significantly affect entrepreneurial intent. some studies found out risk-taking and risk-taking propensity do not have a significant effect on entrepreneurship and entrepreneurial intent in the literature (norton and moore, 2002; miner and raju, 2004). the results of this study also support similar findings. this study was conducted with start-ups that have a growth potential and are technology-intensive. the start-ups have a high level of risk appetite in their inception stage and earlier periods. they can diversify their products, services, and markets. they can change their target customer groups, too. however, as start-up enterprises grow in age and size, entrepreneurs may be likely to take fewer risks not to lose their gains and maintain their status quo. in recent years, the rapid change in environmental conditions, and instability of macro-economic structure prevent the formation of a competitive system. they also negatively affect the risk appetite of entrepreneurs because the status of a country’s economic situation is a very important factor influencing the risk appetites and propensities of entrepreneurs. another result yielded in our analysis is that the entrepreneurial self-efficacy entrepreneurs have positively and significantly affect attitudes towards entrepreneurial behavior. in the literature, some studies claim that entrepreneurial self-efficacy is the leading indicator of entrepreneurial intent and behavior; and that, as a result, there is a correlation between self-efficacy and attitude towards entrepreneurial behavior (tiwari et al., 2017). in the process of the emergence of entrepreneurial activity, attitudes towards entrepreneurial behavior are considered to be the most important precursor. before intent emerges, attitude towards intent is formed in the cognitive process. this cognitively positive attitude helps a positive intent and behavior to appear. another finding of the analysis is that emotional intelligence does not significantly affect attitudes towards entrepreneurial behavior. in the literature, some studies did not find a positive or strong correlation between emotional intelligence and entrepreneurial intent (pachulia and henderson, 2009; ghorbani et al., 2012; cin and günay, 2013). similarly, in our study, we also did not find a significant relationship between emotional intelligence and attitudes towards entrepreneurship. our study was conducted on start-ups operating predominantly in technology, in technoparks. it can be thought that the emotional intelligence of entrepreneurs who work in technology, develop business models and projects may be lower than those working in social areas constantly interacting with others; and that therefore, their emotional intelligence is not effective on their attitudes towards entrepreneurship. in this sense, it should also be kept in mind that research data was collected primarily from itu technopark, which is one of the leading engineering universities in our country. another finding in the study is that attitudes towards entrepreneurial behavior positively and significantly affect entrepreneurial intent. one of the objectives of this study is, during the entrepreneurial process, to attract attention to the impact of cognitive factors as well as the importance of the cognitive process. research results show us that attitude, as a cognitive factor, is very influential in the formation of entrepreneurial intent. in this study, as a cognitive factor in ajzen’s (1991) “planned behavior theory,” the attitude towards entrepreneurial behavior component was included in the study. (nabi and linan, 2013). according to the said model, entrepreneurial intent is influenced by people’s behavioral, normative and control behaviors (feder and nitu-antonie, 2017). the more positive a person’s perception is related to a new enterprise and its positive output, the greater the attitude towards entrepreneurial behavior will be; and the stronger the intent will be related to setting up a new business (kibler, 2013). in the light of all this information, it is found that the attitude component included in the study has a very strong impact on entrepreneurial intent. the findings of previous studies are also confirmed in this study in that demographic and personality factors are inadequate in explaining entrepreneurial intent and behavior; and that cognitive factors have a great influence on intent. as a result of the analysis, it is found that the standardized coefficient is estimated to be the high value of 0.835 in attitudes towards entrepreneurial behavior in terms of its strong positive impact on entrepreneurial intent. in conclusion, we can say that cognitive factors have a very strong impact on intent. this finding stresses the importance of the cognitive approach, and is supported by the theoretical cognitive approach that has gained importance in last years. in recent years, studies based on cognitive approach, which suggest that mental and cognitive factors are very effective in the entrepreneurship process, have gained importance. as a result of many studies, it has been seen that the attitudes towards entrepreneurship behavior is the most effective cognitive factor on entrepreneurship intent. according the results of this study, which aims to investigate the effect of cognitive process and cognitive factors on intention in technology-intensive start-up initiatives operating in technoparks, it is seen that the attitude factor has a emine banu bi̇lgi̇seven & murat kasimoğlu 124 very strong effect on intention. in this study, attitude is handled together with personality factors; and the effect of other cognitive factors is ignored. by including other cognitive factors, it is also possible to conduct studies to determine which cognitive factors are more effective on start-up entrepreneurship. it is also thought that more research with real entrepreneurs is needed. the research was carried out with 344 start-up entrepreneurs in a limited number of technoparks selected from among the technoparks operating in i̇stanbul. by increasing the sample size of the research, it is possible to reach different results by including other technoparks in i̇stanbul and even technoparks outside i̇stanbul. therefore, the scope of research and regional differences can be considered as a limitation. the evaluation of the findings obtained by the research by potential entrepreneurs in the decision-making process for entrepreneurship may lead to successful start-up initiatives. this situation is thought to contribute significantly to the development and success of the entrepreneurial ecosystem. references ağırman, ü. h. & naktiyok, a. 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(2005). “the mediating role of self-efficacy in the development of entrepreneurial intentions”, journal of applied psychology, 90 (6), 1265-1272. journal of international trade, logistics and law, vol. 4, num. 1, 2018, 81-91 81 power consumption estimation using artificial neural networks: the case of turkey havva hilal metin istanbul commerce university, turkey sibkat kaçtıoğlu, (prof. dr.) istanbul commerce university, turkey received: april. 05, 2018 accepted: may. 22, 2018 published: june 1, 2018 abstract: a significant proportion of the world energy consumption is by developing countries. as a developing country, turkey is one of the leading countries in terms of the increase in energy demand. according to the data from the ministry of energy and natural resources, turkey is the country with the greatest increase in demand after china in electricity and natural gas consumption since 2000. in 1970, the ratio of total energy production to consumption in turkey was 76%. in year 2000, this ratio dropped down to 35%, in year 2010 to 26% and predicted to come down to 23% by year 2020. this situation indicates an increase in turkey’s energy dependency every passing year and the need to implement solutions to reduce this dependency. today, electric energy has become a very critical and indispensable part of the development of technology. production and consumption of electrical energy, which facilitates human life and increases labour productivity, are increasing every year. electricity is a versatile and easily controlled form of energy. electricity is practically non-existent and nonpolluting at the point of use. electricity can be cleanly produced by completely renewable methods such as wind, water and su nlight at the production point. electricity market has a unique feature compared to other commodities. this feature requires the consumption of electricity when it is produced. forecasting the future consumption of electricity in turkey is crucial in making strategic plans for the future and taking the necessary measures. in turkey, the consumption of electricity in the estimation studies were generally observed th at the use of long-term electricity consumption prediction method of neural networks. in some studies, the results obtained by artificial neural network method are compared with box-jenkins models and regression technique. as a result of comparison, artificial neural networks seem to be a good predictor of electricity consumption. in this study, electrical consumption is modelled by using artificial neural network method and the results are discussed. in the application, the four main factors that affect the electricity consumption in turkey is considered as independent variables. these independent variables are; population, imports, exports, gross domestic product (gdp). how these independent variables affect the electricity consumption in the country was found as the result of the tests made and the results were evaluated. keywords: electric energy, prediction, future, artificial neural networks, electricity consumption estimation. 1. introduction evaluation the energy sector is a particularly important sector for economically developing countries. it is also seen that the energy sector plays a very important role in the global economic context. oil prices and other energy sources affect the economies of some developing countries and play an important role in shaping the economies of these countries. turkey's dependency on energy imports is increasing due to the increasing energy demand. currently turkey, only 26% of total energy demand can be met from its own internal resources. electric energy is a versatile and easily controlled form of energy. electricity is practically lossless at the point of use and is not polluting. at the production point, it is a clean energy type that can be produced from completely renewable sources such as wind, havva hilal metin water and sun. turkey electricity transmission company in the last seven-year projections made by the company, the peak demand under the high demand assumption cannot be met in 2020. the necessity of consuming electricity is one of the characteristics of the market that is unique compared to other commodities. for this reason, the conditions of the electricity market are unique. turkey, including the privatization and liberalization of the energy market, has launched a reform program. in 2001, the electricity market law no. 4628 went into effect and created a regulatory framework to provide high quality to consumers with cost efficiency. thus, estimating the demand for electricity becomes very important when balancing the market and at the same time achieving the equilibrium price. several methods have been used in literature to estimate electricity consumption, such as artificial neural networks and neural fuzzy logic. the literature also includes the work of auto regressive integrated moving average and error correction models (ecm), smoothing methods, decomposition and hybrid approach methods, and decomposition and time series models. this study aims to model electricity consumption by using artificial neural network method. due to economic fluctuations in the world and in turkey, electricity consumption has a chaotic and non-linear trend. for this reason, estimating studies on net electricity consumption have a vital prospect in determining the energy policy, especially for countries where energy demand is rising rapidly. (sözen, arcaklioğlu, & özkaymak , 2005), an artificial neural network model to predict the energy consumption in turkey has carried out work. (akay & atak, 2007) using a gray forecasting method with a rolling mechanism to estimate the consumption of electrical energy. (kavaklioglu, ceylan, ozturk, & canyurt, 2009) proposed an artificial neural network model for forecasting net energy model in turkey. variables used in the estimation of electricity consumption for the period 1975-2006; population, gross national product (gnp), import and export. (kavaklıoğlu, 2011) support vector regression (svr) has estimated the consumption of electricity in turkey with the methodology. (çunkaş & taşkiran, 2011) genetic algorithms method with an estimated electricity consumption in turkey. (hamzaçebi & es, 2014) optimize our recurring covering the years 2013-2025 to estimate the total electricity demand in turkey has developed a gray modeling. (kaytez, taplamacioglu, cam, & hardalac, 2015) least squares support vector machine for turkey's energy consumption (ls-svms) offered. 2. energy policies in the world and in turkey energy is a significant concept for development and an essential input to production. it is almost impossible to produce without energy resources. energy resources are required also for the transportation of the produced goods. energy resources are the direct input to production of certain goods. for others, they can be side inputs, such as heating, decomposition or electricity needs. as an example, the primary materials for vehicle tyres are petroleum products. but for iron production, its heating properties are used (wilcock, pallemaerts, & kummer, 1993). a significant proportion of the world energy consumption is by developing countries. as a developing country, turkey is one of the leading countries in terms of the increase in energy demand. according to the ministry of energy and natural resources (menr), increase in the primary energy demand in turkey between years 1990 and 2008 is 4.3%, which is 3 times the world average. on the other hand, since year 2000, turkey is the country with the highest demand increase in electricity and natural gas consumption after china. in 1970, the ratio of total energy production to consumption in turkey was 76%. in year 2000, this ratio dropped down to 35%, in year 2010 to 26% and predicted to come down to 23% by year 2020 (www.enerji.gov.tr, 2018). this situation indicates an increase in turkey’s energy dependency every passing year and the need to implement solutions to reduce this dependency. on the other hand, the share of fossil fuels in the total energy consumption is growing. the main reason for this is the use of fossil fuels instead of renewable energy resources to meet the growing energy demand. according to the study conducted by the ministry of forestry and water management, the share of hydroelectric power plants in the overall energy production rose to 25%. the share of total renewable energy resources is around 30%. in turkey’s energy outlook report published by menr, the following targets were identified for renewable energy for 2023:  to increase the power installed over wind energy to 20.000 mw (as stated in the energy market and security of supply strategy document), 3.000 mw in solar energy and 600 mw in geothermal energy are targeted.  • it is aimed to increase the share of renewable resources in electricity production to 30% by 2023 and to reduce the share of natural gas to 30%. power consumption estimation using artificial neural networks: the case of turkey 83  • hydroelectric power plants with a total installed capacity of 20.000 mw are targeted to be built by the private sector. in the 2030 targets study of energy market regulatory authority (emra), utilization of renewable energy resources is targeted and a growth scenario is also provided. in this scenario, the growth in the use of hydroelectric and wind energy specifically, whose high potential is extremely under-utilised, is remarkable. increase in the share of solar energy utilisation, which has almost no utilisation at present, will also be a significant improvement. the “regulation on unlicensed electricity generation in electricity market" no. 28001 enacted on july 21, 2011 and the "notice on the implementation of the regulation on unlicensed electricity generation in the electricity market" no. 28229 dated march 10, 2012, enabled electricity production up to a certain capacity, without requiring a license application. this way, it becomes possible for households and factories to generate their own electricity from renewable resources. 2.1. determination of energy demand in turkey after 1980 resolutions, energy demand and consumption increased rapidly, due to rapid population growth and industrialisation. the impacts of the 2008 crisis were observed in turkey in 2009, and there has been a decline in the energy consumption, along with a contraction in the industrial sector. as of 2011, turkey meets approximately 83% of its energy consumption need through imports. the share of these imports on current deficit is around seventy per cent (yanar & kerimoğlu, 2011). besides having a significant share of 54 billion dollars in the current deficit, due to the high cost of this amount, technology imports cannot be realised at an adequate level. although energy consumption is most influential in the industrial sector, it is also important for the agriculture and services sectors. as almost all of the energy input used in agriculture in turkey is imported, costs are rising. many agricultural goods can no longer be produced for this reason, so they are imported. as of 2014, turkey holds only 1% of the world’s primary energy consumption (bp statistical review of world energy, 2015). both the real gdp and the primary energy consumption of turkey have increased over years. the decline in gdp in year 2009, as in many economic indicators, is due the impacts of the 2008 crisis being felt in turkey in 2009. furthermore, throughout the period of crisis, primary energy consumption followed a steady course. turkey’s having the lowest primary energy consumption among the mist countries is conspicuous. 2.2 electricity consumption in turkey power consumption in turkey is increasing everyday, by virtue of technological improvements and advantages of keeping pace with the modern times. but there are still major issues with electricity production. in this respect, it is essential to estimate the electricity requirement and to draw a roadmap accordingly. following table illustrates the power consumption rates in turkey, in linear graphics: havva hilal metin figure 1. total monthly electricity consumption (gwh) source: http://enerjienstitusu.de/elektrik-tuketim-istatistikleri/, access date: 01.05.2018 according to the above graph, power consumption ratios show a linear growth between years 2010 and 2017. every year, more electricity was consumed than in the previous year, and consumption rates differed according to months. electricity consumption rates were at the highest levels specifically in august and december, while they remained lowest in february and april. table 1. total installed capacity, gross production, and net electricity consumption of power plants year total installed capacity (mw) gross production (gwh) net consumption (gwh) year total installed capacity (mw) gross production (gwh) net consumption (gwh) 1975 4 186,6 15 622,8 13 491,7 1996 21 249,4 94 861,7 74 156,6 1976 4 364,2 18 282,8 16 078,9 1997 21 891,9 103 295,8 81 885,0 1977 4 727,2 20 564,6 17 968,8 1998 23 354,0 111 022,4 87 704,6 1978 4 868,7 21 726,1 18 933,8 1999 26 119,3 116 439,9 91 201,9 1979 5 118,7 22 521,9 19 633,1 2000 27 264,1 124 921,6 98 295,7 1980 5 118,7 23 275,4 20 398,2 2001 28 332,4 122 724,7 97 070,0 1981 5 537,6 24 672,8 22 030,0 2002 31 845,8 129 399,5 102 948,0 1982 6 638,6 26 551,5 23 586,8 2003 35 587,0 140 580,5 111 766,0 1983 6 935,1 27 346,8 24 465,1 2004 36 824,0 150 698,3 121 141,9 1984 8 461,6 30 613,5 27 635,2 2005 38 843,5 161 956,2 130 262,9 1985 9 121,6 34 218,9 29 708,6 2006 40 564,8 176 299,8 143 070,5 1986 10 115,2 39 694,8 32 209,7 2007 40 835,7 191 558,1 155 135,2 1987 12 495,1 44 352,9 36 697,3 2008 41 817,2 198 418,0 161 947,6 1988 14 520,6 48 048,8 39 721,5 2009 44 761,2 194 812,9 156 894,1 1989 15 808,2 52 043,2 43 120,0 2010 49 524,1 211 207,7 172 050,6 1990 16 317,6 57 543,0 46 820,0 2011 52 911,1 229 395,1 186 099,6 power consumption estimation using artificial neural networks: the case of turkey 85 1991 17 209,1 60 246,3 49 282,9 2012 57 059,4 239 496,8 194 923,4 1992 18 716,1 67 342,2 53 984,7 2013 64 007,5 240 154,0 198 045,2 1993 20 337,6 73 807,5 59 237,0 2014 69 519,8 251 962,8 207 375,1 1994 20 859,8 78 321,7 61 400,9 2015 73 146,7 261 783,3 217 312,3 1995 20 954,3 86 247,4 67 393,9 2016 78 497,4 274 407,7 231 203,7 source: http://www.tuik.gov.tr/pretablo.do?alt_id=1029, access date: 17.03.2018 a dramatic increase in electricity consumption is observed from year 1975 through 2016, according to the above table. electricity consumption has increased every year without exception. electricity production has grown day by day in connection to electricity consumption. this continuous and rapid increase in electricity consumption has made the estimation of power consumption an even more significant area. in this respect, deepening the studies on this subject, and making an accurate and clear estimation of electricity consumption is very important. 3. artificial neural networks learning, adopting, association and generalisation abilities of the human brain are superior to the capabilities of any computer. this ability led researchers to work on modelling the human brain in simplified form (karna & breen, 1989). artificial neural networks, which were created through these models, provided positive contributions in finding solutions to various tabulation problems. artificial neural networks’ estimation quality was found to be significantly better than regression methods’. the question at the focus of ann studies is, how the loads should change the signals. at this point, what kind of output will be generated by the data input in any form, varies by different models. another important difference is the way in which data are stored in the system. in neural design, the data stored in the computer is represented by a complete phase made up of the collection of the small load units distributed throughout the system. when new data are transferred to the medium, instead of a bulky local change, a small change is made on the whole system. today, neural network applications are implemented either by using software simulators on traditional computers or by using computers with special hardware. applications for various purposes, from credit risk assessment to signature verification, from account estimation to production quality control are implemented by using software packages (samarasinghe, 2016). 3.1 estimation of electricity consumption by artificial neural networks while there are many types of artificial neural networks, use of some are more common than the others. the most commonly used artificial neural network is the one known as the back-propagation artificial neural network. this type of artificial neural network provides good results in estimation and classification operations. another type is the kohonen self organising map. these types of neural networks provide successful results in finding the relationships between mixed data sets. ann is successfully used in processing indefinite, noisy and incomplete data. ann methodology, which should be seen as a technological advancement, provides significant advantages by virtue of its features and capabilities. it can be stated that ann draws its computing and data processing capability from its parallel-distributed structure, learning and generalisation capability. generalisation is defined as, generation of appropriate responses by ann, also for the entries that are not introduced in the training or the learning phase. these superior features demonstrate ann’s ability to solve complex problems (lek & guegan, 1999). the forward estimation of electricity consumption in turkey is essential for strategic planning and taking the necessary measures for the future. for this aim, overall power consumption estimation is performed by using the artificial neural networks method, for the whole country. 4. data and method ann can be represented in broad terms with the following scheme. here, input values and the number of neurons are figurative. these values can be determined specifically for each study. havva hilal metin in this section, implementation steps for ann’s “electricity consumption estimation in turkey” problem are described and the factors for consumption demand are analysed. the performance of ann and how well the ann model learns the data are analysed. the most commonly used accuracy models are (gately, 1996):  mean absolute error (mae, mad) =∑|et|/n,  sum squared error (sse) =∑(et)2,  mean squared error (mse) = ∑(et)2/n,  root mean square error (rmse) ,  mean absolute percentage error (mape) =(1/n)∑|et/yt |(100) et, estimation error, yt, t term observation value, n, number of error terms the most commonly used criterion among these is mse. an important feature of this criterion is the capability of parsing the estimation error into variance sums. mse criterion will be used to measure the performance of our study. 4.1 definition of the problem net electricity consumption data for turkey between years 1975 and 2016 are available and the electricity consumption in turkey between years 2017 and 2030 will be estimated by using the ann method. presence of factors that may influence electricity consumption is natural. following are the four factors we will use as input in our study and the electricity consumption data, in addition to these four factors: 1. population: number of people living in a region with definite borders is called population. an increase or decrease in the population of the region is expected to affect the electricity consumption in that region. 2. import: it is the purchase of goods produced abroad by the buyers in the country. it is one of the main factors determining the foreign trade balance of the country. an increase or decrease in the importation volume in the region is expected to affect the electricity consumption in that region. 3. export: it is the process of selling a product produced in the country, to a foreign country with foreign exchange. it is the other one of the main factors determining the foreign trade balance of the country. an increase or decrease in the exportation volume in the region is expected to affect the electricity consumption in that region. 4. gross domestic product (gdp): it describes the market value of the final goods and services produced in the country within a certain period (usually 1 year) in terms of the monetary value unit. as it increases the purchasing and production power of the people, an increase in gdp value is expected to increase electric energy consumption. 5. net electricity consumption (gwh): the abovementioned population, importation, exportation and gdp parameters are expected to affect power consumption. 4.1.1 artificial neural network architecture power consumption estimation using artificial neural networks: the case of turkey 87 in determination of the parameters to be used for implementing the most suitable ann structure, there are some techniques to be used, although not very clear. however, these methods are complex and difficult to implement. it is not certain either that they will provide the most appropriate solutions for the real estimation problems. because of this feature, ann design is often referred to as an art, rather than a science (zhang, patuwo, & hu, 1998) (42,44,49,50) 4.1.2 network training “network training” is performed during the determination of the neuron connection weight values of the ann. initial values are random. weight values are changed as examples are shown to the ann (öztemel, 2006). in the literature, number of data, training and test data set distribution is observed to be distinguished in the ratios of 90% 10%, 80% 20% or 70% 30%. according to this rule, while the training data set is used to develop the ann model, test data set is used to develop the estimation capability of the model. errors in selection of the training and test data set affect the network performance. data representing the sample space should be used for this reason (zhang, patuwo, & hu, 1998). it is observed that the back propagation algorithm is widely used in the studies regarding consumption estimations, so the multilayer, feed-forward, back-propagation algorithm is used in this study. among the data of the 42 terms between years 1975 and 2016, 70% are used for network training, 15% are used for network verification and 15% are used for testing the network. figure 2 illustrates the implemented artificial neural network model. figure 2. artificial neural network illustration as seen from the network scheme, 4 inputs with 8 neurons are used and 1 output is obtained. 4.1.3 normalisation of the data "data normalisation" operation used during the learning process of ann is studied, and it is concluded that normalisation is useful, but the advantage is reduced as sample size increases. with the normalise operation; extreme values are eliminated so that data can be modelled more efficiently. selection of the normalisation interval depends on the transfer function of the neurons in the output layer. if sigmoid function is used in the output layer, normalisation interval is selected as [0,1], if hyperbolic tangent function is used, normalisation interval is selected as [1,1] (zhang, patuwo, & hu, 1998). since our study uses sigmoid function, normalisation method is transformed to transfer within [0 1] interval. 4.1.4 hidden layer and determination of the number of neurons number of hidden layers varies according to the research area, data size and design. usually, one or two hidden layers are sufficient. increasing the number of hidden layers reduces network speed and may cause the network to memorise; whereas our aim is to enable the network to learn. a three-layer structure as input-hidden-output is generally preferred. if the results are not sufficiently satisfactory, 2 or 3 intermediate layers can be experimented. it is observed that in solution of many estimation problems, there is no need for more than 2 hidden-layer structures (zhang, patuwo, & hu, 1998). moreover, implementations reveal that, more than a total of 4 layers has reverse effect on successful performance (kaastra & body, 1996). although there is no definite rule in determining the number of neurons in the hidden layer, the optimum value depends on the network structure, amount of data, type of problem havva hilal metin and the experience of the designer. number of neurons in the hidden layer is generally determined by trial and error. in our study, we determine the neuron count by using the trial and error method. our model consists of the input layer, hidden layer and output layer. in the input layer there are 4 cells and in the output layer there is 1 cell (knot). tests are run to determine the optimal number of neurons in the hidden layer. survey of research conducted on ann, concludes that 1 or maximum two hidden layers are preferred. single hidden layer is used in our study. 4.1.5 artificial neural network matlab implementations matlab implementation is performed with the acceptances described in table 2. table 2. matlab programming language – accepted parameters regarding the ann method network type feed-forward backprop training function traingdx adaption learning function learngdm activation function (transfer function) tansig – tangent sigmoid function performance mse – mean square errors power consumption estimation using artificial neural networks: the case of turkey 89 the number of cycles and the number of circuits are kept constant and learning coefficient, momentum factor and number of neurons are tested to determine the optimal values. constant values used for the matlab implementation are listed in table 3. it’s observed that changes in the learning coefficient, momentum factor and the number of neurons affect the results and many trials were run to come to a conclusion. table 3. accepted values of parameters to be used in ann method cycle quotient 1000 circuit count 1000 number of hidden layers 1 number of layers 3 4.1.6 determination of the learning coefficient “learning coefficient” is tested with 8 neurons, momentum factor 0,9, by assigning numbers within [0,01 – 0,09] interval. as the result of the tests, the learning coefficient giving the minimum mse value is found to be 0,01. 4.1.7 determination of the number of neurons and the momentum factor momentum factor is the addition of a certain ratio of the change in the previous iteration, to the new change value. it is a factor effective on learning performance. when this value is low, it gets more difficult to eliminate regional solutions, whereas a large value may cause problems in reaching a single solution (yücesoy, 2011). it is known that the smaller the number of neurons in one layer, the higher the generalisation capability of ann. excessive number of neurons may cause the network to memorise the data, which is not a desirable situation. more than a hundred trials are run to determine the number of neurons and the momentum factor; the learning coefficient 0,01, obtained in the previous experiment is used as a constant, the number of neurons are kept within the [2-10] interval respectively, and values within [0.1-0.9] interval are assigned to the momentum factor respectively. as the result of these experiments, the minimum mse value of 0,000130 was obtained at 8 neurons and momentum factor 0,9. 4.2 testing and evaluation of the results after the test process, the estimate test output data obtained from the network are compared with the actual values. according to this comparison, mse value is obtained as 0,0024. ann parameters specified in tables 4.4 and 4.5 are used with 0,0024 error margin. this error margin is accepted to be sufficiently low, so electricity consumption for years 2017 to 2030 will be estimated by using these same parameters. table 4. comparison of the estimate values by ann and the actual values year actual value (normalise) estimate value (normalise) actual value estimate value 2002 0,410892019 0,413996862 102.948 103.624 2003 0,451395125 0,447768088 111.766 110.976 2004 0,494461253 0,482724168 121.142 118.587 2005 0,536356108 0,518353689 130.263 126.344 2006 0,595186203 0,569085398 143.071 137.389 2007 0,650598934 0,661000563 155.135 157.400 2008 0,681892613 0,726277714 161.948 171.611 2009 0,658678427 0,75382554 156.894 177.609 havva hilal metin 2010 0,72829802 0,753509078 172.051 177.540 2011 0,792828314 0,83105055 186.100 194.421 2012 0,833354386 0,849768432 194.923 198.497 2013 0,847694451 0,862369319 198.045 201.240 2014 0,890549291 0,869397325 207.375 202.770 2015 0,936192221 0,902064276 217.312 209.882 2016 1 0,95850592 231.204 222.170 table 4 below displays the sum of the estimate and the actual values. there is an error margin of 0,0024 between the test data and the estimate values. figure 4.12 illustrates the comparison of the real values and the output estimate values. figure 3. graphics representation of the estimate values by ann and the real values figure 3 contains a graphical representation of the 15 pieces of data we selected for the test set and the estimate values generated by the ann network. as it can be seen on the graph, actual values are well estimated. 4.3 consumption estimation implementation with ann it can be seen that, our network, trained with 205 pieces of data we had, is tested with 75 pieces of data along with the specified parameters, performs ideally with an error margin of 0,0024. under these assumptions, the network will be tested to estimate electricity consumption for years 2017 – 2030. our estimate data regarding this period are given in table 4.7. among these values, population values are obtained from tüi̇k (turkish statistical institute) projections, gdp values are obtained from the data calculated by using the expected annual change percentages of the ministry of treasury, and import/export data is generated by the time series method of the matlab application. table 5 shows the normalised test output values generated by the network as an estimate after the test process, as converted to actual value. 0 0,2 0,4 0,6 0,8 1 1,2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 comparison of the real values and ann estimate values gerçek değer (normalize) tahmin değeri (normalize) power consumption estimation using artificial neural networks: the case of turkey 91 table 5. ‘estimated electricity consumption’ values converted from normalised estimate to real values year electricity consumption estimation (gwh) year electricity consumption estimation (gwh) 2017 296.018 2024 376.443 2018 302.304 2025 386.557 2019 292.293 2026 363.355 2020 325.232 2027 384.993 2021 341.088 2028 396.672 2022 346.650 2029 422.833 2023 323.958 2030 431.077 5. conclusion estimation is forecasting how something will turn out in a future time, from today. business decisions are made upon estimates for the future. businesses need to take measures and make plans, determine their strategies today, by estimating now, the indefinite situations they may face in the future. in the studies we carried out for the solution of the problem, we tested the back-propagation algorithm of artificial neural networks as an estimation tool. ann theory and the applications to be estimated are studied. in our application study, electricity consumption between years 1975 and 2016 is given in gwh. factors affecting electricity consumption were specified by consulting experts in the interviews held before the study. information on these factors was obtained from institutional sources such as tüi̇k, tei̇aş, menr, the ministry of treasure, etc. in estimation of electricity consumption, the yearly net electricity consumption data in turkey were taken into consideration. 4 main factors affecting electricity consumption in turkey were addressed. these factors are; population, imports, exports, gross national product. the extent to which these independent variables affect electricity consumption in the country were discovered by the tests performed, and the obtained results were evaluated. regarding these 4 factors, 168 pieces of data from 42 terms between years 1975 and 2016 were presented as “input”, and 42 pieces of data regarding electricity consumption were normalised as “estimate” within [0 1] interval and presented to the network for training and testing purposes. thus, the training of the network was performed and the optimum parameters to be used for testing were determined. the data on the last 15 years were re-entered into the network by using these parameters, the output estimate values were compared with the actual values, to calculate the mse value. as the error margin 6,17e+07 turned out to be fairly acceptable, electricity consumption estimation between years 2017 and 2030, which is the main objective of this study, was performed with the same parameters, 6,17e+07 error margin, to obtain the target estimations. references akay, d., & atak, m. (2007). grey prediction with rolling mechanism for electricity demand forecasting of turkey. energy 32, 1670–1675. bp statistical review of world energy. (2015). http://databank.worldbank.org/data/reports.aspx?source=world adevelopment-indicators#. http://databank.worldbank.org/. adresinden alındı çunkaş, m., & taşkiran, u. (2011). turkey’s electricity consumption forecasting using genetic programming. energy sources part b 6, 406–416. gately, e. (1996). neural networks for financial forecasting: top techniques for designing and applying the latest trading systems. new york: john wiley & sons, inc. hamzaçebi, c., & es, h. (2014). . forecasting the annual electricity consumption of turkey using an optimized grey model. energy 70, 165–171. kaastra, i., & body, m. (1996). designing a neural network for forecasting financial and economic time series. neurocomputing, 215-236. karna, k. n., & breen, d. m. (1989). an artificial neural networks tutorial: part 1-basics. neural networks, 5-23. kavaklioglu, k. (2011). modeling and prediction of turkey’s electricity consumption using support vector regression. appl. energy 88, 368-375. havva hilal metin kavaklioglu, k., ceylan, h., ozturk, h. k., & canyurt, o. e. (2009). modeling and prediction of turkey’s electricity consumption using artificial neural networks. energy convers. manage. 50, 2719-2727. kaytez, f., taplamacioglu, m. c., cam, e., & hardalac, f. (2015). forecasting electricity consumption: a comparison of regression analysis, neural networks and least squares support vector machines. electrical power and energy systems 67, 431–438. lek, s., & guegan, j. f. (1999). artificial neural networks as a tool in ecological modelling, an introduction. ecological modelling, 65-73. öztemel, e. (2006). yapay sinir ağları sayfa 55. papatya yayınvılık. samarasinghe, s. (2016). neural networks for applied sciences and engineering: from fundamentals to complex pattern recognition. crc press. sözen, a., arcaklioğlu, e., & özkaymak , m. (2005). turkeys net energy consumption. appl. energy 81, 209–221. wilcock, m., pallemaerts, m., & kummer, k. (1993). vi. international hazard management other than neclear. yearbook of international environmental law. www.enerji.gov.tr. (2018). www.enerji.gov.tr: http://www.enerji.gov.tr/file/?path=root/1/documents/e%c4%b0gm%20periyodik%20rapor/ocak%c5%9eubat%20b%c3%bclteni_son.pdf adresinden alındı yanar, r., & kerimoğlu, g. (2011). türkiye'de enerji tüketimi, ekonomik büyüme ve cari açık i̇lişkisi. ekonomi bilimleri dergisi, 193. yücesoy, m. (2011). temizlik sektöründe yapay sinir ağları ile talep tahmini. i̇stanbul: i̇stanbul teknik üniversitesi. zhang, g., patuwo, b. e., & hu, m. y. (1998). forecasting with artificial neural networks. the state of the art. international journal of forecasting, 42; 44; 49; 50. journal of international trade, logistics and law, vol. 5, num. 2, 2019, 10-16 10 assessing determinants of nepali international trade: a reference to the world trade organization arun gc ministry of agriculture and livestock development, nepal received: sept 03, 2019 accepted: nov 29, 2019 published: dec 30, 2019 abstract: nepal, a land-locked by two giant economies china and india, is the first "least developed country" (ldc) to become a member of the world trade organization (wto) through the negotiation process. moreover, nepal aimed to diversify its trade and to make the trade regime more liberal to integrate into a global trading system being a member of the wto. therefore, the paper aimed to evaluate impacts of determinants of nepali international trade. the secondary data were accessed from the nepal rastra bank and the world bank. more importantly, to execute a multiple regression model, we used the world bank data from 1965 to 2015. the result suggested that agricultural value addition, industrial value addition and service value addition showed a different impact on nepali international trade. the determinants of nepali international trade can be internalize in trade policy of nepal to achieve it initial objectives. keywords: international trade, world trade organization, nepal 1. introduction trade liberalization is considered as one of the key approaches to achieve higher efficiency in international trade and economic development (oecd, 2017). tariff and non-tariff barriers are the important factors affecting the efficiency of the trade. meanwhile, the world trade organization (wto) was established on january 1, 1995 (wto, 2015) to encourage member states on the reduction of the tariff and removal of the non-tariff barriers to the trade. consequently, any member of the wto aims to get wider market access and diversify their trade – both an export and an import. nepal is the first "least developed country" (ldc), which became 147th member on 23 april 2003 (pandey, adhikari, & wagle, 2014) of the wto through a "full working party negotiation" process (adhikari, dahal, & pradhananga, 2008). more importantly, it is a land-locked by china in the northern part and by india in remaining all three directions. likewise, geographically, nepal is divided into three regions: terai (23%), hills (44%) and mountain (34%), with total sky area of 147,181 km¬2 (moad, 2015). among the population of 26.5 million (as of 22 june 2011) (cbs, 2014), 65.6 percent population depends on agriculture (moad, 2015) which contributes 35% to the gross domestic product (gdp) (mof, 2017). moreover, in 2015/16, the gdp of nepal was rs. 694 billion with 6.94% annual growth, which was rs 522 billion with 5.8% annual growth rate in 2007/08 (mof, 2017). similarly, its total international trade was rs. 1,030 billion in 2016, among which rs. 74.59 billion (7.24%) was export and rs. 956.5 billion (92.86%) was import (tepc, 2017). in 2015/16, the share of import was 34.4% to the gdp and the share of export was just 3.1% to the gdp. whereas in 2007/08 they were 7.3% and 27.2% respectively (mof, 2017). more importantly, nepal is also earning a large amount of foreign currency from remittance which was rs 665.1 billion in 2015/16 and it is heavily reliant on foreign aid to pursue its economic development goals (jull, 2006). nepal's foreign-trade is heavily depending on the two giant neighbors – india and china. in 2015/16, out of rs. 70 billion, the trade value of 39.49 billion occurred with india and 1.68 billion with china which jointly occupied 58.8% (nrb, 2017). likewise, in 2007/08 share of india alone in nepali international trade was 70.41% (nrb, 2017). assessing determinants of nepali international trade: a reference to the world trade organization 11 during 2009 to 2016, nepal’s major imports were "petroleum", "m.s. billet", gold, "liquefied petroleum gas", crude soybean oil, "motorcycle", "telephone", "rice", "medicines" and "cement clinkers". similarly, during the same period, top export were carpet, woven fabric, lentils, woolen shawls, flat rolled iron products, jute bags, single yarn, wire of iron, mixture of juice and big cardamom (tepc, 2017). 2. objective even after decades of being a member of the wto, nepali trade has not changed the momentum as expected – especially on the export side. therefore, the paper attempted to assess the nepali trade sector and sought to compare the trade regime before and after the accession to the wto. specifically, the paper tried to accomplish following two specific objectives. i. to evaluate determinants of nepali trade ii. to assess nepali trade before and after the accession to the wto 3. methodology 3.1. data the data on an export and an import of “goods and services”, value addition of agriculture, industry and service sectors, the gross national income (gni) and the exchange rate was accessed from the world bank databank (http://databank.worldbank.org/data/home.aspx) since 1965 to 2015. thus, obtained data were transformed into billion usd from current usd except official exchange rate. the official exchange rate was taken as local currency per usd. to evaluate the diversification of the destination for nepal’s international trade, data from fiscal year 1994/95 to 2016/17 were used from the nepal rastra bank, the central bank of nepal (https://nrb.org.np/red/publications/economic_bulletin/quarterly_economic_bulletin--2017-04_(mid_april)new.pdf). 3.2. model specification the three models were specified to conduct the study. the first model dealt with total trade. total trade is defined as the sum of the export and the import of an individual year. total trade was assigned as a dependent variable and remaining variables – agriculture value addition, service value addition, industrial value addition, gni and the exchange rate were used as the independent variables. then, the multiple regression models for the total trade were defined as y = x β +e ………………………….(1) e~ independent identical distribution n(0, σ2) where, y = (51 × 1) total trade value vector x = (51 × 6) (agva, serva, indva, gni, ex and constant) with first column is one vector β = (6×1) least square estimator vector e = (50×1) error term vector further, the models have been specified to assess the impact on the export and the import using same dependent variables. ye = xe βe +e ………………………….(2) e~ independent identical distribution n(0, σ2) where, ye = (51 × 1) total trade value vector xe = (51 × 6) (agva, serva, indva, gni, ex and constant) with first column is one vector βe = (6×1) least square estimator vector e = (50×1) error term vector similarly, yi = xi βi +e ………………………….(3) e~ independent identical distribution n(0, σ2) where, yi = (51 × 1) import value vector xi = (51 × 6) (agva, serva, indva, gni, ex and constant) with first column is one vector βi = (6×1) least square estimator vector e = (50×1) error term vector https://nrb.org.np/red/publications/economic_bulletin/quarterly_economic_bulletin--2017-04_(mid_april)-new.pdf) https://nrb.org.np/red/publications/economic_bulletin/quarterly_economic_bulletin--2017-04_(mid_april)-new.pdf) arun gc 12 here, tv = total trade volume in billion usd agva = agriculture value addition in billion usd serva = service value addition in billion usd indva = industrial value addition in billion usd gni = gross national income in billion usd ex = official exchange rate in local currency to usd 3.3. data analysis the data was analyzed using the ordinary least square technique. the statistical package r is used for the data analysis. 4. results the results has been presented obtained from the analysis. 4.1. descriptive analysis the descriptive analysis, mean, median, variance, standard deviation and number of observations were considered. the table below presents the descriptive analysis of the dataset. table 1: descriptive analysis of the variables tv agva serva indva gni ex median 1,179.62 1,644.67 1,104.30 556.71 3,531.84 29.37 mean 2,501.36 2,090.16 2,205.26 854.97 5614.17 41.23 variance 8322129.00 2805672.00 7179445.00 701909.80 33701760.00 927.99 std.dev 2884.81 1675.01 2679.45 837.80 5805.32 30.46 no. observations 51 51 51 51 51 51 trade value (tv), agriculture value addition (agva), service value addition (serva), industrial value addition (indva) and gross national income (gni) are in billion usd. the exchange rate (ex) is in nepali rupee per usd. 4.2. total trade to assess the determinants of total trade a multiple regression was employed and the result has been presented in table 2. table 2: estimates of the total trade model estimates standard error t-value pr(>|t|) intercept 74.32 71.24 1.04 0.30 agva -3.44 0.21 -16.48 < 2×10^(-16) *** serva -3.19 0.24 -13.44 < 2×10^(-16) *** indva -1.11 0.30 -3.71 0.000566 *** gni 3.06 0.18 17.05 < 2×10^(-16) *** ex 9.99 2.50 4.00 0.000234 *** residual standard error 133.6 degree of freedom 45 assessing determinants of nepali international trade: a reference to the world trade organization 13 multiple r-squared 0.9981 adjusted r-squared 0.9979 f-statistic 4652 on 5 and 45 df p-value < 2.2e-16 significant. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 the final model for total trade is tv = 74.32 + (-3.44) agva + (-3.19) serva + (-1.11) indva + 3.06 gni + 9.99 ex ………………(4) the independent variables in the model are explaining the total trade by 99.81% as multiple r-squared value was found 0.9981 with the p-value less than 2.2*10^(-16) and all dependent variables are highly significant. moreover, all the value additions – agriculture, service and industrial were found negatively affecting the total trade. however, the gni and the official exchange rate were found positively affecting the total trade. the model suggests that the total trade goes on increasing with decreasing rate if all the value additions increase. a unit increase in agriculture value addition leads to decrease the total trade by 3.44 billion usd if all other variables kept constant. similarly, a unit increase in the service value addition leads to decrease the total trade by 3.19 billion usd – keeping all other variables constant. likewise, a unit increase in industrial value addition causes a decrease in the total trade by 1.11 billion usd, subjected to an assumption of keeping other variables constant. in case of the gni, a unit increment in the gni increases the total trade by 3.06 billion usd. finally, a unit increase in the official exchange rate causes increase in the total trade by 9.99 usd. 4.3. export to determine the factor affecting nepali export the multiple regression model was run and the result was presented in table 3. table 3: estimates for the export model estimates standard error t-value pr(>|t|) intercept 41.93 43.95 0.95 0.34 agva -0.67 0.13 -5.24 4.11e-06 *** serva -0.67 0.14 -4.55 4.04e-05 *** indva 0.38 0.19 2.05 0.0462 * gni 0.52 0.11 4.64 2.98e-05 *** ex 8.91 1.54 5.78 6.61e-07 *** residual standard error 82.43 degree of freedom 45 multiple r-squared 0.9865 adjusted r-squared 0.985 f-statistic 657.8 on 5 and 45 df p-value < 2.2e-16 signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 arun gc 14 the final export model is: export = 41.93 + (-0.67) agva + (-0.67) serva + (0.38) indva + 0.52 gni + 8.91 ex ……………(5) the independent variables in the model are explaining the total trade by 98.65% as multiple r-squared value was found 0.9865 with the p-value less than 2.2*10^(-16) and all dependent variables are highly significant except industrial value addition which is significant at 90%. two value additions – agriculture and service, were found negatively affecting the export. however, the industrial value addition, the gni and the official exchange rate were found positively affecting the export. a unit increase in agriculture value addition leads to decrease the total trade by 0.67 billion usd if all other variables kept constant. similarly, a unit increase in the service value addition leads to decrease the total trade by 0.67 billion usd – keeping all other variables constant. likewise, a unit increase in industrial value addition causes increase in the total trade by 0.38 billion usd, subjected to assumption of keeping other variables constant. in case of the gni, a unit increment in the gni increases the total trade by 0.52 billion usd. finally, a unit increase in the official exchange rate causes increase in the total trade by 8.91 usd. 4.4. import to assess the determinants of import, the multiple regression model was executed, and the result has been presented in table 4. table 4: estimates for the import model estimates standard error t-value pr(>|t|) intercept 32.40 46.32 0.70 0.49 agva -2.76 0.14 -20.37 < 2e-16 *** serva -2.53 0.16 -16.35 < 2e-16 *** indva -1.49 0.20 -7.65 1.11e-09 *** gni 2.55 0.12 21.82 < 2e-16 *** ex 1.08 1.62 0.67 0.51 residual standard error 86.87 degree of freedom 45 multiple r-squared 0.9987 adjusted r-squared 0.9985 f-statistic 6694 on 5 and 45 df, p-value < 2.2e-16 signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 the final model for import is: export = 32.40+(-2.76) agva+(-2.53) serva+(-1.49) indva+2.55 gni+1.08 ex ………………(6) the independent variables in the model are explaining the total trade by 99.87% as multiple r-squared value was found 0.9987 with the p-value less than 2.2*10^(-16) and all dependent variables are highly significant. all the value additions – agriculture, service and industrial, were found negatively affecting the import. however, the gni and the official exchange rate were found still positively affecting the import. a unit increase in agriculture value addition leads to decrease the total trade by 2.76 billion usd if all other variables kept constant. similarly, a unit increase in assessing determinants of nepali international trade: a reference to the world trade organization 15 the service value addition leads to decrease the total trade by 2.53 billion usd – keeping all other variables constant. likewise, a unit increase in industrial value addition causes decrease in the total trade by 1.49 billion usd, subjected to assumption of keeping other variables constant. in case of the gni, a unit increment in the gni increases the total trade by 2.55 billion usd. finally, a unit increase in the official exchange rate causes increase in the total trade by 1.08 usd. comparing all these three models, the agricultural value addition and service value addition were found negatively affecting the total trade, export and import. however, the gni and the exchange rate were found positively affecting the total trade, export and import. in the case of industrial value addition, it was found positively affecting in export but negatively affecting total trade and import. figure 1: fitted line for all three regression models. (red colour indicates original value and blue colour indicates predicated value) the figure suggests that the model can predict the total trade, export and import with higher degree of accuracy. 5. conclusion the econometric and quantitative analysis of trade data allowed us to evaluate the performance of nepali trade before and after the accession to the wto and determination of the role of value additions to the trade. agricultural arun gc 16 value addition, industrial value addition and service value addition showed a different impact on nepali international trade. in the case of total value, all value additions are affecting negatively. the more insight was obtained from disaggregation of the total trade value into export and import. for the export industrial value addition was found positively contributing while agricultural value addition and service value addition were still found negatively affecting with marginal effect. as in total trade, import was found negatively affected by all value additions. it showed that if all – agricultural, service and industrial value additions were increased, import can be reduced. the model suggested that agricultural and service value additions are stronger factors to reduce import. in the case of export, the model suggested that industrial value addition is good option to promote export. the gni and exchange rate were found strong positive influencing factors affecting to total trade, export and import. the higher exchange rate was found favorable for the promotion of export rather than import. the surge of the import alone is not a bad indicator for developing economies like nepal. however, disaggregation of import list suggested that the increasing imports are merely promoting productivity of the economy since most of the imports are for immediate consumptions. therefore, increasing import is exerting pressure to the domestic industry and negatively affecting their welfare. considering increasing trade deficit of nepal, the export and import models, used here, have provided useful information for policy-makers to manipulate trade policy to achieve narrow down trade deficit. similarly, significant trade diversification is crucial for the export promotion and import management. references adhikari, r., dahal, n., & pradhananga, m. (2008). ensuring development-supportive assession of the least developed countries to the wto: learning from nepal. kathmandu: international institute for sustainable development. cbs. (2014). population monograph of nepal. kathmandu: central bureau of statistics, national planning commission secretariat, government of nepal. jull, c. (2006). the impact of agriculture-related wto agreements on the domestic legal framework in the kingdom of nepal. rome: united nations food and agriculture organization. moad. (2015). statistical information in nepalese agriculture. kathmandu: ministry of agricultural development(moad), government of nepal. mof. (2017). economic survey 2016/17. kathamndu: ministry of finance, government of nepal. nrb. (2017). nepal rastra bank: quarterly economic bulletin -mid april 2017. kathmandu: nepal rastra bank (nrb). oecd. (2017, 6 12). trade liberalisation. retrieved from oecd: http://www.oecd.org/tad/tradeliberalisation.htm pandey, p. r., adhikari, r., & wagle, s. (2014). nepal's accession to the world trade organization: case study of issues relevant to least developed countries. new york: united nations department of economic and social affairs. tepc. (2017). export import data bank. retrieved from trade and export promotion center: http://www.efourcore.com.np/tepcdatabank/transactionmonthwise.php?searchreport=transactionmonthwise.p hp wto. (2015). 20 years of the wto: a retrospective. geneva: world trade organization. journal of international trade, logistics and law, vol. 5, num. 1, 2019, 28-34 28 relational marketing activities in the scale of ataköy marina istanbul güzide öncü eroğlu pektaş istanbul university cerrahpaşa, turkey received: may 01, 2019 accepted: june 07, 2019 published: june 15, 2019 abstract: as it is known main purpose of the modern marketing is to create a satisfied and loyalty customer. first requirement of the relationship marketing is to create lifelong customer, means to create a customer with happiness, satisfaction and loyalty. marina management is a type of tourism facility administration. marinas are the companies that support tourism both regional and international area in order to improve the service quality and customer satisfaction. in this research ataköy marina, one of the most important marinas of turkey is chosen with case analyze method. it is a considerable fact that yachts are small, luxury and floating hotels, carrying their own beds, which their expenses of repair and maintenance are met by yachtsmen and yachtswomen themselves and that yachting is an important source of income contributing to the economies of the countries visited. observations and interviews are made with the managers of the ataköy marina residents etc. we hope this research will help the future studies about marina concept in both customers and manager view. keywords: customer relationship management, marine management, relationship marketing 1. introduction customers are nonetheless becoming less loyal and apparently more demanding and more sophisticated due to a number of reasons including abundance of choices, availability and access to information, commoditization of services. (ojiaku, aghara and obianuju l., 2017, p.60) according to berry (1995) it involves strengthening relationship with current customers and retaining them rather than acquiring new ones. the logic underlying relationship marketing is that customer relationship should be approached on a long-term basis such that customers acquired are retained. (dibb and meadow, 2001; ojiaku, aghara and obianuju l., 2017) as is known the aim of contemporary marketing is primarily to create satisfied customers, and then loyal ones. the aim of applying relational marketing in business organizations is to form the concept of lifelong customers and provide its continuance. marina management is a part of service class. marinas are business organizations representing the tourism of the country in both national and international scale. in this context, they adopt relational marketing activities to offer a better service for tourists and increase customer satisfaction. meanwhile marinas form the heart of countries having coasts. nowadays it has been observed that many coastal countries have increased their wealth thanks to the advances in navigation. while studying the history of countries it is seen that countries with coasts are very important in this respect and play an important role in commercial and tourism activities amongst remote countries. yacht tourism is also important and creates a considerable sourc e of liquidity. more than the aim of transportation, yacht tourism is the whole recreational activities, done by using boats with a limited tonnage and passenger capacity, with the intention of travel, culture, vacation, sport and so on. (kahraman, 2018, p. 326) marketing activities of the port operator companies which have the specific features of service sector are to obtain new customers, retain the existing customers and inform them, and tell local people about or remind them of economic and social contributions to the location where ports operate. (esmer, 2011) marina firms are service establishments operating in the field of sea tourism. in recent years the developments in the business of marina in our country, raise in the number of marinas and in the anchorage capacity increase the competition amongst the relational marketing activities in the scale of ataköy marina (istanbul) 29 firms, and in order to retain their present customers and establish long-termed relations with them, marina managers look for ways to apply and develop some methods. (arlı, 2103, p. 61) being the golden rule of customer relations management, retaining the old customers than finding new ones appears as an important concept, particularly in service management. today it is resorted to differentiation in tracks left on customers more than increasing competition, creating value over customers in the problems of differentiation of firms and 4p. in other words, marketing work is done on customers such as costumer relations management, relational marketing, direct marketing and micro marketing. this shows that now marketing is done on the basis of customers. especially in the service sector requiring close relations with costumers, the quality of interaction between customers and management along with staff members becomes one of the most important determinants of perceived service quality and the dimension and quality of interaction between customers and management along with staff members emerge as the most important value to determine the direction of marketing endeavors. (hart and johnson, 1999, p.9-17; uyguç, 1998, p. 34-35). warm and close one-to-one contact depending on the service offered to customers and making them feel confident and special may lead customers to decide to depend on the firm and continue to purchase the service. (arlı, 2013, p. 62) it is possible to define relational marketing as forming, maintaining and developing customer relations in multiservice organizations. (berry, 1995) this assures the relations between firms and customers to be lasting and to realize customer loyalty. relational marketing applications in marina operating firms play an important role not only in terms of marina firms, but also in the publicity of a country. in particular, the fact that foreign boat owners who tie up their boats in a marina in turkey are happy with the service given and the ties provided will cause to share this experience with other foreign boat owners, will contribute to the publicity of turkey and turkish people and will get foreign boat owners to prefer the country. (arlı, 2013, p. 62) 1.1. relational marketing in technical literature, when the studies about relational marketing is considered, the relations amongst the firms are studied in detail, and generally under the headings of loyalty and trust, how relational factors shaped relations has been researched. (özdemir ve koçak, 2012, p.131) although relational marketing has more than one definition in literature, (harker, 1999; kulabaş ve sezgin, 2003, p.76) in academic studies it is dealt with various marketing approaches and comparisons. grönroos (1994), the inventor of the most widely accepted definition, compared relational marketing with classical marketing in detail. grönroos defines relational marketing briefly as the transformation of products into service. he expressed that adding value to the product is the most important step (raveld and grönroos, 1996; kulabaş ve sezgin, 2003, p.76) in this transformation. marketing of the value added to products and services and relational marketing becomes more significant, and new customers are created as well. having a good relationship makes the stakeholders of the firm more eager to contribute, attracts good talent, helps retain existing customers (başçı ertemel, 2016, p.1). the most important and basic factor to create loyal customer is to form a lasting relationship model with customers and to assure its continuance. to form, maintain and develop customer relations, firms attract consumers by promises related to the products and services offered. as for customers, they give promises from their point of view. it is necessary for both sides to abide by their promises based on trust to maintain long-termed good relations. in relational marketing firms principally try to keep customers in the center and to be close with them. they are attentive to the issues of customer loyalty, encouraging customers to purchase more goods and services more often, increasing their lifelong value, and taking costs under control. for these reasons relational marketing assumes an important role for firms and becomes an indispensable practice. on this point, the advantages of relational marketing can be summarized in three main headings (odabaşı, 2013, p. 20): • the advantages resulted from close relations formed and carried out with costumers, • the advantages derived from the improvements in customer satisfaction that could come out from the practices relational marketing, • financial benefits that relational marketing can provide for firms. güzide öncü 30 table 1. comparison of relational marketing and traditional marketing relationship marketing traditional marketing  focus on customer keeping  continuous customer relationship  focus on customer value  long-term perspective  on customer service is overemphasize  high promise to meet customer expectations  all employees are interested in quality  focus on product features  focus on sales only  intermittent customer relationship  short-term perspective  less dwell on customer service  limited promise to meet customer expectations  only manufacturers are interested in quality source: odabaşı, 2013: 20 the focus of this approach consists of settling relations on a strong and healthy ground, making customers loyal and transforming customers into regular ones, making them familiar faces. in the practice of relational marketing, if customers are very interested in products and services they will buy and if there is a personal contact between customers and salespersons, customers are more eager to establish relationship with service providers. mere efforts of firms to maintain lasting and sound relations will not be enough. customers, too, must show this willingness. therefore, the efficiency of practices of relational marketing comes to the fore with the willingness of both sides and their mutual close and warm relationship. 1.2. marina dwellers tourism has become a sector taking its share from commodity and service productions in the fields of economic activities like transportation, communication, accommodation, catering, entertainment, and health. tourism also steers economic structures and systems of the countries. firms which directly contribute to these systems are marinas. yachts which are served in these marinas are the boats, built with the aim of travel, entertainment, relaxation and sport, with various types, sizes, speeds and functions. it is a considerable fact that yachts are small, luxury and floating hotels, carrying their own beds, which their expenses of repair and maintenance are met by yachtsmen and yachtswomen themselves and that yachting is an important source of income contributing to the economies of the countries visited. from this point of view, those who lodge in the marina and receive this service are called marina dwellers. as long as they get service and lodge, they are qualified as the customers of marina, in other words marina dwellers. it is observed that marina dwellers, namely yachting tourists are a very important source of income in terms of yacht tourism as they spend money over the average spending per tourist. for yacht owners yachting is sometimes a passion to discover new places. as long as this passion exists, there will be always need for places to harbor and tie up yachts. it should be thought as a basic factor that increases competitive advantage, provides the costumer’s loyalty, and creates the best and unmatched costumer value since the customer’s preference will be based on the value given by the firm. high quality customer value is a status that can be reached by creating more value than rivals for the customers of firms. (onaran vd, 2013, p. 38) the concept of customer emerged when trade came to exist and has become a common and unchanging element from the early ages when swap started to appear up to now. this is why how firms can obtain customers, how to retain the customers they already have and how they can be more effective in competition depend on attaching importance to the customers’ expectations. (çatı and others, 2010, p. 431) gwinner, gremler and bitner (1988) indicated that three basic factors which will be useful for service firms in their long-termed relations with their customers are to give confidence, socialize and offer the benefit of special treatment. as for the basic factors to form confidence are to eliminate worries, trust in service providers, reduce the perception of risk concerns and be aware of what the customers’ expectations are. (çatı and others. 201, s. 431) in marina management, too, it is very important to meet customers’ all demands and needs with the relational marketing rules and provide complete customer satisfaction. satisfaction criteria are very important for customers whom we call relational marketing activities in the scale of ataköy marina (istanbul) 31 marina dwellers. these criteria result from service quality and the activities of customer relations management and relational marketing in the marina. if marina management provides this, it is possible to speculate that the marina dweller will remain happy and loyal to that marina. the marina customer’s satisfaction from the service he receives has a direct effect on his preference for the same firm next time. as long as the customer is happy, he or she will prefer to get service from the same firm next time. 2. ataköy marina ataköy marina, located in the southern end of the bosporus opening to modern and mysterious istanbul where the continents of asia and europe unite, is an important harbor for yachts. ataköy marina is the first marina which has been awarded with the 5th gold anchor by the yacht harbor association ltd. apart from this; ataköy marina has the feature of being the first harbor awarded with blue flag by fee (foundation of environmental education). right beside ataköy marina, located in ataköy tourism complex which is one of the biggest projects of turkey, are sheraton istanbul ataköy hotel, ataköy marina hotel, ‘galleria’, the first shopping mall of turkey, and the sport complex called ‘sport international’. it is possible to say that the hotels around it add to the location and trademark value of ataköy marina. in photo 1 there is a shot taken from the website of ataköy marina. there it is possible to see the size and beauty of the marina. ataköy marina has a very different situation with its marina settlement plan and geopolitical position. it may be said that a wide wellness center has been formed with a street of shops inside and areas of a shopping center, cafés, and restaurants. marina park (the name of the complex in the marina) consists of 20 cafe-brasserie-restaurant chain, 20 flats of a residence and 20 stores in ataköy. the services offered in ataköy marina are given in table 2. photo.1 ataköy marina a square from web site table 2. ataköy marina services front office services port services maintenance-repair services social services  guidance in transitlog procedures  information about daily meteorology  communication services  internet access  library  doctor service  sos service  taxi  rent a car  mooring line service (7/24)  backup and recovery (7/24)  diving services  water and electricity  toilet and bath  laundry and ironing  telephone connection to boats  cable tv connection  wireless internet access  travel lift (max. 63 ton  forklift  mobil crane  mast disassembly service  free on-site parking  boardyard area  washing  paint and polyester works  yacht club  sailing school  swimming pool  children game area  fitness center  park  car park  ataköy marina park“lifecenter "  galleria shopping centre güzide öncü 32  tourist information  free parking for 1200 cars  vaulted anchoring system at berths (16-30m)  surveillance tower and camera control (7/24)  communication by walkie-talkie (vhf 73) (7/24)  security services with security elements and security cameras (7/24)  fire warning and extinguishing systems  sales gasoline and gas (7/24)  sales motor oil (7/24)  market and süpermarket  yacht broker companies  enginemaintenance repair  electricity  furniture  hydraulic system repair  stainless and chrome work  sail-canvasflooring  rigging and hardware works  ventilation and cooling  inflatable boat  boat interior and exterior cleaning  marine supplies stores  fish restaurant source: www.docdroid.net/mo3pb9g/atakoy-marina-katalog.pdf 2.1. relational marketing activities in ataköy marina the main aim of this study is to determine customer profile according to relational marketing activities and to make assessments on this point. marina dweller’s depiction is tried to make particularly with the services offered by the marina management and applied relational marketing. in the research section, ataköy marina, one of the oldest and most important marinas in istanbul, has been chosen and interviews have been done with the firm manager and sector officers from there. interviews have been performed with yalçın dülger, the general manager of ataköy marina, bülent argüç, the firm manager, and i̇lyas korkmaz, the chief of the marina firm, on an individual basis. in august and september, the marina was visited two times and a face to face meeting was done. the marina officers were asked questions about the marina and interviews were done on marina customers. the materials used in the interviews were a sound recorder and a camera. various questions were asked during the face to face interview with the managers ataköy marina. the questions asked in the research part were recorded by a sound recorder, and then the notes taken were arranged in the scope of research process and prepared in the written format. the answers of the questions were transferred at first hand. the questions asked and their answers are below. -how do you describe your customers? former customers and the present ones are quite different. especially after the crisis of 2001, with “the passing of money into other hands”, we may say that our customer profile completely changed. the types of jobs of our present customers can be sorted as building contractors, car dealers, lawyers, real estate agents, and business persons. while in the past we appealed to a social segment having a higher cultural level like doctors and artists, it may be said that nowadays we are serving people who are economically more powerful, but with a lower cultural level. our customer profile that in the past we defined as “the gentleman of istanbul” can be described now as the ones earning a lot, but becoming a part of consumption culture and having a faster pace of life. how do you explain the change in your customer profile? first of all with the change of general cyclical situation (world trends), namely with the passing of money into other hands, our customer profile has changed. after the privatization of ataköy marina in 2005 our prices increased and after 2008 they increased more. it may be said that these prices seriously decreased the number of real sailors. however, hull lengths increased, but it didn’t change our profits. real seamanship and the number of sailors decreased. relational marketing activities in the scale of ataköy marina (istanbul) 33 -how do the marina dwellers spend their time? our present customers use the yacht harbor mostly for the aim of recreation at the weekends, while our former customers did this particularly to see the beauties of istanbul and for the love of the sea. in the past our marina dwellers preferred to spend their weekends in the sea, not in the marina. today, however, our marina dwellers prefer to spend their time by relaxing and entertaining on the yacht. it is also possible to say that they use their yachts more for friends and business meetings. -how do you explain your customer satisfaction and loyalty? we may say that our loyalty rate is very high. the fact that there are no alternatives in the immediate surroundings is an important factor. as we are an old marina in terms of brand familiarity and geopolitical position of ataköy marina, this, too, is a very determinative factor. we may say that our 80 percent customers are the former ones. we understand this from the term of contracts. various discount rates play an important role in retaining our former customers. also, the quality of services we offer determines and affects our customer satisfaction. that we know our customers and their needs well determines and affects our customers’ loyalty. -do you have a crm department for your customers? we do not have a special crm department. on this point as the management team we do we are well equipped to meet, on behalf of our customers, their all sorts of requests and needs from a to z (as soon as yachts enter the marina we provide all the services like the process of tying up, security and so on)., and we do this in the best way. customer satisfaction is the most important thing for us. requests and needs of marina dwellers are not theirs anymore, but ours. we are offering services with this understanding. this naturally results in customer satisfaction. in addition, we help our customers perform activities like birthday parties, graduation parties and wedding or engagement ceremonies. furthermore, as a firm, as we know our customers well, we try to contact them with some activities like competitions or celebrations aimed at them and help them have the time of their life here. all these, in fact, can be an example of the fact that we do crm activities and have a good relationship with our customers. 3. conclusion and recommendations a lot of factors like increase in competition, industrialization and globalization have caused the products and services offered by firms to resemble each other. this has led firms to tend towards different marketing channels. this has also resulted in stronger relations between firms and customers and in preferring the concept of relational marketing activities, reflecting the longer-termed relationship model and, as a result, aiming at the customer loyalty. relational marketing activities preferred especially by service and industrial enterprises are preferred by marina enterprises as well. in the meantime, increasing importance of relational marketing often appears before us in creating the concept of country and city brands. relational marketing practices in marina firms play a great role not only in marina enterprises, but also in the publicity of a country. in this context, the effect of relational marketing in the outstanding customer satisfaction is clearly seen. marinas are typically customer-focused enterprises in terms of the service they offer. additionally, because yachting tourists spend money over the average spending per tourist, it is obviously observed that yachting tourism is a very important source of income for our country. in consequence of ever-increasing importance of yachting tourism offering customer-focused service and also as a result of adopting relational marketing factors, it is an indispensable fact that both customer portfolio and customer satisfaction will increase. as the variety and quality of services improve, occupancy rate will increase. in this context, ataköy marina will be irreplaceable for visitors for both its location and its own structure. in the evaluation of ataköy marina enterprise, the location and geopolitical position of the marina is important. this is very important in the preference of marina customers. in the bilateral discussions, it may be said that executive team of the marina is very caring and has definitely fulfilled the criteria of relational marketing. it is quite determinative that they immediately respond to customers’ demands and needs and that they maintain the order and the division of labor in the marina. this study primarily aims to light the way for marina managers, and then for similar studies. it will also provide integrity with a quantitative study. the next study plan bears the aim of the integration of the customer satisfaction survey with the data of this study. moreover, with the concept of marina dweller it is aimed to contribute to the güzide öncü 34 technical literature. the term of marina dweller may have contribution in different dimensions with satisfaction scales and new quantitative studies. this has an instructive quality for marina managers and other enterprises in the sector. references arlı, erdal, (2013). “marina 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model önreisi”, ankara sbf dergisi, cilt. 67, no.2, s.127-156. uyguç, n., (1998). hizmet sektöründe kalite yönetimi; stratejik bir yaklaşım. dokuz eylül yayınları, 1.baskı, aralık, i̇zmir. http://www.atakoymarina.com.tr/ erişim tarihi: 14.08.2018 www.docdroid.net/mo3pb9g/atakoy-marina-katalog.pdf, erişim tarihi: 24.08.2018 journal of international trade, logistics and law, vol. 6, num. 2, 2020, 119-136 119 aviation and covid-19 pandemic: towards the ‘next normal’ peter j. rimmer australian national university, canberra, act 0200, australia received: 21 oct, 2020 accepted: 21 nov, 2020 published: 10 dec, 2020 abstract: an account is given of the effect of the novel covid-19 pandemic on the global commercial aviation industry in september 2020. recurrent features of the effects of past crises upon the aviation industry since the second world war are identified before proceeding to gauge if they can be recognized in the current situation. this analysis is aided by pinpointing key components of the aviation ecosystem: demand, airlines, airports, network connectivity and governance. each of these components are examined, in turn, in september 2020, before proceeding to determine how they will fare once an effective vaccine is introduced, and the pandemic is over. then attention is given to how logisticians and corporate strategists can contribute to the realization of the ‘next normal’ by benchmarking and monitoring the recovery. keywords: airlines, airports, demand, governance, networks, passengers 1. introduction since march 2020 the novel coronavirus-19 pandemic (covid-19) has had an ongoing catastrophic effect upon the global commercial aviation industry. not only is the aviation industry a key contributor to exchange, development and economic growth, but also the prime means through which the virus 0.1 microns wide is spread between countries. singling out the highly visible aviation industry for analysis does create problems because the sector handles both air passengers and air cargo. given 40 per cent of annual air cargo is carried in the ‘belly’ of passenger aircraft, attention is focused primarily upon scheduled passenger flights to gauge how air transport management has grappled with the logistics questions occasioned by the pandemic. a series of issues are raised in concentrating upon the air passenger sector’s logistics. how was the sector situated prior to the pandemic? how has the sector been affected by the pandemic? and, looking ahead, how is the management of sector likely to react to the current challenges posed by the ongoing pandemic to enable it to succeed when it is finally over? initially, these issues are addressed by distilling the effects of past crises. this pre-pandemic investigation leads to a study of the aviation ecosystem’s major components. this ecosystem can be used to gauge the effects of the ongoing pandemic upon the air passenger sector by drawing upon data provided by the airports council international (aci, 2018; 2020a,b), the centre for pacific aviation (capa, 2020), the european organisation for the safety of air navigation (eurocontrol, 2020), the international air transport association (iata., 2020a,b), the international civil aviation organization (icao, 2020a,b), the weekly and monthly coronavirus updates since january 2020 versus the same period for 2019 supplied by the global data provider, the official airline guide (oag, 2020a), and statista (mazarreanu, 2020). then the ecosystem’s components can be redeployed to look at the pandemic’s likely medium and longer-term effects on the ‘next normal’, and how air transport management must change to accommodate them. finally, the study concludes by considering how the task of analysing the aviation ecosystem can be improved to assist the return to the ‘next normal’ once an effective vaccine has been developed. peter j. rimmer 120 figure 1. world passenger traffic evolution, 1945-2020 (source: based on iata, 2020a, b). a decline of between 54 and 60 per cent in world total passengers in 2020 is projected. 2. pre-pandemic this covid-19 pandemic is but the latest in a series of crises that have punctuated global aviation since the second world war (1939-45) (fig. 1). an oil crisis in october 1973, triggered by a price increase of 400% and a decline in production of 240%, reduced the air traffic growth until 1975 (teyssier, 2009). another recession occasioned by the early stages of the iran-iraq war (1980-88) also stalled air traffic growth. during the gulf crisis (1990-91) jet fuel prices more than doubled but, even after they had eased, airlines still experienced a revenue problem that sent eastern airlines, pan american and midway out of business and reduced trans-atlantic traffic by 50 per cent (silk, 1991; thomchick, 1993). in 1998-99 the asian financial crisis had a marked effect upon aviation in indonesia, malaysia, singapore and thailand (rimmer, 2000). on 11 september 2001 the four attacks on commercial aviation in the united states occasioned the industry’s temporary, but complete, shut down (clark, mcgibany and myers, 2009). in 2002-03 the spread of the severe acute respiratory syndrome (sars) was added to this series of crises, which have affected airlines with a strong presence in the asia pacific. accounting for 916 lives and lasting less than one year, sars nevertheless had a greater impact than the iraq war (2003) (carey, stringer and trottman, 2003). this nearpandemic beginning in southern china cut flights by 3 per cent in mid-june, cost the aviation industry us$7 billion and diminished the number of tourists arriving and departing from australia (dwyer, forsyth and spurr, 2005; rubin and joy, 2005). also, the response to sars highlighted the efficacy of work-sharing, temporary pay cuts and furlough in the aviation industry as an alternative to dismissing staff (harvey and turnbull, 2010). in 2008-09 the next crisis to affect major civil aviation markets in the asia-pacific, europe and north america, costing us$16 billion, was the global financial crisis occasioned by the failure of major financial institutions (harvey and turnbull, 2010). by 2013, harking back to sars, sarah begley (2013) noted presciently that the next pandemic would trigger a global recession. however, the milder and short-lived avian flu in 2013 was not a pandemic. also, in 2015 the middle east respiratory syndrome coronavirus (mers-cov), an often-fatal illness, did not measure up to becoming the next pandemic (ahmad, 2014). although mers resulted in a sharp 12 per cent decline in revenue passenger kilometres in traffic to, from and within south korea during the first month, there was a return to pre-outbreak levels within six months (iata, 2020b). nevertheless, these developments were sufficient to raise the need to streamline pandemic control to reconcile regional public health and airport business activities (chung, 2015). recurrent features of these past crises, given aviation’s high perishability factor, have been: (1) a reduction in airline capacity; (2) an over reliance on labour as the primary adjustment mechanism; and, reflective of pro-cyclical management, (3) a quick slowdown and slow recovery (harvey and turnbull, 2002, 2010). will the precipitous aviation and covid-19 pandemic: towards the ‘next normal’ 121 decline in the world domestic, international and total passenger evolution occasioned by covid-19 be any different? is this the pandemic that sarah begley (2013) feared would occasion a global recession? 3. pandemic at the end of 2019, when the commercial airline industry was worth us$2.7 trillion in value added output and in an upward trajectory, there was no inkling that ubiquitous travel would be ravaged by the covid-19 tsunami (icao, 2020a). although the industry had experienced ‘headwinds from a weaker global economy and international trade tensions, expectations were for a strong performance in 2020’ (iata, 2020a: 3). already, world airport traffic forecasts (watf) 2019-2040 had provided the basis for short, medium and long-term airport planning and determination of future capacity needs in regional and country markets by anticipating the number of aircraft movements, passenger traffic throughput and air cargo volume (aci, 2018). the growth of international passenger traffic in the asia-pacific over this period was expected to be 37 per cent, europe over 31 per cent, the middle east over 12 per cent, north america almost 9 per cent, south america 7 per cent and africa 3 per cent. a pandemic such as covid-19 did not appear among the downside risks in the forecasts of demand growth. when the covid-19 pandemic occurred aviation was struck fast and hard, and planes were grounded quickly. after the declaration of the pandemic by the world health organization (who) on 11 march 2020 american airlines grounded 67 boeing 777 aircraft between 15 march and 22 march 2020 (boon, 2020). despite such precipitate action, icao (2020a) expected that the effects upon air passenger traffic, airlines, airports, tourism, trade and the global economy would be manageable and short-lived. reflecting past crises, labour was again used as the primary adjustment mechanism once movable assets were secured. but the scenarios promulgated in april and may 2020 for a quick slowdown and slow recovery to reinstate the original trend within six months via a v-curve were not being followed, prompting revisions of the original forecasts in june and august 2020 (table 1). unlike sars some of the first wave infections are still being played out and there has been a second wave of infections and even, if a vaccine is not found, the prospect of a third wave being flagged. whereas sars was easily detectable by airport temperature checks and resolved by isolation, covid-19 has a two-weeks incubation period. as a result, it was evident by august 2020 that it was having a deeper and more prolonged effect upon aviation, tourism, trade and the global economy than any previous post-war crisis. many of fears expressed by senior airline executives, interviewed by suau-sanchez, voltes-dorta and cugueró-escofet (2020) during the first four months of 2020, are being realized. table 1. estimates of likely impact of covid-19 on aviation, tourism, trade and the global economy in april, june and august 2020 compared with 2019 27 april 2020 5 june 2020 26 august 2020 air passenger traffic international passengers -80% -40-62% -54-60% airlines revenue passenger km (rpks) -48% -48% -54.7% airports passenger traffic -40% -48% -50% revenues -us$76bn -us$97 bn -us$97bn tourism receipts -us$300-450bn -us$910-1170bn -us$910-1170bn trade global merchandise trade volume -13-32% -13-32% -13-32% global economy world gdp -3% -3% -4.9-5.2% source: based on data from icao (2020a). updated 5 june and 26 august 2020. before examining this pandemic’s effects upon the aviation industry’s ecosystem’s in greater depth and reflecting upon its recoverability, it is important to identify the interactions between its major component subsystems (fig. 2). these include: (1) governance covering regulatory agencies controlling funding, guidance, design and planning mechanisms, quarantining, slot use and testing; (2) demand derived from business and leisure passengers, and air cargo logistics firms; (3) airlines covering full network service providers (fnsp) and low-cost carriers (lcc), and their corporate strategies; (4) airports and air navigation services providers (ansp); and (5) network connectivity. peter j. rimmer 122 these interactions are underpinned by regulators, travel and cargo agents, cabin and ground crews, aircraft manufacturers, airport managers, air traffic controllers, flight schedulers, fuel suppliers, non-aeronautical franchisees (involving food and retail outlets), ground transport providers and network planners. the non-aeronautical franchisees alone accounted for almost 40 per cent of world airport revenue in 2018 (aci, 2018). on average, one job in aviation supports 24 others (iata, 2020c). figure 2. aviation ecosystem (source: based on rimmer, 2014: 102). each of the five components of the aviation ecosystem in figure 2 — governance, demand, airlines, airport and network — are examined in turn. drawing upon this analysis attention is given to the post-pandemic situation. then lessons can be drawn from this study to help logisticians and corporate strategists address ‘the next normal’. 4. governance since january 2020 widespread intervention by government authorities in the workings of the aviation ecosystem has escalated in response to the covid-19 pandemic. government mandated interventions to control the spread of the virus have suppressed demand by closing international, provincial, metropolitan and district borders, limiting domestic and overseas travel, and imposing two-week quarantining of travellers at their own expense. this intervention has affected airlines, airports and network connectivity, and harmed ancillary activities. the effects of government intervention upon all these components are discussed in turn, before returning to the task of governance in charting the ‘next normal’ once the pandemic is over. a major issue in undertaking this analysis is that changes have occurred in the effects of new regulations affecting aviation at regular intervals since the intensification of the crisis in march 2020. as illustrated by developments in the united kingdom, the span of analysis needs to be quite narrow to accommodate these changes. on 3 july 2020, for example, the united kingdom government (ukg, 2020) listed an array of coronavirus (covid-19): travel corridors (fig. 3). since then countries, territories and regions have been added and subtracted to and from the list. this experience suggests that travel corridors, bridges or bubbles have been difficult to institute and sustain even between countries with relatively low rates of infection such as australia and new zealand. aviation and covid-19 pandemic: towards the ‘next normal’ 123 figure 3. united kingdom’s travel corridors (source: drawn from data in ukg, 2020). passengers from countries, territories and regions on the list do not have to quarantine for 14 days. since its implementation on 3 july 2020 there have been several additions and removals from the list by 20 september 2020. these constant changes make any analysis over time difficult. consequently, only a broad conspectus of the first eight months of 2020 has been provided. from the heady potential in scheduled seat capacity in early january 2020 demand reached its nadir in april and may 2020 when airlines grounded 80-90 per cent of their planes (oag, 2020a). by august 2020 signs of a recovery had occurred before tailing off after the northern hemisphere’s school holidays. instead of tracking this general trend, attention is concentrated on the situation in september 2020 compared with september 2019. this task is undertaken by using oag (2020a) data to operationalize the aviation ecosystem by tracking regional shifts in demand, changes in airline standings, variations in airport rankings and fluctuations in international connectivity between these two dates. mapping these deviations is all part of a covid19 geography that differs in so many respects from its pre-pandemic counterpart. 5. demand by 3 september 2020 the decline in the global demand for air passenger transport occasioned by the pandemic was reflected in the monthly 49 per cent reduction in the number of seats on offer to 250 million compared with 487 million in september 2019 (fig. 4). while this loss was spread across all major regions, there were marked differences in its extent. asia fared best with a 33 per cent loss followed by europe and north america with losses over 50 per cent. the net outcome has been that asia had reinforced its position as the covid-19 world’s most dominant aviation region. while central america and the caribbean performed slightly better than north america with a 49 per cent loss, the middle east (including qatar and united arab emirates) was more akin to major regions in the global south with a loss of almost 63 per cent. this reinforcement of the north-south divide was due to changes stemming from the pandemic. the highest losses were all recorded by the three major regions in the southern hemisphere: africa experienced almost a 60 per cent loss, south america over 70 per cent and the southwest pacific 73 per cent. peter j. rimmer 124 figure 4. decline in major regional demand in september 2020 from the number of seats available in september 2019 (source: drawn from data in oag, 2020a). the broad pattern within figure 4 masked marked variations within subregions (table 2). northeast asia, buoyed by china’s domestic market, had a loss of 20 per cent. also, eastern/central europe, underpinned by the russian federation, with a loss of 40 per cent performed better than western europe and other regions in asia respectively, which were bedevilled by ongoing travel restrictions. conversely southern africa with almost 80 per cent and upper south america (including colombia, ecuador, peru and venezuela) with a loss of almost 81 per cent contributed most to the poorer showing of their major regions. table 2. changes in seats handled by regions and sub-regions in september 2020 compared with september 2019 regions and subregions sept 2019 sept 2020 change v 2019 regions and subregions sept 2019 sept 2020 change v 2019 million million % million million % central asia 1.7 0.8 -51.1 middle east 19.3 7.2 -62.7 north east asia 105.8 84.4 -20.2 lower south america 15.5 5.3 -65.8 south asia 20.8 9.7 -53.2 upper south america 7.4 1.4 -80.6 south east asia 41.1 17.8 -57.6 south america 22.9 6.7 -70.6 asia 169.4 112.7 -33.4 central/western africa 2.6 1.3 -49.1 eastern/central europe 21.3 12.9 -40.0 eastern africa 3.3 1.5 -53.1 western europe 113.3 47.3 -58.2 north africa 5.0 2.2 -55.5 europe 134.6 60.2 -55.2 southern africa 3.4 0.7 -79.7 north america 102.5 47.9 -53.3 africa 14.3 5.7 -59.5 central america 9.3 4.9 -47.1 southwest pacific 12.1 3.2 -73.6 caribbean 3.2 1.4 -57.1 global 487.8 250.1 central america and caribbean 12.5 6.3 -49.2 source: calculated from data in oag (2020a). aviation and covid-19 pandemic: towards the ‘next normal’ 125 figure 5. proportionate reduction of flights in september 2020 by top 20 ranked airlines in september 2019 (source: source: drawn from data in oag, 2020a). airlines are based on the location of their headquarters. these patterns are illuminating, but an examination of the top 20 airlines is required to comprehend the changed demands occasioned by the pandemic, which have contributed to global commercial aviation’s expected loss in annual revenue of more than us$400 billion in 2020 (icao, 2020a). these airlines have lost revenue from passengers, air cargo and ancillary activities such as bag fees and seat selection. only the major american airlines and qantas airways have lucrative frequent flyer programs to offset losses. nevertheless, the revenue shortfall has prompted qantas airways to eliminate sports sponsorships and inflight entertainment content, and singapore airlines to turn one of their superjumbo a380s into a restaurant. 6. airlines in september 2020 flights among the top 20 airlines were almost 53 per cent lower compared with september 2019, declining from 1.29 million to 0.68 million (fig. 5). as is evident from figure 5, the aviation landscape was dominated by airlines in north america, europe and asia. collectively, they accounted for 19 of the top 20 airlines; there was one outlier in south america. within north america the six airlines domiciled in the united states, including the ‘big three’ full network service providers — american (allied with alaska and jet blue), delta and united — and the low-cost carrier southwest airline, lost collectively 50 per cent of their flights (table 3). nevertheless, they fared better than their counterparts in the rest of north america and the western hemisphere due to their relatively strong domestic market (garrow, 2020). south america’s largest carrier, the latam airline group, headquartered in santiago, chile, experienced a reduction of over 73 per cent that reflected a downturn in brazil, its biggest market (cambero and rochabrun, 2020). this reduction was exceeded the by air canada, which lost almost 78 per cent of its flights, due to the indefinite shut down of 30 domestic routes and suspension of flights to the united states (financial post staff, 2020). in europe the united kingdom was the only country to have two operators in the top 20. collectively, they had lost over two-thirds of their flights, with low-cost carrier easyjet performing better during september 2020 than the fullservice network provider british airways due to its reliance on european destinations. overall the five airlines in the rest of europe lost proportionately fewer flights than their united kingdom counterparts. nevertheless, there were extremes among the group: lufthansa german airlines, owning airlines in germany, austria, switzerland and belgium, lost over two-thirds of its flights; turkish airlines, the aeroflot group and sas, advantaged by the scandinavian travel bubble, lost over half their flights; and air france, buoyed by its intra-european and north african markets, lost two-fifths of its flights (eurocontrol, 2020). peter j. rimmer 126 table 3. reduction in number of flights undertaken in september 2020 by top twenty airlines in september 2019 airline flights airline flights sept 2019 sept 2020 change v 2019 sept 2019 sept 2020 change v 2019 thous thous % thous thous % american airlines 193 94 -51.0 lufthansa 48 15 -68.3 delta airlines 159 86 -45.9 turkish airlines 42 19 -54.8 united airlines 149 65 -56.4 air france 34 20 -42.1 southwest 111 64 -42.4 aeroflot group 31 15 -51.8 alaska airlines 38 23 -40.2 sas 28 13 -54.6 jet blue airways 30 9 -71.3 other europe 183 82 -55.4 usa 680 341 -49.9 china southern 67 63 -5.0 air canada 47 11 -77.8 china eastern 67 61 -7.8 north america air china 41 38 -8.7 latam airlines 41 11 -73.6 china 175 162 -6.9 western hemisphere indigo 43 21 -51.4 easyjet 57 22 -61.7 all nippon airways 30 25 -18.1 british airways 32 7 -78.1 other asia 73 46 -37.3 united kingdom 89 29 -67.6 total 1,289 681 -52.9 source: calculated from data in oag (2020a). within asia the three chinese companies in the top-20 — china southern, china eastern and air china — lost less than 7 per cent (even this small loss was erased during china’s semi-annual ‘golden week’ between 1 and 7 october 2020). this was due to relaxation of travel restrictions and keeping the covid-19 virus under control, and aggressive promotional fares allowing unlimited travel within the country’s strong domestic market to overcome earlier losses and lock-in customer loyalty (liu and wang, 2020). in the rest of asia, all nippon airways experienced a relatively small decline in the number of flights because the strong domestic market in japan had held up until the resurgence of covid-19 infections in august 2020 (jt, 2020). the low-cost carrier indigo, india’s largest airline based in new delhi took advantage of international charter and repatriation flights, and, after a two-month cessation, resumed domestic flights in may to cut its loss by september 2020 to 51 per cent (pengonda, 2020). besides reducing the number of flights, airlines have responded to these changes across all regions by grounding hundreds of aircraft, seeking government assistance to avoid bankruptcy and the time-honoured methods of cutting staff. by september 2020 this slump in demand had resulted in long-haul planes being parked in the mojave desert in california for protection. these included the ageing boeing 747 jumbo jets operated by british airways and klm royal dutch airlines, whose retirement has been brought forward by the pandemic. some airbus a380s, the world’s largest passenger aircraft, launched in 2007 to carry 555 passengers in three classes on popular routes operated by airlines such as air france, british airways and lufthansa german airlines, were mothballed in the usa and at a facility in france. airlines outside the top 20, notably qantas airways and singapore airlines, also operated a380s, but, indicative of their overall plight have been reduced to flagging scenic ‘flights to nowhere’ taking off from and landing at the same airport (fan 2020). a handful of the airbus a380s had been temporarily converted to all cargo aircraft by hi-fly based in portugal. other airlines, notably american airlines, air canada and indigo, had also switched some of their aircraft to carry cargo, including personal protective equipment (ppe), to offset revenue losses. before september 2020 several troubled airlines, including avianca holdings in south america, thai airways and virgin australia airlines, had already entered bankruptcy protection (slotnick, 2020). their number also included one top 20 airline, the latam airlines group, which had filed for chapter 11 bankruptcy in the united states on 26 may 2020 but continued operating during the pandemic. other airlines among the top 20 have survived the aviation and covid-19 pandemic: towards the ‘next normal’ 127 pandemic through cooperation with their respective governments. where the state had equity in an airline, the conventional rescue plan involved a mixture of loans and aid, and, to appease activists, stricter environmental conditions over emissions have been implemented. in april 2020 there had been a us$25 billion bailout of ten united states airlines to support payrolls until 30 september 2020 and a further u$25 billion in loans with warrants for the federal government to buy shares in the airlines under the us cares act to safeguard the economy; a further bailout of us$25 billion has been sought (rappeport and chokshi, 2020). within asia singapore airlines has received us$8.7 billion and hong kong’s cathay pacific us$3.8 billion from their respective governments (rowland, grant and clayton, 2020). in europe, lufthansa german airlines has received us$12 billion in return for a government stake of 20 per cent (fan, 2020). a package of us$11.7 billion has been extended to air france-klm, but greenpeace netherlands (gn, 2020) has started a lawsuit against the dutch government’s component because climate conditions were not attached. in the united kingdom, the government, less prone to handouts, has extended a rescue plan of us$1.45 billion to the private operator iag (international consolidated airline group) sa operating british airways; this sum draws upon the united kingdom’s covid corporate financing facility, which was also made available to low cost carriers such as easyjet and ryan air. these facilities were designed to assist airlines in retaining employees, but they have still proceeded to reduce staff. also, the variations in government support suggest that the competitive level playing field for airlines has been further disrupted. by september 2020, among the top 20 airlines in the united states, it had been reported that united airlines experienced a reduction of 36,000 employees, american airlines 25,000, delta 17,000 and at southwest 17,000 opted to depart or take paid leave; the further bailout being sought from 1 october 2020 is to continue furloughing a further 32,000 airline employees across the country (josephs, 2020). among the other top 20 airlines, lufthansa german airlines had cut 22,000 jobs from its staff of 135,000, air canada 20,000, latam airlines group 12,600, air france 12,500, easyjet 4,500 and indigo 2,400. also, british airways had reduced its 42,000 strong work force by 12,000, furloughed 22,000 staff and considered changes to terms and conditions of the remaining staff to compete with low-cost carriers; this may have saved the airlines in the short term but soured industrial relations in the longer term (bbc, 2020a). meanwhile, british airways has responded to the reduction of flights by concentrating its long haul and short haul activities at heathrow airport and closing gatwick as its secondary hub (grant, 2020a), which highlights the need to examine the effect of cov-19 on airports. in april 2020 the airports council international (aci, 2020c) had calculated world passenger traffic had declined by 94 per cent and air freight traffic by almost 24 per cent compared with a year earlier. had there been a recovery at leading airports by september 2020? 7. airports by september 2020 the seats available at the world’s top 20 airports had plummeted by over 54 per cent to less than 39 million compared with 84 million in september 2019 (fig. 6). in the process there was a remarkable shake-up in the rankings of individual airports. china’s guangzhou airport had risen from thirteenth position to topple beijing capital from first position and relegate it to third behind atlanta, aided by the opening of second beijing daxing international airport and possibly benefitting from social unrest and a second wave of infection in hong kong. rather than concentrate on such shifts in individual rankings, attention is focused upon analysing an eastern group of ten top 20 airports incorporating those in china and other asian countries, and a western group of ten top 20 airports covering those in the united states and europe. peter j. rimmer 128 figure 6. proportionate reduction of seat capacity in september 2020 by top 20 ranked airports in september 2019 (source: drawn from data in oag, 2020a). within the eastern group china’s large domestic market and quicker recovery from the pandemic has allowed the country’s three airports ranked in the top 20 to boost their overall share of the seats available in the smaller aviation market (table 4). conversely, the greatest losses between 70 and 90 per cent were incurred at other asian airports that were marked by smaller domestic markets, notably dubai, hong kong, singapore, seoul incheon and bangkok (cheung, wong and zhang, 2020). previously, these airports, concentrated on one or two dominant carriers, had featured among the global economy’s key transit hubs benefitting from being able to carry passengers or cargo from a second country to a third country by stopping in one's own country (i.e. unofficial sixth freedom rights). tokyo haneda and delhi with larger domestic markets fared better. these cumulative losses resulted in the eastern group of airports having a smaller proportion of the number of seats in september 2020, despite being almost on a par with the western group of airports in september 2019. table 4. loss of sats in september 2020 compared with those handled by top 20 airports in september 2019 eastern seats western seats airport sept 2019 sept 2020 change v 2019 airport sept 2019 sept 2020 change v 2019 million million % million % million beijing capital 5.2 2.8 -45.8 atlanta 5.1 3.0 -41.9 shanghai pudong 3.9 2.7 -32.3 chicago o’hare 4.5 1.9 -58.5 guangzhou 3.8 3.3 -11.0 los angeles 4.2 1.6 -62.1 china 12.9 8.8 -31.6 dallas fort worth 3.7 2.3 -37.9 tokyo-haneda 4.6 2.6 -43.1 denver 3.5 2.2 -35.3 dubai 4.6 1.3 -71.9 usa 21.0 11.0 -47.8 hong kong 3.6 0.4 -87.8 london heathrow 4.3 1.4 -68.4 seoul incheon 3.5 0.8 -78.7 frankfurt 4.1 1.3 -68.9 singapore changi 3.4 0.3 -91.7 paris cdg 4.0 1.5 -61.8 delhi 3.4 1.5 -55.5 istanbul 3.7 1.4 -62.1 bangkok 3.3 0.8 -75.5 amsterdam 3.7 1.7 -53.3 other asia 26.4 7.7 -70.9 europe 19.8 7.3 -63.2 sub-total 39.3 16.5 sub-total 40.8 18.3 source: data calculated from oag, 2020a. aviation and covid-19 pandemic: towards the ‘next normal’ 129 within the western group the united states with five airports in the top 20 did not do as well as its chinese counterparts. nevertheless, they increased their overall share of the reduced number seats available. not only did this reflect the country’s large domestic market but also the variable performance of individual airports with denver, dallas fort worth and atlanta having coped better than los angeles and chicago o’hare. collectively, european airport hubs, with a greater reliance on international travel across the continent, did not do as well as their american counterparts. london heathrow, frankfurt, paris cdg and istanbul, lost more than three-fifths of their seats and amsterdam more than one-half (eurocontrol, 2020). indeed, the number of seats at london heathrow, europe’s busiest airport had plunged to 1.4 million seats in september 2020 compared with 4.2 million seats in september 2019. reflecting this reduction in activity, the airport incurred a loss of us$1.3 billion between march and august 2020 and told frontline staff to take a pay reduction of between 25-30 per cent or face job losses, (topham, 2020). while caution needs to be exercised in drawing conclusions from only the top 20 airports, this analysis highlights that the adverse effects of covid-19 on airport operations arose from the culling of seats from the international air passenger network. airports generate their profits from international traffic because aeronautical charges for landing, parking and servicing are higher than for domestic flights and its passengers drive duty-free revenue at retail outlets. 8. international networks by september 2020 the effects of covid-19 on international traffic connectivity can be distilled from a comparison with the top 20 country pairs based upon their number of seats available compared with those in september 2019. the number of seats handled by the top 20 country pairs had declined by almost 74 per cent to less than 12 million seats compared with over 43 million seats twelve months earlier. as the top 20 country pairs were not interconnected in a single system, the effect of this reduction is discussed by examining two separate networks and a single link country pair (fig. 7). the first network involves connections between country pairs involving europe and the united states; the second network covers country pairs in east asia; and the third is an isolated link between india and the united arab emirates. figure 7. percentage reduction in the number of seats in september 2020 in the top 20 country pairs identified in september 2019 (source: drawn from data in oag, 2020a). peter j. rimmer 130 the first network, pivoted on the united kingdom, had links to both europe and north america. these regional arenas are considered separately (table 5). within the european sector the share of the ten country-pairs had declined by 63 per cent to 8 million seats in september 2020 compared with over 22 million seats in september 2019, following travel restrictions and bans that affected the northern hemisphere’s school holiday season. these losses were spread evenly across all routes except for the smaller loss between turkey with russia and, to a lesser extent, germany, which followed ankara’s lifting of all travel restrictions in mid-june 2020 (spurrel, 2020). conversely, within the more lucrative trans-atlantic sector, there was a sharper decline of almost 77 per cent among the three country pairs to 2 million seats in september 2020 compared with 8 million a year earlier (grant, 2020b). although the loss between the united states and mexico was limited to 41 per cent at north america’s busiest frontier, extending essential traveller restrictions to the pairing with the united kingdom resulted in a loss of 84 per cent and over 94 per cent with canada (calder, 2020). the extent of these losses, arising from travel being limited to us citizens, permanent residents or their family members, diplomats and air crews, were matched by those in the east asian network. within the east asian network, the number of seats had declined by 88 per cent to 1.2 million in september 2020 from almost 11 million in september 2019. international flights between china and thailand, japan, south korea and hong kong had fallen markedly due to travel restrictions imposed from march 2020 like those between japan and south korea and chinese taipei, which also involved the revocation of visas. these losses were exceeded by the link between india and the united arab emirates, which, even after it was re-opened in august 2020, the upsurge of coronavirus in india reduced the number of seats to a trickle. this reduction of international connectivity raises issues about when global aviation will return to normality, especially where closed borders and an ongoing pandemic still make firm bookings for international flights a virtual impossibility. this uncertainty has resulted in little forward booking activity. table 5. reduction in number of seats in september 2020 compared with those offered by the top twenty country pairs in september 2019 country pair seats country pair seats sept 2019 sept 2020 change v 2019 sept 2019 sept 2020 change v 2019 thous thous % thous thous % spain-uk 5,190 1,905 -63.3 canada-us 3,158 189 -94.0 germany-spain 3,312 1,182 -64.3 uk-us 2,894 365 -84.7 germany-turkey 2,197 892 -59.4 mexico-us 2,369 1,386 -41.5 germany-italy 1,936 560 -71.1 trans-atlantic 8,421 1,940 -76.9 uk-italy 1,779 710 -60.1 china-thailand 2,145 191 -91.1 spain-italy 1,761 521 -70.4 china-japan 2,115 216 -89.8 spain-france 1,609 513 -68.1 china-south korea 2,026 305 -84.9 germany-uk 1,564 413 -73.6 japan-south korea 1,814 339 -81.3 russia-turkey 1,431 1,057 -26.1 japan-chinese taipei 1,411 69 -95.1 france-uk 1,397 416 -70.2 china-hong kong 1,383 165 -88.1 europe 22,176 8,169 -63.2 east asia 10,894 5,165 -88.2 uae-india 1,847 52 -97.1 top 20 total 43,338 11,447 -73.6 source: calculated from data in oag (2020a). 9. post-pandemic: towards the ‘next normal’ estimating the demand for flights, air passenger throughput and air cargo volume after the pandemic’s end will be a challenging exercise for logisticians analysing the aviation ecosystem in the ‘next normal’. by the end of 2020 iata (2020a) expects passenger revenues from the almost 290 airlines it represents to have fallen by us$314 billion — a decline of 55 per cent compared with 2019. further, international passenger demand is not expected to recover to the level of 2019 before first 2023 and now 2024 at the earliest (and even that is seen as being optimistic). both asia aviation and covid-19 pandemic: towards the ‘next normal’ 131 and europe are expected to be the first regions to return to 2019 levels in international passenger transport with north america making a slower recovery ahead of other regions. conversely, cargo demand is anticipated to exceed its 2019 level of 62.3 million tonnes with 63.5 million tonnes by 2021 (mazarreanu, 2020). the rationale for this differing response between air passenger and air cargo is attributed to the likelihood that air freight forwarders will flourish along trade lanes and the reluctance of passengers to return to air transport, especially if mask wearing is not obligatory and the practice of blocking off the middle seat is terminated (condon, et al.,2020). a ‘green shoot’ recovery among air passengers is likely to occur first in domestic and regional markets rather than in international markets. in australia, for example, qantas airways has deferred its international long-haul resumption plans to july 2021 in the hope that the country’s borders will be open to business travel and general tourism and hospitality. however, recovery in business travel may be much slower than anticipated due to the cancellation of meetings, incentives, conferences and exhibitions (mice) at physical locations around the world, and the progressive switch to virtual meetings, particularly to overcome the uneven removal of travel bans between and within countries. not only does this greater familiarity with digitalization save strapped companies and institutions expenditure upon travel and insurance, but also it may lead younger, rather than older, company members undertaking the essential business journeys. the faster recovery of the leisure class is expected after 2024, particularly among younger passengers, especially millennials and generation z in asia, who are less likely to be concerned about catching the virus while travelling (oag, 2020b). nevertheless, reduced disposal income may be an overriding issue and cut this optimistic forecast. also, promotional fares pioneered by airlines in china will inevitably give way to rising ticket prices. on shorter domestic and regional hauls in europe and parts of asia there may be a defection of younger travellers to high-speed rail travel. airline companies, in response to these trends, are likely to be smaller in size, offering fewer flights, making boarding more regimented, downsizing the size of their business classes and even contemplating making the absence of inflight food permanent on shorter-distance flights. among the international network carriers, middle eastern airlines such as emirates and qatar airways are expected to be smaller by 20 per cent; british airways 25 per cent; air new zealand 30 per cent; and air canada 50 per cent (abc, 2020). even the low-cost carrier, air asia, is expected to be reduced in size by 50 per cent, despite not having to compete with state-backed carriers like its european counterparts such as easy jet and ryan air. these reductions in size during this period of readjustment are likely to stem from the adoption of smaller, more agile and easier-to-fill aircraft. as part of their fleet restructuring both british airways and qantas airways, for example, are likely to switch from four-engine aircraft airbus 380s and boeing 747s to fuel-efficient twin-engine aircraft such as the airbus a350s and boeing 787s to reduce financial risks stemming from cheaper operating costs and being easier to fill their capacity to capitalize on regional connectivity. similarly, the low-cost operator, air asia, anticipating lower demand after the pandemic, has already heralded a shift away from airbus a321s with 230 seats to the airbus a320s with 180 seats. greater scope for even smaller aircraft such as the 70-seat atr 72-600 and the 40 seat atr 42-600 is envisaged on regional routes. within australia, for instance, regional express airlines (rex) operating saab 340 turbo prop, seating 34-36 passengers, has extended its network with support from the federal government to incorporate routes axed by virgin airlines australia. not only will this shift to smaller aircraft help re-establish connectivity networks as quickly as possible after the pandemic and create new ones, but it will also help airlines to attain their net-zero carbon emissions targets to ‘fly green’ by mid-century. the trends will have an impact on aircraft manufacturers, exemplified by airbus, boeing and the french-italian company atr, and jet engine producers such as general electric and rolls-royce holdings. since the start of covid-19, for example, airbus sales have stalled amidst several cancellations. conversion of super-jumbos into cargo planes may provide an opportunity for newer companies such as amazon to establish a deeper foothold in the air freight market and help resuscitate smaller airports. these developments herald a sharp reduction in the workforce in aviation and ancillary activities through voluntary or involuntary retirement. this has raised concerns by geraint harvey, daniel winterberger and peter turnbull (2020) that many skilled professional aviation jobs will lapse into the gig economy. airports, in turn, will have to refocus on both safety and health requirements to accommodate the new era of touchfree, post-pandemic travel. an array of biosecurity measures will have to be introduced into touchless airports and applied in a consistent manner. these actions will range from reducing tension through social distancing solutions and personal hygiene, airport cleaning, deep cleansing of aircraft to protect both crew and passengers, lounge limits, peter j. rimmer 132 pre-flight temperature checks, and retail restoration to new architectural post-pandemic airport archetypes (kelleher, 2020). much will hinge on reducing queues, avoiding crowds at departure gates, and accommodating slower aircraft turnaround prompted by enhanced cleansing requirements. an opportunity needs to be undertaken to extend the discussion from the top 20 airports to incorporate secondary airports and their varying reliance on long haul routes (rowland, 2020). international network connectivity will be an important barometer of the ‘next normal’ in aviation. not only does greater connectivity translate into higher economic growth but also, with the restoration of long-haul international flights, offers the opportunity of linking the separate networks among the top 20 country pairs together into a single system and re-establishing the importance of global transit hubs in asia and the middle east, notably bangkok, dubai, hong kong, seoul incheon and singapore. conversely, should the network continue to shrink, non-stop options will diminish, and multiple itineraries will be required by travellers. the governance agenda for the aviation ecosystem in the ‘next normal’ will likely focus on issues associated with the shift in emphasis from survivability to sustainability. demand will need to be stimulated by rejuvenating the economy with a stress on positive messaging to encourage leisure travel. after the difficulties of getting cash refunds after flight cancellations during the pandemic, an airline passengers’ bill of rights (eliot, 2019) needs to be introduced following the lead of the european commission (ec, 2020a, b). assistance to airlines will have to be reassessed, according to a government’s predilection towards either state ownership or free market, to enable them to be non-polluting by removing carbon emissions before 2050 (dayen, 2017). airports will be subject to increased health-screening procedures to minimize risk. network connectivity will need to be revived with either a stress on city-pairs that have hitherto been the pivots of the global economy, or recognition that regionalization is the new norm. finally, regulators will need to look at themselves, and at relations with each other, by coordinating and streamlining universal procedures and processes in a coherent and consistent way to facilitate the aviation industry’s role of carrying passengers and cargo in the ‘next normal’. 10. conclusion the covid-19 pandemic is not over. nevertheless, aviation, like higher education and the commercial real estate market, may never be the same. hence, this study has offered only an interim account and recommendations for the ‘next normal’ because the pace of infections worldwide on 20 november 2020 was still accelerating beyond 56.4 million infections and 1.36 million deaths ahead of the northern hemisphere winter (bbc, 2020b). lockdowns, quarantining (except for privileged passengers) and second waves were still occurring amidst grudging governmental support for the commercial aviation industry and its workforce. as in past crises affecting the world aviation industry, the covid-19 pandemic has occasioned a high perishability factor. the over-reliance on labour as the primary adjustment mechanism has continued throughout the pandemic, which will necessitate the retraining of pilots, crews and air traffic controllers following a resumption of business. what has been different with covid-19 is that the anticipated sharp dip in traffic followed by a slow recovery within six months, as happened with sars (2002-03) and the outbreak of mers in south korea (2015), has not occurred. after both sars and mers there was no second wave of infection, as has happened with covid-19, to further depress the recovery in travel demand. also, there was no second terrorist attack after 9/11 in 2001. already, by november 2020 the effects of covid-19 were many times worse than 9/11 on a global scale and, given ongoing policy variations between and within countries, uncertainty still prevails. no longer can the continued growth of the shuttered global aviation industry be guaranteed. the industry’s past propensity to accommodate an array of crises is now requiring a great leap of faith by shareholders to underpin the rebuilding of the shrunken industry with new liquidity. given this lengthy disruption of aviation, there will be no current accumulated experience to reset the industry beyond cost cutting, having cash-in-hand and reliance on partnerships with other airlines. nevertheless, recovery under this ‘next normal’ can be helped through analysis by a new generation of corporate strategists and logisticians to forecast and plan likely outcomes. this will involve the continuation of the provision of readily available data on which this study is based, including additional information on city-pairs, to benchmark and monitor the demand for air transport, airlines, airports, network connectivity and the effects of changing regulations. decision-makers and aviation industry leaders will be better able to use these findings to identify opportunities for scenario development and commercial and operational strategies within the aviation ecosystem to ensure a rapid recovery from the pandemic during the ‘next normal’. aviation and covid-19 pandemic: towards the ‘next normal’ 133 acknowledgments the figures were drawn by karina pelling, cartogis, anu college of asia and the pacific, the australian national university, canberra, act, australia. dr matthew rimmer, professor of intellectual property and innovation law at queensland university of technology, brisbane, australia, and dr sue rimmer have made helpful suggestions on the text. references abc (2020). ‘will air travel ever recover? australia's aviation crisis and the future of flying’, four corners, australian broadcasting corporation, 1 july 2020. 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"particularly for those known as generation y, e-communication is a significant mode of communication. lifestyles and communication preferences of generation y can be described as "fast", "concise" and "practical". within this context, generation y is generally expected to use all available communication technologies aimfully and consciously" (yeşil & fidan, 2017). "another argument about generation y is that this generation has different sources of motivation than others. they often do not focus on the income they earn but on innovative ideas that may satisfy them both materially and spiritually, such as flexible working hours" (aydın & başol, 2014). "the proportion of generation x, people born in the years between 1965 and 1976, in turkey's population is 16% (tuik, 2014). distribution of women and men in this proportion is close to each other. besides ‘baby buster’, this generation is also defined as 'twenty something' and 'f-you generation' (fisher, 1997, cited in roberts and manolis, 2000). this is the first generation that has ever used the internet. people belonging to this generation are known as freedom lover, entrepreneur, consumption-oriented and also skeptical (barber et al., 2008; olsen et al., 2007; glass, 2007). the youth of this generation corresponds to a period of a growing consumption trend and introduction of numerous new tv channels" (engizek & şekerkaya, 2016). "members of generation x are known as loyal in occupational life, having high levels of satisfaction, and willing to stay in a workplace for many years. often seeking for better career opportunities, this generation was necessarily familiarized with the use of technology as they lived in an era of technological revolution. they are also sensitive to social problems, motivated in occupational life and respectful to authorities. the inclusion of women in labor force and the tendency to have fewer children are significant characteristics of this generation" (aydın & başol, 2014). having grown in an era of globalization, economic growth and the internet, members of generation y has become the youngest generation taking part in occupational life. in turkey, members of generation y are more in number than populations of many european countries. compared to the other generations, generation y has higher rates of job quits. generation y shows similarities with generation x in terms of seeking flexibility in career paths, and they prefer to choose a career with multiple opportunities, assuming full responsibility for future challenges. therefore, it can be said that generation x and generation y are similar to each other in this regard (çetin & karalar, 2016). this study samples a logistics firm in order to accomplish its purpose, which is to reveal differences between members of generation y and other generations in organizational settings. the research question of this study is: "in which aspects do members of generation y differ from the others in organizational settings?” this question aims to reveal certain facts in order to help generation gaps contribute to relevant sectors in terms of organizational efficiency. this part of the study provides certain definitions relevant to the term "generation", while the subsequent parts refer to characteristics and categories of different other generations. generation cohorts or groups refer to people who are in a common age group and thus have or will have similar life experiences in significant periods of their development. (hung & vd, 2007) 2. background having grown in an era of information and communication technologies, often defined as success and outcomeoriented, generation y currently has a significant place in business and occupational life in terms of quantity. creativity, desire for personal development, career expectations (taştan boz, i̇lknur; berber, fatih;, 2017), weakness in loyalty, impatience, high levels of self-confidence, displeasure with stereotypes and rules (akdemir, ali; konakay, gönül; demirkaya, harun;, 2013) are common distinctive characteristics of generation y members. these people have higher adaptation capabilities in different situations and conditions, as well as being able to deal with multiple tasks; though they easily get tired of the task they perform (adıgüzel, orhan; batur, h. zeynep ; ekşili, nisa, 2014). intensive parental attention, ceaseless praises and protective measures emerge as self-confidence and independence out of household, and commitment to parents inside families (civelek, mustafa emre; çemberci, murat; aşçı, mehmet saim; öz, sabri;, 2017). to mention the concept of generation before further analysis on generation y; first modern generation studies conducted by auguste comte between 1830-1840 revealed that generation gaps are significant forces that move throughout the whole history, and stated that the social development can be possible only through passing the experience down from a generation to the next one (yüksekbilgili & akduman, nisan 2015). however, studies about generation as a concept date back to cicero, who was a historian in ancient greece, as gülsahiden durucan & sena çiftçi & duygunar pulat & elçin soysal 56 well as the period of two significant philosophers and authors of history, heraclitus and homer. one of the main reasons behind the recent increase in relevant studies is that today generation gaps and their behavioral implications are more evident than before. dictionary of philosophy terms (felsefe terimleri sözlüğü) prepared by the turkish language association defines the term "generation" as "a community consisting of people who were born in the same year or close, who thus have met the same problems, the same fate, and similar responsibilities". although each generation has specific characteristics, values, strengths and weaknesses, it does not mean that every individual belonging to a generation is exactly same. social events, economic and political developments, and technological advances, which a group of people born in a common period of time experience, may result in different personal characteristics, behaviors, and changes in values of the business life. the age ranges used in classifying different generations may differ from author to author (genç, 2017). significant attempts to classify generations within the literature are summarized in the table below (sever i̇şçimen, 2012). however, this study is based on the range identified by howe & strauss for generation y, which corresponds to the period between 1982 and 2000. table 1. classification of generations source classification howe & strauss (2000) silent generation (1925 1943) baby boomers (1943 1960) 13th generation (1961 – 1981) millennial generation (1982 2000) lancaster & stillman (2002) traditional generation (1900 1945) baby boom generation (1946 1964) generation x (1965 – 1980) millennial generation, echo boomers, generation y, generation next (1981 1999) martin & tulgan (2002) silent generation (1925 1942) baby boom (1946 1960) generation x (1965 -1977) millennial generation (1978 2000) oblinger & oblinger (2005) adults (< 1946) baby boom (1947 1964) generation x (1965 – 1980) generation y net generation millennials (1981 – 1995) post-millennial generation (1995 – present) tapscott (1998) baby boom (1946 – 1964) generation x (1965 – 1975) digital generation (1976 – 2000) zemke et al. (2000) veterans (1922 – 1943) baby boom (1943 – 1960) generation x (1960 – 1980) generation next (1980 – 1999) source: reeves & oh, 2008. generational differences, in handbook of research on educational communications and technology (sever i̇şçimen, didem, 2012) the silent generation, also called the generation of war, lived in 1925-1943 and experienced the second world war together with significant economic depressions. this term corresponds to the one-party period of turkey. members of this generation tend to debate, reason, and they are often process-oriented, as well as being respectful and loyal to authorities. they generally prefer a balanced and established system. this generation is also known with the fact that they could slowly be accustomed to technological advances (çemberci, kıvanç sudak, aşçı, öz, & civelek, 2014). after the second world war, between 1943 and 1960, about one billion babies were born and these babies consisted the baby boom generation. similar to silent generation, this generation has a sense of loyalty, though not an absolute one. common values promoted by this generation are gender equality, racial equality, and environmental management. being also known as workaholic, these people are believed to have been created for working (çevik tekin & akgemci, 2016). members of generation x, who were born in 1961 1981, are rather satisfied, realistic and often politically impetuous people. they are known with high levels of loyalty to workplaces, ability to work in a the analysis of the differences between generation y employees and others in organizations: an example of logistics firm specific field and workplace for a long period, being sensitive to social problems and having high levels of occupational motivation. these people are also regarded as confident and talented (akdemir, ali; konakay, gönül; demirkaya, harun;, 2013). generation y of the period between 1982 and 2000 has been predominantly affected by leaders, advances, technologies, and trends of its time. behaviors of generation y individuals may change from region to region depending on social and economic conditions. their working styles, capacity to integrate with other generations, and outstanding strengths should be recognized and appreciated. these people have unique value clusters, expectations, perceptions about the authority as a concept, and ideal occupational settings. this generation is described as young, smart, venturous and they do not accept a single point to focus on life. having strong moral values, sense of patriotism, freedom, willingness to socialize and struggle for the household as well as family values are common tendencies and characteristics of this generation (khulida, yean, johari, & saad, 2015). generation z, which consists of those born after 2000, is living a technology-intensive life. also called as the net generation, instant online and igen, this generation is considered as the new silent generation due to the individualism and loneliness they currently live and will probably further in the future. occupational behaviors and attitudes of this generation have not yet been evaluated as its members are just on the point of beginning their careers. the data about this generation in literature is also limited. having grown up in a high-tech environment, this generation is more informed about the cyber world than generation y. "preferring computers to books and texts to oral conversations, and spending less time outside are characteristics of generation z. members of this generation have telecommunication opportunities, and they often choose to live a lonely life. they expect instant outcomes and do not even imagine a life without cellphones" (öz, 2015). table 2. characteristics and common values of generations source: deneçli, www.iku.edu.tr (access: may 10, 2013). (akdemir, ali; konakay, gönül; demirkaya, harun;, 2013) as prominent members of today's business life, "children and youth of this generation have highly different parents than those of the previous generation, who have more active roles in their living conditions, education and safety". within the transition from family to business life, members of generation y have a sensitive approach in terms of social responsibilities. these people are focused on human affairs, cooperative, eager to learn, and questioning. despite being interested in dealing with complicated tasks, generation y employees may easily decide to change jobs when they encounter simple and monotonous tasks, with the impact of desire to shape their own careers. this higher tendency and less hesitation to change jobs compared to previous generations can be explained with the strong capability of adaptation they have. in other words, these people do not hesitate to shift from a field of business to another to achieve their career goals when they no more have hope and/or a development opportunity in c urrent positions. this characteristic necessitates employers, particularly those aims for sustainability and efficiency, to consider tendencies of generation y employees and take the required measures during the job and process design process (çemberci, kıvanç sudak, aşçı, öz, & civelek, 2014). most of today's generation y employees are managed baby boomers generation x generation y generation z characteristics and values high level of loyalty workaholic interested team working satisfied competitive unfamiliar with technology unstable sense of loyalty respectful to authorities sensitive to society high level of occupational motivation satisfied concerned less interested in technology weaker sense of loyalty hard to acknowledge authorities fond of independence changing jobs frequently individualist grown up with technology cooperative creative born with technology gülsahiden durucan & sena çiftçi & duygunar pulat & elçin soysal 58 by members of generation x. these employees often expect different management methods, clear rules, detailed descriptions of tasks, expansion in areas of responsibilities, inclusion in decision-making processes, investments in educational opportunities, and flexible work styles from their employers. generation y employees more readily work with managers who are eager to provide mentorship support, open to creative and innovative ideas, willing to create career opportunities, appreciate, motivate employees and pay attention to them, and make tasks more entertaining. this generation does not enjoy wearing formal uniforms and expects to have fun in a comfortable workplace with flexible working hours. as a result of today's technological advancements, generation y employees have an opportunity to work outside office settings with flexible working hours and this method increases their occupational motivation (kuru, 2014). members of generation y also desire to benefit advanced technologies in workplaces. accordingly, they expect from employers to create technology-based training opportunities to help them further their personal and professional development. in addition, it is observed that these people use the internet also for different reasons such as entertainment and shopping, out of office hours. there are studies in the literature showing that they often check their social media accounts and e-mails, mostly before the bedtime. members of generation y use social media effectively in interpersonal relations, chatting and communication. (yeliz yeşil, fatma fidan;, 2017) table 3. generation differences according to coomer & debard criteria generations baby boom generation x generation y level of confidence self-confidence, rather than trust for authorities low levels of trust to authorities high levels of trust to authorities loyalty to organizations disdainful favorable loyal, committed desire taking responsibilities entrepreneurship modeling on a hero career goal a glorious career a flexible career multiple career paths at the same time expected rewards title and a comfortable office freedom not to do a meaningful occupation parent-child relationship alienated distant intolerant, interventionist having children controlled doubtful determined, absolute family life cared during childhood marginalized during childhood protected during childhood education freedom of expression pragmatist responsibility oriented assessment once in a year with certification asking opinion of others about own performance freedom to choose assessment time political orientation struggling against pressures indifferent, individualist interested in communities, organizations most frequently asked questions what does it mean? does it work? how could we set it up? source: kübra aygenoğlu, x ve y kuşaklarının kurumsal i̇ş hayatında i̇nsan kaynağı açısından stratejik önemi, 2015, p.17 (aygenoğlu, 2015) according to shaw and fairhurst (2008), the factors behind today's job satisfaction are almost same with those of previous generations. generation y prefers flexibility in work styles and a career in which they may challenge problems. as they expect instant feedback about their performances, employers of generation y employees should provide clear guidelines to them (daud, 2015). differences between generation y and the other generations in this term are summarized in the table below. the analysis of the differences between generation y employees and others in organizations: an example of logistics firm table 4. hypotheses of research h1 workplace fun perception of generation y employees is different from other generations. h2 multi-tasking and attention behavior of generation y employees is different from other generations. h3 taking initiative behavior of generation y employees is different from other generations. h4 understanding of environment and social responsibility behavior of generation y employees is different from other generations. h5 usage of social media behavior of generation y employees is different from other generations. h6 dressing style behavior of generation y employees is different from other generations. h7 privacy behavior of generation y employees is different from other generations. h8 commitment to parents behavior of generation y employees is different from other generations. h9 leadership in team working behavior of generation y employees is different from other generations. h10 evaluation and rewards in team working behavior of generation y employees is different from other generations. h11 organizational support in team working behavior of generation y employees is different from other generations. the hypotheses of this research are shown in table 1 3. research methodology this research is a quantitative cross-sectional research and a five-point likert scale was used in survey. the scale used in this research is likert type ordinal scales. firstly, the reliability and validity of the scales were determined. structural equation modeling method was used to test construct validity. subsequently, independent samples t test was used to test the hypotheses. 3.1 measures and sampling the scales adopted from prior studies were used to measure the dimensions. the scale in the 5-point likert scale used in this study is ranging from strongly disagree to strongly agree. more than 98 distributed, 94 valid questionnaires were gathered from a prominent logistics company in turkey. the scale developed by berg, d. was used for measuring the workplace fun (berg, 2011). for measuring the multi-tasking and attention, the scale developed by small, g. and vorgan, g. was used (small & vorgan, 2009) .for measuring the taking initiative, the scale developed by uzunboylu h. and hürsen ç. was used (uzunboylu & hürsen, 2011). for measuring the understanding of environment and social responsibility, the scale developed by kaya was used (kaya, 2008). for measuring the usage of social media, the scale developed by small, g. and vorgan, g. was used (small & vorgan, 2009). for measuring the dressing style, the scale developed by çemberci et al. was used (çemberci, sudak, aşçı, öz, & civelek, 2014) . for measuring the privacy, the scale developed by small, g. and vorgan, and g. was used. for measuring the commitment to parent, the scale developed by armsden and greenberg was used (armsden & greenberg, 1987). for measuring the leadership in team working, the evaluation and rewards in team working and the organizational support in team working the scale developed by levi and slem was used (levi & slem, 1995). 3.2. construct validity and reliability to assess convergent validity of team working, nine items were included in the confirmatory factor analysis after the data purification process. to assess convergent validity of other dimensions, 23 items were included in the confirmatory factor analysis after the data purification process. confirmatory factor analysis was conducted on the scales by using amos 23 (anderson & gerbing, 1988). cfa results indicated that the models have adequate fit for each model (civelek, 2018). fit indices of the model are χ2/df =1.785, cfi=0.943, ifi=0.955, rmsea= 0.092 and χ2/df =1.440, cfi=0.889, ifi=0.895, rmsea= 0.069, respectively. confirmatory factor analysis results are gülsahiden durucan & sena çiftçi & duygunar pulat & elçin soysal 60 shown in table 5. in addition, factor loads are standardized and each of them is larger than 0.5 and significant. these values show the convergent validity of the scales. table 5. confirmatory factor analysis results constructs items standardized factor loads unstandardized factor loads leadership in team working 0325 0.695 1 0224 0.855 1.396 0123 0.914 1.484 evaluation and rewards in team working 0507 0.478 1 0305 0.911 1.981 0406 0.919 1.944 organizational support in team working 0112 0.616 1 0415 0.701 1.265 0516 0.312 0.523 workplace fun 0459 0.659 1 0257 0.971 1.357 0358 0.786 1.053 0156 0.717 1.035 multi-tasking and attention 0641 0.577 1 0237 0.762 1.191 0338 0.649 1.082 0540 0.543 0.746 0136 0.598 1.027 taking initiative 0133 0.860 1 0234 0.922 1.068 0335 0.784 0.721 understanding of environment and social responsibility 0227 0.773 1 0126 0.858 0.994 0328 0.569 0.676 usage of social media 0129 0.738 1 0230 0.620 0.862 dressing style 0270 0.828 1 0169 0.687 0.885 privacy 0251 0.716 1 0382 0.872 1.060 commitment to parent 0248 0.544 1 0349 0.883 2.190 p<0.05 for all items reliability of each construct individually was calculated. cronbach α values are higher than the threshold level (i.e. 0.7) (fornell & larcker, 1981). cronbach α values are shown in table 6. table 6. reliability of the constructs variables cronbach α 1. leadership in team working 0.861 2. evaluation and rewards in team working 0.790 the analysis of the differences between generation y employees and others in organizations: an example of logistics firm 3. organizational support in team working 0.654 4. workplace fun 0.859 5. multi-tasking and attention 0.763 6. taking initiative 0.885 7. understanding of environment and social resp. 0.776 8. usage of social media 0.628 9. dressing style 0.724 10. privacy 0.765 11. commitment to parent 0.652 3.3. test of hypotheses independent samples t test was conducted to test the hypotheses. levene test and t test results are shown in ttable 7. table 7. hypotheses test results constructs levene test results t test results hypotheses test results f sig. t df sig. workplace fun ,123 ,726 2.070 92 ,041 supported 1.969 54.837 ,054 multi-tasking and attention ,123 ,726 ,028 92 ,978 not supported ,030 71.673 ,976 taking initiative ,149 ,700 1.764 92 ,081 supported 1.751 61.479 ,085 understanding of environment and social responsibility 2.570 ,112 3.221 92 ,002 supported 2.931 49.032 ,005 usage of social media 2.814 ,097 1.912 92 ,059 supported 2.052 76.000 ,044 dressing style ,081 ,777 1.871 92 ,065 supported 1.915 66.896 ,060 privacy ,027 ,870 ,386 92 ,700 not supported ,389 64.233 ,698 commitment to parent 5.332 ,023 3.765 92 ,000 supported 3.350 46.508 ,002 leadership in team working ,005 ,944 ,984 92 ,328 not supported ,995 64.663 ,323 evaluation and rewards in team working ,603 ,439 ,276 92 ,783 not supported ,280 65.450 ,780 organizational support in team working ,944 ,334 1.372 92 ,173 not supported 1.462 74.583 ,148 note: 0.10 significance level as shown in table 7; h1, h3, h4, h5, h6 and h8 are supported. h2, h7, h9, h10 and h11 are not supported. group statistics of differentiated behaviors is shown in table 8. table 8. group statistics of differentiated behaviors gülsahiden durucan & sena çiftçi & duygunar pulat & elçin soysal 62 constructs groups number of observations mean workplace fun geny 62 4.3629 others 32 4.0078 taking initiative geny 62 4.0323 others 32 3.6875 understanding of environment and social responsibility geny 62 4.3656 others 32 3.8125 usage of social media geny 62 3.1855 others 32 2.7656 dressing style geny 62 3.1855 others 32 2.7031 commitment to parent geny 62 4.4839 others 32 3.9063 4. conclusion according to the tests on hypotheses of this study, generation y employees show difference from other generations in terms of workplace fun, taking initiative, understanding of environment and social responsibility, usage of social media, dressing style and commitment to parent. on the other hand, generation y and generation x do not have any significant difference in multi-tasking and attention, privacy, leadership in team working, evaluation and rewards in team working, organizational support in team working dimensions monitored in organizational settings. 4.1. managerial implications this study shows fairly different results when it is examined in a managerial perspective. first of all, compared to other generations, generation y employees are more motivated and creative when they enjoy what they do. by this way, they may stay and work in a certain place for a long period of time. on the other hand, entertaining during working hours is not important for generation x employees as much as it is for members of generation y. therefore, employers can increase efficiency of generation y employees by considering their specific characteristics during decision making processes. according to another result of this study, generation y employees show differences than others in terms of multi-tasking and attention. it means that generation y employees are more willing to take multiple responsibilities at a time and do not become distracted during the process. therefore, we can say that it may be beneficial for the managers to consider these specific characteristics of generation y employees when preparing job descriptions and missions. in addition, the study reveals that generation y employees are more interested in taking initiatives than members of other generations. the difference of generation y employees is considerably significant and managers should consider this fact during supervision activities. on the other hand, this tendency of generation y employees may improve their creative abilities. another result of the study reveals that generation y employees care more about the environment and social responsibilities, and they have already interiorized the social responsibility concept. according to this, adding more activities related to environment and social responsibility to schedules may result in higher levels of motivation for generation y employees. in addition, generation y has a higher tendency to use social media compared to generation x. hence, developing innovative models that integrate social media with usual procedures may help them convert this tendency into efficiency. the fact that generation y employees expect more flexibility in dressing styles than others is another result of this study. managers may increase efficiency by allowing freedom for generation y employees in terms of dressing. another important result of this study is that generation y employees show significant difference with members of generation x in terms of commitment to parents. this characteristic of generation y employees, who are highly committed to their parents according to the observations, should particularly be taken into account by managers. considering all these characteristics mentioned above, it is recommended for managers to develop innovative work models that may help generation y employees improve their efficiency and motivation. working the analysis of the differences between generation y employees and others in organizations: an example of logistics firm with a manager who endeavors to meet these demands may be a reason for generation y employees to prefer a specific firm or organization. limitations and future research the first limitation of this study is the fact that it was only conducted on a logistics firm located in turkey. in addition, the number of participants, which is ninety-six for this case, should be increased in future studies. references adıgüzel, o., batur, h. z., & ekşili, n. 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(nisan 2015). kuşaklara göre i̇şkoliklik. adıyaman üniversitesi sosyal bilimler enstitüsü dergisi , 425. journal of international trade, logistics and law, vol. 5, num. 1, 2019, 1-11 1 human security and migration: human right violations and challenges of ethiopian migrants in the middle east seada hassen endris african studies and international relations program istanbul commerce university, turkey received: april 30, 2019 accepted: june 10, 2019 published: june 15, 2019 abstract: migration is currently considered as one of the foremost issues that the world is dealing with. according to undesa 2017 report there exist 258 million international migrants globally in the year 2017 (united nations, 2017). when it comes to being a migrant destination, the middle east region is one of the major spots especially for migrant workers. the region is also a popular destination for ethiopian migrants. it is estimated that 44% of ethiopian migrants globally is found in the middle east region (kuschminder , et al., 2013). ethiopians migrate to this region because of breach and omission of their social, economic and political rights in their home country. moreover, they face various types and degree of human right abuses and violations in their way and destination to the middle east. this article looks deep and analyzes the concept of human security and its implication in migration studies. moreover, it emphasizes on challenges and human right violations that ethiopian migrants face in their home country, in their way and destination in the middle east that jeopardizes their human security. the article is written by reviewing and analyzing various academic works on the area and surveys and reports of governmental and nongovernmental organizations. keywords: human right violations of migrants, migration, human security, ethiopian migrants, ethiopian migrants in the middle east 1. introduction as the main theme of this article is human security and migration, the article will review, discuss and analyses previous works done on these areas, focusing on ethiopia and the middle east. broadly used meaning and definitions of human security, migration and migrant will be discussed. and arguments on the use of human security concept on migration studies, points on the current trends of ethiopian migrants to the middle east, driving human security factors for migration from ethiopia to the middle east, challenges and human right violations that ethiopian migrants encountered through migration journey and destinations to the middle east, legal and administrative frameworks that are related and contribute to the challenges faced by migrants in both middle eastern countries and in ethiopia are going to be evaluated and discussed . for a theoretical discussion and fact findings various articles and studies by academicians, governmental and nongovernmental organizations, reports and documents of international organizations and civil societies and news reports are reviewed and used in this article. 2. migration and migrant: conceptual discussion migration is an age-old trend as old as the existence of human being itself (international organization for migration, 2018). currently it became a conventional and international agenda being part of political and policy issue of countries (international organization for migration, 2018) it touches each country in one way or another, as being a source of migrants, as a passageway to migrants or as a destination. (global migration group, 2008)with estimated number of 258 million migrants worldwide in 2017 (united nations, 2017), and with its profound social, political, economic and security issues coming with it, migration is for sure among the main present day global issues. seada hassen endris 2 nevertheless, it is cited in different writings that there is no definite and fixed worldwide meaning and definition for international migration and migrant (global migration group, 2008), (international organization for migration, 2018)this is because, generally migration was seen from national level and the meaning has differences from nation to nation (global migration group, 2008), it differs depending on the perception and outlook (global migration group, 2008) or depending on the exact area that it is going to be used, like if it is for legal purpose, research purpose or statistical purpose (international organization for migration, 2018). however, there are some definitions that are widely accepted and used like the one constructed by undesa (international organization for migration, 2018) according to undesa recommendations on statistics of international migration 1998 report, international migrant means “any person who changes his or her country of usual residence.” (united nations, 1998). it additionally clarifies place of residence as “…the geographical place where the enumerated person usually resides.” (united nations, 1998) likewise, according to a document prepared by global migration group, an immigrant is defined as “… a person belonging to, or owing an allegiance to, one state and moving into another state for the purpose of settlement.” (global migration group, 2008). furthermore, different factors could oblige to construct different kind of definition of migration and migrants. as it is pointed out in world migration report 2008, “…geographic, legal, political, methodological, temporal and other factors...” (international organization for migration, 2018) could determine this. consequently, different documents put more detailed and classified meaning of migrants based on different factors. the undesa recommendations 1998, for instance, further classifies international migrants to long term migrants and short-term migrants based on the time span they spent in the destination country as follows: “long term migrant a person who moves to a country other than that of his or her usual residence for a period of at least a year (12 months), so that, the country of destination effectively becomes his or her new country of usual residence. from the perspective of the country of departure the person will be a long-term emigrant and from that of the country of arrival the person will be a long-term immigrant.” (united nations, 1998) “short term migrant – a person who moves to a country other than that of his or her usual residence for a period of at least 3 months but less than a year (12 months) except in cases where the movement to that country is for purposes of recreation, holiday, visits to friends and relatives, business, medical treatment or religious pilgrimage. (united nations, 1998) in other side, the un convention which is enacted for the protection of migrants set a definition for workers, who are immigrant as follows, “migrant worker refers a person who is to be engaged, is engaged or has been engaged in a remunerated activity in a state of which he or she is not a national.” (un general assembly resolution 45/158, 1990) other more documents classify migration itself into different types. the 2008 world migration report put irregular migration as a movement takes place without following the proper rules of countries in origin, transporting and destination. and it further elaborates it saying, “...from the perspective of a destination country, irregular migration may imply entry, stay or work in a country without the necessary authorization or documents required under immigration regulations. from the perspective of a sending country, irregularity implies not fulfilling the administrative requirements for leaving the country, or leaving such country without a valid passport or travel document.” (international organization for migration, 2018) in other hand, the report made by global migration group on migration and human rights, put another 3 types of classifications of migrations. forced migration is when the migration is caused by some artificial or natural threats. and these threats became danger for the existence of those people and oblige them to migrate. natural disasters and political instability are among these threats. (global migration group, 2008)transit migration is a regular or irregular journey of a person to arrive to a destination country or return back to his original country (global migration group, 2008) and return migration as a coming back of a person to his origin country following a stay in another country for at least one year voluntarily or involuntarily (global migration group, 2008). this same document made by the global migration group set definitions for other types of migrants. among these are irregular migrants and environmental migrants. the document put the definition for irregular migrant citing international organization for migration’s glossary as follows “an irregular migrant is every person who, owing to undocumented entry or the expiry of his or her visa, lacks legal status in a transit or host country. the term applies to migrants who infringe a country’s admission rules and any other person not authorized to remain in the host human security and migration: human right violations and challenges of ethiopian migrants in the middle east 3 country (also called clandestine/ illegal/ undocumented migrant or migrant in an irregular situation) (global migration group, 2008). “environmental migrant an environmental migrant is characterized as a person who, for compelling reasons of sudden or progressive change in the environment that adversely affects his/her life or living conditions, is forced to leave his/ her habitual home and cross a national border, or chooses to do so, either temporarily or permanently.” (global migration group, 2008) in general, it is evidenced from the above discussion that migration being one of the hottest issues of states internationally right now, it is hard to conclude in one definition of what migration and migrant is. the diversified cause, traveling method, types of people involving, field and purpose of study make the terms open for multiple meaning and definitions. however, mostly used common points can be picked to identify international migration and migrants. migration being the process, to say a person international migrant, he/she should move to another state from his/her origin state for the purpose of work or settlement temporarily or permanently. 3. human security while explaining migration in studies, human security concept became a preferred approach by connecting and showing the root cause, effect and the solution of and for migration. the human security concept is relatively a recent phenomenon. the concept emerges as a point of discussion after the second world war (fukuda-parr & messineo, 2012). moreover, it gains a broad popularity and attention when the united nations gives emphasis to it and draws its human development report in 1994 in light of this concept. (kaldor, 2006) traditionally security was associated only with attack and violence against nation’s sovereignty and territory. the actual threats against citizens or human beings were not a focus of security concept (united nations development program, 1994). human security concept came into being in defying the concept of westphalia, which puts the security of the state as the main focus. opposing to that, human security concept put human being at the center of security discussions. it expands the discussion of security in many levels, in type and size. it is inclusive of issues from personal to international, from social to political, from local governments to nongovernmental organizations (fukuda-parr & messineo, 2012). according to human security commission, the shift from state security to human security is needed at this time of era. basically because the state, the security provider, is not only unsuccessful of providing security but also appear as a threat of security to its own people, human security (commission on human security, 2003). undp cited that ‘the concept of human security stresses that people should be able to take care of themselves: all people should have the opportunity to meet their most essential needs and to earn their own living’ (united nations development program, 1994). human security is not about safeguarding a territory from weapon attacks anymore; rather it is securing human beings from danger and fear of hunger, disease, poverty, losing jobs, climate change and violence (united nations development program, 1994). it emphasizes that the meaning of security should be diverted from its old meaning to people’s imminent issues. security must focus on safeguarding humans through sustainable development rather than securing boundaries and border of nations through weapons (united nations development program, 1994). it further explains it saying, “… human security can be said to have two main aspects. it means, first, safety from such chronic threats as hunger, disease and repression. and second, it means protection from sudden and hurtful disruptions in the patterns of daily life-whether in homes, in jobs or in communities (united nations development program, 1994). the 1994 united nation’s development report underline that the concept of security should be interpreted broadly. security should also be defined focusing on the real threats of humans rather than the bold image of war and weapons against nation states. the tangible insecurities of human beings encounter in a daily basis should be given the proper attention. food insecurities, job insecurities, insecurities against gender, ethnic and religion based violence are the issues that are threaten humans’ life (united nations development program, 1994). similarly, commission on human security defines human security as safeguarding the fundamental element of human lives to develop free and fulfilled humanity. it illustrates it as follows, “… human security means protecting fundamental freedomsfreedoms that are the essence of life. it means protecting people from critical (severe) and pervasive (widespread) threats and situations. it means using processes that build on people’s strengths and seada hassen endris 4 aspirations. it means creating political, social, environmental, economic, military and cultural systems that together give people the building blocks of survival, livelihood and dignity.” (commission on human security, 2003). moreover, it stressed that human security’s definition should be dynamic, and open to broad interpretation, because what constitute a fundamental element of life in one place is different from the other. the definition should not be put in a way to strict and list those elements. (commission on human security, 2003) similar to this line, shahrbanou and tadjbakhsh argue that, there is no one definite meaning to human security. however, it is one fact that in this concept the general center of discussion is changed from the state centered approach to people centered approach. (shahrbanou, 2005) the commission on human security put human security as a complement to state security. a concept that fills the gaps which state security concept doesn’t address and focus. it listed out four main areas that how human security complement state security. by making the individual and the community its focal point unlike state security, by including threats that weren’t consider as a threat in state security like environmental problems and hiv in its sphere, by broaden the variety of actors from only the state to multiple participants like regional and international organizations, nongovernmental organizations and civil societies and by not only protecting people but also enabling people to protect themselves, the human security concept complement the state security concept to coup up to the new created threats and challenges (commission on human security, 2003). in defining human security, the undp in its 1994 report pin point four major character of human security as well. human security is not confined by territory. it is a worldwide issue. the degree and the type might differ, but it affects all countries irrespective of their economic condition. its elements are also connected to each other. the rise of one human security in one nation will cause another one in other nation. its effect is not stoppable in certain boundary. it is suggested that avoidance of human security threats before they happen is better than trying to stop it after. moreover, the core of human security concept is the human being. it focuses on people’s livelihood, safety and opportunities (united nations development program, 1994). even though security dangers and threats against citizens have a lot diversified aspects, the undp 1994 report grouped them in seven major classifications. the report sorted out human security threats as economic security, food security, health security, environmental security, personal security, community security and political security (united nations development program, 1994). as a major document and start up point for human security concept it is important to discuss these classifications on undp 1994 report. the document defines economic security as having a guaranteed income either from a useful and payable work or other social security programs. economic insecurity is not only derived from not having a job and income but also from fear of losing a job in case of temporary jobs. in urban areas unemployment and under employment while in rural areas small share of land are identified as sources of income and economic insecurities of people (united nations development program, 1994). according to the undp 1994, food security is when people can afford a necessary amount of food with a chance to physically access it. the fact that there is enough amount of food available in a country doesn’t necessarily mean there is a security of food; the people have to have the guarantee to access that food in a regular basis. so, both availability and accessibility should exist to say that there is food security. this ability to access food is only achievable with a sufficient financial revenues or benefits. consequently, having a stable financial income is a prerequisite for a security of food as per the report (united nations development program, 1994). the report discusses health insecurity in terms of what the major causes for it to happen are rather than defining it. accordingly, the report cites that in developing countries, mostly health insecurity is related to infectious and parasitic diseases which are emanated from lower diet and hazardous environment. while in developed countries major health insecurities are usually associated with unhealthy diet and way of life. according to the report the poorest people are more vulnerable to the risk of health insecurities and also have less access for a medical help, in both developed and developing countries (united nations development program, 1994). regarding environmental security, the report refers that the environment is becoming more and more unsafe to live due to different environmental threats. water scarcity and deforestation in developing countries and air pollution in developed countries are becoming a source for continuing environmental threats. as a result, draught and other natural disasters are endangering the human life (united nations development program, 1994). as per the document, personal security includes hostilities that are really a danger for human life physically. these are the actions that threaten human body and life directly. these threats can come from the state itself, from other states in form of war, from other groups through ethnic and other conflicts, from other individuals to vulnerable human security and migration: human right violations and challenges of ethiopian migrants in the middle east 5 groups like women and children or it can be self-inflict danger from oneself in a form of suicide and drug use. crimes and accidents are also the major risks which are included in this category (united nations development program, 1994). in explaining community security, the report point out that there are times that families, groups or community could turn to a threat against its own individual members or to some group of its members. traditional practices like female genital mutilation can be threats to women in a certain ethnic group which practice such activity. attacks and clashes based on community groups are also among threats against society. ethnic group clashes and conflicts on limited resources are one of the main threats of such kind (united nations development program, 1994). in defining political security, the document state that “one of the most important aspects of human security is that people should be able to live in a society that honors their basic human rights” (united nations development program, 1994). human rights violations often committed by governments against their own citizens in forms of torture, ill treatment, imprisonment and oppression of freedom of press. these violations tend to happen more in time of conflict and even though police and the military are meant to be protect the people, they are among the main perpetrators of human rights violations as per the document (united nations development program, 1994). the document also points out that these human security threats are related to each other and one human security issue can cause the other one and can be a reason and a result at the same time. furthermore, human security issues are not only confined in one nation, mostly they are cross-nationals. a human security issue that is a major problem in one country would be a cause to a rise of another country’s human security problem and became a global human security concern. this might happen in two ways; some become global human security concern because by its nature they are transnational issues like environmental problems. the effect of emission or deforestation that happened in one country doesn’t stay in the same particular country rather it will travel to all other boundaries which makes it a global human security threat. other threats become global one when they cross country to country through people inter boundary movements. immigration for better life or to escape conflict and prosecution fall under this (united nations development program, 1994). the un works to develop a better meaning to human security with contribution of ideas from member states. in its 2005 world summit its general assembly decides the same. consequently, series of discussions and informal deliberations within the general assembly were held in attempting for a more developed and workable definition of human security concept (un general assembly, 2012). after all the deliberations and input of member states, the un general assembly in its sixty sixth session came up with a standard meaning of the human security concept. this explanation tends to help members states to have a common understanding of the human security concept for implementation. according to this un resolution, the core focus of human security is people and their right to reside in a world which is free of neediness and desperation. create a status which enables people to have same chance without discrimination to exercise their rights and use their ability to improve themselves. human security needs a complete and a variety of beforehand actions to enable all citizens and societies to build up and develop their safety. it also explains that human security is not about state security and it does not involve a forceful action to take. human security might differ as per the nation’s distinct economic, social and political status and the period it happened, as a result, the solution could vary as pursuant to those specific situations. furthermore, in identifying whose responsibility is keeping human security the resolution set some points as well. even though, the main obligation in maintaining people’s rights to live in safety and freedom goes to governments, however, partnership and help with and between international organizations and governments is important in working on human security. moreover, the resolution state that the application of human security should be in line with the charter of un and should respect sovereignty of a nation in its internal matters (un general assembly, 2012). in recent times the concept of human security gain attention and discussion among academicians and policy makers more and more. on a guidance note written by oscar gomez and des gasper, states that after the un general assembly gave a regular definition for human security on 2012 countries’ human development reports became more inclusive of the human security concept. the fact that after 2012, around 45 countries prepared their development reports by referring directly or indirectly to the human security concept shows the same truth. (gomez & des gasper, 2013) ethiopian human development report of the year 2018 is also evident that this approach has been taking in reporting developmental reports in the country (united nation development program ethiopa, 2018). seada hassen endris 6 4. human security approach in migration studies studies show that, human security approach in migration studies is better in explaining and examining migration. des gasper and giulia sinatti argue that commonly the usual migration research approaches are focused on the problems immigrant host countries encounter because of migration. the insecurities the immigrants faced and their personal story and feelings are not touched usually. human security approach is more human focused and can deeply show not only the bigger picture of economic insecurities and nation focused problems but the social and psychological difficulties and insecurities of migrants. “the human security approach combines the person-focus with a systematic way of investigating the opportunities and vulnerabilities of complex persons, and a worldwide frame in explanation as well as evaluation”. (gasper & giulia sinatti, 2016) thus human security approach can analyze and explain better in migration study (gasper & giulia sinatti, 2016). similarly, francesca vietti and todd scribner argues that the traditional state security model deals with migration by securing borders, under human security approach securing borders is less focused and the emphasis is on the sources that led people to migration. state centered approach deal with migration at the final stage of migration while human security approach looks for the root causes for it and how to eliminate the problem. working to eliminate on human security issues will lead to a reduced international migration. consequently, they conclude that, human security gives better workable directions than the old state security approach in migration studies (vietti & todd , 2013). they also acknowledge that, however, the traditional state centered approach is still important in finding out that which organ or country should take accountability and work towards curbing immigration’s societal, economical and humanitarian problems. principle of sovereignty stay intact and usually the state will be accountable for working towards eliminating the humanitarian and societal problems, provided that international and regional help when needed (vietti & todd , 2013). additionally, anuar h. stated that migration studies conducted with human security perspective demand to examine social, political and economic aspects that led to migration and migrants’ situations in host countries. migrants mostly considered and treated as dangers for host countries in terms of social, economic and cultural aspects. human security perspective, by focusing on individual persons rather than the state, will help to examine and find out what the social, economic and political challenges that migrants encounter starting from their origin country, in course of their journey and destinations (tsega, 2016). huysmans & squire put both state security and human security approaches of migration studies as problematic. they argue that both approaches tend to conceptualize migration as a threat. both approaches work to secure either the security of state or security of humans, or sometimes security of both the state and humans. by doing so, they tend to add free movement of humans into a field of security and migration to be seen as a ‘security threat’. this in turn will result into justifying marginalization and different treatment of migrants as being shown now in europe, north america and australia (huysmans & squire, 2009). as a result, they argue that, state and human security approaches have restraints in addressing all the sociological, political and normative relation of security and migration. moreover, the state security approach completely ignores to analyze the normative aspect of migration, it doesn’t touch effects of securitizing migration as to marginalization, violence and inequities. additionally, it restricts the social and political issues into national security of states and as an issue of state relations (huysmans & squire, 2009). in other side they acknowledge that in contrary to state security approach human security approach give an emphasis on normative aspects of migration and be able to see and analyze migration further than only nation’s security aspect, however, even this approach doesn’t go further to find a middle place in between the two different arguments of security in migration, state security and human security (huysmans & squire, 2009). in summary, the human security approach to migration study is better in explaining migration from the root and in finding a solution for it. from the review discussion it is understandable that the human security concept is important in studying migration deep and helpful in connecting the causes and results of migration. 5. human security threats as a reason for migration and human right violations; ethiopian case various push factors are responsible for migrants to migrate to the middle east countries from ethiopia. migrating in search of a job and a better life being the major cause, as a root factor studies shows other environmental, social and political reasons as causes of migration. mohammed in his study on the cause and consequences of illegal human security and migration: human right violations and challenges of ethiopian migrants in the middle east 7 migration in kutaber wereda, a place which is one of the major sources of migrants to middle east from ethiopia, find out that, the main reason for women in the area to migrate to the region is the absence of job opportunity in the country. he indicates that from this area 60% of illegal migration is attributed to economic reasons and the rest of 40% to non-economic reasons. (mohammed, 2016). additionally, a study on migration routes in the east and horn of africa by maastricht graduate school of governance (mgsog) puts the social, economic and political condition in the country as a driver to migration. among the social factors the high number of population, the spread of ‘culture of migration’ and bad attitude against the returnee migrants in to the society are pointed out in the study. (maastricht graduate school of governance, 2017). similarly, ilo also pinpoint that even if ethiopia’s economy is in the process of growing but the fact that it is not bringing much change on the poverty of the people and in creating enough job opportunities became a push factor for migration. furthermore, regular drought and environmental problems are revealed as reasons for people to migrate for a better life as well (international labour organization, 2017) consequently, having unsecured economic status coupled with social,environmental and political factors push ethiopians to migrate to the middle east. moreover, these human security factors that drives the citizens from home will continue in different forms through their migration processes. migrants encounter lot of challenges and human right abuses in trying to travel to migration destinations and upon arrival, by brokers, smugglers, agencies, in detention centers and by employers. these challenges are of many kinds including physical and physiological abuses. studies show that most ethiopian migrants to the middle east choose the irregular route of migration for different reasons. as per a study conducted by mohammed the lengthy process and the near unavailability of legal migration organs make a lot of migrants to choose irregular ways (mohammed, 2016). similarly, according to human rights watch, of the estimated 10 million migrant workers in saudi arabia, up to 500,000 are ethiopian nationals, many of whom travel irregularly to saudi arabia via yemen (human rights watch, 2018). the illegal routes expose migrants for different human right abuses. according to maastricht university study, ethiopian migrants who use the irregular route through yemen to get to the middle east are most vulnerable to different types of violations. “many cases of abductions, robberies, extortion, physical and sexual assault have been reported to have happened during the sea crossings from djibouti and somalia to yemen as well as upon arrival in yemen.” (maastricht graduate school of governance, 2017) moreover, migrants even face dangers like death and murder. according to ilo report the crossing of the sea is taking place by boats, lot of them die in the process due to harsh weather and overcrowding (international labour organization, 2017). human rights watch reports that migrants and refugees from ethiopia and horn of africa encounter lot of abuses in yemen detention center. authorities in yemen forced the migrants arriving in yemen to return back to the risky sea which endanger migrants’ life. additionally beating, stealing belongings, sexual abuse and assault on women, girls and boys, fatal shootings, killings and starvation were some of the violations on migrants performed by the guards in detention center in yemen, reported by human rights watch. (human rights watch, 2018) news and reports about sinking of boats, which carry whole lot of ethiopian migrants in the red sea, are regular. bbc report on june 06, 2018 that out of 100 ethiopian migrants that was on a smugglers’ boat trying to cross from bosaso, somalia to yemen 46 of them died due to drowning and 16 of them missing. (bbc, 2018) similarly, on another bbc news on december 7, 2014 70 migrants, mostly ethiopian nationals, reported killed when a boat sunk due to a bad weather, trying to cross to yemen. (bbc, 2014) for ethiopian migrants who can pass all these challenges and make it to ‘their dream place’, other types of challenges will wait for them in their destinations countries of the middle east. these abuses and challenges in destination countries come from their employers and families mostly. as dusit abdi ali illustrates it the migrants encounter discrimination and maltreatment based on their ethnicity and race (ali , 2018). mohammed in his study also explains that ethiopian migrant women in the middle east obliged to work long time, get refused to be paid their wages, sexually attacked, denied food and medication, attacked physically and emotionally and subjected to insult and bad words (mohammed, 2016). similarly, a study held by selamawit bekele explain that how migrant workers obliged to work for 18 to 24 hours per day without rest, to hide their religion and act as muslims if they are not one, not be able to contact their families, exposed to physical injury by their employers like beating and pushing down to stairs and denial to get medical treatments (woldemichael, 2013). additionally, the abuses and maltreatment don’t only perform by employers. there are instances that agency personnel (woldemichael, 2013), brokers, smugglers and even embassies commit violations and treat migrants improperly (maastricht graduate school of governance, 2017). seada hassen endris 8 bina fernandez illustrates that multiple types of exploitation exerted on migrant domestic workers. the workers forced to do extra works that are not included in their contract and extra hours without extra payment. additionally, verbal humiliations, restrictions in movement, forbidding adequate rest and sleep and forbidding communication with family and friends are common violations (fernandez, 2014). due to such kind of physical, psychological and verbal abuses and challenges of migrant workers through their journey and destination, when returning back home, they are highly likely of getting mental illness and sever physical injuries. zeleke,waganesh, abebaw minaye and gibbs kygana, in their study on mental health of migrant returnees from middle east, concluded that mental health is a big problem among ethiopian returnees. they explain that mental health problem exist in one in four (24 percent) returnee migrants, and 23 percent of migrants show somatic symptoms. additionally, they found out that the average mental disorder symptom among ethiopian returnees is higher than the overall national average (zeleke , et al., 2015). woldemichael,s. in her study illustrates a story of women who came back from the middle east with a brutal wound on the hand and a broken leg, due to a burn with boiled water and pushed down from the first floor of an apartment by their employers respectively (woldemichael, 2013). in the worst scenarios, there are deaths of ethiopian domestic workers, which made headlines. the daily star reported the death of a 26 years old woman called lembibo, ethiopian migrant domestic worker drowning in a swimming pool in her agent’s house in lebanon, on august 2018. she is allegedly found dead after her former employers return her to her recruiting agent with a severe psychological and physical condition (the daily star, 2018). according to the national, every week, up to two domestic workers died in lebanon, mostly by suicide or trying to escape from their employers (hall, 2018). as a result, ethiopian migrants are exposed to multiple human right violations and events that abuse their human dignity and security throughout the migration process to the middle east. among multiple factors that contribute to this, legal and administrative frameworks of the sending and destination countries are one of them. the next sub topic will explore that. 6. middle east legal and administrative frameworks on migration and migrants it is a regular phenomenon for migrants to the middle east to be exposed for lot of violations and abuses, in their journey and destinations. these challenges are associated to different reasons. legal and administrative frameworks of migrant source and destination countries are cited as some grounds for it. the complicated migration processes and legal and administrative failures in protecting migrants, exposed migrants to dangers and risks. a lot of studies consider the kafala system in middle east countries as one main reason for breach of rights of migrants. according to human rights watch ‘kafala system is a visa sponsorship system where a worker’s visa and legal status is tied to her/his employer’ (human rights watch, 2018). basically, this system allows a two year employment contract in which the employer cover the expenses for employee’s recruitment, medical and visa expense to the destination country. moreover, the national identity card, iqama, of the employee will be associated to the employer, and the employee cannot go out of the country or change work place without permission from the employer (human rights watch, 2018). human rights watch state that this system tends to give tremendous power to employers to control employees. many employers use these to exploit and violate their employees and their rights (human rights watch, 2018). similarly, bina fernandez states that migrant domestic workers are the most vulnerable groups for violations, out of migrant workers, in the kafala system. this is basically because of they are confined at homes and are not allowed to contact to the outside (fernandez, 2014). the exclusion of migrant domestic workers from the labor laws is mentioned as another reason for migrant domestic workers exposure for violations. a human rights watch report shows that saudi arabia, a major destination for ethiopian migrants, excludes domestic workers from labor law protection, which leave domestic workers even more vulnerable to violations exceptionally (human rights watch, 2018). shukria yusuf in her study mentions that this exclusion of domestic workers from labor law leaves the domestic workers’ destiny to be decided by the free will of their employers than the protection of the law or the court (omer, 2015). saudi approved regulation improving the exiting labor law in the country regarding domestic workers, in 2013. the regulation gives better protection to domestic workers and regulates both the responsibility and rights of employer and employees to some extent, in terms of work time, daily break and leaves. and also put an obligation on the employees to obey their employer and their family and perform their job rightly, not to refuse performing a job given to them or leave their work without a proper reason (omer, 2015). however, shukria citing the ilo mention human security and migration: human right violations and challenges of ethiopian migrants in the middle east 9 that, even though this regulation shows some development in protecting migrant domestic workers in saudi arabia, it is not enough and comprehensive. it doesn’t touch multiple other areas which expose this group of workers for violations, like confiscation of passport document by employers and a chance of changing their employer or leave the country only in the will of the employer. apart that, the regulation doesn’t have penal sanctions and is not practiced that much in the ground (omer, 2015). additionally, bina fernandez point out that, the fact that most relevant international conventions on migrant workers are not ratified by the gcc countries or not get practiced properly make the vulnerability of domestic migrant workers high in the region. fernandez refers that, important conventions like ilo convention no.189 on domestic workers, ilo convention no. 143 on migrant workers and un international convention on the protection of the rights of all migrant workers and members of their families (icprmw) are not ratified by the gcc countries (fernandez, 2014). this has its own negative effect in protecting migrant workers’ rights since these conventions provide legal grounds for better protection of migrant workers in all aspects. moreover, fernandez cite that the issue is not only that these important conventions are not ratified but also the ones that are ratified by most gcc countries like ilo conventions related to labor, right to organize and against discrimination are not easily reachable to the migrants and are not practically used (fernandez, 2014). 7. ethiopia legal and administrative frameworks on migration and migrants in the other side, it is also shown in different studies that legal and administrative issues and challenges in ethiopia are also contributing effects to exposing migrants for difficulties and violations of rights. mohammed in his study point out that even though the private employment agency law of the country obliges the sending agencies to give the necessary information about the condition of work and destination country before signing to employment contracts, in practice the agencies not only doesn’t give a proper information about working conditions but also gives an idealistic image about the destination countries. this situation leads migrants to migrate without knowing what they are going to face in their destinations (mohammed, 2016). ethiopian migrants mostly choose the illegal migration route to the middle east. and it is more dangerous and put migrants’ life and safety at risk and their rights for violations, in journey and destinations. this choice of illegal route comes from different grounds. according to mohammed’s study migrants choose to migrate illegally to avoid the lengthy processes in the legal route. apart that the legal agencies are not mostly easily accessible from migrant workers resident areas and migrants must wait for quiet sometimes to get a job through these agencies. moreover, the unorganized method of the whole legal migration process also cited as contributing factor (mohammed, 2016). additionally, as per a study by ashine, ethiopia did not ratify the important un and ilo international conventions which give better protection for migrants, i.e. palermo protocol, the first international instrument that provided an internationally accepted definition of trafficking in persons, the migration for employment convention of 1949 (no. 97) , the migrant workers convention of 1975 (no. 143), the un convention on the protection of the rights of all migrant workers and members of their families (icmw) are not ratified by ethiopia. accordingly, the study recommended that ethiopia should ratify these conventions to better protect migrant workers (ashine, 2017). additionally, after migration, when citizens come back to their home country, given the traumas and challenges they have passed thorough, a system which enables them to recover emotionally and psychologically is necessary. helping them to integrate with the society in both psychological and economic terms is important. however, lack of rehabilitation center and integration works for migrant returnees in ethiopia is weak (ali , 2018). consequently, exposing migrant returnees to face migration again, despite their bad experiences, or to live somehow isolated and tabooed in the society. 8. conclusion the middle east takes a high portion of ethiopian migrants out of all ethiopian migrants globally. the fact that most ethiopian migrants to this region being women, less educated, engaged in domestic works and use irregular routes to reach to their destinations make them the most vulnerable group for human right violations and threats. the discussions above show that ethiopian migrants encounter multiple security issues and threats. these threats stretched in time span, from home country through transit and destinations, and in types from emotional and psychological abuse to losing a life. seada hassen endris 10 as human security concept put it, human security issues can be a cause and/or result to peoples’ insecurities. this fact is evidenced the same in ethiopian case. the studies show that ethiopians don’t have the secured economy or job for their survival, and this by itself create insecurity about their very existence at home country. furthermore, by being main reason for migration it became a cause for other types of insecurities in their life as physical injuries, psychological damage and even life threats. other reasons for migration, being related to the environmental degradation, societal and cultural pressures, political threats and poverty, are directly connected to the human security concept and issues. furthermore, the discussion also indicates that administrative and legal conditions in origin and destination countries as contributing factors for the encountered human security issues. governments are in duty to protect citizens’ human rights. these include in working to provide citizens with enough economic and financial needs that able citizens to have a secured life. however, the government’s failure in providing the necessary economic security exposes ethiopians to various human right abuses coming with migration. moreover, destination countries of the middle east countries contribute and participate in the inhuman treatment and violations by putting disadvantageous laws and administrative procedures for migrant workers. consequently, both ethiopia and middle eastern countries should work on mainly, in enhancing the economic rights of citizens and for the betterment of migrant and migration laws to create a safe and better environment for migrant citizens. references ali , d. a., 2018. the bright hopes and desoluted dream of ethiopian women: a study of circular migration to middle east and the gulf states. masters thesis.uppsla university. ashine, k. m., 2017. migrant workers rights under the ethiopian legal system. global journal of human-social science research, 16(6). bbc, 2014. yemen migrant boat carrying ethiopians sinks killing 70. 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[online] available at: https://www.bbc.com/news/world-middle-east-44391780 [accessed 15 january 2019]. commission on human security, 2003. human security now, new york: commission on human security. fernandez, b., 2014. essential yet invisible: migrant domestic workers in the gcc. gulf labour markets and migration(glmm), volume 4. fukuda-parr, s. & messineo, c., 2012. human security: a critical review of the literature. centre for research on peace and development (crpd) working paper, volume 11. gasper, d. & giulia sinatti, 2016. investigating migration within a human security framework. migration and development journal, 14(27), p. 8. global migration group, 2008. international migration and human rights: challenges and opportunities on the threshold of the 60th anniversary of the universal declaration of human rights, new york: global migration group. gomez, o. a. & des gasper, 2013. human security: a thematic guidance note for regional and national human development report teams, new york: undp. hall, r., 2018. suspicious death of domestic worker in lebanon sparks debate over racism. [online] available at: https://www.thenational.ae/world/mena/suspicious-death-of-domestic-worker-in-lebanon-sparksdebate-over-racism-1.773588 [accessed 15 january 2019]. human rights watch, 2018. “as if i am not human”: abuses against asian domestic workers in saudi arabia. first edition ed. new york: human rights watch. human rights watch, 2018. yemen: detained african migrants tortured, raped. grant access to asylum procedures; hold abusers accountable, new york: human rights watch. huysmans, j. & squire, v., 2009. migration and security. in: c. dunn, myriam & m. victor, eds. handbook of security studies. london,uk: routledge, p. chapter 15. international labour organization, 2017. promote effective labour migration governance in ethiopia, addis ababa,ethiopia: ilo. human security and migration: human right violations and challenges of ethiopian migrants in the middle east 11 international organization for migration, 2018. world migration report 2018, geneva: the un migration agency. kaldor, m., 2006. la security humaine: un concept pertinent?. politique étrangère, pp. 901-914. kuschminder , k., anderson, l. & siegel, m., 2013. profiling ethiopian migration: a comparison of characteristics of ethiopian migrants to africa, the middle east and the north. mgsog. maastricht graduate school of governance, 2017. profiling ethiopian migration: study on migration routes in the east and horn of africa. mgsog. mohammed, y., 2016. cause and consequence of cross border illegal migration from south wollo, ethiopia. arts and social sciences journal, 7(2), p. 188. omer, s. y., 2015. combating trafficking in women for labour purposes and establishing state responsibility: the plight of ethiopian migrant domestic workers in saudi arabia. masters thesis.lund university. shahrbanou, t., 2005. human security: concepts and implications: with an application to post-intervention challenges in afghanistan. s.l.:fondation nationale des sciences politiques. the daily star, 2018. death of ethiopian in pool highlights plight of domestic workers in lebanon. [online] available at: https://www.albawaba.com/editorchoice/death-ethiopian-pool-highlights-plight-domestic-workerslebanon-1192208 tsega, a. h., 2016. the nexus between migration and human security: the case of ethiopian female migration to sudan. international journal of humanities and social sciences, 10(7), pp. 2531--2537. un general assembly resolution 45/158, 1990. international convention on the protection of the rights of all migrant workers and members of their families. s.l.:s.n. un general assembly, 2012. follow-up to paragraph 143 on human security of the 2005 world summit outcome. new york: un. united nation development program ethiopa, 2018. ethiopian national human development report 2018, industrialization with human face, addis ababa: undpe. united nations development program, 1994. human development report: new dimensions of human security, new york: undp. united nations, 1998. recommendations on the statistics of international migration, new york: uited nations department of economic and social affairs statistics division. united nations, 2017. international migration report 2017, new york: united nationsdepartment of economic and social affairs. vietti, f. & todd , s., 2013. human insecurity: understanding international migration from a human security perspective. journal on migration and human security, 1(1), pp. 17--31. woldemichael, s. b., 2013. the vulnerability of ethiopian rural women and girls: the case of domestic workers in saudi arabia and kuwait. s.l.:s.n. zeleke , w., minaye, a. & gibbs, k., 2015. mental health and somatic distress among ethiopian migrant returnees from the middle-east. international journal of mental health and psychiatry, volume 1, p. 2. journal of international trade, logistics and law, vol. 5, num. 1, 2019, 35-43 35 factors affecting online shopping decision: customers in turkey elif türk galatasaray university i̇stanbul,turkey received: may 05, 2019 accepted: june 12, 2019 published: june 15, 2019 abstract: online shopping is a critical subject for marketing academicians and corporations. to have a sustainable competitive advantage, companies try to have strong relationships with their customers and try to learn their customers better. in this research, factors affecting online shopping decision of customers are examined, strenghts, weaknesses and sevetal benefits of online shopping are defined. based on the dimensions found in the research considering theoretical background about online shopping; a comprehensive conceptual framework of ose is developed. for data collection, 13 focus groups have been performed. a content analysis is conducted to analyze the results about factors affecting online shopping decision of customers in turkey. the analysis concluded that security and privacy concepts are main concerns of online shopping process. by developing the literature of ose using a comprehensive framework, this paper improves the knowledge about online shopping and gives new insights to e-marketing and retailing literature. keywords: online shopping, e-retailing, e-commerce 1. introduction online shopping is a kind of e-trade that links sellers and buyers via internet where buyers can buy goods or services they need from an online store other than traditional brick and mortar stores (vos et al. 2014, p.418). online shopping is a widely important activity for customers and retailers. because of the expansion of internet usage among customers and changes of customer preferences, online shopping is developing critically. customers use internet for entertainment, communication and marketplace exchanges (miyazaki and fernandez, 2001). as customers get used to use internet and internet becomes a part of people’s daily life, firms need to improve their etrade activities and try to get attention of customers also in e-commerce world. the purpose of our study is to identify factors affecting online shopping decisions of customers in turkey. because turkey is a developing country, emergent business constitutions are attractive for customers. to have a competitive advantage against the competitors, firms need to create customer value also in online shopping. to create customer value firms need to know the attitudes, behaviours, needs and wants of the customers and they need to structure their business operations parallel to their customers. the objectives of the research are identifying: 1. strenghts and weakness of online shopping according to turkish customers 2. factors affecting online shopping decision of turkish customers 3. benefits and risks associated with online shopping in turkey according to the results of our study, online retailers in turkey can structure their operations, websites and transactions by seeing the market through customers’ eyes. this research tries to reveal the reasons of shopping online and the challanges of online shopping. elif türk 36 2. literature review in this section internet usage among turkish customers will be discussed. general knowledge about online shopping market in turkey will provide an insight to the importance of e-commerce in the country. factors related with online shopping decision are examined. first, definition and drivers of online shopping are given. second, shopping decision and online shopping decision are discussed. in methodology part, qualitative research which is designed to conceptualize factors affecting online shopping decision of customers in turkey is represented. 2.1. general information about internet usage in turkey total number of internet users in world reached 4.021 billion with a ratio of 53%. percentage of the total population in turkey that uses internet is 72%. internet users in turkey increased by 9,3% according to the report of hootsuite in january 2019. the ratio of world population above age 15 who make online purchases and/or pay bills online is equal to 29%. in turkey, the percentage of population who bought something online in the past month is 67% which was 43% in previous year. m-commerce is an emergent subsection of e-trade which is expanding rapidly. reports state that 50% of the population in turkey used their smart phones to purchase goods or services in the past month. a customer spent an average of $152 to buy consumer goods via online channels. the ratio of e-commerce expense in total retail expense is %5. in 2019, 68% of turkish population fulfills banking transactions via online channels and ratio of credit card users above age 15 is 42% (global digital report, 2019). annual growth rate of etrade market increased from 42,2% to 59,9%. the growth rate of online retailers is 31,5%, online holiday and tourism operaters is 22,9% and online legal betting shops is 5,5%. (tubisad, 2019). researches show that 24,9% of internet users whose age are between 16-74 purchase goods or services via online channels for personal consumption (perakende sektörel bakış, 2018). half of online shopping is fulfilled by users living in the most important three cities of turkey: 28,39% i̇stanbul, 13,62% ankara and 7,45% i̇zmir. turkey has the 11. place in the list of worlds’ internet usage ranking. between april 2015 and april 2016, 24,9% of customers who bought goods and services using online channels encountered problems with online sellers (tuik, 2016.). table 1: online shopping product category ratios commodity of goods online shopping ratios of customers clothes 59,03% electronic equipments 46,85% meal orders 42,85% accomodation and trips 38,92% books 36,61% cosmetics and personal care 28,71% number of online shopping customers in turkey is increasing exponentially. this rapid growth should be taken in to consideration by e-commerce actors. companies’ interested in e-commerce need to structure their business activities and transactions according to the expectations of online customers for future growth. therefore, online shopping customers must be examined detailly, shopping attitudes and habits must be determined to structure the online operations. 2.1.1 online shopping process of buying goods and services by using internet is called online shopping (tsiakis, 2012). proliferation of internet allowed consumers to communicate, entertain and collect information using e-channel. developments related with internet, implemented e-commerce to our daily and business life. purchasing of products and services online become a new phenomenon which is termed in different ways as: online shopping, e-shopping, internet shopping, electronic shopping and web-based shopping (clemes et al., 2014). selling, buying and marketing of goods and services through online channels is called online shopping (hamza and saidalavi, 2014). factors affecting online shopping decision: customers in turkey 37 online shopping improves efficiency and effectiveness of businesses, increases market share of companies, strenghtens brand awareness, enlarges distribution network of retailers and accelerates international e-trade operations (ramachandran et al., 2011). each day, number of consumers in e-commerce operations is growing rapidly. consumers prefers online shopping because: 1. penetration of interne 2. time management is easy 3. decreasing of product research cost 4. cheaper price than traditional brick and mortar stores (renny et al. 2013). 5. availability of information 6. lack of sales people pressure 7. gaining other customers’ comments (ramachandran et al. 2011). 8. consumers search information in online world (mosteller et al.2014). time constraint of working people is a major indicator of online shopping. to create and allocate time for personal activities individuals choose to shop online. in online shopping consumers do not need to carry goods, drive car and face with crowded traffic, walk around the shop to find the right product. online shoppers can reach and search a product whenever and wherever they want. these advantages expand online shopping preference and improve online shopping transactions. reaching product information easily, a wide variety of product selection and chance of comparing products with other substitutes are not the only advantages of online shopping. convenience and ease of shopping are other advantages that should be stated (liu et al. 2011). as online shopping has many advantages in theory, there are barriers which impede online shopping. one of the main concern of online shopping is perceived risk of customers. customers are concerned about the delivery of the goods at the right time, at the right quality and having the right specifications. security of money transaction is also a big uncertainty for customers. many of the studies define that the level of risk perception in online shopping is higher than a traditional shopping transaction. financial risk, product risk and privacy risk constitute main risks in online shopping (liu et al., 2011). some researches mention security risk as a subdimension of perceived risk in online shopping. especially research held by government organizations define that consumers’ risk perception is a major obstacle to the growth of online shopping (miyazaki and fernandez, 2001). 3. methodology the aim of the study is to identify factors affecting online shopping decision of customers’ in turkey and barriers against online shopping decision. because there is an identification process the research has a qualitative type. 3.1 research questions 1. why do turkish customers prefer online shopping? 2. what are the barriers against online shopping? study also tries to determine the product categories which consumers buy the most. 3.2 method in this research, factors affecting online shopping decision are questioned. the purpose of the study is to examine online shopping measures of customers and factors affecting online shopping decision. aim of the study needs an exploratory research design that will be conducted with qualitative methods. according to bellenger et al., 2011: “qualitative research involves finding out what people think and how they feel – or at any rate what they say they think and how they say they feel. this kind of information is subjective since it involves feelings and impressions rather than numbers” (bellenger et al., 2011, 2) elif türk 38 in qualitative research process, data collected from the sample consists major subjective elements. in qualitative research, projective and intensive techniques are used. depth and focus group interviews are intensive techniques which are used in qualitative research for data collection. in this research focus group interviews are performed. after data collection process, content analysis is executed to analyze the opinions and thoughts of the participants. 3.3 data each focus group consisted between 8-10 people. data collection process lasted in 35 days. first focus group interview took place on 4 th of february and the last focus group took place on 10 th of march. a total number of 11 focus groups were arranged throuhout the given period. during the data collection process, a number of 103 people were attended to interviews. each focus group lasted about 2,5 to 3 hours. before primary data collection, a pilot focus group interview was fullfilled. at the beginning of the pilot interview, important subjects which are determined from literature were designed as open-ended questions. according to key points taken from the literature 15 questions were assessed. after checking the legibility of pilot interview questions, adoptions were made and 5 more interview questions were added. the context of the questions were: a) product variety during online shopping b) weakness and strengths of online shopping c) customer journey during an online shopping d) time spent on internet usage and online shopping e) information about interesting online shopping sites f) differences between online and traditional shopping g) importance of other people’s comment before purchase decision one moderator was directed the interviews. for voice recording permission of the participants were obtained before each session. the analysis was completed in 20 days. table 2: participant details focus group number number of participants 1st, 3rd, 4th, 9th, 11th 9 2nd, 5th, 7th, 8th, 10th 10 6th 8 total participant 103 participants were chosen from 3 private and 3 state universities located in i̇stanbul. ages of participants differs between 30 to 42. people between age i 16-24 uses internet with the highest ratio. but people between these ages does not have a regular income in turkey, as a result minimum age constraint was defined as 30. all of the sample unit has bachelor’s degree, they are working as academicians or in private sector. number of female interviewers are 56 while the number of male interviewers are 47. 8 of the participants are working in e-commerce companies. major limitations of the study are time and money. if there had been enough time and a financial support, participants of focus groups would have classified acoording to their social classes and incomes. if there hadn’t been any limitations, the geographic dispersion of the participants would have widened to different cities. at least participants from i̇zmir and ankara would have been included in data collection. because statistics defines that population in i̇stanbul, i̇zmir and ankara are major cities who prefers online shopping the most. 3.4 results because the purpose of the study is to determine factors affecting online shopping decision, a content analysis is performed. content analysis is classification of themes and topics in a qualitative data. the aim is to find basic measures of a given subject (lapan et. al., 2014). during the analysis, common themes and topics in the answers of factors affecting online shopping decision: customers in turkey 39 depth interviews were exhausted and general topics were identified. focus group interview questions are classified according to their contents. the following part of research paper consists the analysis of answers. 3.4.1 product categories analysis showed that interviewers buy: 1. shoes, 2. clothes, 3. books, 4. electronics, 5. flight tickets, 6. holiday, 7. small appliances 8. toys. according to answers female participants buy especially shoes and clothes at least every month. male participants’ favourite products for online shopping is electronics. %85 of participants said that because of discount rates of online bookstores instead of brick and mortar stores they choose to buy their books via online channels. the percentage of married participants were %4. only one married participant does not have a child. participants that have children buy toys for their children using online channels. they emphasized that instead of going to a toy store and persuading their children to buy a proper and suitable toy, they buy the proper toy for their children from an online store. by online shopping, they can manage their spare times with their children more comfortably. a small group of male participants defined that they buy clothes and shoes via online channels because they don’t like trying on clothes. instead of travelling in a shopping mall, those participants enter the sites of their favourite apparel brand and order the clothes to their address. if there is a problem about quality or size, they can reject the order without shipping cost. %10 of females told that they bought lingerie and cosmetics. at the beginning of winter and summer holiday seasons, 89 of 103 participants emphasized that, planning of the holiday and deciding the place to travel begins with the journey on internet. and 72 of 89 participants defined that they purchase holidays via internet channel. ten participants stated that they buy food and beverages from online supermarkets. 3.4.2 weaknesses of online shopping major weakness of online shopping is precarious sellers in online channel. twenty seventh of participants professed that if there is a chance to make the payment durin delivery, they shop online. if not, they do not shop online. they just search internet, collect the necessery information and read the comments of other users. then they buy the product from a brick and mortar store. a number of 55 participants expounded that in online shopping, they use virtual credit cards. another weakness of online channel is hardness of information procuring. a limited number of e-retailers have real time communication with customers. if there is a question to ask, customers do not know what to do. as a result of this, especially for cosmetics and domestic appliance categories customers prefers traditional retailers. privacy is another fragility of online shopping. participants defined that when they make a purchase from a brand of a group company, other subbrands of that company start to send promotion e-mails. information sharing without permission is general in online shopping. customer privacy is an important issue. customers want retailers to keep their personal informations private. security is another factor which eventuates in resistance to online shopping. especially during payments stage, malicious third party actors try to seize credit cards and personal security informations of customers. then, they use customers’ personal information for illegal actions or they use credit cards to misappropriate money to their personal accounts. particularly, participants older than 35 years old do not like online shopping because of the absence of a traditional shop. as participants get older, ratio of online shopping preference is decreasing. they want to touch and feel the products. they want to examine the products detailly and try them. it is a major disadvantage of online shopping. absence of physical evidence is threath for e-retailers. 3.4.3 strenghts of online shopping when participants were asked to share their comments about advantages of online shopping, they focused on subjects like: traffic congestion, spending the time instead of shopping with more interesting and entertaining activities, getting rid of carrying heavy shopping bags, collecting informations and comments of other users before purchase decision. traffic congestion is a major problem in i̇stanbul. all of the participants are working and they want to manage their spare times more impressively. %70 of the participants believe that they dilute time during traditional shopping. elif türk 40 according to the theory, rest of %30 participants have features of hedonistic shoppers . they want to spend their time with relaxing, watching a movie, meeting with friends, outside activities and with social events instead of being a part of the traffic congestion. instead of spending time with product searching at shopping malls, participants use their idle times at work and at public transportation for searching products using online channels. travelling around for finding the right product at brick and mortar stores is a strenuous work. online shopping makes things easier for product search because participants click and reach the product they wish. so the surplus time from online shopping turns into weekend activities for relaxing, entertainment and for socializing. female participants emphasized that carrying shopping bags is a tiring work. especially for food and beverage purchases, they shop online and they get rid of carrying bags. participants who do not like online shooping uses e-tailers for information collection. comment function of eretailers are alluring for them. by reading users’ comments, people collect different informations from different people on different sites about different products and brands, as a result people can have a wide range of product variety in their decision funnel. 3.4.4 customer journey during an online shopping participants asked to reply a question about their online shopping process. this question was askes to define the general framework of a customer journey during online shopping. if e-retailers know the journey of potential customer, they create and design their online shops according to their customer’s habits and purchase attributes. participants explained that: customer journey starts with searching process. after finding different types from different brands, they start to read users’ comments. when participants decide which product to buy, they start searching to find the lowest price. if they trust e-retailer who provides the lowest price, they purchase the product. if they do not trust, they buy the product from a more confidential seller. if they can not find a confidential and low cost e-retailer, they purchase the product from a well known online seller or from a brick and mortar store. especially for electronics and holiday purchases, people explained that they watch videos on internet. for electronics and toys, participants watch box opening videos. female participants define that buying shoes and clothes is a funny activity for them beccause of the wide range of product variety on internet channel. some of the participants explained that sometimes they fill the shopping basket and forgo purchasing the products. when they find the product at a brick and mortar store, they buy the product. customers listen music, watch videos or movies during an online shopping. literature calls them as two-screened people. as it is understood from the participant comments, online shopping journey is a time saving, funny, comfortable and relaxing activitiy. during an online shopping, customers can do whatever they want. they can travel, work, look after their children, study or socialize. 3.4.5 time spent on internet usage and online shopping customer’s spent minimum 3-4 hours, maximum 20 hours with internet except their working hours. participants spend each day at least half an hour on internet. female participants spend not more than 4 hours for online shopping. participants who are working at online e-retailers spent more time on internet because they believe that online shopping is confidential and comfortable. participants explained that they purchase goods via online channnels at least one time every month. male participants spend more time on internet but most of them play online computer games. female participants buy cosmetics, clothes or shoes at least every month. they purposely follow up sale periods of their favourite brands’ online shops. unmarried males play online computer games with a percentage of %40. female participants spend at least 1 hour on internet. meanwhile female participants’ existence on internet, if there is a new advertisement or a promotion, they enter the online website and start examining the product. participants defined that during working hours if there is not much to do, they follow up the web sites of their fields of interests. participants stated that while using public transportation or having lunch participants they use their mobile devices for online shopping instead of computers. except working hours, for online purchasing they use mobile devices and applications in ios or android. participants who buy food and beverage from online e-retailers do not spend time for searching. they stated that before purchase, they prepare a product list and buy the products from an online supermarket. beverage and food factors affecting online shopping decision: customers in turkey 41 brands are definite and certain in online shoppers’ mind as a consquence they do not spend to much time for purchasing. participants search online stores especially while lulling their childen. 3.4.6 information about interesting online shopping sites hepsiburada.com and migros are favourite e-retailers. male participants who buy electronics especially chooses to purchase their equipments from e-bay, gittigidiyor.com and teknosa. female participants follow up the sale seasons of brands like network, mango, derimod, desa, sephora, boyner and silk&cashmere. decathlon is an important brand for outdoor equipments between participants. the important factor about brand choice is: if customer finds a traditional store for solving potential problems about, the ratio of purchasing from that brand increases as a result of perceived trust. 3.4.7 differences between online and traditional shopping the basic difference between online and traditional shopping is the absence of a real store. if retailer has both a traditional and online store, this situation turns to an advantage. a physical store seems reliable according to the opinions of participants. ease of shopping is another difference between two shopping motives. in online shopping, participants say that you click and buy the products. but in traditional shopping, you spend too much time to reach the physical store, you have to communicate with sales person and wait for other customers to try on the products or for payment procedures. participants believe that product prices are lower and there is a wide range of product variety in online stores. if they want to buy interesting or creative products, they use internet channel to find and purchase the products. participants stated that: time management is easy in online shopping. they told that during traditional shopping, there are too many activities to manage. they have to reach the traditional store in a traffic jam, they must find the suitable brand after coming and going too many stores. participants explains that online shopping is easy because they do not need to endeavor unnecessery actions. but participants emphasize that if they want to buy a special product or a product that they must try on, they prefer going to a traditional store. for example, five of female participants said that they buy flowers from traditional stores because they want to smell and see the bloomingness of flowers. participants defined that for spesific product categories using five sense is important which is not suitable in online shopping. 3.4.8 importance of reading comments social relevance is a determinant of purchase decision. all of the participants said that if they buy product for the first time, they will absolutely read other users’ comments. if they purchase a product from an unknown online seller they read the comments of other buyers profoundly. more than 75 participants stated that they check users comments on facebook and twitter. especially for female participants, comments of social contacts are important during the purchase decision of a product. participants are also wondering about the accuracy of other users comments. because they know that various e-retailers are writing fake comments about their online stores and products. 4. conclusion the analysis of the focus group interview states that: online shopping journey of the customers starts with the searching stage. because of this, e-tailers must improve their search engine optimization and search engine marketing activities. to become the first brand in google searches, the quality ratings of the website should be increased. also, e-tailers should overrate content marketing activities to have a better position when compared with their competitiors. if stages between order and payment takes too much time the possibility of declaring off increases. so, online retailers should arrange the stages carefully and they should get rid of unnecessery procedures. some participants emphasized that they only search online e-tailers for specific products domestic appliances. e-retailers should create new websites including 3d images of products to attract this group of customers. as it is understood from the opinions of participants, user comment is an important determinant of purchase decisions of online customers. so, complaint management is a sensitive subject for online retailers. online retailers should improve their customer relations and avoid negative comments about their online stores. elif türk 42 clothing, apparel and cosmetics e-retailer brands should overrate personel advertisements for women. especially during their sales seasons, they should inform potential customers properly. because women participants stated that sales seasons are important periods for them, brands should plan aggressive digital marketing activities to attract new customers and to increase share of wallet of existing customers. brands having only traditional stores should transform digitally and create their online stores. because finding a physical store to communicate make the customer to feel comfortable, retailers should benefit from their traditional stores to manage their online activities. for an online retailer, having a physical store is a competitive advantage against the pure-play retailers for gaining customer trust. online stores should improve their privacy and security issues and they must inform online customers about renewals. online shopping companies should diversify their payment methods. male participants spend to much time playing online computer games. e-retailers should profit by that opportunity and plan their online advertisements including computer games. people buy goods and services via online channels by computers and mobile devices. more than half of the participants stated that they use mobile devices for online shopping. so, companies should desing reflexive end flexible web-sites for both computers and mobile devices. they should create user friendly web sites. this research is limited to online shopping customers in i̇stanbul. a similar research including ankara and i̇zmir for sample unit will be usefull to enlarge the scope of the subject. online shopping is a new area of interest and should be examined carefully. references bellenger, d. n., 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(2019, 3 26). global digital report 2019. wearesocial: https://wearesocial.com/uk/digital-2019 (accessed 15 may 2019) journal of international trade, logistics and law, vol. 4, num. 2, 2018, 63-74 63 the involvement of foreign actors in ethno political conflict: case of the republic of central africa habib adam ahmat, (master) istanbul commerce university in istanbul, turkey received: november 30, 2018 accepted: december 12, 2018 published: december 15, 2018 abstract: the central african republic is an extremely impoverished country that has seen little development since its independence from france in 1960. it is ranked 180 out of 186 countries on the u.n. human development index (report 2016) and is in the fund for peace’s top 10 failed states, next to haiti and afghanistan. the latest surge of violence in the country began when the séléka rebels captured power in march 2013. they were responsible for mass killings, sexual violence, and looting. this paper critically analyses the factors that led to the outbreak of that conflict one of which the role that played by the foreign actors in this conflict. the research found th at there are four main elements that caused the conflict in the car including exclusion, repression, and competition over resources and foreign involvement. one of the important reasons behind that conflict is an economic factor which is the struggle for power and reso urces among political elites. the paper also found the repression combined with exclusion policies adopted by the bozize and the precedent regimes also contributed to the outbreak of violence in car finally, the empirical evidence showed that there was a deep economic crisis behind the conflict, with the withdrawal of foreign investors the commercial crops such as cotton, coffee, also have deteriorated as well as the exploitation of forest income has declined. keywords: ethno-political conflict, competition over resources, seleka, anti-balaka, francois bozize, michel djotodia 1. introduction ethnic conflict can be defined as any episode of sustained violent conflict in which national ethnic and religious or other communal minorities challenge government or other ethnic groups to seek major change in status (bates 2003). an ethnic conflict between two contending ethnic groups, while the source of the conflict may be political, social or economic. the individuals in the conflict must expressly fight for their ethnic group’s position within society. this final criterion differentiates ethnic conflict from other form of struggle. in central african republic (car), even though the sango (local language) is the national language spoken by the majority of central africans, car still one of the deep diverse countries both ethnically and culturally. it hosts a diverse range of ethnic groups. according to 2003 census, car has population of about 4.3 million from which the christian constitute 80 % of the total population. the muslim constitutes only 15 % of the population (agger 2014). the latest surge of violence in the country began when the séléka rebels (mostly muslims) captured power in march 2013 and committed atrocities against civilians. as a reaction to that violence self-defences groups named anti-balaka emerged. this latter was responsible for mass killings, sexual violence, and looting too. (anderson, mb, brown 2013) this paper examines the economic aspect based on theory of competition over resources as cause of conflict to find out how competition over natural resources of car by both internal and eternal actors led to the outbreak of sectarian violence. furthermore, the paper reviews the foreign interference into the conflict in car. 2. literature review the human experience with the conflict dates back to the emergence of the first human race (robyn short 2000). to understand the phenomenon of ethnic conflict many scholars started before anything else by figuring out its causes. number of researchers including economist sheds light that ethnic conflict are mostly economic interest 64 habib adam ahmat 64 driven conflict. the promoters of this approach tend to associate the competition over resources as the main factor or direct element that causes violence. struggle engaged by communal groups for such basic needs as security, recognition, acceptance, fair access to political institutions and economic participation. another group of researchers demonstrate that conflict is driven by a factor that called “elite manipulation “. these scholars argue that ethnic conflict is merely elite driven clashes. because leaders incite ethno-nationalism to secure their own hold on power (nationalism studies project 2008). according to these scholars the mass can be easily manipulated by political leaders seeking to mobilize social group ethnically distinct group especially when a society going through socio-economic difficulties (gellener 1983). the structuralisms (international system) propose that there are structural factors as element that causes violence. willet susan and ayoob mhammed claims that there are long term factors (structural) elements which are interconnected political social and economic factors that causes conflict in many parts of the world. for instance, the population pressure, distributional injustice and the depletion of natural resources are encouraging element for violence. another group mainly of international relation analyst argues that the territory s intrinsic value attached by a group of people to a specific land is one of the main driven factors of conflict. according to them the parties of the conflict attach some identity-based to territory; therefore, they are willing to use force to secure a valuable territory. according to theories of extreme ethnic violence or the post-soviet ethnic violent conflict is the essentialism approach that called sometime ancient ethnic hatred or primordial antagonism as the trigger of ethnic violence. scholar’s fulling under this category argues that the presence of ancient mutual hostility mixed with differences such as religion and culture can lead to a conflict. finally, another group of researchers suggest the rational choice approach to explain ethnic violence. according this perspective ethnic violence can be merely explained by the outcome of rational choice or decision that made by individual to accomplish potential target. because human beings are strategic calculators and goal-oriented creators, they choose whatever means sometime violence to achieve a given goal. moreover, this group of scholar incorporated some realist ideas from international relation theories to draw conclusion of the rationality of ethnic violence. they believe that ethnic violence accrues when there is not going to be a change in the statues-quo because “when a leader sees the costs of war are less than the expected costs of further decline “ (christoph 2014). 3. economic causes of the conflict most of the data that issued by formal institution shows not good stand of socio-economic development in car the poverty index report of 2018 indicates that 80 % of the car’s population earn less than 2 $ a day. these facts might go worth in the rural era where there is no public transportation facility. hence, the human development index of 2103 indicated that car ranked 185 out of 187countries. these figures show the bad performance of economy in car. this economic and political turmoil and constant state of insecurity that ravaged the car did not start up with the arrival of the rebels to bangui and overthrown of the regime by seleka militias, but it began before the seleka alliance come to power in march 2013. according to many observers this crisis is the direct outcome of political instability which lasted more than 10 years which is caused by previous social and economic crisis (undp 2014) is the combination of the economic “degeneration “that installed in the country since 1980 s , add to that the failed democratization process in the late 1990s a process from which a there three military personnel have ruled the country as well as the structural mismanagement that lasted for decades . therefore, it is important to examine the economic aspect of this crisis. 3.1 deep economic crisis after the golden age of car s economy which is associated with the collective memory of the ex-formal president bokassa, the car s economy has stagnated gradually. from the end of late 1990s to the present days, the number of companies operating in the country has decreased from 521 to 52, (jean christoph victor 2018) for instance on the wake of the crisis in 2015 only one metal establishment survived, and this company was looted during the invasion of seleka these criminal attitudes has forced its owners to stop all their activities which were limited to exploitation. yet, the leaders of central africa have always been proud of mineral wealth of the country, a real metal sector as it never existed as a specific industrial field of metals; including gold and diamonds. for example, they are shaded in a traditional way which is very modest compared to other producers in the african the involvement of foreign actors in ethno political conflict: case of the republic of central africa 65 65 continent and most of their activity remains outside the control of the state. another element that influenced the car s economy is that the commercial crops such as cotton coffee, also have deteriorated and have not yet reached the level of old production and only agriculture (keenan , m and a. giffen 2014 ). however, basic cereals and vegetables have enabled the majority of the rural population to survive and other extractive activities as companies (human security report 2013) the exploitation of forests no longer exceeds the fingers of one hand and the cost of financing which made it very difficult in term of competitiveness in the international market especially with withdrawal of investors. the following cruft showing the economic output of car since 1980 to 2012. figure: 3.1. economic output of car since 1980 to 2012. source: aljazeera report 2013 in general, the chart shows that there has been a rise in gdp in car in 1980s till 2000. so, we can see from the chart that the highest level of it is gdp have been achieved in 1980. however, the chart indicates that just the following years the country witnessed a dramatic decrease in gdp till 2015. furthermore, it is clear evident that the chart shows the similar pattern of decrease till 2012. (aljazeera report march ,2013). 3.2 competition over resources it has been well known that the cost of an armed conflict is very high, because it requires enormous financial support to pay the acquisition of military equipment including weapons ammunitions military uniform, food, medicine, vehicles telecommunication equipment and wealth. the natural resources such as forest hydrocarbons and mines are appreciated by many powers and businessman because the control of these sources is essential and core financial base of an armed resistance. (paulin jaban kabka 2015) this money must come from somewhere mostly from of the country s resources, the overall natural resources including forest hydrocarbons and mining are source of attraction of business man as well as the military and political actors that involved in an armed conflict. because such sources are essential for an armed resistance. in fact, the armed group that lose the ability of acquiring and controlling natural resources could naturally lose the war because the group will not be able to preserve and continue in the war effort. 0 100 200 300 400 500 600 700 800 900 1000 1980 1990 2000 2005 2006 2007 2008 2009 2010 2011 2012 gross domestic product per capita gross domestic product per capita 66 habib adam ahmat 66 3.3 withdrawal of foreign investors from car in addition the investments from the international companies which mostly french capital dominates the economy but the central african republic has tried since independence to attract capital and development monies from other countries, including libya, taiwan, china, germany, and japan. however, due to the drop of timber prices that sector did not witnessed a big improvement. france 24,70% u.s 9,80% netherlands 8,70% china 6,90% cameroon 6,30% other 43,60% figure: 3.2 sources: tomolya jános and jean-françois: aarms and grenoble esg, 2014. the seleka militias financed their actions by exporting diamond and exporting timber to the neighboring countries meanwhile anti-balaka, mostly founded its troops through the control the hydrocarbons and timbers (unhcr 2018). the national army is financed by the state budget that remains. therefore, this competition over country’s resources led to a deep economic crisis. this deep economic crisis was managed for few years by a huge dependence on foreign aid (undp 2014). for instance, the salary of the civil servant paid by foreign aid. despite of that difficulties the regime of bozize was able to pay the civil servant an army from the that collected from various sources including world bank, african development bank, european union etc. these donners granted in somehow the civil and military servant s salary at least at least in the capital city bangui. therefore, one of main cause led to that crisis is corruption combined with mismanagement. for instance, some companies gave financial support to the rebels in the middle of the civil war so that they can pursue wood cutting and exporting it. this situation refers to what is called the resource curse or the dutch disease which denote the paradoxicality or the difficulty for ensuring social and economic development when there is an abundant natural resource (paul collier). in the contrary, the presence of resources attracts suffering from everywhere. many studies reveled that countries with huge natural resources are often fall prey to civil war, because their potential wealth is main factor that keep getting them into trouble. in our case even the neighboring countries are benefiting from car resources because wood, oil and diamonds are exported through cameroon, chad, the drc that one of the reasons why especially these three countries heavily involved in this conflict. like the other african countries, in the region the contribution and participation of the exploitation of the natural resources helped to the sustainability and longevity of armed conflict. for instance, the ngos global witness accused operators mostly (french lebanese chinese) foresters of complicity in crime in the conflict in car, because they thought that the companies made a profit in the middle of the civil war by funding rebels. (aljazeera report 2013) 4. political causes of the conflict 4.1 weak state conflict can emerge when a government fails to address the condition that might create tension .in fact; there are symptoms that can indicate government weaknesses including the emergence of criminal organization, war lord, corruption, epidemic (agger 2014). one of the main elements that caused the outbreak of the conflict in car is that a weak state that deliberately engaged in applying policy of planed exclusion. in order to stay in power as long the involvement of foreign actors in ethno political conflict: case of the republic of central africa 67 67 as possible the formal president bozize developed a tactic which was the weakening of the governmental institutions particularly the national army (facca). he reduced the national army to presidential guard. ( jean christoph victor 2018 ) the reason behind this tactic is to avoid of being overthrown by either by the national army or the police body , in other word he implemented this machiavellian tactic which consist of weakening of the army out of fear of potential coup ( paulin iban kabka 2015) in such condition some citizens (politicians and military leaders) developed the believe that violence is the only way to conquer power in country as the global security report of 2006 outlined that since the independence car has experienced five subsequent military coups which some succeeded on overthrow of the central government. as result of this political turmoil and generalized insecurity result into two disastrous consequences which are the central government led by bozize was not able to maintain peace and security and courting urgencies. second: the police were not able to control the integrity of the territory (report 1, september 2016). 4.2 failed democratization process one of the issues that considered being common causes of conflict in african politics is the lack of democratization. “the western style of democracy in great difficulties to take root in african state “(cle 2018) many african tend to choose a representatives (parliament, president) not based on what they can do for the society or their ability to perform rather they choose a leader because he or she merely belong to their ethnic groups. the attitude that generally do not allow to some especially the minority one to come to power through election. the lack of democratization considered to be one of the major elements of the conflict in car (binoua j. 2005). many observers of this conflict argued that such conflict can be avoided or at least minimized by holding a free and fair election that encourage the active participation of ordinary citizen in economic and social life , because any attempt to exclude any ordinary citizen from these right due to its ethnic , religious belonging will automatically create a sentiment of resentment and hostility against the central government (undp 2014). in the era of the formal president bozize the basic citizen need is denied especially those who are living in rural area. as retaliatory action to these unjust policies the marginalized citizens has no option than take up an arm in order to make his voice heard and claims its rights. this act of taking guns tend to provokes a protracted social conflict in most of the cases (nehemiah 2004 ). furthermore, the long-lasting unresolved conflict have been used by the entrepreneurs of violence to manipulate some population, that what lead to what is called by an observer “social disorganization especially in the absence of clear social norms to settle differences. because the traditional systems of dispute settlement has been neglected by the government for many years (kolck p. 1971). finally , the internal geopolitical crisis of central africa is the cause of the current violence, historically, the muslim population has had a minority northern governorates .the arrival of "silica" armed muslim militias, to power shock broke the rules of a political game was controlled she was in control a political class representing ethnic groups in the west and center of the country and orbiting the military government the reaction against silica also falls within the scope the clash of cultures between coastal populations and forest dwellers (global center for the responsibility to protect 2014). 4.3 lack of rule of law one of the commonly experienced problems in african politic is the lack of accountability particularly for political and military elites. this goes for the car s political situation this impunity. the situation of lack of trial and persecution of the responsible for violence especially those who carried out massive human wright abuses lead to cycle of violence. because activist and victim from both sides will be motivated by a deep desire for revanche which will definitely lead to a new cycle of tension. both the previous and the bozize regime are undermined the legal system of car by creating a system that make impossible accountable of their act which encourage them to commit further crime. another situation which is created by the lack of rule of law which is that an increase level of risk of outbreaking of a conflict between an armed and unarmed groups especially the one that target minority due to the competition over resources and to confiscate goods land and some rare resources . even though the bangui forum provided an opportunity for the creation of special criminal court and a trust justice reparation and reconciliation commission because of the current situation which undermines the rule of law the procedure of peace building will be challenging. 68 habib adam ahmat 68 5. the involvement of foreign actors the regional and international attention to the crisis in central africa, particularly those of chad and france have been closely noticed by observers. due to the fact that both of them has military forces in the country the french military presence did not stop since the independence even if the size varies from one period to another, meanwhile, chad's military presence dates back to the late 1990s. in this section we will analyses the nature of these relations and the motives of these foreign actors to interfere in this conflict: zeleza argued that any attempt to cope with a conflict in africa has to take into consideration the root causes of the ongoing problems which are according to her mostly linked to the ancient colonial era. in their book “the root of african conflict: the cause and the cost “zeleza and nehema conceded that before anything else the cause of these conflict has its origin in the colonial era when the european imperialist scrambled for africa, they shared among them the continent without taking into consideration the ethnical make-up of the local population. therefore the result of that policies, particularly after the decolonization , african states are bunch of “polyglot “ a mixture of cultural and linguistic groups which create a situation described by many as “incohesive nations “, in other word the inhabitants are not able to create a society based on harmony and solidarity based on national loyalty rather they tend to develop solidarity based on micro-ethnic customs and values that tend to be loyal to an ethnic group. (ayoob mahammad 2001). secondly, the direct or indirect interference of regional actors while pursuing their political, economic, influence, security interest has contributed to the conflict in car. according to ( ganson b ) the neighboring countries generally tend to interfere in other armed conflict either due to the one of following reasons fist : to protect themselves against the risk that might be caused by a neighboring conflict second : to support some actors that they considered worthy of their support , therefore it is worth to note that the regional and international power game is one of the factors that some conflict last longer than others . to be more precise for instance chad supported muslim dominated rebels and other southern neighbors being close to the christian militias anti-balaka. (boche 2013). hence, the religious character is served as identity reference to the both movement which helped in a way or another to gain financial support from the neighboring countries as well from the international level. these political consideration with religious connotation of the countries of the sub-region have effected even on some organization for instance the( misca ) the international mission to maintain peace in car during the operation of this mission chadian soldiers were accused of providing intelligence and weapon to muslim seleka fighters the reason why chadian government was forced to withdraw its troops even though there is no guarantee that chad dose not continue to provide logistic and intelligence support to the northern army branch . even though there is a strong french and chadian military presence in car the objectives differ: french and chadian regarding their military presence in central africa; for chad, it means defending security interests and economic priority. the formal president of chad idriss deby does not want the central african republic to turn into a base for armed opposition and he is keen to use grazing land central africa, the livestock of its citizens during the summer. as for france, the act of sending troop was as a response to pressure from the humanitarian lobby in the country most of ngos in car are french in the year were french organizations and appeals to some countries in the region. 5.1 the rationale behind chadian intervention it has been noticed that before and during the crisis in car there was a very close relationship between the chadian central government and the seleka militias members particularly with their leaders, from historical background, the root of this relation date back to 1990 s and described by observers as especial relation which made almost necessary for chadian government to fallow up and pay close attention to the recent development of the situation in car. to indicate how fare this relation gone for instance, due to the pressure from the chadian president in january 2014, the interim president of car michel djotadia has resigned during the summit of economic community of central african states which held in the chadian capita ndjamena. hence, under the (misca) united nation mission to bring peace in car, chad has deployed 5.500 in car in order maintain peace there. the direct answer to the question why the chadians care about this conflict is that according to the human right activist report , the current chadian regime has experience of robel attack which used the car s soil as camps for the involvement of foreign actors in ethno political conflict: case of the republic of central africa 69 69 preparation and training of their troops this is exactly the case of the prominent chadian opposition leader baba lady who used the border line of car as save heaven to protect himself from potential chadian counter attack . therefore, there are two main interest for chadian government to interfere into that conflict. firstly , security interest which consist of break the common habit of chadian rebels and armed opposition to gather and train in car soil , to do so , the formal chadian president idriss deby supported directly or indirectly some seleka leaders by thinking that bringing an ally to power can help to secure chadian border and not allows further development of chadian rebel by cutting them the road that would prevent to chadian armed opposition to use car soil as save heaven to prosper . secondly, there are enormous economic interests that ties strongly chadian government with car s authority, many interviews reveled that the main reason of the chadian government s support to seleka is to create a favorable environment to the chadian businessman mostly (gold and dimond traders) to keep their advantageous position so that can continue making profit even if the regime change in car. moreover, the chadian government believed that by supporting seleka they can they can mage to contain the conflict and to prevent it from affecting the chadian oil field in the sothern borderline of chad with car, in fact the motive was interfering to prevent potential instability that might damage the operating chadian oil field. on top of that there was another speculation about chadian rational behind intervention which is to avoid sharing car s authority the (the cross-border oil reservoir) especially after the discovery of that reservoir by chinese national petroleum corporation (cnpc) recently. 5.2 the rationale behind france intervention there are many actors involved in political crisis in car. the anarchic structure of world politics stimulates many actors to influence political, economic and social dynamics of the other country (john mearsheimer 2014). for example, france was a colonial power of many african and car until 1960, having taken particular interest in the region at the berlin conference of 1884. the french influence in car takes its root since from the colonial era where the european imperialist scrambled for african land from 1881 to the first world war. as a consequence of that decision bunch of african countries become a french protected land from which the car part of it. after the wave of independence of 1960s, france still continue to play a critical political and economic with its ancient colonies. this ties with its colonies illustrated with the presence of french military contingent in many places in some french speaking african countries. hence, one of the most important french foreign policy in africa is that france aims to bring a political leader in power who will be working with france very closely to serve and protect french interests in place. according to some analyst of african governance and politic for france, it is not about special security and economic interests that motivated france to intervene in those countries. the french military presence in the region has two points (libreville and n'djamena), and the few french institutions that still exist in the country no longer have a significant business figure that the number of members of the french community is very limited, but the french intervention comes as a response to the pressure of the lobby because most of the international nongovernmental organizations in central africa in 2005 were french organizations), and anonymous appeals to some states in the region. despite their relations with some field of operations, french forces do not work harmoniously in bangui; however, unlike that period there have been a demographic and structure change in car which have affected clearly the french influence when the political crisis began in the car in 2013. because it has been realized that t in the beginning of the crisis francois holland government distant himself far away from the conflict. for instance, president holland refused to respond to president bozize call for assistance. the french military representative stated that they are here only to protect french national and airport. however, the france position changed when they realized that there is an imminent to many civilian lives and there were grave human right abuses carried out by seleka members. this situation obliged france to address the united nation to initiate intervention in order to prevent further abuses and bring peace. hence the french diplomatic representative stated in his interview accorded to bbc “we knew that there was some inter sectarian violence so we called for resolution the we deployed 900 troops (le monde 2014). 5.3 the rational behind sudanese and cameroonian involvement into the conflict sudanese and chadian influence to bangui date back to more than two decades ago, the noreast of car regularly has been used by both chadian and sudanese mercenaries and warlord as training camps before and during the 70 habib adam ahmat 70 darfur conflict (lombard 2014). this has influenced the instability of the region particularly within car. in 2016 campbell stated that because of that influence the military personnel of seleka mostly dominated by chadian and sudanese. they are consisting of 80 % of seleka in 2014 (fidh 2014). meanwhile the cameroonian government had different consideration unlike the chadians and sudanese, according to some national observers the consideration that motivated the cameroonian government to support the bozize regime are primarily economic as well as security concerns. the economic survey magazine reveled that export and transit of goods from and to car has decreased since the beginning of the tension in 2013, the trade volume decrease estimated by 49 % in mid of 2013 which was the real reason why the cameroonian authority felt the necessity to support the bozize regime to bring stability and to avoid more negative impact on cameroonian economy. in addition to the economic, there was another concern which motivated the formal president of cameroon felt the necessity to act in support of the central governance is the presence of both seleka members and some (faca) national army of republic of central africa members in the cameroonian soil which led to many incursions in refugee camps that established in the eastern borderline with cameroon (dunkhan 2016). so, the support was to prevent further incursion in the refugee camps sated up in cameroon. meanwhile the sudanese authority s concern was looking for new allies which will add to the sudan influence in the rejoin if they manage to find a new ally like seleka leaders as well as the sudanese opposition can not use the borderline between the two countries as heaven to prepare and cause suffer to sudanese people. 5.3 conclusion chad and france share both military forces in central africa, and the french military presence has not ceased. the country has been independent since its independence, although its size varies from one period to the next. chad's military presence dates back to the late 1990s. and to chad a presence in the african union (micivih), and another military presence outside forces, and there are some chadian forces in north-eastern central africa in the province of vagaka years ago based on an agreement with bangui, and some of them without legal cover after the deportation of chadian citizens france has been published to secure bangui airport during the seleka victory, and then decided to carry out a disarmament operation that began in early december is now composed of 2,000 soldiers. 6. conclusion this research found that there are four elements that caused the conflict in the car including exclusion, repression, and competition over resources and foreign involvement. one of the important reasons of the conflict is the struggle for power and resources among political elites. both side the rebels and the central government used the fragmentation that already exist in the social and political level in the car to acquire power and resources. the research highlight that the repression combined with exclusion policies adopted by the bozize and the precedent regimes also contributed to the outbreak of violence in car. bozize appointed in his government civil and military mostly from his own ethnic groups and his relatives especially in some position that he considered to be strategic from political and economic point of view. this irresponsible attitude provokes sentiment of “grievance “or having the feeling of being deprived from his or her right. as result several armed groups appeared including selek, anti-balaka, many leaders of this later s armed groups thought that the only option left on the table to get their rights which is active participation in political and economic and social life is to take arms particular the failure of the peace agreement which was the peaceful approach to secure their rights. the research found that the main reason behind the failure of the peace agreement is the lack of mutual trust between political leaders. this materialized when bozize did not did not keep his promises regarding to the peace agreement and he did not want to share the power with some leaders of these armed groups. again, the bozize attitude damages the trust between the main political leaders. finally, regional and international actors interfered into this conflict basically to secure their geo-political interest especially the republic of chad which has direct social and economic connection with the car nation in almost all levels. moreover, president bozize decision to shift allies from the conventional one which are chad and france to new regional and international powers such as china and south africa. to punish bozize for his unwillingness to implement the peace agreement and turning to new allies the economic community of central african states (eccas) cut its financial support to the bozize regime. similarly, chad and france stopped baking the regime even though they are the one who broth him to the power, due to these reasons they did not protected the regime from rebel attack. the involvement of foreign actors in ethno political conflict: case of the republic of central africa 71 71 the research highlights some challenges that will be faced by both the local authorities and international community. these challenges can be illustrated in the following point: -the first one: international community has to make these partnership work better what we believe is important here is really about information and analysis. if we want a shared objectives which we are going to need to have a shared solutions we really need to have the same analysis of the problem that we face and we think the big problem that we have seen in why the united nation and african union and others sometime disagree is that they do not share the same analysis of the problem or they put different problem as in different level of priority. so is very important that they should try and share as much information and analysis as possible so that they can come up with the same diagnoses of the problem, the same priority of the issues and hence the give the researchers a chance of coming up with shared solution. second, there is a big challenge for exit strategies because they tend to do not think hard enough about the entry strategies and we think what we need to do better going forward is to be very honest about themselves to know what are the situation where peace operation ca help and what are the situation where ca not. in a situation like central african republic the ongoing war none of the parties are really serious about peace. the most important things to know in such a conflict what peacekeepers can do? of course they can help facilitate humanitarian assistance they can put a lid on very worst negative consequences of warfare but they cannot solve a war when the belligerent want to fight a war, therefore they should think very carefully about what are the circumstances where it’s just wrong choice of instrument to deploy a peace keeping mission. -third, is about the financial fund. the funding problem for african mission there can be no ownership a no leadership of the peace and security architecture in africa unless there is more of slice of the funds come from the african continent. the point to start is there is with oba sanja report but also to persuade government and head of the state on the continent that these are problem that are worth investing in even if its investing in this is expensive but it’s going to be more expensive and more costly if we do invest in these peace mechanism. 7. recommendations as the secretary-general of the united nations pointed out in his latest report, there will be no quick solution to the central african crisis; the roots of the crisis explain the impossibility of overcoming them in a short time; first of all, the security crisis must be contained so that it can be restored the establishment of state structures and the construction of an economy capable of providing employment opportunities. the biggest bet now in central africa is empowerment economic cycle that allows most people to earn a living fairly. this requires refraining from readymade constructs and to use critical thinking to understand the causes of the failure of development assistance to the country. if partnership of peace keeping is going to be really the way forward we cannot have solution just coming out of africa alone, africa in challenge which is very important the best thing could be done is a coming in hybrid international sense. so in that spirit we offer some recommendations of what we can do better. 7.1 to the car authorities a number of objectives have been identified as a critical in addressing causes of insecurity and violence: • objective 1: protection of the civilian population through the fallowing steps: first: condemning publicly and systematically all the human right violation committed by seleka members. second: establishing a national army force and engaging with regional and international force in a comprehensive join process to contain seleka troops as first step to disarm them. third: strengthening the car security and defense force through extensive training that will allow them to know how to deal with unconventional human right violation such as collective rape. fourth: restoring the authority of state particularly the defense and security forces justice and the basic service such as schools, hospitals on the whole car s territory without seclusion of any region or community. fifth: to facilitate and support the work of national and international activists in place including journalist ngos and humanitarian workers throughout the country. • objective 2 : fighting against impunity by talking the following phenomenon : • fighting against impunity especially the perpetrators of serious humanitarian and human right violations. • to persecute seleka members who have been accused of committing war crime and violation of human right. 72 habib adam ahmat 72 • supporting the national committee of inquiry in a way that will allows them to establish facts concerning with the responsible of crimes committed by seleka members and civilians before and after the crisis. establishment of a hybrid tribunal composed from national and international persecutors to try the responsible of those crimes that established by the fact-finding mission of the united nation commission of human right. • raising a fund with the support of the international community to compensate the victims of looting. • legislate a specific law to fight against sexual violence and create a different mechanism that would facilitate women s access to justice. • to cooperate with the (icc) with the accordance of the principle of complementarily as mentioned in rome statue. 7.2 objective 3: administration of justice there is a need to take all necessary means to ensure that the aerostation and detention are conducted in accordance with car s criminal code procedures and the other provision of law including the international human right. -to release immediately anyone arrested or detained arbitrarily. to take all possible measures to stop the act of torture inhuman degrading treatment and punishment that carried out by the official in the detention center against any person accused of having committed crimes. to close all without distinction the illegal detention center to establish an action plan to strengthening the car s legal system with the support of the international community. to abolish the death penalty to comply with resolution of commission on human and people’s right. 7.3 objective 4 : social and economic right • to pay regularly the civil servants • to take all necessary measures to fight against corruption. • wrestling against illegal exploitation of all kind of natural resources including diamond and gold. • monopolization by the central authority the right of exploitation of natural resources. in order to ratify the african charter of on democracy election , governance as the protocol of african charter on the african court of human and people s right (a charter that designed to give right to ngos to sue in african courts in case their right is violated). furthermore to ratify the convention against torture and inhuman degrading treatment and punishment. also to ratify the optional protocol on the right of child and the involvement of children in armed conflict. 7.4 to the un security council and african union s council for peace and security • to condemn all violation of international humanitarian law and human right law perpetrated in the country. in order to supporting the stuff of “misca’’ the international mission support for car must to ensure the protection of the population throughout the car territory. also to support the misca to implement a mandate that will enable the following major points: • guarantee the protection of human right activist and the journalist; • establishing several garrison especially in the province and the main cities of the countries; • increase the surveillance in a wide range around the garrisons to prevent all act of violence against civilian; • implementation of libreville agreement containing and disarming seleka rebels; and • granting the security and protection of national and international representative by providing them mains to leave the country. and ensuring the security and working condition of the humanitarian activist throughout the country. the involvement of foreign actors in ethno political conflict: case of the republic of central africa 73 73 bibliography agger, k. 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(1983). histoire de la centrafrique. paris: editions l'harmattan. journal of international trade, logistics and law, vol. 5, num. 2, 2019, 41-58 41 the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia ejigayehu birru, jimma university, ethiopia yilkal wassie, jimma university, ethiopia tekilu tadesse jimma university, ethiopia received: nov 02, 2019 accepted: dec 05, 2019 published: dec 30, 2019 abstract: there are different evidences in the literature regarding the relationship between financial development and economic growth. some studies have found bidirectional causality, others a unidirectional relationship while some found no causality between the two variables. the aim of this study was to see the direction of causality and to investigate the existence of a long run relationship between financial development and economic growth in ethiopia. we use two variables namely private sector credit as percentage of gdp and broad money supply as percentage of gdp to indicate financial development and employ auto regressive distributive lag model( ardl) to bounds testing to examine the long and short-run impact of financial development on economic growth and granger causality tests has conducted by using vector error correction model . the bound test results suggest that long-run relationships exist between economic growth and both financial development indicators as well as other explanatory variables. moreover, our findings support both supply leading a nd demand following hypotheses. the direction of the short-run and long-run causal relationship between economic growth and financial development depends on which financial development indicator is used. particularly, improvements in financial development indicators related to the resource allocation function of the financial system lead to economic growth whereas economic growth causes financial development through increasing banks’ assets in the long run. keywords: financial development, economic growth, ardl bounds test, cointegration, granger causality 1. background of the study there are different issues which economist has debated on the role of financial development in economic growth. the first version of endogenous growth theory (ak) which did not make an explicit distinction between capital accumulation and technological progress produced by frankel (1962) model find three ways through which the financial development sector can affect productivity and economic growth. first it increase the productivity of investments second decrease transaction costs and widens the share of the savings channeled to productive investments lastly, it affect saving rates (kiovu.2002). financial development exerts higher influence on economic growth, poverty reduction and economic stability (levien, 2005), (shabri, 2008). in the study of ndebbo (2004) financial development has a positive impact on economic growth. since the pioneering work of schumpeter (1911), a lot of both theoretical and empirical literature has been developed arguing importance of finance on economic growth. the findings of the study showed that financial sector contribute to economic wellbeing by identifying and redirecting funds towards innovative projects smith (1776) include financial system lower cost of transaction smooth trade, specialization of major resource to technological innovation. ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 42 financial development contributes to economic growth by stimulating investment in the country through the level and efficiency effects. the efficiency effect argues that the reforms and regulations in the financial sector ensure transparency and regular reporting systems within the sector; this ensures investors’ confidence thus, attracts both domestic and foreign investors. in addition, the efficiency effect argues that financial sector allocates financial resources to the most profitable projects. there is positive correlation between financial development and economic growth in efficiency effects arguments. a financial developed sector improves the efficiency and effectiveness of financial institutions and also promotes financial innovations within the sector. this promotes economic development. the financial sector is said to develop when: financial inclusion increases, the sector`s stability increases, the amount of money that is intermediated by the financial institutions within the country increases, the number of financial institutions increase, the number of services or products offered increase and improve, the sector becomes more competitive and more efficient (dfid, 2004). this means there is no single measure that can include all dimensions of financial development. one way which can enable a country to achieve high economic growth is by building a capacity to mobilize financial resources and by ensuring their efficient allocation to the projects with highest returns. the financial sector does this role by mobilizing savings and allocating these resources to the most productive projects. other roles of the financial sector that promote economic growth include risk management, obtaining information on investment opportunities, facilitating the exchange of goods and services, facilitating and encouraging inflows of foreign direct investment, amelioration of information asymmetries, among others (levine, 1997; dfid, 2004). although research in the area of the relationship between financial development and economic growth abound both in advanced and developing countries, the direction of causality has not been resolved. from the findings, it is not clear whether financial development is the cause of economic growth or economic growth is cause of financial development. several views on the direction of causality between financial development and economic growth have been observed and yet studies have been drawing different views. empirical studies which support the supply-leading ‘hypothesis that is, the unidirectional causation that runs from financial growth to economic growth include, [ang 2009, baliamoune-lutz, 2008; gries,2011, levine, 2000; majidandmahrizal, 2007; meron, 2016. odhiambo, 2007, shahbaz, 2013, uddin, 2013]. on the other hand, the demand-following ‘hypothesis that is, the unidirectional causation from economic growth to financial development has been proved by the findings of [ang, 2008; gurley and shaw, 1967; goldsmith, 1969; levine, 2005; majid and mahrizal, 2007; odhiambo, 2008; handa and khan, 2008; gries. 2009; odhiambo, 2010; gries.2011]. several other studies have documented the bidirectional relationship between financial development and economic growth [greenwood and smith, 1997; blackburn and hung, 1998; blackburn. 2005; ang and mckibbin, 2007; abubader and abu-qarn, 2008; wolde-rufael, 2009; jenkins and katircioglu, 2010; and gries, 2011]. still other studies conducted in developing nations support the widespread existence of both bidirectional and unidirectional causality between the variables, others such [asram 1999; de gregorio and guidotti, 1995; change, 2002; majid and mahrizal, 2007; and gries, 2009 argue that there is no causality between financial development and growth]. closed nature of the ethiopian financial sector in which there are no foreign banks, a non-competitive market structure, and strong capital controls in place (kiyota, 2007) as well as dominant role of state owned banks which is the cause for inefficiency and also deter economic growth. furthermore, ethiopia is a unique country among the sub saharan african country by not having a capital market and very limited informal investing in shares of private companies. this study in detail investigates the causality between financial development and economic growth by using time series data of over the period 1980–2017g.c. the researcher deals with multivariate causality between financial development and economic growth in which previous studies failed to address the omitted variables biasedness raising from bi-variate causality. moreover, in addition the controversial result obtained previous studies; most of earlier studies conducted in ethiopia used only one proxy for financial development which might come up with misleading the conclusion (kayota, 2014). the overcome the problem associated with financial development indicators, this study included critical variable namely money supply and private credit as percentage of gdp in our investigation. therefore, the general objective of this paper is to investigate the dynamics relationship between financial development and economic growth using time series data over the period 1980–2017. 2. literature review 2.1. theoretical literature the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 43 from schumpeter (1911), who put the role of financial intermediation at the center of economic development? it is the first time that schumpeter articulates statements about how financial transactions take central stage in economic growth. he suggested that the economic growth is advanced majorly through the banking systems by the financial intermediation. the financial mediation ensures allocation of capital; mobilize the savings and advancing technological changes. according to him, the financial services should only be provided by the banking system since there is advancement of technological progress. schumpeter said that services provided by the financial intermediaries are major drivers of innovation and economic growth. friedman (1959) and johnson (1969) also did the earliest theoretical work that links the financial development and economic growth. this was by indicating that the production function contains a major element in the name of real money balance. samuelson (1947) and pakinin (1965) postulated that the utility function has a greater element in the name of real money balance. the economic function of finance in the microeconomic explains financial intermediaries serve as a bridge the difference in interests between borrowers and lenders concerning the size of investment, its maturity and risk. moreover, it connects financial services with asymmetric information and agency costs given the financial system a more prominent role in accomplishing an efficient allocation of capital (thiel, 2001). financial development occurs when financial instruments, markets, and intermediaries’ alleviate the effects of imperfect information, limited enforcement, and transaction costs (levine, 2005; world bank, 2012). from all the above, it’s indicative that whenever there is a positive correlation between real money balance and the output, then the final effect will be that increase in real money balance will lead to increase in growth in real output. in this regard, it will be seen that development of the financial sectors will positively affect the economic growth of a country. since economic growth is a subset of economic development, there will be economic development of a country. this has been demonstrated by mckinnon (1973), shaw (1973), galbis (1977) and mathieson (1980) who opined that the development of financial policies has an impact on economic development. levine (2005) has developed a broader definition that focus on what the financial system improves in the (1) production of ex ante information about possible investments, (2) monitoring of investments and implementation of corporate governance, (3) trading, versification, and management of risk, (4) mobilization and pooling of savings, and (5) exchange of goods and services. but, financial sectors differ evidently in how well they provide these key services. mckinnon (1973) and shaw (1973) said that financial repression make domestic agents to hold their assets in nonmonetary terms which are unproductive instead of productive monetary terms like depositing assets in the bank. this leads to less investment as there will be no money to lend in the economy. therefore, a market associated with the forces of demand and supply which is without government interferences leads to optimal savings allocation. based on data from 13 sub-sahara african countries ghirmay (2004) examined the causal relationship between financial development and economic growth in these countries. his findings supported bidirectional causal relations in six countries (ethiopia, kenya, malawi, tanzania, rwanda and south africa there are four main types of relationships between financial development and economic growth. there is supply leading hypothesis (financial development leads to economic growth), demand leading hypothesis (economic growth causes financial development), bi-directional hypothesis (both financial development and economic growth causes each other) and independent relationship hypothesis (neither financial development nor economic growth causes each other. the first one is finance led growth (supply leading hypothesis). this argues that financial development causes economic growth. king and levine (1993) argue that financial institutions increase capital accumulation and also influence the productivity of the factors of production positively. bodie et al (2008) postulated that the major functions of financial development in stimulating economic growth are: ensuring ease of trade on goods and services, regulations, policing and ensuring corporate governance, mobilizations of savings, management and diversification of risk, access to cheaper information about potential investments and allocating capital. these contribute positively to economic growth. the second one is growth driven finance/ demand leading hypothesis. demand leading hypothesis argues that economic growth leads to increased financial development. this view is still under great debate among researchers and has not received much consensus. according to levine (2001), economic growth may reduce the cost of accessing financial services and more people join the financial intermediaries, hence economic growth causes financial development as more financial intermediaries will be launched. this means that the factors that promote economic growth are not within the purviews of the financial sector. the third one is feedback/ two-way causal relationship. two-way causal relationship means that both financial development and economic growth causes each other in a positive way. according to lewis (1995), a two ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 44 way relationship exists between financial development and economic growth. this means that the financial sector develops because of economic growth which in turn feeds back into the system and acts as a stimulant to economic growth. the fourth and the last one is independent relationships. having looked at the three relationships above, there is a fourth relationship whereby both financial development and economic growth are independent of each other. this was demonstrated by lucas (1988). this means that factors that determine financial development and economic growth are elsewhere and not within the two. 2.1. empirical literature there have been a lot of studies investigating the relationship between financial development and economic growth. the studies range from cross country to country specific, using cross-section data and some using time series data. the studies have also used various proxies for financial development and different methodologies. the crucial importance of financial development on economic growth is generally acknowledged in the literature. however, there is yet to a consensus on the determinants of financial development and, in particular, the impact of public sector borrowing from domestic banking system on financial development and private sector credits. thesis attempts to contribute this literature by investigating the determinants of financial development and private sector credits for a panel of 85 developing and industrial countries using annual data from 1980 to 2006 kenourgios and samitas (2007) examined the long-run relationship between finance and economic growth for poland and concluded that credit to the private sector has been one of the main driving forces of long-run growth. hagmayr et al. (2007) investigated the finance-growth nexus in four emerging economies of southeastern europe for the period 1995-2005 and found a positive and significant effect of bond markets and the capital stock on growth. in the global look, demetriades and andrianova (2003) study the relationship between finance and growth in england. there result postulated that there is candid importance of the financial intermediaries for the achievement of economic growth. they provide the means of payment and as well provide the link between current and future consumption. they found that the liquid liability of money drives the economy. mohd (2012) through his investigation on the causality relationship between economic growth and the developments of non-bank financial intermediaries of malaysia between 1974 and 2004.the study showed the causality running from the non-bank financial intermediaries’ development to economic growth. choe and moosae, (1999) in the study of south korea about the causality between financial development and economic growth, found that financial development leads to economic growth. in sub-saharan africa, akinlo and egbetunde (2010) studied the direction of causality between financial development and economic growth of ten sub-saharan african countries. the study found a positive relationship between economic growth and financial development. using the vector error correction model (vecm), the study finds that financial development is co-integrated with economic growth in the selected ten countries in sub-saharan africa. the study found bi-directional relationship in some countries. ndebbio (2004) studied the relationship between financial development and economic growth of some sub-saharan countries. the proxies of financial development used were ratio of m2 to gdp and real money balances growth rate. the study found that financial development leads to economic growth. chistopoulos and tsionas (2004), on the study of 10 developing countries showed long-run causality running from financial development to economic growth. there was no direction of causality in the long run. songul, ilhan and ali (2009) investigated between 1975 and 2005 found bi-directional causality between financial development and economic growth in sub-saharan africa. in kenya, onuonga (2014) in the study between 1980 and 2011 on empirical relationship between economic growth and financial development in kenya showed long-run relationship among, financial development, trade openness and economic growth in kenya. it also finds that financial development has a significant positive effect on economic growth. odhiambo (2008) through the use of proxies such as broad money (m2), currency ratio and credit to private sector said that direction of causality depends on the indicators used for financial development in kenya. odhiambo (2002) in his study considering impact of financial reforms and savings on economic growth found that financial development leads to economic growth. odhiambo (2009) inhis study found that financial development caused by interest rate reforms influences economic growth. in this study, annual growth rate of real gdp is used as a proxy for economic growth (gdp). this proxy has been used extensively in the literature odedokun, 1996; shan and jianhong, 2006; and majid, 2008). existing empirical studies conducted using nigerian data largely concentrated on the relationship between credit and economic growth. hashim and mamman (2013) provide evidence to show statistical significant impact of the credit to the private sector and real sector growth in nigeria. they therefore, the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 45 concluded that the government should increase the credit flow to the private sector nwakanma, nnamdi and omojefer (2014) because of its strategic importance in creating and generating growth of the economy. the study deals with multivariate causality between financial development and economic growth in ethiopia by including additional proxy for financial development. the choice of these variables as intermittent variables is underpinned in the theoretical and empirical links between each one of them and economic growth; and between each one of them and financial development. 3. model specification the vast research available on finance-growth causality is based on a bivariate frame-work, yet it is now known that results from such a model suffer from the omission of variable bias (among others, see pradhan, 2011; odhiambo, 2011; loizides and vamvoukas.2005). to address the weakness of bivariate granger-causality, this study will utilizes multivariate granger-causality model based on the autoregressive distributed lag (ardl) bounds-testing approach developed by pesaran and shin (1999) and later extended by pesaran et al. (2001), to examine the dynamic causal relationship between broad money and private sector credit financial development, and economic growth in ethiopia. human capital (secondary school enrolment), investment (gross capital formation), inflation (consumer price index) and trade openness were the intermittent variables in the multivariate model. in this study, annual growth rate of real gdp is used as a proxy for economic growth (gdp). the causality model used in this study originates from granger’s definition of causality, based on the notion that the future cannot cause the past but the past can cause the future. the study utilizes the newly proposed autoregressive distributed lag bounds testing approach to examine the causal relationship each other’s, broad money, private sector credit and economic growth in ethiopia. the choice of this test is based on the numerous advantages it has over conventional estimation techniques such as the residual-based technique by engle and granger (1987) and juselius (1990) – see, among others, pesaran and shin (1999), duasa (2007), odhiambo (2008) and majid (2008). the production function model can apply for the study of growth problems by solow (1990). solow began with a production function of the cobb-douglas: y = a k a l b ……………………………………………………………………………………..1 also expressed as y = a k a l1-a where, a= positive constant a and b =positive fraction measure the share of capital and quality adjusted labor in the aggregate economy respectively. b = 1-a, y is gross domestic product, a, is constant technology, k is capital stoke and l is labour makes it possible to change the algebraic form in log linear form, log y = log a + a log k+ b log l……………………………………………………………2 now, developing the same theoretical model based on relationship between financial development and economic growth in ethiopia with case point financial development and human capital in economic growth. the researcher examines financial development on economic growth; capital stock is delivered in to bank sector and stock market. however, in ethiopia context, the stock market is missing. so, it is ignored from the model specification. the equation can be rewritten as follows; yt = at kα fdt, lβ t hδ t……………………………………………………………………………3 then the effect of constant a is divided into α0 and ε, make the equation log linear form; lnyt = α0 + αlnk fdt, + βln l t, + δ ln h t + εt where; = α0 is constant, β, δ is coefficient, ln is natural logarithm, t is time lag and εt is error term. assuming a generalized cobb douglas production function and extending this growth model to include selected variable in relation between financial development and economic growth in addition to the above we can’t use labour in the equation because include it in human capital. the study deals with the relationship between financial development and total out-put growth. lnrgdp = f (lnm2, lnpsc, lnhc, lnin, lngcf, to, ser) 3.1. autoregressive distribution lag model ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 46 the ardl bounds testing approach does not impose the restrictive assumption that all the variables must be integrated of the same order. the approach can be applied to test the existence of a relationship between variables, even if the underlying regressors are integrated of order zero or order one. while conventional co-integration methods estimate the long-run relationship within the context of system of equations, the ardl method is based on only a single reduced form equation (pesaran and shin, 1999). furthermore, the ardl approach provides unbiased long-run estimates and valid t-statistics, even when some of the regressors are endogenous (odhiambo, 2008). the ardl test also considers a sufficient number of lags to capture the data generating process in a general-to-specific modelling framework to obtain optimal lag length per variable. to top it all, the technique has superior small sample properties, making it suitable even when the sample size is small. therefore, the ardl approach is considered to be suitable for the analysis of the underlying relationship. the approach has also been increasingly used in empirical research. the long-run equilibrium relationship among the variables – economic growth, bank-based financial development, human capital and private sector credit, inflation, trade openness – is first established using the cointegration test before causality is tested. the co-integration test utilized in this study is ardl-based and is conducted by making each variable a dependent variable, one at a time. 3.2. ardl bound test for co-integration the ardl co-integration approach was developed by pesaran and shin (1999) and pesaran et al. (2001). it has three advantages in comparison with other previous and traditional co-integration methods. the first one is that the ardl does not need that all the variables under study must be integrated of the same order and it can be applied when the under-lying variables are integrated of order one, order zero or fractionally integrated. the second advantage is that the ardl test is relatively more efficient in the case of small and finite sample data sizes. the last and third advantage is that by applying the ardl technique we obtain unbiased estimates of the long-run model (harris and sollis, 2003). the bounds testing procedure to co-integration is developed within an autoregressive distributed lag framework. the bounds test is becoming a popular method to test for co-integration (pesaran et al2001). in order to empirically analyses the long-run relationships and short run dynamic interactions among the variables of interest (economic growth, broad money, private sector credit, capital investment, inflation, secondary school enrolment and trade openness), i apply the autoregressive distributed lag (ardl) co-integration technique. the ardl bounds test is based on the assumption that the variables are i(0) or i(1). in the presence of variables integrated of order two, we cannot interpret the values of f statistics provided by pesaran et al. (2001). in other word, ardl bounds analysis is used to investigate the presence of long-run relation among the variables included in the model. in order to undertake co-integration test with help of ardl bound test, the maximum lag length must be determined. this is because an important issue addressed in employing ardl is selecting optimum lag length. the model was estimated by ardl and the optimal lag was selected by akaike information criterion (aic) method. aic is employed to choose at the best ardl mode (lutkephl, 2005). 3.3. granger causality test an error correction model belongs to a category of multiple time series models most commonly used for data where the underlying variables have a long-run stochastic trend, also known as co-integration. ecms are a theoreticallydriven approach useful for estimating both short-term and long-term effects of one-time series on another. the term error-correction relates to the fact that last-period's deviation from a long-run equilibrium, the error, influences its short-run dynamics. thus ecms directly estimate the speed at which a dependent variable returns to equilibrium after a change in other variables yule (1936) and granger and newbold (1974). this study has employed the granger causality test to determine the direction of causality between co-integrated variables applying the vector error correction version of granger causality tests which would enable us to track the longand short-run causality among interested variables (kyophilavong et al., 2016). in other words, the long-run association can be deduced from the significance of the lagged error correction terms, while the short-run association is deduced from the coefficient of the lagged differenced variables. therefore, the requirement for long-run causality is that ect coefficients must be negative and statistically significant. the short-run causality has been tested using the wald test (χ2). the basic rationale of granger causality is that the change in financial sector development granger causes the change in economic growth if past values of the change in financial sector development improve unbiased least square predictions about the change in economic the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 47 growth. the null hypothesis h0 tested is that x does not granger-cause y and y does not granger-cause x. the ecm-based multivariate granger-causality model adopted in this study follows hamdi et al. (2013), odhiambo (2011), narayan and smyth (2008) and ang and mckibbin (2007). is expressed as follows: ∆lnrgdpt = γ0 +γ1lnrgdpt-1 + γ2lnm2t-1 + ∑_(i=)^n▒1α3∆lrgdpt-1 + ∑_(i=)^n▒1γ4∆lnfdt-1 + θecmt-1+ ut………………………………………………………………………………………………7 ∆lnfdt = δ0 + δ1lnrgdpt-1 + δ2fdt-1 + ∑_(i=)^n▒1δ3∆lnrgdpt-1 + ∑_(i=)^n▒1δ4∆lnfdt-1 + θecmt-1 + ut……………………………………………………………………………………………….8 where: gdp = growth rate of real gross domestic product (a proxy for economic growth) fd = is indictor of proxy of financial development (broad money as % gdp, and private credit as % of gdp,), hc is human capital proxy for expenditure on education and health sector as % of gdp), trade openness (to) is proxy by summation of export plus import as % of gdp which measures degree of openness of the economy γ0 and δ0 = respective constants; γ1γ4 and δ 1δ4 respective coefficients; γ3 -γ4 and δ3δ4 measures short run relationship, δ1δ2 and γ1γ2 measures long run relationship ∆ = difference operator; ln is natural logarithm n = lag length; t = time period; ut, white-noise error terms which is assumed to be to be serially uncorrelated and ecm is error correction model which measures long run relationships. 4. result and discussion 4.1. unit root test analysis the bounds test approach to co-integration does not need pre-testing for stationary of the variables included in the model, but still, it is important to carry out stationary tests on all the series. the justification behind the unit root tes t is to take a care on the order of integration not above i(1) in which we cannot apply ardl bounds test to cointegration. therefore, it was necessary to test for stationary of the series before any econometric analysis was done. it is notable that stationary properties of time series are investigated by testing for unit roots. there are several methods for testing for stationary. thus, this study used the commonly used augmented dickey-fuller (adf) and the phillip-perron (pp) unit root tests. table 1: augmented dickey-fuller test statistics (adf) with intercept with intercept and trend variables at level 1 st order of at level 1 st order of difference integration difference integration ln(rgdp) 4.206823 -5.117515* i(1) at 1% 3.456786 -5.509835* i(1) at 1% ln(m2) 1.948718 -3.880187* i(1) at 1% 0.376911 -4.179241* i(1) at 5% ln(psc) 1.091572 -2.906587 i(1) at 10% -2.776797 -3.153404 i(1) at 10% ln(gcf) 2.890218 -7.017090* i(1) at -0.776305 -8.142726* i(1) at ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 48 1% 1% ln(cpi) 1.093991 -5.355834* i(1) at 1% -1.085966 -5.599359* i(1) at 1% to -1.286513 -5.637944* i(1) at 1% -0.997340 -5.659830 i(1) at 10% ser 0.557851 -4.700260* i(1) at 1% -1.172799 -4.787156* i(1) at 1% table 2: phillip-perron (pp) unit root tests with intercept with intercept and trend variables at level 1 st order of at level 1 st order of difference integration difference integration ln(rgdp) 11.38717 -5.116625* i(1) at 1% 1.298256 -6.808406* i(1) at 1% ln(m2) 1.792781 -5.951012* i(1) at 1% -1.010183 -6.319283* i(1) at 1% ln(psc) 0.859567 -5.275363* i(1) at 1% -2.765905 -5.444856* i(1) at 1% ln(gcf) 6.893559 -6.997967* i(1) at 1% 0.026250 -9.943229* i(1) at 1% ln(cpi) 1.141785 -5.362007* i(1) at 1% -1.176380 -5.586252* i(1) at 1% to -1.318407 -5.645786* i(1) at 1% -1.092762 -5.665297* i(1) at 1% ser 0.456893 -4.682232* i(1) at 1% -1.239275 -4.777931* i(1) at 1% notes: the sign of * represents the rejection of the null hypothesis of non-stationary at 10%, 5% and 1% significant level and the numbers without sign *, implies the variables have unit root or non-stationary. the null hypothesis is the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 49 that the series is non-stationary or the series has a unit root against alternative hypothesis that the series are stationary. akaike info criterion (aic) is used to determine the lag length while testing the stationarity of all variables (lutkephl, 2005). 4.2. long-run ardl bounds tests for co-integration as far as we determined the stationary nature of the variables, the next task in the bounds test approach of cointegration is estimating the ardl model using the appropriate lag length selection criterion. in other word, ardl bounds analysis is used to investigate the presence of long-run relation among the variables included in the model. in order to undertake co-integration test with help of ardl bound test, the maximum lag length must be determined. this is because an important issue addressed in employing ardl is selecting optimum lag length. the model was estimated by ardl and the optimal lag was selected by akaike information criterion (aic) method. according to pesaran and shin (1999) and nayaran (2004) recommend choosing a maximum of 1 lags for annual data series therefore, i set recommended the maximum lag length at 1 years for which are sufficiently long enough for annual data series to investigate the variable relationship and then aic is employed to choose at the best ardl mode (lutkephl, 2005). table 3: bound test for co-integration level bound critical values 10% lower bound upper bound 2.12 3.23 5% lower bound upper bound 2.45 3.61 2.5% lower bound upper bound 2.75 3.99 1% lower bound upper bound 3.15 4.43 f-statistics ardl((2, 1, 2, 0, 2, 2, 2) 4.858644*** notes: ardl model is automatically selected on the basis of minimum value of akaike info criterion (aic). i obtain critical values for upper and lower bounds from peseran et al. (2001) table ci(iii) at page 300 where ardl model uses unrestricted intercept but no trend with k=6. the sign of *** indicate the level of significance at 10%, 5%, and 1% to reject the null hypothesis of no long-run relationships exist respectively. according to the result shown in the table 4, i have the upper and lower narayan (2004) critical values to compare with corresponding f statistics in order to reject or accept the null hypothesis of no long-run relationship among the variables. for small sample ranging from 30 to 80 years’ data, we have been used narayan (2004) critical values in which eviews software provided it automatically. as the result observed from the table 4 depicts that f-statistic is 4.858 which is greater than the upper bounds critical value at 1% significance level. this clearly evidenced that there is a strong evidenced long-run relationship between economic growth and explanatory variables. therefore, the null hypothesis of no long-run relationship is rejected at 1% significance level and alternative hypothesis of the existence of long-run relationship between the variables is ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 50 accepted. in other words, the variables included in the model have long-run relationship which is a base for estimating the long-run impact of the explanatory variable on economic growth at large. the next step was determining of an appropriate lag order. this needs to implement the information criteria for selecting the lag-lengths. for this purpose, we used two criteria respectively the graph and table. in this case the optimal lag length is one. we used the akaike information criterion (aic). it is clear from the graph 1, that the model ardl (2,2,2,1,2,0,2) is the optimal model since it has the lowest aic criterion (for more details see belloumi (2014) and belloumi and alshehry (2015). 4.3. long-run and short-run ardl model estimation once co-integration among economic growth and all explanatory variables through bound test are confirmed, then long-run estimation of the model comes next. accordingly, the ardl (2, 2, 2, 1, 2, 0, 2) can be estimated for longrun. table 4: long run coefficients variables coefficient std. error t-statistics p-value lnm2 0.218088 0.035491 6.144863 0.0000* lnpsc 0.233594 0.052459 4.452853 0.0003* lngcf 0.258329 0.076389 3.381772 0.0033* lncpi -0.306725 0.084812 -3.616526 0.0020* to -0.007045 0.001562 -4.509242 0.0003* ser 0.008552 0.001918 4.458092 0.0003* c 2.766734 0.189711 14.583978 0.0000* source: author’s calculation from e view 9 results, 2019 notes: the sign of * indicate the levels of significance at 10%, 5%, and 1%. in long-run, most of the coefficients of explanatory variables have their expected theoretical or hypothesized signs except for trade openness. consistent with theory, gross investment in ethiopia has a positive sign and significant on real gdp, inflation has negative sign and significant which case uncertainty over future inflation which may discourage investment and savings and generally economic growth.similarly, human capital has a positive and significantly determines economic growth in ethiopia which confirms endogenous growth model that incorporate human capital development as an engine for economic growth. as the results depict that the coefficient of broad money and private sector credit (a measure of financial development) has a positive sign as predicted by the theory and statistically significant at 1% level. this result is also similar to long-run effect of financial development to on economic growth in ethiopia. it indicates that 1% increase in broad money and private sector credit lead to increase 0.21% and 0.23% in aggregate output growth as measured the real gdp. this is implying that financial development as proxy by broad money and private sector credit which facilitate supply of investible funds to productive sector which influences overall output growth through increased investment in the economy. this finding is consistent with those of levin et al. (2000), afangideh (2009), murty et al. (2012), helmi et al. (2013) and mercy et al. (2015). from the theoretical perspective, this finding is also consistent with the theory of schumpeter which argued the importance of financial development on the economic growth of a country. conversely, this result is not consistent with the finding of fozia (2014) and bekana (2016) for the case of ethiopia. to this end, broad money and private sector credit is highly significant impact on aggregate output growth implying that financial development is an engine for long-run economic growth. the long-run estimated coefficient of trade openness has found to be a negative sign and significant effect on economic growth as confirmed by 1 percent level of significance. in our opinion, justification for the inverse relationship is that the liberalizing trade might have exposed the country’s infant industry to foreign competition the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 51 thereby adverse effect on long-run real gdp. in this case, domestic investors who are engaged in the non-exportable economic activities were forced to exit from domestic markets. hence, a percentage increase in the ratio of import plus export to gdp which is trade openness will reduce overall output growth by -0.0070%. the finding is similar to the finding conducted by, adu et al. (2013) for ghana, mercy et al. (2015) for kenya, agyei (2015) for ghana, and okafor and shaibu (2016) for benin (tekilu t., j. abafia 2019) for ethiopia. according to bibi and rashid (2014), trade openness could be manifested either positive or negative depending on the values of determinants of trade openness. 4.4. short-run error correction model an ecm coefficient in the short-run was negative and statistically significant at 1% level with a value of -0.860264. this implies that 86% of the disequilibrium in the short-run was corrected in the current year which means the short-run distortion is to be corrected towards the long-run equilibrium path. in other words, we found that the deviations in the short-run towards the long-run equilibrium are corrected by 86% each year. relatively better speed of adjustment in aggregate output growth might be due to the developing competitiveness of the financial sector through wide spread involvement of private sector and fast economic growth recorded since 2003/4 in ethiopia. the short-run coefficient of the model explains the short-run relationships between overall output growth and explanatory variables are depicted as follows. table 5: short-run coefficients (short run error correction model) variables coefficients std. error t-statistics prob. d(lnrgdp(-1)) 0.211070 0.077684 2.717047 0.0141 d(lnm2) 0.443010 0.040690 10.887498 0.0000 d(lnpsc) 0.082582 0.035689 2.313926 0.0327 d(lnpsc(-1)) -0.117735 0.036903 -3.190390 0.0051 d(lngcf) 0.222231 0.056262 3.949941 0.0009 d(lncpi) -0.009341 0.092388 -0.101111 0.9206 d(lncpi(-1)) 0.196258 0.069408 2.827601 0.0112 d(to) -0.002940 0.001164 -2.525455 0.0212 d(to(-1)) 0.002871 0.001387 2.070395 0.0531 d(ser(-1)) 0.000702 0.001705 0.411661 0.6854 d(ser(-1)) -0.006639 0.002232 -2.974755 0.0081 c -0.860264 0.145172 -5.925807 0.0000 cointeq = lnrgdp (0.2181*lnm2 + 0.2336*lnpsc + 0.2583*lngcf -0.3067*lncpi -0.0070*to + 0.0086*ser + 2.7667 ) 4.5. diagonestic tests result of table 6 show that some diagnostic tests with some the diagnostic tests: serial correlation, functional form is right with ramsey‟s reset test, normality, heteroscedasticity, and structural stability. accordingly, all diagnostic ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 52 test have model passes all of the reported diagnostic tests because all test with all p-value larger than 0.05, associated with the model (stock & watson, 2010). i can said that result of research have economic significance and reasonable table 6: long-run ardl (2, 2, 2, 1, 2, 0, 2) diagnostic tests diagnostic tests chi-statistic f-statistics decision breusch-godfrey serial correlation lm test ᵪ 2 (1)= 3.739187 prob. 0.0532 f(1,17)=1.970384 prob. 0.1784 no correlation breusch-godfrey heteroscedasticity test ᵪ 2 (1)7 =17.37994 prob. (0.4289) f(17,18) =0.988305 prob. (0.5078) no problem of heteroscedasticity jarque-bera normality test ᵪ 2 (1)= 0.108424 prob. (0.947231) _ residuals are normal distributed ramsey reset test _ f(2,16) =0.023122 prob. (0.9772) model is well specified source: author’s calculation from e view 9 results, 2019 4.5. test of parameter stability the stability of the model for longand short-run relationship is detected by using the cumulative sum of recursive residuals (cusum) which helps as to show if coefficient of the parameters is changing systematically and the cumulative sum of squares of recursive residuals (cusumsq) tests which is useful to indicate if the coefficient of regression is changing suddenly. accordingly, if the blue line crosses redline which is critical line and never returns back between two critical line, we accept the null hypothesis of the parameter instability whereas the cumulative sum goes inside the area (can returns back) between the two critical lines, then there is parameter stability in the short and long-run. i checked the stability of the long-term these parameters, along with the short-term movement to the equation. including theory borensztein et al. (1998), we rely on the cumulative amount (cusum) and square cumulative amount (cusumsq), including pesaran and pesaran (1997), mohsen et al. (2002) and suleiman (2005) to test the stability of the long-run coefficients. the tests applied to the residuals of the ecm model. the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 53 -15 -10 -5 0 5 10 15 2000 2002 2004 2006 2008 2010 2012 2014 2016 cusum 5% significance figure 1: plot of cumulative sum of recursive residuals (i) -0.4 0.0 0.4 0.8 1.2 1.6 2000 2002 2004 2006 2008 2010 2012 2014 2016 cusum of squares 5% significance figure 2: plot of cumulative sum of squares of recursive residuals (ii) as the result seen from the figure, the plot of cusum test did not cross the critical limits. in the same manner, the cusumsq test shows that the graphs do not cross the lower and upper critical limits. so, i can conclude that long-run estimates are stable and there is no any structural break. 4.6. granger causality test this study has employed the granger causality test to determine the direction of causality between co-integrated variables applying the vector error correction version of granger causality tests which would enable us to track the longand short-run causality among interested variables (kyophilavong et al. 2016). in other words, the long-run association can be deduced from the significance of the lagged error correction terms, while the short-run association is deduced from the coefficient of the lagged differenced variables. therefore, the requirement for long-run causality is that ect coefficients must be negative and statistically significant. the short-run causality has been tested using the wald test (ᵪ2). table 7: longrun granger causality test null hypothesis obs. lag coefficient prob. ln(m2) does not granger cause ln(rgdp) 35 2 0.320947 0.8517 ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 54 ln(psc) does not granger cause ln(rgdp) 35 2 0.633676 0.7284 ln(rgdp) does not granger cause ln(m2) 35 2 0.232353 0.8903 ln(psc) does not granger cause ln(m2) 35 2 0.389474 0.8231 ln(rgdp) does not granger cause ln(psc) 35 2 5.615743 0.0603* ln(m2) does not granger cause ln(psc) 35 2 5.186075 0.0748* notes: the sign of * indicate the levels of significance at 10%to reject the null hypothesis of the direction of causality. table 8: short-run granger causality test null hypothesis obs. lag coefficient prob. ln(m2) does not granger cause ln(rgdp) 35 2 34.63539 0.0000* ln(psc) does not granger cause ln(rgdp) 35 2 1.065981 0.3560 ln(rgdp) does not granger cause ln(m2) 35 2 46.77442 0.0000* ln(rgdp) does not granger cause ln(psc) 35 2 1.208603 0.3115 ln(m2) does not granger cause ln(psc) 35 2 0.039885 0.9609 ln(psc) does not granger cause ln(m2) 35 2 0.632809 0.5374 source authors calculation from eview 9 2019 note; the sign * implies that the significance of the causality at 1%, 5%and 10% level. reject the null hypothesis of the direction of causality. the prerequisite for testing granger causality in the long-run based on vector error correction depends on whether two variables are co-integrated or not (tamba et al., 2014; balago, 2014). accordingly, granger causality test indicated from above result reveals that economic growth is essential for financial development in ethiopia that confirms the augment of demand following growth hypothesis in long-run. this result is line with earlier causality study by patrick’s (1966), roman (2012), and ofori-abebrese et al. (2017) who found the demand following hypothesis which postulates a causal relationship from economic growth to financial development, that is an increasing demand for financial services might lead to an expansion in the financial sector as the economy continuous to grows. this result is contradict with early causality study done by mckinnon (1973) and the dynamic relationship between financial development and economic growth: empirical evidence from ethiopia 55 shaw (1973), works of king and levine (1993), and the later study by helmi et al. (2013) and agyei (2015) which supply leading hypothesis of financial sector development is essential for accelerate economic growth. there also causal relationship from broad money to private sector credit. however: in contradict to this independe nt relation between broad money (financial development) and economic growth. lucas (1988) argues that monetary do not have any effect on economic growth and therefore there is no causal relationship between financial development and economic growth. the result at table 9 reveals that there is bi-directional causality running between broad money (financial development) and economic growth in the short-run. several other studies have documented the bidirectional relationship between financial development and economic growth [greenwood and smith, 1997; blackburn and hung, 1998; blackburn. 2005; ang and mckibbin, 2007; abubader and abu-qarn, 2008; wolde-rufael, 2009; jenkins and katircioglu, 2010; and gries, 2011]. this finding confirmed bi-directional hypothesis that means in order to accelerate economic growth, there is a need of financial sector development (broad money) and for financial development (broad money). there is need of economic growth in the short-run. however: independent relationship between private sector credit (financial development) and economic growth. lucas (1988) argues that monetary do not have any effect on economic growth and therefore there is no causal relationship between financial development and economic growth. 5. conclusion and recommendation this study examined the causality between financial development and economic growth in ethiopia during the period from 1980 to 2017. the study employed ardl bound test approach to examine the longand short-run relationship between economic growth and explanatory variables and vecm used to investigate the direction of causality between financial development and economic growth. before employing ardl model, we have tested stationarity properties of the variables by using adf and pp tests. the results of unit root test reveal all variables are stationary at first difference. regarding to diagnostic and stability test, the result shows that the model is stable and desirable in long run without any evidence of serial autocorrelation and heteroscedasticity as well as no any evidence for structural break. a bound test approach to cointegration indicated that bound test (f-statistic) value is greater than the upper critical value which implies there is a long-run relationship between economic growth their respective determinant. the results suggest that there exists a unique cointegration relationship among real gdp and the financial development variables that in the short run and long run, the financial development variables exerted positive effects on economic growth. there is short-run mutual relationship between (broad money) financial development and economic growth so that the direction of this relationship is bidirectional. also, there is an independent short-run relationship between private sector credit and economic growth. there is an independent relationship between broad money and economic growth in long run. also, there is a one-way long-run causal relationship from broad money toward private sector credit and uni-directional causality from economic growth to private sector credit; it is required to take necessary steps for economic corrections through banking systems in these countries. with regard to control variables, except inflation and trade openness all variables were positive significantly influence and expected impact on economic growth in the long-run. other than inflation, trade openness, human capital, gross investment and financial indicator were the pioneer determinant of economic growth in the short run. furthermore, vecm granger causality tests show that the direction of causality is running from economic growth to financial development in long run and bi-direction in the short run. this study found the demand-following and bi-directional hypotheses held in the case of ethiopia. if policy makers want to promote growth and financial development attention should be focused on long-term and short term policies. therefore, based on the finding, government should strengthen its current effort on development of both financial sectors to accelerate economic growth and economic growth for sustainable financial development in the country. moreover, due the evidence of demand following and bi-directional hypothesis, the policy makers should focus long-run policies mainly improving economic growth and short run policies improving both financial sector and economic growth, so as to make the efficient and effective allocation of resources among ejigayehu bi̇rru, yilkal wassi̇e, tekilu tadesse 56 the productive sector and financial sector which affects long-run financial sector and short run both economic growth and financial development in ethiopia. references adebola, s. s. and dahalan, j. . 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(2014). financial inclusion, regulation and inclusive growth in ethiopia. shaping policy for development working paper 408 journal of international trade, logistics and law, vol. 6, num. 1, 2020, 75-89 75 appraisal of the ethiopia legal environment in light of its compatibility for introduction of electronic bill of lading israel woldekidan haileyesus samara university, ethiopia received: april 18, 2020 accepted: may 16, 2020 published: june 01, 2020 abstract: bill of lading is playing vital role in international commercial transaction. in terms of development it has been used in forms of paper until recent time. due to the advent of technology and the inherent problems associated with being used in forms of paper results introduction of dematerialized bill of lading in the maritime industry. it is not abundantly used by the maritime community for reason mainly attributed to lack of uniform international law governing such dematerialized bill of lading. ethiopia has tendency towards introduction of electronic bill of lading. however, there are concerns regarding compatibility of ethiopian laws to accommodate digitalize bill of lading. this paper looks into legal concerns of introducing electronic bill of lading and the existing ethiopia legal environment in light of its room for accommodating electronic bill of lading and it revealed that the law has gaps to address the legal concerns associated with ebl. keywords: electronic bill of lading. digitalization, signature, evidence, contract, policy, model law, maritime, technology. 1. introduction although there are technical and other factors which affect the development of electronic bill of lading across the maritime community, failure of the law to recognize and regulate takes the upper hand. however, after a decade of the technological innovation of electronic bill of lading, the issues of law are getting recognition. accordingly, through the help of uncitral united nation convention on contracts for the international carriage of goods wholly or partly by sea , model law on electronic commerce, model on electronic signature, recently model law on electronic transferable records are enacted. at the national level states has recognized and regulated electronic bill of lading. besides, there are also contractual rules developed by private initiatives; in this regard cmi rules and the bolero rule book are mentionable. in ethiopia cargo can be transported from abroad through two main modalities of transportation that is either through carriage by air or carriage by sea. besides, recently since 2012 the fdre government has been realizing a multimodal transport system to achieve the plan on the modernization of the logistics sector primarily to address the long dwell times at the port and the demurrage costs in djibouti (tilahun l. et al. (2016). accordingly, the multimodal is used for importation of containerized cargo and some vehicle; and the unimodal is used for import of other cargoes and exports of all types of cargoes. according to the 2016/17 ethiopian shipping line sector annual report, the total number of imports is shared between multimodal and unimodal is 43% and 57%, respectively. the goods transported through ocean which is either bulk or containerized cargoes are characterized by consolidation or deconsolidation near the source or destination which in effect would cost ethiopia by the fact that, it is landlocked country. therefore, there is a need to have well facilitated foreign trade regime in order to use the opportunities at hand at the possible lower cost. however, if there are no regulatory and institutional framework which accommodate this technology, it would be very difficult to have facilitated foreign trade regime. there are concerns regarding the compatibility of ethiopian laws to accommodate digitalize bill of lading or not. among others concern regarding the legal recognition or scope of recognition of electronic bill of lading in ethiopia, the case under the multimodal transport of goods proclamation. if argued it is recognized, there are worries about its insufficiency owing to the absence of detailed regulation, the case under the maritime code, customs law and security law of ethiopia, the case under the contract israel woldekidan haileyesus 76 law: whether our law leaves the possibility of issuing electronic bill of lading within the framework of contractual autonomy deserves critical analysis. besides, concern regarding the main issues that a law dealing with electronic bill of lading need to incorporate, upon the introduction of electronic bill of lading needs thorough investigation. accordingly, the paper explore legal concerns of introducing electronic bill of lading and the existing ethiopia legal environment in light of its room for accommodating electronic bill of lading. methodologically, the author heavily relied on the analysis of the existing domestic and international legislations, soft laws and scholarly writing. the arrangement of this article is as follows. section one of this article examine legal issues associated with electronic bill of lading introduction in the maritime industry. the second section is devoted for deep analysis of the existing ethiopian legal and policy framework in light of its compatibility for accommodation of dematerialized bill of lading. in the final section finding and conclusion are drawn. 2. legal issues of electronic bill of lading although there is a shift towards using other non-negotiable transport documents than the traditional bill of lading because of the drawbacks of the latter, the importance of bill of lading still win out as a best marine transport document for the sake of having the advantage of its negotiability (farhang j., 2015).. however, this glorified and unique transport document can only be revitalized if it can be made competitive in this commercial world with other non-negotiable marine transport documents by having both its unique feature of being negotiable and its recognition as a document of title (farhang j., 2015). today the international business community tends towards using this historical and unique marine transport document in the electronic format. however, the usage of electronic bill of lading is not as easy as the paper bill of lading; as its application face both technological and legal challenges. as per one study conducted by united nations conference on trade and development on identifying the obstacles that discourage the use of electronic transport documents, it is the legal uncertainty that takes the upper hand even above the costs of switching to an electronic environment and any associated confidentiality concerns (unctad, 2003). moreover, many legal scholars agreed that technology was not the real and the major challenge rather it is the orthodox belief of the legal community by sticking to the legal principle that a document of title can only be issued and transferred in paper format (sy, i., 1999). in terms of technology, because of the innovation and flourishment of computer technology, the international business community developed electronic bill of lading which actually outdoes all features of paper bills of lading (w.h. van boom, 1997). as a matter of fact, unlike sales contract, contract of carriage is subject to detail regulation of law. thus, national as well as the international legal instrument has a vital role in the regulation of the overall application of transport documents. however, in case of electronic transport document especially electronic bill of lading, there is uncertainty which challenges the application and validity of electronic bill of lading (sy, i., 1999). consequently, parties to the international business transaction would become suspicious of the application of electronic bill of lading if there is uncertainty as to the validity or effectiveness of an electronic bill of lading. knowing this united nation as well as national states come up with two possible legislative approaches to enable the use of electronic transferable records generally and electronic bill of lading specifically. the first approach is to create a “purely electronic” regime on electronic bill of lading which has no paper-based counterpart. according to this approach, the empowering legislation shall have all the substantive rules concerning the rights, obligations and characteristics of the “purely electronic” electronic bill of lading (zvonimir š, 2016). this approach is called substantive approach. so far, this approach is employed by the rotterdam rules while defining electronic transport records. the second approach is called functional equivalence approach. according to this approach, functional equivalence rules have to be set only for electronic functional equivalents of paper-based requirements (zvonimir š, 2016) the second approach does not intend to affect the substantive law relating to the paper-based electronic bill of lading rather it only addresses hurdles to the use of the electronic form that are there because of paper-based form requirements stated under the existing law. the functional approach excludes those transferable records which only exist in the electronic environment or which could develop in future exclusively as electronic records (zvonimir š, 2016). the functional approach is currently accepted and employed by majority of states which enacted electronic transaction laws. besides, model laws, guidelines and convention enacted by international institutions have also followed the second approach with the exception of the rotterdam rules. the first approach is no more in use since appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 77 the actual tendency and practice at the global level is towards employing the functional approach. legal issues regarding the regulation of electronic bill of lading mainly revolve around addressing the functional equivalents of paper-based requirement; among others, it includes permanent accessibility to the information, ability to preserve the original information, uniqueness, transferability, ability to identify the holder and the ability to authenticate the issuer (zvonimir š, 2016). 2.1. writing (document) and signature requirement the substantive law regulating transport document may require that bill of lading should be made in a written document. the functional equivalent electronic transport document should in such cases fulfil the legal requirement of writing or document in order to make the record or the transaction valid and enforceable (luis, 1999). when we come to the case of bill of lading, by mercantile custom it has been used in the international business transaction in the form of a written document (luis, 1999; krailerk, 1999). however, we cannot find an express stipulation either under the hague-visby or the hamburg rules about a requirement that a bill of lading has to be in writing. let’s start with the hamburg rules, it states that bill of lading is a “document.” whether the term document includes an electronically generated and maintained bill of lading or not; is not clear. besides, the term writing is defined by having illustrative list. therefore, it is possible to argue that electronic bill of lading is recognized as document under the hamburg convention. according to the haguevisby rules (1924), there is no definition of bill of lading. however, the hague visby rules do not expressly specify that a bill of lading must be written on paper rather it only specifies that the carrier has the duty to issue a bill of lading when requested by the consignor. what does to mean by issue? is that to refer writing and document? it is not cleared. as a result, state courts tried to interpret the word like writing, document issue in different ways while the question of functional equivalence raised. some state courts interpreted it in an orthodox way whereas others interpreted it by employing a purposive approach to have media neutral application of those instruments (boom, 1997). therefore, the fact that there are such difficulties while applying electronic bill of lading, the law has to have a say for the functional equivalent application of electronic bill of lading. the other legal issue that needs a solution is the reliability and validity of an electronic signature. signature is mostly regarded as the very important requirement for the authentication of every document used in business as well as government activities (boom, 1997). it is practically known that a document which holds rights and obligation to be accepted in the court of law must be authenticated by the parties and mostly it is done by having the signature of the parties (samantha p, 2002). in this regard johnson c. (1992) while appreciating the importance of signature stated that signature has four main functions: (1) to identify a piece as having originated from a particular person, bearing in mind that no two signatures are the same. (2) to show the agreement of the person signing to the contents of the document being signed. (3) to show that the person signing realizes that the document is formal and that he intends to be bound by it. (4) to show that the document is an original. this shows that how much signature is the most important legal requirement for the admission and validity of a given document. international business transactions require the transfer of documents with the shipment as proof of the quantity and quality of the shipment and hence, authentication is given priority. it is seldom to find laws of a bill of lading which provided signature requirement as validity requirement for bill of lading (johnson c, 1992). however, by mercantile customary usage the requirement of signature is required as validity requirement for bill of lading (johnson c, 1992). the mercantile practice tells us that the signature might not always be made in handwritten, there are bill of lading signed either by a facsimile or rubber stamp (johnson c, 1992). this shows that the mercantile practice is open for accommodating any method of signature (johnson c, 1992). before the coming of electronic data interchange and electronic signature, there was no actual problem regarding the means of signature employed by the parties. in the hague-visby rules which in one-way or other way influenced most national states law regulating bill of lading, there is no any provision which requires that bill of lading has to be signed by the parties. however, article 14(2) of hamburg rules (1978) provide that a bill of lading has to be signed by a person having the authority to do so. besides it also stated that “the signature on the bill of lading may be in handwriting, printed in facsimile, perforated, israel woldekidan haileyesus 78 stamped, in symbols, or made by any other mechanical or electronic means if not inconsistent with the law of the country where the bill of lading is issued.” however, by the fact that most national laws are crafted in light of the hague –visby rules, it is seldom to have such provisions under national laws. the business community wants to become certain as to whether the courts accept an electronic form of authentication as a signature or not. this has to be done through the instrument of law by legislating the functional equivalent of in hand signature. 2.2. uniqueness and guaranty of singularity the very function of transferable documents is that they embody rights which represents the actual rights and obligations of the transaction. paper-based transferable documents due to their material nature are characterized by uniqueness (zvonimir š, 2016). here, a paper bill of lading required to be in a single and original unique document that represents the rights embodied in such transferable paper; which in turn guarantees the singularity of these rights and liabilities (zvonimir š, 2016) any negotiation or assignment of such rights by the holder requires the physical transfer of the singular and original bill of lading (zvonimir š, 2016). therefore, in case of a paper bill of lading, its singularity and uniqueness can be kept by having and transferring the original document as between all the parties which are participating in the transaction. coming to the case of electronic bill of lading, it requires more strict legal and technical requirement to guarantee uniqueness or singularity of the document as an electronic record can be copied in a way that generates a duplicate record identical to and indistinguishable from the first one (zvonimir š, 2016). as per the report of uncitral working group (2012) on electronic commerce, “if a person is to receive possessory title of a transferable instrument or a document of title by receiving it as an electronic message, the addressee will need to be satisfied that no identical message could have been sent to any other person by any preceding party in the chain…” in terms of technology, today it is possible to guarantee the uniqueness and singularity of a given electronic transferable record by employing two means (koji t, 2016). the first one is by using a central registry administered by a trusted intermediary. nevertheless, to make transactions on central registry system, all parties of the given transaction must be registered members. accordingly, when a nonmember later on, becomes part of the transaction an electronic bill of lading needs to be replaced by a paper bill of lading (koji t, 2016). later on, thanks to the invention of block chain technology, it is possible to guarantee the uniqueness or singularity of electronic transferable record by simple circulation of the token in an open and decentralized platform (koji t, 2016).. in case of block chain technology, the transaction of electronic bill of lading can be taken place peer-to-peer on an open platform where no prior subscription to membership is required (koji t, 2016). this very characteristics of the token system can warrant worldwide reach of the participants by the fact the application of bill of lading involves the participation of enterprises from many business parties like trader themselves, banks, carriers, freight forwarders, government bodies(koji t, 2016). therefore, in terms of technology now it is possible to use either the registry or token system. however, both system would not work unless it is given sufficient support from the legal infrastructure to keep the singularity or uniqueness of electronic bill of lading. therefore, there should be a means to prevent unauthorized replication of an electronic transferable bill of lading by the electronic system and it is normal to be done by providing legal requirements though it may also be possible by providing technical requirements. besides, the paper bill of lading shall be presented or retained in its original form. here, there should be legal requirements which allows electronic documents to be presented or retained in their original form. 2.3. physical possession and transfer of rights by delivery transfer of a right and its performance embodied in a paper-based negotiable document can be achieved with the transfer of the actual or constructive possession over that document (uncitral, 2012). . any right to claim the performance cannot be detached from the physical paper. accordingly, the person who physically owns the document is supposed to be the person who is titled to claim the right. thus, mere physical submission of a document is a formal requirement for acquiring the right to claim incorporated in the document (zvonimir š, 2016). however, in case of electronic bill of lading, the concept of actual or constructive possession does not work as there is no actual document to be transferred through this method. therefore, there should be a means to have the possession of the right embodied on the electronic bill of lading. physical possession is substituted by control in a case of electronic bill of lading. generally, the system to transfer the rights and performance of electronic bill of appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 79 lading to another person is called control (zvonimir š, 2016). hence, the transfer of electronic document generally and electronic bill of lading particularly can be done with the transfer of control over the electronic transferable record. here, the person with control of the electronic bill of lading is considered the holder capable of enforcing the electronic bill of lading (uncitral, 2011). thus, if control of an electronic bill of lading is used as a substitute for physical possession of paper-based document, transfer of control serves as the substitute for delivery of an electronic bill of lading as delivery and subsequent endorsement used as transfer of a paper-based document (uncitral, 2011). control and transfer rights of an electronic record can be made by either the registry system or token system (uncitral, 2012). in case of the registry system, as the identity of the owner of the electronic bill of lading is found in a separate independent registry system, control is to be made on the registry system. here, what is required is to make the integrity of the registry system (uncitral, 2011). in case of token system by the fact that the identity of the holder of electronic bill of lading is found in the electronic bill of lading itself may not be as such problematic. besides, any changes in the ownership of the rights can be known by alterations made directly to the electronic record (uncitral, 2012). thus, to maintain the integrity, there should be control over the electronic record itself and the process for transfers of the bill. it is by the instrument of the law that the use of electronic bill of lading through control over that record can be enabled. 2.4. identification, authorization and authentication of holder and issuer identification and authentication of issuer and holder have double fold benefits (uncitral, 2012). it allows the exercise of control and verifies the validity of the chain of transfers of the electronic transferable record (bill of lading) (uncitral, 2011). the identity of the issuer who signs the original electronic bill of lading and of the transferor who endorses the electronic bill of lading to transfer it to another party is required to have a valid electronic signature (uncitral, 2011). identification of the holder of electronic bill of lading is very important to know the creditor and the beneficiary of the bill of lading. as a matter of fact, the identity of the holder may not be known from the electronic record; as there is a possibility to be changed from time to time. in case of paper bill of lading, the person in possession of the unique negotiable bill of lading is presumed to be the holder. however, in case of electronic bill of lading, as the physical possession is to be substituted by control of electronic bill of lading, the law has to come up with a mechanism to identify the person who is going to be considered as the holder of the bill of lading at any time. 2.5. evidential value of electronic bill of lading as stated before, bill of lading has a function of being an evidence for receipt of goods and contract of carriage. as a receipt, the paper bill of lading evidences the quantity, condition (quality) and leading marks of the goods (samantha p, 2002). as evidence of a contract of carriage, the paper bill of lading evidences the existence of the contract between the carrier and shipper. this shows that how much the evidential value of bill of lading has to be given emphasis; as two of its basic functions is about evidence and evidence. electronic bill of lading is equally capable of describing the goods and the contracts in the same way. in case of a paper bill of lading, the paper itself can be brought before a court of law as an evidence for receipt and contract of carriage. however, when we come to the case of electronic bill of lading, there is uncertainty as to whether it is admissible before the court of law or not. most procedural rules dealing with the admissibility of evidence are crafted by taking the admissibility of paper-based documentation into consideration (emanuel l, 2002). however, though those laws are crafted by taking into consideration such paper documents, theoretically both under the common law and civil law legal system, there is a possibility for the admission of electronic bill of lading as evidence before a court of law (emanuel l, 2002). under the common law legal system, both documents and computer records are grouped as hearsay evidence (samantha p, 2002). hence, an electronic bill of lading could satisfy the best evidence rule of common law legal system and could be accepted as evidence as far as there is no available evidence. in case of the civil law legal system, there is a principle that all material evidence can be admissible to establish the material truth (emanuel l, 2002). but, it does not mean that electronic records are always admissible before a court of law under every legal system as there is the possibility to prohibit such admission. today, in most jurisdictions; as they are aware of the influence of technology in a day to day business transaction; electronic records are recognized as evidence. israel woldekidan haileyesus 80 2.6. issues related to amendment of electronic bill of lading once an electronic bill of lading is issued, later on, that electronic record may be subject to amendment or correction. this may be done for different reasons among others transfer, correction, and subrogation, succession, splitting and combining of the record (uncitral, 2012). for different reasons errors may occur on a given electronic bill of lading while it is issued or later on. to mention, the information provided by the requesting party may be different from what is actually recorded under the electronic bill of lading, if there is an issuance of electronic records without a request, if there is omission of details to be recorded and incorrect early termination of the electronic record (uncitral, 2012). besides, electronic bill of lading may be split or combined for different reasons; for instance, a given electronic bill of lading may be split for partial performance. these all issues have to address through contractual or legislative actions. 2.7. formation of contract between the endorsee and the carrier bill of lading is an evidence for the contract of carriage between the carrier and the shipper; not a co ntract itself. therefore, there may not be a problem when the dematerialization issues come, as the contract between the carrier and the shipper is to be governed by a prior written or oral contract not the bill of lading. however, regarding the relationship between the carrier and third-party endorsee, it is not merely evidence of contract carriage rather it is a contract itself (emanuel l, 2002). here the prior contract between the shipper and carrier would not have an effect on the relationship between third parties (banks, buyers or other endorsees) and the carrier (emanuel l, 2002). rather, the terms of a bill of lading will govern the overall relationships as between those endorsees and contracting carrier; thus by default, it is a contract of carriage. in case of paper bill of lading, the process of formation of contract can be conducted as any documentary contract. however, when the bill of lading is dematerialized, there are legal concerns that need to be addressed. the first issue to be addressed is whether a contract can be validly concluded between parties using electronic data and interchange method or not; mostly by the general obligation law. secondly, the when and where about of formation of a contract between the carrier and third-party endorsee have to be addressed (samantha p, 2002). 2.8 end of life cycle of electronic bill of lading the life cycle of electronic bill of lading may end up for different reasons. the obvious reason is the performance of the obligation. under both the registry as well as the token system, end of life cycle of electronic bill of lading through performance needs to be regulated (uncitral, 2012). like performance, refusal to perform and partial performance of the rights and obligation embodied in the bill needs careful regulation. besides, there are circumstances which necessitate replacement or conversion of electronic bill of lading to paper bill of lading or the vice versa. it could not be done arbitrarily rather there should be contractual or legislative mechanisms to do so. moreover, once the rights and obligations under the bill are discharged, electronic bill of lading needs to be terminated to avoid its further circulation and possible manifold requests of performance (uncitral, 2012). for instance, termination of electronic bill of lading in a registry-based system takes place with recording of the full performance of the obligation on that bill. 2.9. legal issues relating to third party operator system unlike the token system in case of registry-based systems, third-party registry operators are required. thus, legislation governing electronic bill of lading has to have explicit provisions on the regulation of those third-party operators (uncitral, 2012). the regulation can be at entry, during operation as well as at existing. at entry stage, the law has to state the minimum requirements to be fulfilled to apply for operating registry system. requirements like capital, the form of incorporation and information on technological, financial, human and other resources to be employed has to regulate (emanuel l. (2002). at the operation stage, there may erroneous communication, fraud, system breakdown or other technical problems. determination of liability for such failures has to be addressed. besides, the liabilities of users for erroneous communication has also be addressed. furthermore, dispute settlement mechanisms have to be established. appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 81 3. analysis of the existing ethiopian legal environment in light of its compatibility for electronic bill of lading. introduction ethiopia has laws governing contract of carriage supported by the bill of lading since 1960. however, the recent advent of information communication technology in the international commercial transaction has brought some changes on the documentation process of foreign trade generally and maritime transport sector specifically. as a result, the paperless international business transaction is developing in the maritime sector. the very important case is introduction of electronic transport document like an electronic bill of lading as a substitute for paper transport documents. accordingly, under this part, the paper analyzes whether the existing legal environment of ethiopia is compatible in accommodating introduction of electronic bill of lading or not. 3.1. policy as per the study conducted by unctad (2012) on the economic, social and legal implications of electronic commerce and electronic international transport services for developing countries, there are policy questions to be addressed by national governments. the study inter alia raised the commitment of governments in giving due consideration to adapting national laws and regulations to foster electronic commerce and paperless international trade as a policy question. this study emphasized on the role of developing countries government through policy instrument for enhancing the competitiveness of developing countries in the international paperless trade. in particular, the expert group found out that a policy to reform customs procedures and application of information technology is a timely question that needs an imminent answer. accordingly, states crafted transport policy, foreign trade policy, logistics strategy in light of the international technological development to alleviate the grounded problems of foreign trade. when we come to the case of ethiopia, recently it has drafted both national logistics strategy and transport policy at the national level. as per the draft national transport policy of ethiopia, inadequate institutional arrangements; lack of proper laws, regulations and procedures which are consistent and compatible to create a conducive climate for the growth of the transport sector are identified as the major challenge of the general transport sector. besides, the phenomenal changes in transport technology, ict, integrated logistics and supply chain management is identified as to one of the triggering factors which necessitates having a policy in the transportation sector. for addressing such challenges, the government is recommended to encourage introduction of appropriate transport technology and strengthen the application of ict and database development. besides, the government is also recommended to review, update and consolidate the legal and institutional framework by taking technological developments in the sector into consideration (draft national transport policy, 2012). moreover, encouraging acquirement of new modern and appropriate technology and techniques by setting standards and enforcement mechanism through regulation; as a policy direction. for the maritime transport and transit sector; the draft policy identified high transport costs and delays on foreign trade in the logistic chain and lack of updated legislation of maritime law in light with modern technological developments (draft national transport policy, 2012). as a solution, it is recommended that the government should have to ensure cost-effective and efficient transit and logistics operation, update, adapt and disseminate maritime laws, international convention and to introduce the effective usage of information communication technology in the sector. although both the national transport policy and national strategy are at the draft stage, it shows the government commitments towards transforming the existing legal framework on the maritime and transit sector to accommodate the information communication technology development in the sector. thus, policy wise there is a clear tendency towards employing electronic data interchange in the documentation of foreign trade documents which includes bill of lading. 3.2. the 1960 maritime code ethiopia is not a party to any one of the international instruments governing carriage by sea. accordingly, in ethiopia, the major law governing carriage by sea as a whole and bill of lading in particular is the 1960 maritime code. although, it is not clearly known as to the material source of the code; as per tsehai w. (2006), the then israel woldekidan haileyesus 82 conventions and commercial practice governing maritime affairs are regarded as the possible source of the code. it was the international convention for the unification of certain rules relating to bills of lading [the hague rules] that influenced almost all of the national law governing contract of carriage supported by the bill of lading and enacted before hamburg rules. accordingly, as the ethiopia maritime code is enacted in 1960 in which the only governing and widely applicable rules on this area is the hague rules, it is logical to conclude those provisions of the code governing contract of carriage supported by bill of lading are influenced by the later one. besides, it is also found that many provisions of the code are very similar to that of the hague rules and other national legislation adopting the rules. let’s examine the specific part of the code governing contract of carriage as to whether it is possible to issue an electronic bill of lading or not. under the ethiopia maritime code (1960), there is no specific provision which expressly defines the term bill of lading rather only contract of carriage is defined. the law defines contract of carriage as “a contract of carriage covered by a bill of lading or any similar document of title in so far as such documents relate to the carriage of goods by see.” according to this definition, there is no indication as to where the bill of lading is only in paper format or not; rather it only emphasizes on the nature of the document that is being a document of title. should the phrase “any similar document of title” be interpreted to include an electronic bill of lading? a look at the literal interpretation of the phrase, we can argue in favor of its inclusiveness. what does the phrase ... “such documents” refer to? is that a document required or referring documents of title in plural form? it is not referring a document requirement rather simply it is referring any documents of title. however, it would become illogical to conclude that it was the intention of the then legislature to recognize electronic bill of lading as the possible negotiable document which covers a contract of carriage; as this law was enacted while there was no practical knowledge about none of these technological possibilities. besides, under the special part governing contract of carriage supported by bill of lading, though there is no definition of what bill of lading is, it addresses how bill of lading is to be issued. accordingly, as per article 181 of the maritime code, “[t]he carrier or his representative shall, after receiving the goods, issue to the shipper a bill of lading.” “[emphasis added]”. here, the carrier is required to issue bill of lading after receiving the goods. it does not expressly specify that a bill of lading must be written on paper rather it only requires the carrier to issue the bill. the same approach is adopted under the hague rules. therefore, as far as there is no specific requirement to make it in paper format, still it is difficult to conclude that electronic bill of lading is excluded from the ambit of article 181 of the code. however, it would not be the intention of the legislature to recognize electronic counterpart of the paper bill of lading as the time in which paper is the only recognized mode of issuing such types of document. moreover, the law also provides that “[a] bill of lading shall draw up in two originals, of which one shall be delivered to the shipper and the other retained by the carrier.” unless it is issued in paper format, there would not be two originals that can be delivered and retained at the same time. therefore, for this author, as far as electronic medium of communication was not known while the maritime code of ethiopia was enacted and there is the requirement of two originals paper bill of lading, it is sound to conclude that electronic bill of lading is recognized under the maritime code of ethiopia. coming to the signature issue, as per the ethiopian maritime code (1960), “[t]he bills of lading shall be dated and signed by the carrier or his representative.” it is different from the hague rules in this regard; as there is no signature requirement under the latter. the law states that bill of lading has to be signed; however, it is silent as to the mode of signature. the signature may be in a mechanical or electronic means. as the maritime code is silent on the mode of signature, it is logical to argue that, it is media neutral. however, still it would be difficult to conclude that it was the intention of the legislature to recognize electronic signature at the time in which the concept of digitalization was not known. to conclude, though the maritime code does not clearly stipulate both document and signature requirement for issuance of bill of lading; it would not be the intention of the legislature to include the electronic counterpart of paper bill of lading as a transport document while enacting the code. 3.3. multimodal transport of goods proclamation multimodal transport document is one types of bill of lading. in ethiopia multimodal bill of lading is regulated under the separate law. before the enactment of the multimodal transportation of goods proclamation, multimodal bill of lading is not properly regulated. the imminent driving force for the enactment of the proclamation was the ethio – appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 83 djibouti multimodal transport system agreement concluded in 2006. as a result, in 2007 the government enacted multimodal transport of goods proclamation. let’s examine whether electronic bill of lading has a place under this proclamation. under the multimodal transport of goods proclamation (2007), multimodal transport document (bill of lading) is defined as “a document which evidences a multimodal transport contract, the taking in charge of the goods by the multimodal transport operator, and an undertaking by him to deliver the goods in accordance with the terms of that contract.” multimodal transport document (bill of lading) is defined as a document. does it to mean only paper bill of lading? the literal interpretation of the word document is to refer paper multimodal bill of lading. however, article 4 of the proclamation which deals about the issuance of multimodal transport bill of lading provides that “[t]he signatures on the multimodal transport document may be in handwriting, printed in facsimile, stamped, in symbol or made by any other mechanical or electronic means.” “[emphasis added]”. it is recognized that the signature on the multimodal transport document can be made by electronic means. does electronic signature presuppose electronic record? may not be, it is not sufficient to say that electronic multimodal bill of lading is recognized under the proclamation. but, when we look at the subsequent two provisions; it raised doubt as to the recognition of electronic multimodal bill of lading proper. let’s analyze each of them; article 5 of the proclamation which deals about non-negotiable multimodal transport document states that “a non-negotiable multimodal transport document may be issued by making use of any mechanical and electronic means or other means preserving a record of the particulars….” this provision adopting electronic means of recording recognized the use of the information technology for the issuance of non-negotiable multimodal transport bill of lading. nonnegotiable multimodal transport document is a transport document which only performs the function of being an evidence of multimodal transport contract and receipt of goods by the operator. in this case, the originality of this document may not be required while delivery of the goods is performed; mere identification of the consignee by any means is sufficient. thus, it can be recorded electronically and transferred to the consignee. let’s come to the case of article 6; which address issues of negotiable multimodal transport document. unlike the preceding provision, it is silent as to whether the document can be in electronic record or not. is t hat intentional omission of the legislature? besides, there are terms which indicate that negotiable multimodal transport document is to be issued only in paper format. for instance, the phrase more than one original under the english version presupposes paper bill of lading as there is no the concept of copies and more than one original in case of electronic bill of lading. for this author, the above phrases and the fact that article six is silent as to whether electronic counterpart is possible or not unlike the preceding provision shows that the legislature only intended to have paper negotiable multimodal transport bill of lading, unlike the nonnegotiable one. nevertheless, as far as an electronic signature is recognized under article 4 of the proclamation which governs all multimodal transport documents, still it is possible to argue that electronic negotiable multimodal transport bill of lading is recognized. despite the law makes difference on digitalization of negotiable and nonnegotiable multimodal bill of lading, it is unhidden fact that unlike the maritime code, this proclamation gave clear legal recognition for electronic multimodal bill of lading. the next issue is as to whether the provisions are sufficient enough to address legal issues of electronic bill of lading. as discussed in the preceding, there are many legal issues that need attention upon recognition of electronic bill of lading. under this proclamation, nothing is stated more than indicating that the multimodal transport document and signature may be issued and signed in electronic form. it does not address how the originality, singularity and uniqueness of electronic bill of lading are to be guaranteed. besides, it does not also address how the requirement of physical possession and transfer of rights by delivery is to be performed when the multimodal transport document is in electronic form. moreover, issue like how electronic multimodal bill of lading can be amended and corrected is not addressed. furthermore, it does not also address legal issues regarding the conversion of electronic bill of lading to a paper bill of lading and vice versa, issues related to end of life cycle of electronic bill of lading, liability about erroneous communication and other issues that need the attention of the law. israel woldekidan haileyesus 84 3.4. the general contract law of ethiopia as stated before, the relationship between third-party endorsee and carrier is governed by the bill of lading itself. here, unlike the relationship between the shipper and the carrier; bill of lading is not a mere evidence rather it is also a contract of carriage. it is recognized under the ethiopia maritime code governing bill of lading. the law stated that the terms of a contract of carriage between the carrier and shipper can be brought against third-party holder of a bill of lading if and only if the third-party holder knew of terms of the contract of carriage (maritime code of empire of ethiopia, 1960). this provision impliedly tell us that the relationship between third party holder and carrier is only subject to terms of the bill of lading issued by the carrier. thus, in effect, the bill of lading is not only an evidence of contract of carriage as between the carrier and shipper but also a contract itself for the relationship between the carrier and third-party holder. therefore, in a case of electronic bill of lading, what is to be addressed by the law is not only limited to its recognition as transport document rather issues related to electronic formation of contract has to be taken in to consideration; as it can be a contract itself beyond being an evidence for contract of carriage. the very important issues that needs to be addressed when we think of electronic bill of lading as a contract are concerns relating to when and where a new contract was formed between the carrier and third-party endorsee. besides, when bill of lading itself is a contract, it is clear that; it cannot be made orally. accordingly, bill of adding as a contract has to pass formality requirement of being in written or electronic record from. coming to the ethiopia general contract law, as per article 1681 (1) of the civil code offer and acceptance “may be made orally or in writing or by sign or…by a conduct…” from this provision, it can be deduced that the law does not prescribe any method of communicating offer and acceptance to form a contract. thus, there is no prohibition under the ethiopia general contract law to have electronic contracts. this in effect entitles parties transacting in business to conclude contracts by electronic means by using the so-called principle of party autonomy. therefore, principally under ethiopian general contract law, it is possible to issue electronic bill of lading by employing the party autonomy principle. however, there are subsequent issues that need to be addressed by a given contract law which looks for the formation of electronic contracts. the mere fact that the law does not prohibit the formation of contract through electronic communication is not a guaranty for having the proper formation of electronic contracts. the ethiopia general contract law does not address issues related to consent in case of formation of an electronic contract (gebrehiwot e, 2012). for the case at hand, it is not known as to whether the mere transfer of electronic bill of lading through control amount as a conclusion of contract of carriage as between the third-party endorsee and the carrier. moreover, under the ethiopian general contract law, there is formality requirement provided to have valid formation of contract. as stated before a bill of lading cannot be made orally; rather it has to be prepared either in written or any other form which can able to achieve its functions. thus, there is an obvious requirement by law or custom of mer chants to make it indistinguishable form. the ethiopian general contract law requires the signature of the parties if that contract is required to make in written form (civil code of the empire of ethiopia, 1960). regarding the mode of signature, the law clearly states that a written contract shall be affixed by the handwritten signature or thumb-mark of contracting parties (civil code of the empire of ethiopia, 1960). therefore, though the law doesn’t prohibit formation of a contract through electronic means; our general contract law is not compatible to form electronic contracts; as the law fails to address issues relating to the characterization of consent and functional equivalence of signature and written requirement. 3.5. security and customs laws of ethiopia bill of lading enables sale and purchase of goods that are in the process of transporting. besides, when the transaction is financed through banks and documentary credit system, as the bank provides finance to the buyer; it is the bill of lading which serves as security for the financing bank. the traditional bill of lading fulfills this requirement of security by the fact that it is easy to identify its originality through the physical presence of the document. coming to the ethiopia security law, any transferable securities can be pledged (commercial code of the empire of ethiopia, 1960). under the commercial code or civil code of ethiopia, we cannot find any provision which provides that electronic transferable records can serve as security notwithstanding that both the warehouse receipt proclamation and multimodal carriage of goods proclamation of ethiopia gives electronic warehouse receipt and electronic multimodal transport document the same legal status with the paper counterpart. however, later on, the appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 85 ethiopian commodities exchange come up with internal working procedure which allows pledging of electronic warehouse receipts held by it (rules of the ethiopian commodities exchange, 2010). this shows that pledging of electronic securities is possible in ethiopia law. however, it is only limited to electronic warehouse receipt. thus, as the basic security laws of ethiopia which are scattered in different laws of the country does not give recognition for pledging of electronic securities and as there is no special law which regulates electronic bill of lading, it is fair to conclude that electronic bill of lading cannot serve as security in ethiopia before having a special provision which allows doing so. coming to the customs law of ethiopia, it is found that electronic records are given equal recognition with paper documents. accordingly, as per article 2(25) of the ethiopia custom proclamation document is defined as “any document presented physically or by electronic means to the authority to complete customs formalities.” unequivocally the law clearly recognizes the admissibility of electronic records as equivalent document with paper documents for purpose of conducting customs formalities. transport documents which include a bill of lading are among the required document to be the submitted before the authority along with the goods declaration for completing custom formalities (customs proclamation, 2014). the literal interpretation of this provision tells us that, electronic bill of lading is recognized as document under the current custom law of ethiopia in order to complete customs formalities. besides, the law also recognizes completion of customs procedures through the electronic exchange system (customs proclamation, 2014). any person is allowed to process and submit reports on “the arrival or departure of a means of transport and travelers taken on board or goods loaded; to complete custom formalities, to effect payments and to receive an order of release of goods electronically through the electronic exchange system to be developed by the authority.” (customs proclamation, 2014). however, subsequent provision of the custom proclamation which deals about verification of electronic information provides that submission of original documents may be required to check the accuracy of electronically transmitted messages. thus, what is recognized under the ethiopia custom proclamation is submission of electronic copies of paper documents; not pure electronic documents. however, the originality of electronic bill of lading cannot be verified by bringing an original paper bill of lading. 3.6. the ethiopian evidence law it is known that so far ethiopia does not have separately codified evidence law. however, the absence of codified evidence law does not mean that ethiopia does not have evidence law. the ethiopia evidence laws are found by being scattered throughout both the substantive and adjective laws of the country which are enacted by the 1960 codification process or later on. besides, by the fact that our substantive and procedural laws are influenced by both the common law and civil law legal systems, our evidence law is influenced by both the common law and civil law evidence rules. to begin with, under the 1960 civil code, “[a] written instrument shall be conclusive evidence, as between who signed it, of the agreement therein contained and of the date it bears.” the law recognizes that written instrument is conclusive evidence for those who signed it to perform the underlying transaction. while the code was enacted, the concept of electronic records was not known; as a result, the 1960 civil code was enacted by taking the admissibility of paper-based documentation into consideration. however, as the civil code is influenced by the civil law legal system, it is still possible to argue that electronic records generally and electronic bill of lading can be admissible; as there is an accepted principle in the civil law legal system which provides that all material evidence can be admissible to establish the material truth. thus, in a case when electronic record is brought before a court of law as an evidence, it can be accepted by alleging this principle unless prohibited otherwise by specific legislation. coming to other laws, under the maritime code there is no provisions regarding the admissibility of bill of lading. however, in the multimodal transport of goods proclamation (2007) subject to the interpretation provided before under this part, electronic multimodal transport document is admissible before court of law. moreover, the 2016 computer crime proclamation of ethiopia (2016), [a]ny document or a certified copy of the document or a certified printout of any electronic record relating to computer data seized in accordance with this proclamation may be produced as evidence during court proceedings and shall be admissible. this provision tells us that ethiopia courts are required to accept electronic records as an admissible evidence when there is a need to do so. generally, knowing that the ethiopia legal system is the hybrid of common law and civil israel woldekidan haileyesus 86 law system and also electronic records are admissible in case of the criminal proceeding, the writer of this paper believes that nothing is there to prohibit admission of an electronic bill of lading as an evidence under the current ethiopia court system. 3.7. draft electronic transaction law the ministry of science and technology of ethiopia has drafted both electronic commerce and signature law with the support of united nation economic commission for africa (uneca) as of 2009. the draft electronic commerce law provides that “electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing” by doing so, this draft law avoids the legal uncertainty created related to the validity, enforceability and admissibility of electronic records. the law also provides that an electronic record satisfy the written requirements of any law as far as the information in the record can be accessible and usable for subsequent reference (draft electronic commerce law of ethiopia, 2015). besides, though it has no detail regulation; it recognizes electronic signature. moreover, the draft law also addresses legal issues related to electronic contracts like how an electronic contract is to be formed, the validity of electronic contracts which includes the where and when about of formation of electronic contract (draft electronic commerce law of ethiopia, 2015). last but not least, the draft electronic commerce law of ethiopia, openly recognizes the admissibility of an electronic data message or electronic document as an evidence with detail provision as to its submission (draft electronic commerce law of ethiopia, 2015). however, this draft electronic commerce law is silent as to whether it is applicable for carriage of goods and transport documents or not. electronic commerce laws including the uncitral model law on electronic commerce clearly recognize and regulate issues relating to electronic contract of carriage and transport documents. but, the draft electronic commerce law of ethiopia though it is somewhat similar to the uncitral model law in other aspects, it fails to have a provision on electronic carriage contract and transport documents. therefore, for this writer, it is intentionally left by the legislature. hence, the draft electronic commerce law of ethiopia is not applicable to electronic shipping documents as there is no provisions on recognizing electronic data on shipments. 4. conclusion the paper identified and expounded the possible legal issues associated with digitalization of paper bill of lading. the creation of functional equivalence for the requirement of signature, document, writing, originality, uniqueness and singularity, possession, identification of holder and issuer of electronic bill of lading, circulation of the electronic bill of lading, evidentiary value of electronic bill of lading, formation of contract as between the carrier and endorsee, end of life cycle of electronic bill of lading and attribution of the reliability of the operating system are the major issues of electronic bill of lading that need to be addressed by law. afterwards, the paper examined the compatibility of the existing legal environment of ethiopia in accommodating electronic bill of lading or not? the writer analyzed the policy and laws of the country which are relevant for governance of bill of lading. in terms of policy, although both the draft national logistics strategy and transport policy are at the draft stage, the study showed that the government of ethiopia is working towards digitalizing transport documents used in the international trade. coming to the regulatory framework, the analysis of the maritime code revealed that there is no clear statement under the law which requires issuance of bill of lading in document or writing form. however, for the writer of this paper as far as electronic medium of communication was not known while the maritime code of ethiopia was enacted and there is a requirement of two set of originals under the same the same law leads to conclude that it is not possible to issue electronic bill of lading regarding the signature requirement, the maritime code is still silent as to how it can be signed. the writer of this do not believe that it was the intention of the then legislature to recognize electronic signature at the time in which the concept of digitalization was not known at all. coming to the multimodal goods proclamation of ethiopia, the study revealed that electronic bill of lading is recognized although there is difference between the negotiable and non-negotiable multimodal transport document. the study finds out that the law is not sufficient to address legal issues of electronic bill of lading. it fails to address how the originality, singularity and uniqueness of electronic bill of lading are to be guaranteed, how the requirement of physical possession and transfer of rights by delivery is to be performed, how electronic multimodal bill of lading can be amended and corrected and other legal issues which can be raised with digitalization of bill of lading. appraisal of the ethiopian legal environment in light of its compatibility for introduction of electronic bill of lading 87 related with the legal issue associated with the status of electronic contracts as between the endorsee and the carrier under the ethiopia law, it is found that an electronic contract between the carrier and third-party endorsee through bill of lading is not recognized although there is no prohibition to have electronic contracts under the ethiopia general contract law. the law fails to address issues relating to the characterization of consent and functional equivalence of signature and written requirement stated under the law as validity requirement. concerning the compatibility of ethiopia security and custom laws in light of introduction of electronic bill of lading, it is found that the basic security laws of ethiopia which are scattered in different laws of the country does not give recognition for pledging of electronic records as security. as a result, under the existing ethiopian security law, electronic bill of lading cannot be pledged before having a special provision which allows doing so. it is also indicated that the customs law of ethiopia allows to use electronic records for customs formalities. however, the existence of a requirement to produce original documents in order to check the accuracy of electronically transmitted messages hinder the application of negotiable electronic bill of lading. regarding the admissibility of electronic bill of lading as an evidence before ethiopian court of law, it is noted that nothing is there to prohibit admission of an electronic bill of lading as an evidence under the current ethiopian evidence law. moreover, the analysis of the draft electronic commerce law of ethiopia indicated that electronic carriage of goods and transport documents are not included. to sum up, the existing legal environment does not properly address legal issues associated with introduction of electronic bill of lading although there is a tendency towards recognizing electronic bill of lading as electronic records. references civil code of the empire of ethiopia, 1960, negarit gazzetta, extraordinary issue, pro. no. 165, 19th year, no.2. commercial code of the empire of ethiopia, 1966, negarit gazzeta, extraordinary issue, proc. no. 166, 19th year, no. 3. computer crime proclamation, 2016, federal negarit gazetta, proc. no. 958, 22nd year, no. 83. customs proclamation, 2014, federal negarit gazetta, proc. no. 859, 20th year no. 82. emanuel l. (2002), paperless trade: opportunities, challenges and solution (1st ed., kluwer law international. farhang j. (2015), the concerns of the shipping industry regarding the application of electronic bills of lading in practice amid technological change. phd dissertation, university of sterling. gebrehiwot entehawu, (2012). the legal framework for electronic contracts in ethiopia with special emphasis on general contract law. llm thesis, addis ababa university. johnson c. (1992), “electronic data interchange and negotiable instruments a preliminary review of some legal issues”, international review of law computers and technology, 6 (1). johnson c. (1992), “electronic data interchange and negotiable instruments a preliminary review of some legal issues”, international review of law computers and technology, 6 (1) koji t. (2016), “block chain technology and electronic bills of lading”, journal of international maritime law. krailerk e. (1999). international carriage of goods by sea: problems in bills of lading and their impact in australia and its major trading partners in asia. ll. m thesis, university of tasmania. luis e. nova, (1999). electronic data interchange: its benefits in trade activities for developing countries. ma thesis, world maritime university. maritime code of the empire of ethiopia, 1960, negarit gazetta, extraordinary issue, proc. no. 164, 19th year, no. 1. multimodal transport of goods proclamation, 2007, federal negarit gazette, proc. no, 548, 13th year, no. 59. art. 2(4). rules of the ethiopian commodities exchange 2010 reg. no. 5/2010. samantha p. (2002). the development of the bill of lading: its future in the maritime industry, phd thesis, university of plymouth. sy, i, (1999) ‘electronic bills of lading: implications and benefits for maritime transport in senegal’, (msc. thesis, world maritime university), 2-3. tilahun l. et al. (2016), “challenges in the operation of multimodal transport system: the case of ethiopian shipping and logistics services enterprise”, international journal of applied research, 2 (7), 927-933. tsehai w. (2009), “multimodal transportation of goods under ethiopian law”, journal of ethiopian law, 22 (i). israel woldekidan haileyesus 88 tsehai wada, “package limitation, under international conventions and maritime code of ethiopia: an overview”, ethiopian journal of law, 14 (1). unctad, the use of transport documents in international trade. (2003), un doc sup no. unctad/sdte/tlb/2003/3). united nations commission on international trade law working group iv, (2011). legal issues relating to the use of electronic transferable records, notes by secretariat. united nations commission on international trade law, (2012). legal issues relating to the use of electronic transferable records w. h. van boom, (1997), “certain legal aspects of electronic bills of lading”, european transport law, 32 (1), 9-11 zvonimir š. (2016). “the notion of electronic transferable records”, intereulaweast, iii (2). journal of international trade, logistics and law, vol. 6, num. 1, 2020, 14-22 14 multidimensional poverty analysis: in case of jimma zone, south west ethiopia sisay tolla whakeshum jimma university, ethiopia minyahil alemu haile jimma university, ethiopia received: april 19, 2020 accepted: may 15, 2020 published: june 01, 2020 abstract: poverty is acknowledged as multidimensional problem due to the fact that where there is poverty there are various deprivations experienced by poor people in their daily lives such as inadequate living standards, deprived health, and lack of education, among others. employing the alkire and foster method of multidimensional poverty measures and the binary logistic regression model, this study examined determinants, incidence, severity and spatial dimension of multidimensional poverty in jimma zone of south west ethiopia. results showed that multidimensional poverty among rural households is too severe (83.5%) while living standard dimension contributed most to the incidence and severity of multidimensional poverty among the given households. in the study area 82 % of the people are multidimensionally poor and the poor are underprivileged by 49 % of the weighted pointers. sex of the household head, educational level, household size, working sector and place of resident significantly influenced multidimensional poverty. the study recommends implementation of relevant interventions counter to marginalization of women headed household in access to resource, and stre ngthening of incentives aimed at inspiring human capital development. keywords: multidimensional poverty, alkire foster measures, ethiopia 1. introduction in spite of considerable progress in the past few decades, global poverty in all its diverse dimensions remains an extensive and embedded problem. and how to successfully lessen global poverty remains one of humankind’s most persistent questions. it is also one of the principal questions facing the discipline of economics since its very beginning. the importance of reducing global poverty has been strengthened by the sustainable development goals initiative, which makes of no poverty its first goal to be reached in the year 2030. additional sdgs target wellbeing interventions that end hunger, achieve food security and improved nutrition and promote sustainable agriculture, ensure healthy lives and promote well-being for all at all ages, ensure availability and sustainable management of water and sanitation for all, among others ( unrisd, 2017). considerate the association between different forms of poverty and the economic interventions employed in the least developed countries are among the most challenging yet significant problems faced nowadays. numerous authors have asserted on the inevitability of defining poverty as a multidimensional conception rather than depend on consumption expenditures per capita or income measurement. consumption poverty measures including the world bank’s dollar-a-day headcount ratio, or income approach (ravallion et al. 2009), is still the most predominant measure of dearth or poverty employed across the globe. nevertheless, through europe to latin america (whelan et al. 2004; battison et al. 2013), and from africa to asia (klasen 2000; batana 2013; yu 2013; santos 2013), researchers have dependably renowned that the lack of cash in hand is not continuously a precise proxy for dispossessions or deprivations that society overhauls about. it has been claimed that money measures do not express the full story of human suffering, for the reason that poverty is not only about one’s incapability to spend on indispensable goods and services. actually, what is at this moment commonly acknowledged is a multidimensional poverty analysis: in case of jimma zone, south west ethiopia 15 conception of poverty or destitution as an innately multidimensional build that comprehends the complete series of ways in which an individual can partake effectively in the community. in this context, from the outlooks of multidimensional poverty, conveying education, health, accommodation and other indicators into the assessment scheme to broadly measure and analyze multidimensional poverty considering place of resident has progressively been becoming a hot theme of research (wang and alkire 2009; alkire and foster 2011; guedes et al. 2012, among others). accordingly, in accordance with ethiopia’s existing growth and transformation program, the aim of this study was to develop multidimensional poverty dealings, taking jimma zone of south west ethiopia to accurately measure incidence and severity of multidimensional poverty and its contributing factors under the given socioeconomic and spatial conditions. while numerous studies have examined the tendency, determinants, incidence and severity of multidimensional poverty, there have been very few studies on the spatial dimension of multidimensional poverty particularly in subsaharan africa. indeed, to the best of our knowledge, there has been no study on the spatial dimension of multidimensional poverty in the study area, jimma zone of south west ethiopia. using data from sample 383 households collected from mana, gomma, limu kossa and sokoru woredas of jimma zone found in south west ethiopia , we constructed a multidimensional measure of poverty utilizing the alkire and foster method for multidimensional poverty measurement. apart from contributing to scarce literature on multidimensional poverty in ethiopia, this study also allows for the identification of the dimensions in which multiple deprivations have impacted more across spatial dimension. in addition to assisting concerned stakeholders in formulating strategies to reduce menace of multidimensional poverty in ethiopia, this study would lead to better considerate of what interventions have functioned well and what practical applications need to be improved. 2. methods 2.1. study area discription this study was conducted in four woredas or districts in jimma zone of south west ethiopia; sokorru woreda, mana woreda 22 km north east, limmu kosa woreda 70 km north west, and goma woreda 35 km north east from jimma town. jimma town is the capital of jimma zone that is 345 km far away from capital city of ethiopia, addis ababa. jimma zone is one of the 20 administrative zones in oromia regional state of ethiopia, is alienated under 18 administrative districts or woredas. jimma zone is one of the main coffee growing areas of ethiopia and well gifted with natural resources contributing significantly to the national economy of the country (jimma zone agricultural bureau report, 2017). the study areas were selected due to the fact that these four districts are predominantly affected by enduring threats such as trypanosomiasis, blackleg and stalk borer which harms cattle and crops. additionally, periodic crop pests like stalk borer and cattle diseases such as trypanosomiasis and blackleg affect these four districts every 2-3 years, triggering multidimensional poverty (olzr, 2007). 2.2. source and type of data households are the major units of analysis. this study was accompanied based on mainly primary data using a multipurpose questionnaire that was filled by target groups with the help of trained enumerators who have experience and knowledge about the culture, language and ethics of the study areas’ society. primary source of data are the most helpful instru¬ments for the researchers since the study was dedicated on the micro-level context of a country. a versatile and structured questionnaire was applied to collect information on household demographic compositions, level of education, health status, and living standard compositions. in addition, qualitative data were gathered via semi-structured interviews and discussions which were prepared with selected stakeholders. secondary sources were incor-porated unpublished and published materials about features of multidimensional poverty. 2.3.sampling procedures to come across the overall objective of the study and due to lack of prior information on the multidimensional poverty status of households in sokoru, gomma, mana and limmu kosa districts, three-stage sampling techniques were applied. the target populations are house¬holds whose conditions suggest that they are in a situation of health, education and living standard deprivations. at the first stage, these districts were selected purposively from jimma zone of south west ethiopia. because these selected districts are characterized by a dominantly subsistence farming society where high land dilapidation, soil wearing away and deficiency difficulties pose a serious threat on sisay tolla whakeshum & minyahil alemu haile 16 households’ wellbeing (mitiku and legesse, 2014). peasant associations or kebeles and the final respondents were selected randomly at second and third stage correspondingly. to select the appropriate sample size needed from a total of 95, 070 households in the aforementioned districts, the following sample size deter-mination formula (noel et al., 2012) was used: 𝑛 ≥ 𝑁 1+(𝑁−1)( 2𝑑 𝑧 ) 2 = 383…………………………………………………………………1 where, is the total population, is the required sample size, margin of error, is the confidence level. and n=383 for total population (n) =95070. 2.4 data analysis employing stata software package version 14.0, coded data were analyzed according to the problem and objective of the study. the analytical techniques used in this study include descriptive statistics, alkire and foster multidimensional poverty measures and binary logistic regression. descriptive statistics such as frequency distribution and percentages were employed to define the socio-economic characteristics of the households while the alkire and foster measure of poverty was applied to scrutinize the multidimensional poverty status of households in the study area and the virtual contributions of dimensions to multidimensional poverty. the alkire foster technique of multidimensional measurement was developed at ophi by sabina alkire and james foster. it is a supple method that can integrate numerous different dimensions of poverty. to identify the key factors affecting multidimensional poverty, we computed a dichotomous variable indicating whether the household is multidimensional poor or not. that is, 𝑀𝑃𝐼 = 1, 𝑖𝑓 𝑡ℎ𝑒 ℎ𝑜𝑢𝑠𝑒ℎ𝑜𝑙𝑑 𝑖𝑠 𝑚𝑢𝑙𝑡𝑖𝑑𝑖𝑚𝑒𝑛𝑡𝑖𝑜𝑛𝑎𝑙𝑙𝑦 𝑝𝑜𝑜𝑟 0, 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒 ln [ 𝑝 1−𝑝 ] = 𝛽𝑜 + 𝛽1𝑥1 + 𝛽2𝑥2 + +……… 𝛽n𝑥n ………….....……..………2 where, xs are the predictor variables including background information, living standard, health, and educations dimensions. 2.5 overview of the multidimensional poverty index (mpi) the mpi is an index intended to measure sharp poverty or destitution. sharp poverty refers to two key characteristics. first, it incorporates people living under conditions where they do not attain the minimum globally agreed standards. second, it refers to people living under state of affairs where they do not achieve the minimum standards in numerous aspects at the same time. more briefly, the mpi measures those experiencing multiple deprivations, for instance, are both undernourished and do not have clean drinking water, adequate sanitation or better education. the mpi merges two main pieces of information to measure sharp poverty: the incidence of poverty, or the percentage of people who experience multiple deprivations or deficiency, and the intensity of their deprivation the average proportion or weighted deprivations they experience. the incidence and the intensity of these deprivations are highly pertinent pieces of information for poverty measurments. 2.5.1 components of the global mpi the multidimensional poverty index is composed of three dimensions or magnitude made up of ten indicators as outlined under methodology. linked with each indicator is a minimum level of satisfaction, which is based on international consent such as the millennium development goals. this minimum level of satisfaction or utility is called a deprivation cut-off. if the summation of the weighted deprivations is 33 percent or more of potential deprivations, the person is considered to be multidimensionally poor. multidimensional poverty analysis: in case of jimma zone, south west ethiopia 17 fig1. composition of the mpi: dimensions and indicators source: ophi, 2016 the mpi has ten indicators: two from health dimension, two from educational dimension and six from living standards dimension. the mpi employs two indicators that accompaniment each other within the education dimension: years of schooling works as a proxy for the level of knowledge and understanding of household members. however, it doesn’t capture the quality of schooling, the level of knowledge attained or skills. yet it is robust indicators, is widely available, and provides the closest feasible approximation to levels of education for household members. concerning deprivation cut-offs for educational dimension, the mpi needs that at least one person in the household has completed five years of schooling and that all children of school age are attending grades one to eight of school. the mpi applies two health indicators for health dimension. the first indicator is nutrition of household members. for children, specially, malnutrition can have enduring effects in terms of cognitive and physical development. children or adults who are malnourished are also vulnerable to other health turmoil; they are less able to learn and may not perform fine as well at work. the nutritional display employed for a child is relates to being underweight. a child is under-weight if she/he is two or extra standard deviations below the median of the reference population. the nutritional gauge used foradults in the interim is the body mass index (bmi). an adult is well thought-out to be undernourished if he or she has a bmi lower than 18.5. mpi does not regard children or adults that are overweight as deprived in nutrition or diet. the second indicator employs data on child mortality. in the mpi each household member is considered to be deprived or underprivileged if there has been in any case one child death of any age in the household. the mpi takes into account six indicators for standards of living dimension. it includes access to clean drinking water, access to improved sanitation, the use of clean cooking fuel, access to electricity, flooring material and ownership of some consumer goods: television, radio, telephone, bicycle, motorbike, car, refrigerator and truck. a person has way in to clean drinking water if the water source is any of the following types; piped water, borehole or pump water, public tap water, protected spring or rain water, and it is within a space of 30 minutes’ walk (round-trip). if it fails to suit these conditions, then the household is condsidered deprived in water access. a person is regarded to have access to imptoved sanitation if the household has flush toilet, or ventilated and enhanced ditch or composting toilet, provided that they are not communal or public. if the household does not assure these conditions, then it is considered deprived in improved sanitation. a person is to be deprived here if she/he does not have access to electricity. flooring materials made of dirt, sand or dung are signs of deprivation in flooring. sisay tolla whakeshum & minyahil alemu haile 18 a person is to be deprived in cooking fuel if the household cooks or prepares meals with dung wood or charcoal. if a household does not possess more than one radio, tv, bike, telephone, motorbike or refrigerator, and does not have possession of a car or tractor then each person is considered deprived. the deprivation score or mark of each person is calculated by taking a weighted compuation of the number of deprivations, therefore the deprivation score for each person lies between 0 and 1.the score increases as the number of deprivations of the person augments and attains its maximum of 1 when the person is deprived in all constituent indicators. a person, who is not deprived in any indicator, gets a score equal to 0. formally: ∁𝑖= 𝑤1𝐼1 + 𝑤2𝐼2 + ⋯+ 𝑤𝑑𝐼𝑑…………………………………….....…………….………….3 a second threshold is applied to spot the multidimensionally poor, which in the alkire foster methodology is named the poverty cut-off. the poverty cut-off or threshold is the share of (weighted) deprivations a person must have so as to be considered poor, and it notes by k. in this way, one is considered poor if her or his deprivation score is equal or greater than the poverty cut-off or threshold. properly, someone is poor if . in the mpi, a person is acknowledged as poor if he or she has a deprivation score/mark higher than or equal to 1/3. the mpi contains two vital pieces of information: (1) the proportion or incidence of people (within a given population) who practice several deprivations and (2) the intensity of their deprivation: the average proportion of (weighted) deprivations they experience. the proportion or incidence component is called the multidimensional headcount ratio (h): 𝐻 = 𝑞 𝑛 ……………………………………………………………….……………..…………..4 here; is the number or figure of people who are multidimensionally poor and is the total population. the second constituent is called the intensity (or breadth) of poverty (a). it is the average deprivation score of the multidimensionally poor people and can be articulated as: 𝐴 = ∑ 𝑐𝑖(𝑘) 𝑛 𝑖=1 𝑞 …………………..…………………………....……………………………….…5 where, is the covered up deprivation score of individual and is the number of people who are multidimensionally poor. mpi = h × a ...……………....…….……..………….…………………………....….……….6 3. results and discussion 3.1. determinants of multidimensional poverty as outlined under methodology part, binary logistic regression technique was used to iden¬tify factor affecting multidimensional poverty where the explanatory variables are qualita¬tive, ordinal, and quantitative, provided that the conditions explained in the part methodology of the study are fulfilled. the variables that envisage multidimensional poverty in the study area include, age, sex, marital status, household size, educational level, principal occupation and place of residence. the estimations appear in the following table. table 3.1 determinants of multidimensional poverty explanatory variables coefficients marginal effects sex of household head male 1 1 female 0.0410**(0.0245) 0.0100**(0.0059) age of household head 0-20 1 1 multidimensional poverty analysis: in case of jimma zone, south west ethiopia 19 21-40 -0.0445***(0.0091) -0.0109***(0.0230) 41-60 -0.0287*** (0.0050) -0.0070*** (0.0231) >=61 -0.0012 (0.0006) -0.0003 (0.0230) household size 1-5 1 1 6-10 0.0795**(0.0138) 0.0195**(0.0034) >=11 0.1000**(0.0181) 0.0246**(0.0045) marital status married 1 1 not married 0.0306(0.0445) 0.0075(0.0108) divorced 0.5032(0.5045) 0.0141(0.0130) educational level no education 1 1 primary -2.2260**(0.0528) -0.5436**(0.0122) secondary -2.1889**(0.0704) -0.8614**(0.0120) tertiary -4.1588(0.1120) -0.1046(0.0108) principal occupation agriculture related 1 1 trade -0.3114***(0.0173) -0.0709***(0.0040) manufacturing -0.2333(0.0370) -0.0630(0.0045) service -0.1217***(0.0134) -0.0315***(0.0022) place of residence urban 1 1 rural 0.1047***(0.0023) 0.0258***(0.0048) constant 2.2468**(0.4000) numbers of observation 383 prob>chi2 0.0000 *** implies significant at 1 % level ** reflects significant at 5 % level standard errors in bracket source: authors’ estimations, 2018 the results demonstrated that the marriage status of the household is not a potential deter-mi¬nant variable as the value is not noteworthy at both 1 and 5 percent level of significance. a female headed household increases the probability of being multidimensionally poor by 0.01 and significant at 5 %. and this finding is supported by world development report (2001). females are less privileged than their male counterpart regarding wealth ownership and accrual. it is obvious that such difference will give birth to wellbeing inequality. being be¬tween the age of 21 and 60 years diminishes the likelihood of being multidimesionally poor relative to the base age category of 0 to 20 years, whereas being beyond 61 years is insignifi¬cant to explain. the marginal effect of the age cluster 21-40 years is 0.0109, imply-ing that a change in age set from the base set (0 to 20 years) to 21 to 40 years set reduce notably mul¬tidimensional poverty by 0.0109. household size had positive association with the likelihood of the household being multidimesionally poor. and it is significant at 5 per-cent. therefore, household multidimensional poverty increases with new born. analogous verdict were re¬ported by kates and dasgupta (2007). the marginal effect of primary educa-tion is -0.5436, entailing that a change in educational level from the base set (no education) to primary set reduce significantly multidimensional poverty by 0.5436. hence, schooling diminishes mul¬tidimensional poverty significantly. the marginal effects for trade and ser-vice are -0.0709 and – 0.0315, respectively. this reflects that trade activities have the high-est probability of diminishing multidimensional poverty followed by service. other occupa-tions reduce multi¬dimensional poverty relative to agricultural activities. most studies confirm this result such as spencer (2002) and apata et al. (2006). living in rural areas results a positive and signifi¬cant effect on the issue of multidimensional poverty relative to living in urban areas. a household living in rural areas uncovered to the probability of being multidi-mensionally poor by 0.0258 and significant at 1 percent 3.2 severity and incidence of multidimensional poverty sisay tolla whakeshum & minyahil alemu haile 20 the result of the following table shows that majority of the households are grossly deprived with regards to dignified and improved standard of living. 3.2.1 multidimensional headcount ratio, intensity of poverty and mpi table 3.2.1 the mpi: adjusting the headcount ratio by the intensity multidimensional headcount ratio (h) intensity of poverty (a) mpi 0.82 0.49 0.40 source: own computation, 2018 the explanation for the information in table 3.2.1 is clear-cut: in the study area 82 percent of people are mpi poor. according to the mpi, this means that they are in sharp or acute poverty. they are deprived as a minimum either by 1) each and every indicators of a single dimension or 2) a blend across dimensions such as being in a household with a malnourished person, no hygienic water, a dirt floor and poor sanitation, etc. table 3.2.1 also indicates that on average the poor are deprived in 49 percent of the weighted indicators. the mpi reflects the group of the population that is multidimensionally poor accustomed by the intensity of the deprivation suffered. the average poor person is underprivileged in 49 percent of the weighted indicators, thus the intensity is 49 percent. since the society of the study area on average deprived in 49 percent of the weighted indicators, the society is deprived in 40 percent of the total potential deprivations it could experience taken as a whole. 3.2.2 incidence of deprivation across multidimensional poverty indicators table 3.2.2 occurrence of basic deprivation indicators indicators mean a child has died in the household within the five years interval 11.41% a child is malnourished in the household 42.32% no adult 15 years and above has completed at least 5 grades in school 17.23% at least one child aged 6-14 is not attending school 18.76% cooking fuel: dung, charcoal ,etc 86.34% no improved sanitation and environment 88.43% no hygienic water or too far from the house at least beyond 30 mn 65.32% no electricity 60.30% no cemented floor 82.31% no assets: no more than one among all ( television, radio, telephone, bicycle, refrigerator) and no car 42.56% source: authors’ calculation, 2018 table 3.2.2 offered incidence of deprivation across the main indicators. the statistic demon-strated that incidence of deprivations are generally very high (>80%) for sanitation, cooking fuel and floor. there is a fairly high deprivations (>50%) for water supply or access and electricity. a very lower deprivations were observed (<20%) for school attendance, year of schooling and child mortality. 88.43 % of households are poor in sanitation, and 86.34 % are poor in cooking fuel. at the other extreme, only 11.41 % experience the death of a child in a five year period, while 42.32 % of children are malnourished. multidimensional poverty analysis: in case of jimma zone, south west ethiopia 21 3.3 rural –urban poverty incidence table 3.3 measures of poverty incidence in rural and urban areas live on less than $ 1.25 per day multidimensional poor urban 58.3% 74.3% rural 67.1% 83.5% source: authors’ calculation, 2018 results from the analysis of monetary and nonmonetary indicators of poverty in the study area showed that: the poverty incidence rate in urban area jumps from 58.3 % (based on monetary poverty) to 74.3% of when multidimensional (non-monetary) indicators or features are taken into account. area inequalities in deprivation from a multidimensional and a monetary approach are clearly to the disadvantage of rural dwellers that have been found to suffer more harshly from deprivation through non-monetary and monetary indicators. the incidence of multidimensional poverty is very high (83.5%) among rural community, whereas the level of monetary poverty is 67.1 % for this society. 4. conclusion and recommendation the study concludes that multidimensional destitution among households in jimma zone of south west ethiopia is principally sweeping. the variables that predicted multidimensional poverty in the study area include age, sex, marital status, household size, educational level, principal occupation and place of residence. age of the household head, principal occupation and place of residence are significant at 1 percent level, while household size, sex of the household head and education are significant at 5 percent level. the variable marriage is not significant at 5 and 1 percent significance level. the noteworthy factors that increase the probability of being multidimensionally poor are being a female headed household, increased household size, working in agricultural sector and residing in rural areas. the significant variables that reduce the likelihood of being multidimesionally poor are working in trade and service sector, found in productive age, having education and residing in urban areas. in the study area 82 % of the people are multidimensionally poor and the poor are underprivileged by 49 % of the weighted pointers. the incidence of deprivation is very high for sanitation, cooking fuel and floor among the basic indicators. and rural dwellers are disadvantageous over monetary and nonmonetary deprivation in the study area. in the framework of the population under study, it is clear that for anti-multidimensional poverty schemes to be well-targeted and hence more efficient, policy or program devise and interventions ought to focus on addressing the specific variables that are found to be most significant in determining the level of household multi-dimensional poverty. in particular, such interventions should clearly target the needs of rural dwellers, which are relatively more underprivileged in terms of multidimensional fac-tors. improving wealth of rural household can be achieved by improving access to resource and implementing policies that demarcates the right to these possessions. education and agriculture must get more attention to bring sustainable change on multidimensional poverty reduction campaign. furthermore, a comprehensible understanding of the inter-linkages between significant variables or determinants of multidimensional deprivation is also indis-pensable to devise interventions that will be both cost-effective and more competent in reducing multidimensional poverty. generally, an integrated approach is necessary for guid-ing interventions to effectively tackle issues of multidimensional deprivation in the study area. sisay tolla whakeshum & minyahil alemu haile 22 references alkire, s., & foster, j. (2011). understandings and misunderstandings of multidimensional poverty measurement. the journal of economic inequality, 9(2), 289-314. apata, t. g., folayan, a., apata, o. m., & akinlua, j. (2011). the economic role of nigeria’s subsistence agriculture in the transition process: implications for rural development (no. 353-2016-18101). batana, y. m. (2013). multidimensional measurement of poverty among women in sub-saharan africa. social indicators research, 112(2), 337-362. battiston, d., cruces, g., lopez-calva, l. f., lugo, m. a., & santos, m. e. (2013). income and beyond: multidimensional poverty in six latin american countries. social indicators research, 112(2), 291-314. guedes, g. r., brondízio, e. s., barbieri, a. f., anne, r., penna-firme, r., & d’antona, á. o. (2012). poverty and inequality in the rural brazilian amazon: a multidimensional approach. human ecology, 40(1), 41-57. jimma zone agricultural bureau. (2017). jimma zone agricultural performance report of 2017. kates, r. w., & dasgupta, p. (2007). african poverty: a grand challenge for sustainability science. proceedings of the national academy of sciences, 104(43), 16747-16750. klasen, s. (2000). measuring poverty and deprivation in south africa. review of income and wealth, 46(1), 33-58. mitiku, a., & legesse, w. (2014). the determinants of rural households' vulnerability to food insecurity in jimma zone, south western ethiopia. journal of biological and chemical research, 31(1), 62-72. noel, v., yilma, t., legesse, n., zeytun, g., & belay, b. (2012). notes for the course principles of statistical inference: north-south project in biostatistics series, belgium. olzr. (2007). oromiya livelihood zone reports, sokoru and tiro afeta woreda, jimma administrative zone. accessed fromwww.feg-consulting.com/fegshared.../liu/.../jimma/chora%20botor.pdf. poverty, a. (2001). world development report 2000/2001. ravi kanbur and nora lustig, eds. ravallion, m., chen, s., & sangraula, p. (2009). dollar a day revisited. world bank economic review, 23(2), 163– 184. santos, m. e. (2013). tracking poverty reduction in bhutan: income deprivation alongside deprivation in other sources of happiness. social indicators research, 112(2), 259-290. spencer, d. (2002). the features of agriculture in sub-saharan africa and south asia: in sustainable food security for all. trends, g. (2017). challenges and opportunities in the implementation of the sustainable development goals. wang, x., & alkire, s. (2009). china’s multidimensional poverty measurement: estimation and policy implications. rural econ china,12:4–23. whelan, c. t., layte, r., & maître, b. (2004). understanding the mismatch between income poverty and deprivation: a dynamic comparative analysis. european sociological review, 20(4), 287-302. yu, j. (2013). multidimensional poverty in china: findings based on the chns. social indicators research, 112(2), 315-336. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 61-64 61 a quantum view of marketing strategies kaan tuğrul özkan yildiz technical university, turkey halit keski̇n yıldız technical university, turkey received: april 18, 2020 accepted: may 20, 2020 published: june 01, 2020 abstract: businesses try to create competitive advantage by utilizing their knowledge that has been developing for years. when firms do business with their traditional logic, they try to compete to increase their profit margins. however, competitive businesses work on what opportunities they can create in the industry, how they can keep buyers close to them in the long run, and what strategies they can develop to dominate the market. in the literature, suggestions are given to companies on how they can move away from stereotyped strategies that can stimulate one another and provide them with high-profit margins, how to create new market spaces and create leaps in the value which is perceived by the customer. after in-depth reading about these concepts in the literature, it is perceived that value innovation creates new market space and customer value and quantum marketing strategies come into consideration relevantly. this study represents particular importance to cover the shortcomings in the literature in this field. keywords: value innovation, customer value, creating new market space, and quantum marketing 1. introduction kim and mauborgne (1997) describe how new market space could be created through value innovation. it is to create new markets by making a quantum leap in buyer value leading to a new and superior customer value irrelevant to competition in the existing markets. through differentiation from the dominant industry; enterprises can avoid being one of the common conventional companies in the industry. value innovation allows to get rid of established and accepted or commonly shared assumptions which are intra-organizational and inter-organizational functional styles on industries. (spender, 1989 quoted by berghman et al., 2006) by implementing value innovation, firms can become unique in the industry. creating a new marketplace is another strategic way of thinking. it can be described as systematically looking for outside the accepted boundaries of the market, rather than looking for within them. by achieving this, businesses can obtain free space to provide a significant breakthrough in the value they create. (kim & mauborgne, 1999) kim and mauborgne describe ways to create new market space by evaluating the substitution market, strategic groups, buyers, complementary products and services, and time. creating a new marketplace is not only critical for new beginnings, but also for the welfare and survival of the world's recognizable companies. creating customer value ensures that businesses are directing and understanding the market correctly. therefore, it enables enterprises to make a difference and succeed in the challenging competitive market environment in the longterm. according to day (1994, 2002, 2003), being close to the market requires two fundamental skills. the capabilities for market perception and customer connection reduce the likelihood of companies’ staying away from the market. a company which is devoid of these capabilities may be unaware of changes in the market and customer requirements and may become unable to respond to changes. the quantum strategy aims to compete on the basis of pricing strategies, to create new market spaces by creating value or making strategic innovations and to reduce the threat of substitution industry. quantum strategies provide superior profits with enterprises adopting these strategies by positioning their prices above the market average. kaan tuğrul özkan & halit keski̇n 62 2. literature review 2.1. creating customer value businesses should develop the competencies of their suppliers to create new customer value. these competencies are marketing practices, general organizational competencies, and supply chain or network competencies for the absorption of external information. if an improvement is observed in all of these, an increase in the ability to create customer value will also prevail. (berghman, matthyssens, & vandenbempt, 2006, p. 961-962) woodruff's (1997) customer value theory emphasizes the importance of understanding customer perceptions and building a hierarchy model for customer value. suppliers need to discover and create customer value, and improve the delivery processes. suppliers can compete in the market by creating customer value. “the capacity to create new value depends on the capacity of the following dimensions. 1) creating a business model that includes a fundamentally different and/or new market approach. 2) changing roles and power relationships in the industry or in the supply chain. ” (berghman, matthyssens, & vandenbempt, 2006, p. 962) slater (1997) states that creating value as well as continuous learning about customers constantly improves innovation. slater emphasizes that businesses should implement an organizational structure in the form of creating process-oriented customer value. woodruff (1997) and slater (1997) suggests attitudes that support the creation of new customer value. the lack of capability of market perception and customer connection will cause enterprises to lose their capacity to anticipate market changes. due to making mistaken assumptions and acting with inaccurate information, they will react in a weak or irrelevant manner to market changes. before creating customer value in the market, businesses should deliver recent information in the market to their organization quickly and establish customer value accordingly. 2.2. value innovation in the literature, value innovation or strategic innovation has been proposed by academics in management and organization studies as a key variable supporting competitive advantage and creating superior customer value (baden-fuller, charles, & pitt, 1996). according to hamel (1996-1998), innovation strategies represent the way to create new values for customers through the recapitalization capacity of the existing industry model and to create value richness for all stakeholders. similar to hamel, tucker (2001) says that innovation strategies explore new business models and find ways to create new customer value. from this point of view, innovation strategies can be defined as a way to play shocking games in existing industries. conventional strategic intelligence and value innovation differentiate into five main dimensions of strategy. these differences require business managers to inquire about what opportunities they perceive and which opportunities they follow and how they comprehend the risk. industry assumptions show that most businesses adopt the conditions of the industry as so and establish their strategies accordingly. however, value-innovating enterprises do not adopt industry assumptions as so, and they don’t establish their strategies accordingly. it doesn't matter to them how the rest of the industry handles things. they seek ideas that attract great attention and achieve outstanding success. moreover, they try to create a quantum leap in their value (kim & mauborgne, 1997). value innovation is associated with the reconceptualization of mature industry models in the literature. value innovation involves the redefinition of roles undertaken by various businesses and relationships between firms (berghman, matthyssens, & vandenbempt, 2006, p. 751). if value innovation firms represent a significant increase in their values, they think customers will leave their differences aside. even if these businesses lose some of their customers, they set their goals at the core of the market. in value innovation, firms can consider to start again the same business but in another way. they ask themselves what would happen in this case. firms that innovate the value evaluate business opportunities without any biases and limitations regarding their past market position. value innovating businesses consider the total solution that buyers seek and attempt to break the rules that the industry obligates the businesses to employ their customers (kim & mauborgne, 1997). 2.3. creating new market space in recent years, businesses that have created new and superior value have been creating new markets and transforming or reshaping existing markets to increase their competitive advantage. firms typically set their goals as opposing and defeating competitors. as a result, the strategies of enterprises unite in the main competitive a quantum view of marketing strategies 63 dimensions. such enterprises possess a number of implicit beliefs about how they compete in their strategic groups or sectors. they acquire traditional wisdom about whom their customers are and what they value. they share wisdom about the scope of products and services that the industry has to offer. competitive compromise occurs when firms share information about how they compete with one another. as competitors try to outmaneuver against each other, they benefit from competition that will result in increased improvements in cost or quality, or both. (kim & mauborgne, 1999) from a broad perspective, businesses don’t only compete with firms in their respective sectors. they equally compete with companies that produce substitute products or services. while making decisions, buyers unconsciously consider the substitutions for the product or service they intend to purchase. they evaluate these substitutions and then make a purchase decision. for some reason, sellers sometimes differ in the intuitive way of thinking, which is to look at the substitute industries. they rarely consciously think about how their customers purchase in substitute industries. a change in the pricing of businesses in a particular industry, a change in the business model, and even incoming advertising campaigns are more noticeable than the actions of businesses in substitute industries. the gaps between substitution industries frequently provide opportunities for value innovation. (kim & mauborgne, 1999) the main strategic differences between industry players are recognized by a limited number of strategic groups in most industries. strategic groups principally consist of two dimensions based on price and performance. these groups can be sorted in a rough hierarchical order. each leap in price level brings the leap that corresponds to the performance dimensions. most companies focus on improving their position within the strategic group. the way to create new market space within existing strategic groups is to recognize the factors that determine buyers' business decisions and make differences from one group to another. (kim & mauborgne, 1999) in many industries, competitors identify their common target customers as well as existing ones. there is a customer chain involved directly or indirectly in the purchase decision. customers who buy products or services may differ from their actual users. in some cases, some important factors guide these buyers. here, influencers, real users and buyers often overlap, but they often differ. when these purchasers differentiate, they embrace various definitions of value. an enterprise procurement officer may think far from ease of use as compared to an enterprise user or maybe more cost-oriented. likewise, a retailer can be cost-effective, focusing on a manufacturer's timely replenishment and financing. however, consuming buyers are substantially influenced by the industry but do not value these things. (kim & mauborgne, 1999) the value that is unused in products and services is often reserved for complementary products and services. buyers expect that when they choose a product or service, the total solution is provided by the seller. the way to meet this expectation is the seller’s thinking about what may happen before, during and after the use of the product. some industries base their competitiveness on the price and function, based primarily on benefit calculations, and their attractiveness is rational. other industries largely compete against emotions, and their appeal is emotional. the appeal of most products or services is rarely emotional or rational in nature. this phenomenon is the result of companies competing in the past about their expectations for unconsciously trained consumers. (kim & mauborgne, 1999) the expectations of the enterprises constantly affect and reinforce the expectations of the customers. over time, the functional-oriented industries become more functional-oriented and the emotional-oriented industries become more emotional-oriented. furthermore, market research rarely reveals new information about customers' new expectations. when businesses conduct surveys on their customers, returns are either more than business expectations or similar to them. all industries depend on external trends that influence their business over time. when we consider the upward trend of the internet or the global movement to protect the environment from the true perspective, it can lead to the emergence of innovation that creates new market space. (kim & mauborgne, 1999) 2.4. quantum marketing strategies apple has achieved outstanding performance by effectively implementing non-traditional strategies. these strategies are implementing differentiation through innovation (sequential, strategic, residual innovation across various dimensions) and simultaneously achieving low costs in peer groups at the intense productivity level. according to porter, those who implement such a strategy can only do so temporarily. moreover, when competitors are stuck in the middle on their own, they cannot achieve differentiation or cost leadership advantages. if the cost is affected by kaan tuğrul özkan & halit keski̇n 64 market share and inter-company relations, and it leads to great technological leadership or process innovation, and all this happens, the company can implement unconventional strategies. these advantages can be directly copied by competitors. therefore, firms should make a certain choice and decide which general strategy to adopt and how (heracleous, 2013, p. 94-95). apple can achieve premium pricing and redefine markets through product balancing efficiency, outstanding sequential innovation, and addictive product design strategies, which represent the key aspects of apple's strategies. according to traditional wisdom, if the competitive advantage is based on intense efficiency and value, there is no need to invest outside the field of design, innovation, and excellence of service. simultaneously, companies that compete in traditional wisdom innovation, extraordinary design and service excellence cannot achieve intense efficiency levels. traditional wisdom adds it would be more costly to maintain and develop these capabilities of businesses. according to the idea of the quantum level of reality, the same electron can be in two different places at the same time or two different electrons can occupy the same physical space. inspired by this idea, heracleous states that the understanding of quantum strategy helps break the traditionally accepted trade-off that limits strategic choices and locks firms into a single generic strategy (heracleous, 2013, p. 92). 3. conclusion businesses can create new market space through value innovation. by creating customer value, businesses can drive the market and move beyond traditional strategies to lift the boundaries of strategic choices. from this point of view, it is possible to say that creating value for customers together with quantum marketing strategies play a significant role in the relationship between making value innovation and creating a new market space. it is evident that businesses will gain competitive advantage by making high profits in the long run through the implementation of all these strategies. we believe this study will raise awareness for this issue to gain a momentum as a research topic in academy and will shed light on implementing business strategies as a practical contribution. references baden-fuller, charles & pitt, m. (1996). strategic innovation: an international casebook on strategic management. routledge. berghman, l., matthysens, p., & vandenbept, k. (2006). building competences for new customer value creation: an exploratory study. industrial marketing management, 35(8), pp. 961-973. day, g. s. (1994). the capabilities of market-driven organizations. journal of marketing, 58(4), pp. 37-52. day, g. s. (2002). managing the market learning process. journal of business and industrial marketing, 17(4), pp. 240-252. day, g. s. (2003). creating a superior customer-relating capability. mit sloan management review, 44(3). hamel, g. (1996). strategy as revolution. harvard business review, pp. 69-82. hamel, g. (1998). strategy innovation and the wuest for value. sloan management review, 39(2), pp. 7-14. heracleous, l. (2013). quantum strategy at apple inc. organizational dynamics, 42(2), pp. 92-99. kim, w. c., & mauborgne, r. (1997). value innovation: the strategic logic of high growth. harvard business review, 75(1), pp. 102-115. kim, w. c., & mauborgne, r. (1999). strategy, value innovation, and the knowledge economy. sloan management review, 40(3), pp. 41-53. spender, j. c. (1989). an inquiry into the nature and sources of managerial judgment. oxford blackwell. tucker, r. b. (2001). strategy innovation takes imagination. journal of business strategy, 22(3), pp. 23-27. woodruff, r. b. (1997). customer value: the next source for competitive advantage. journal of the academy of marketing science, 25(2), pp. 139-153. slater, s. f. (1997). developing a customer value-based theory of the firm. journal of the academy of marketing science, 25(2), pp. 162-167. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 126-134 126 analysis of the periodic maintenance costs of aircraft fleet mehmet fatih numanoğlu istanbul commerce universtiy, turkey i̇smail ekmekçi̇ istanbul commerce universtiy, turkey received: dec 30, 2019 accepted: april 13, 2020 published: june 01, 2020 abstract: competition in airline management is strengthening and increasing globally. aircraft maintenance costs have an important place in this sense. aircraft maintenance has a direct effect on the airline's ability to keep airplanes constantly in the air. aircraft maintenance is done in a timely and complete manner, the airline's profit-loss balance affects. the main purpose of aircraft maintenance is to produce safer and more secure maintenance service. this service turns into a sales and marketing service by the airline. the purpose of this study is to investigate the maintenance costs of commercial passenger aircraft over a period of 10 years. this study is to investigate the maintenance costs aircraft fleet-based profitability with maintenance costs and all other costs. keywords: aircraft, maintenance, costs 1. introduction the airline industry is one of the most unique bussines in the world. competition in airline management is strengthening and increasing globally. aircraft maintenance costs have an important place in this sense. aircraft maintenance has a direct effect on the airline's ability to keep airplanes constantly in the air. aircraft maintenance is done in a timely and complete manner, the airline's profit-loss balance affects. the main purpose of aircraft maintenance is to produce safer and more secure maintenance service. this service turns into a sales and marketing service by the airline. if this service is not provided in a safe and secure manner, timely flight time decreases and aircraft stays on the ground. for this reason, maintenance has an important place for the airline. diversification and frequent maintenance of aircraft also maximizes flight safety. the aim of this study is to investigate the maintenance costs of 10 years old aircraft in turkey. it’s examined the time of entry of the aircraft into maintenance and the characteristics of the aircraft until the first flight of the aircraft manufacturers. in order to understand the development processes and who developed them, it was useful to establish and examine the past-future connection. 2. methodology the research has been prepared with the future value method of the costs that constitute the maintenance costs over a 10 year period. model formulation; aircraft type, maintenance interval, maintenance type was prepared using seat capacity and other operational constraints. it is also shown by verifying the proposed methodology using fleet maintenance data from the x airline. future value based methodology, x airline a320, a330 and b737, b777 aircraft types were evaluated using case studies. analysis of the periodic maintenance costs of aircraft fleet 127 3. importance of maintenance in airline operating maintenance is an important application to keep the equipment in working order and extend its service life. the primary stage of maintenance process, determining which machine, part or device to be serviced, planning and scheduling which worker/operator will be assigned for maintenance, shortening maintenance times and reducing maintence costs. the airplane is a engine-driven aircraft that keeps the airflow in the air to the pressure difference at the lower and upper sides of the wings. airplanes with high-speed aircraft, carrying people and cargo, are used extensively in civilian and military operations because they save a lot of time. the most important difference that distinguishes airplanes from other means of transportation is that they can carry a person or a cargo from one pla ce to another in a very short time. the world's two largest aircraft manufacturers produce the most preferred civilian passenger and cargo aircraft. companies with a global flight network supply aircraft from these two aircraft manufacturers. these manufacturers are the boeing and airbus brand aircraft manufacturers. boeing and airbus offer narrow-body and wide-bodied airplanes, and offer different types of models to companies engaged in passenger and cargo transportation. again, there is a serious competition between these two aircraft manufacturers in all models. they offer different types of aircraft to their customers in many areas such as passenger capacity, less fuel consumption, fewer breakdowns, longer range. both manufacturers are preferred by air transport companies. planes are called wide-bodied and narrow-body according to their size. the wide-body airplanes are single-aisle with double aisles and narrow-body planes. large body airplanes can also have 4 engines. (airbus a340, boeing 747). 4. aircraft manufacturers 4.1. airbus airbus industrie, a european aircraft-manufacturing consortium, was established in 1970 to fill a market niche for short to medium-range high-capacity jet lines. it is now one of the world's two largest commercial aircraft manufacturers and competes directly with the american boeing company. the jetliner market is often dominated by orders, deliveries or annual revenues. among the full members, the european aviation defense and space company (eads) with german-french-spanish capital with a share of 80 percent and the uk's uae systems with 20 percent. its headquarters are located in toulouse, france. airbus industrie employs more than 50,000 people. employees work directly on airbus aircraft in france, germany, spain, the united kingdom and china, and others are employed in engineering, sales, training and other professions worldwide. the consortium has more than 1,500 suppliers and has cooperative agreements with many companies in many countries. american companies are responsible for about a third of the components of airbus. common companies perform most of their sub-factories in their own factories; for example, wings for all airbus aircraft are made in the uk and tail subgroups are made in spain. sub-assemblies are transported to the final assembly lines in france, germany and china by road, rail, barge, ships and airplanes (private jet fleet, airbus super carrier beluga). airbus a320, a330 / a340, a380 and a350 planes are completed in a complex near toulouse, while a318, a319 and a321 planes are assembled in hamburg. 4.2 boeing boeing company, american aerospace company—the world’s largest—that is the foremost manufacturer of commercial jet transports.it is also a leading producer of military aircraft, helicopters, space vehicles, and missiles, a standing significantly enhanced with the company’s acquisition of the aerospace and defense units of rockwell international corporation in 1996 and its merger with mcdonnell douglas corporation in 1997. formerly boeing airplane company, the firm assumed its current name in 1961 to reflect its expansion into fields beyond aircraft manufacture. headquarters were in seattle until 2001, when boeing relocated to chicago. the company's founding business units are organized around three main products and service groups, namely commercial airplanes, military aircraft and missiles, and space and communications. boeing manufactures seven separate family of commercial airplanes brought together in two facilities (renton and everett), a facility in washington and california. the renton factory produced the narrow-bodied boeing 737 and made 757 aircraft before. wide-bodied boeing 767 and 777 aircraft, and a limited number of 747 (largely unexpressed) were assembled at everett's facilities. the 787 aircraft was assembled at the everett plant and at a plant in north carolina, south carolina. boeing and general electric's joint venture, boeing business jets, produces 747, 777 and 787 aircraft in addition to vip versions, as well as 737-700 aircraft based on the production and marketing of business jets. mehmet fatih numanoğlu &i̇smail ekmekçi̇ 128 boeing's history began in 1916, when american timber merchant william e. boeing began building the aero products company shortly after us navy official conrad westervelt developed a single-engine seaplane, b & w. . in 1917, the company was renamed boaming airplane company, built araç flying boats tor for the navy during world war i, and successfully sold its instructors, track planes, observation vehicles, torpedo planes and patrol bombers in the 1920s and 30s. 5. mro companies performing aircraft maintenance in turkey 5.1. mytechnic mytechnic is the world's first lean maintenance center built from the ground up. its advantageous position between europe and asia makes mytechnic the ideal partner for airlines in europe, as well as for european, russian, middle eastern and african airlines. mytechnic was established in 2008 and in november 2010, hainan group co. limited (hna). hna group is one of the leading companies in china with its operations in the modern service industry and has great investments in air transportation, logistics and modern financial services. hna, headquartered in haikou, china, has total assets exceeding $ 30 billion by the end of 2010. designed according to the principles of simple management, mytechnic offers a wide range of services ranging from large and narrowbodied aircraft to engine revisions and airplanes. since its establishment in 2008, mytechnic incorporates the principles of lean management and productivity and safety. eliminates space, movement and time losses. it strives to expand the areas of corporate responsibility for the environment, increase the satisfaction of its partners and reduce the time of completion of the works. mytechnic hangar is located on an area of 60,000 square meters, with a 3storey building with 15,400 square meters of hangar space. the facility includes 24,800 square meters workshop, office and warehouse area. in addition, there are 6,000 square meters of engine workshop. mytechnic received easa (part 145) authorization in august 2008. shy / jar 145 / easa certificates were issued by the general directorate of civil aviation (shgm) simultaneously. in addition to these authorizations, mytechnic has iso 9001, iso 14001 and ohsas 18001 certificates. finally, it was authorized by shgm as shy / jar-147 maintenance training organization. 5.2 onur air technical onur air, which has its own maintenance hangar in istanbul atatürk airport since 2011, is the only private airline with this technical capacity. onur air, an easa and bermuda part-145 organization, will be happy to assist its, customer atatürk planes during its base and line maintenance services with its unique, limited slots available at istanbul ataturk airport and antalya international airport and at competitive prices. in addition to base and line maintenance services, onur air is also authorized to issue iii level non destructive testing service for all a320 family aircraft parts under d1 authorization and / or easa approved composite repairs. onur airlines transportation inc. was established on april 14, 1992 and the first flight was carried out on 14 may 1992 by the a320 type aircraft to the turkish republic of northern cyprus ercan airport. in the following period, in july 1992, he included his second aircraft, his third aircraft in december 1992 and his fourth aircraft in april 1993 in his fleet. onur air, which continues to grow steadily, increased the number of aircraft in its fleet to 14 in 2002 and in the following years respectively; 20, 24 and 28. in 2006, the number of aircraft in the fleet of onur air, which reached to 7,012 seats with 31 aircraft, was 29 in 2007 and 25 in 2008. today, onur air serves with its fleet of 26 aircraft. 5.3 thy technical inc. 5.3.1 aircraft maintenance turkish airlines technical inc. since its inception, it has been providing its customers with fast and reliable aircraft maintenance services. 9 hangars in two continents, 576.000 m2 closed area, modern facilities, international maintenance certificates (easa, faa), state-of-the-art equipment and more than 7.500, all of the capable aircrafts a, b , c and d maintenance in house. in addition to the main maintenance services provided to its customers, it provides quality and reliable services in many fields such as cabin renovation, airplane paint, line maintenance and business jet maintenance. careful work carried out by expert engineers and technical staff in the field, taking care of the wishes and needs of its customers. turkish airlines, especially; it provides maintenance, repair and technical support to more than 100 domestic and foreign airlines. was established on 23 may 2006 with 100% turkish analysis of the periodic maintenance costs of aircraft fleet 129 airlines capital. with more than 7,500 employees and affiliates, activities in order to provide all kinds of technical and infrastructure support related to maintenance, repair and airline industry. 6. aircraft types and maintenance intervals in aviation industry, aircraft are aged by daily utilization with respct to 4 different usage parameters, calender day (dy), flight hours (fh) and flight cycles (fc). fh refers to the elapsed time between wheel lift off and touch down and a fc is defined by a complete take-off and landing sequence. for example, the maintenance planning document of the airbus a320 family defines that an a check interval corresponds to 750 fh or 120 dy, c check interval 7500 fh or 730 dy, s check interval 2190 dy (table1) table 1 6.1. aircraft interval and maintenance costs the below table shows the maintenance intervals for aircraft types. there are different maintenance and intervals for each type of aircraft. which maintenance interval of the aircraft comes first, maintenance is done accordingly. c and s treatments are also called heavy care. heavy maintenance costs are much more expensive and take longer than others. table 2 aircraft types maintenance type interval cost ($) a320 a 700 fh 120 day* 28000 a320 s 6 ye 700000 a320 c 7500 fh 450000 a330 b 42 mo 500000 a330 c 10000 fh 24 mo* 700000 a330 s 6 ye 1,500000 a330 a 800 64000 b737 a 1000 fh 30000 b737 c 7500 fh 730 day 600000 b777 a 1500 fh 120 day 120000 b777 b 730 500000 b777 c 1125 dy 750000 aircraft types a b c s a320 750 fh 120 dy* 7500 fh 24 mo* 6 ye a330 (wide body) 800 fh 42 mo 10000 fh 24 mo* 6 ye b737 1000 fh 7500 fh 730 dy* b777 (wide body) 1500 fh 120 dy 730 dy 1125 dy mehmet fatih numanoğlu &i̇smail ekmekçi̇ 130 6.2. the average of the a, b, c and s maintenance of a320, b737, a330, b777 in this table, the average maintenance of aircraft types in one year is given. table 3 a b c s aircraft count a320 11,68 1,1 0,16 88 b737 8,76 1,1 66 a330 10,95 0,28 0,87 0,16 104 b777 5,84 0,5 0,32 38 an aircraft is maintained as per the manufacture’s guidelines approved by the aviatoin regulators. the new modern airplane are more complex in systems which require not just mechanical skills, but also sound knowledge in systems, functionality and maintenance procedures. a check: during an a check all technical systems that are needed for aircraft operation are checked. b check: inspecting sysetems check, cracks, inspection for corrosion, structural defects. happens for a330 aircraft 42 month, and for b777 730 day. c, s check: c check is a major aircraft check, the aircraft structure is inspected and all systems are tested. periodic maintenance actions are organized in four different classes of checks. each check is performed at a different interval and gets more complex with the size of the interval. the given intervals can vary depending on the aircraft type and aircraft operation. the main purpose of maintenence; • protect safety and reliability of the equipments. • in case of corruption of safety and reliability restore to factory settings. • when the reliability level of corruption provide the necessary information for the development. • to ensure all this with minimum total cost. • keep aircraft in service. 7. the calculating of maintenance and operation costs the factors that create costs in aircraft maintenance are multiple. maintenance consists of various costs. we will examine the maintenance costs over a period of 10 years. changing costs each year will also increase maintenance costs. table 4 ac type sum of total hours capacity passenger flight time adding value rate* operating income a320 4229046253 ticket sales revenue$ 2008 28786711 190 5469475090 14% 677.438.457 2009 64771907 190 12306662330 23% 1.068.609.000 analysis of the periodic maintenance costs of aircraft fleet 131 2010 112592604 190 21392594760 30% 1.697.210.616 2011 160891427 190 30569371130 33% 2.315.310.776 2012 223412645 190 42448402550 34% 2.783.586.415 2013 332497086 190 63174446340 36% 3.590.374.921 2014 463890783 190 88139248770 36% 4.022.031.807 2015 560843117 190 106560192230 32% 3.334.791.338, 2016 661040602 190 125597714380 31% 3.063.597.362 2017 753126080 190 143093955200 31% 3.366.422.603 2018 867193291 190 164766725290 29% 3.730.351.639 a330 2003243706 2008 18233508 290 5287717320 14% 654.926.297 2009 26748316 290 7757011640 15% 673.554.878 2010 33706555 290 9774900950 14% 775.505.068 2011 48574995 290 14086748550 15% 1.066.924.163 2012 72317976 290 20972213040 17% 1.375.268.886 2013 105288171 290 30533569590 18% 1.735.305.473 2014 182158237 290 52825888730 22% 2.410.587.878 2015 275183114 290 79803103060 24% 2.497.430.713 2016 343336365 290 99567545850 25% 2.428.665.779 2017 374849966 290 108706490140 23% 2.557.424.490 2018 522846503 290 151625485870 26% 3.432.831.348 ac type sum of total hours capacity passenger flight time adding value rate* operating income b737 5768926753 ticket sales revenue$ 2008 183199379 150 27479906850 72% 3.403.607.369 2009 215414912 150 32312236800 62% 2.805.727.998 2010 263842167 150 39576325050 56% 3.139.841.604 2011 306086135 150 45912920250 49% 3.477.424.464 2012 343636893 150 51545533950 41% 3.380.137.755 2013 406543392 150 60981508800 35% 3.465.744.340 2014 491509975 150 73726496250 30% 3.364.339.010 2015 751834040 150 112775106000 33% 3.529.286.489 2016 817669097 150 122650364550 31% 2.991.705.185 2017 909992149 150 136498822350 29% 3.211.265.775 2018 1079198614 150 161879792100 28% 3.664.990.894 b777 876490394 2010 42964 370 15896680 0% 2.333.887 2011 7687982 370 2844553340 5% 384.251.313 2012 28705388 370 10620993560 15% 1.236.139.812 mehmet fatih numanoğlu &i̇smail ekmekçi̇ 132 2013 51563879 370 19078635230 20% 2.016.999.480 2014 73731536 370 27280668320 22% 2.398.565.799 2015 104413562 370 38633017940 22% 2.350.092.744 2016 140677398 370 52050637260 22% 2.098.094.805 2017 203359160 370 75242889200 22% 2.429.288.801 2018 266308525 370 98534154250 25% 3.217.971.402 *adding value rate: total hours the aircraft flies. (passenger flight time / grand total hour of seat) *capacity: the seat capacity of aircraft. * sum of total hours: total hours the aircraft flies during that year. *passenger flight time: total hours the seat flies during that year. in the below table 5, non-maintenance sales expenses and maintenance costs are calculated. the fluctuations in exchange rates are also taken into consideration in 2018. net flow is the difference between ticket sales revenue and non maintenance sales expenses. the value of the future value was also calculated by multiplying the yearly value of the exchange rate (table 6) with the present value of netflow. passenger flight time was calculated by multiplying seat capacity by flight time. from 2008 to 2018, all maintenance of aircraft was determined and cost calculation was made according to the type of maintenance. when calculating the cost, the seat capacity of the aircraft types was found and the seat flight time of the seats of each aircraft type was calculated. in the table 5, non-maintenance sales expenses and maintenance costs are calculated. the fluctuations in exchange rates are also taken into consideration in 2018. table 5 table 6 shows the average exchange rates on a year-by-year basis based on central bank data and is reflected in the table as future value. thus, costs will appear to be equivalent to the present value over a period of 10 years. table 6 year 2008 2009 2010 2011 2012 2013 2014 12015 2016 2017 2018 exchange rate $ 1,29 1,55 1,5 1,67 1,79 1,9 2,19 2,72 3,02 3,65 4,81 in this below table 7, after calculating the total flight time of the fleet types over the capacity of the seats, it shows how much a seat of an aircraft type flies in the air. years nonmaintenance sales expenses$ maintenance costs$ total $ net flow$ future value (2018) $ 2008 488.651.553 2.606.837 486.044.716 188.786.904 244.084.017 2009 722.059.120 3.388.093 718.671.026 346.549.879 536.135.079 2010 1.232.946.584 3.285.069 1.229.661.514 64.264.032 696.565.040 2011 1.842.488.807 3.383.473 1.839.105.334 472.821.968 789.612.686 2012 2.169.063.429 6.404.498 2.162.658.930 614.522.986 1.101.530.752 2013 3.265.551.576 9.881.614 3.255.669.962 324.823.344 617.589.483 2014 3.808.198.637 9.560.034 3.798.638.602 213.833.169 467.836.646 2015 2.919.334.237 4.910.264 2.914.423.972 415.457.101 1.130.050.048 2016 2.523.090.959 6.329.840 2.516.761.118 540.506.403 1.633.002.278 2017 2.933.041.921 7.407.438 2.925.634.482 433.380.682 1.580.836.033 2018 2.691.007.170 4.875.129 2.686.132.040 1.039.344.468 5.002.364.929 analysis of the periodic maintenance costs of aircraft fleet 133 table 7 seat capacity 190 290 150 370 year a320fam a330 b737 b777 grand total ac hour grand total seat hour 2008 28786711 18233508 183199379 230219598 38237099260 2009 64771907 26748316 215414912 306935135 52375910770 2010 112592604 33706555 263842167 42964 410184290 70759717440 2011 160891427 48574995 306086135 7687982 523240539 93413593270 2012 223412645 72317976 343636893 28705388 668072902 125587143100 2013 332497086 105288171 406543392 51563879 895892528 173768159960 2014 463890783 182158237 491509975 73731536 1211290531 241972302070 2015 560843117 275183114 751834040 104413562 1692273833 337771419230 2016 661040602 343336365 817669097 140677398 1962723462 399866262040 2017 753126080 374849966 909992149 203359160 2241327355 463542156890 2018 867193291 522846503 1079198614 266308525 2735546933 576806157510 8. conclusion in this paper presents a practical future value methodology of the maintence cost of aircraft fleet. the model formulation takes aircraft type, status, maintenance, seat capacity, and other operational constraints into consideration. we also validate and demonstrate the proposed methodogy using fleet maintenance data from an airline. the proposed future value based methodology is evaluated using the case-study of an a320, a330 and b737, 777 family fleet from an airline. in this study, maintenance costs, operational expenses and all other expenses were calculated for 4 different aircraft types. in addition, the study shows which aircraft type would be more profitable for the airline, taking all criteria into consideration. also, narrow body and wide body will allow the airline to choose the type of aircraft that is profitable. we calculated below table 8, the cost per flight hour (fh) of a 10 year fleet based on the values, we also found the cost of a fleet seat. according to this table the operator can find out which fleet is profitable. table 8 ac type ac purchasing cost maint cost ac's total fh grand total ac hour tc1 tc2 a320 $101.000.000 $827.559.933 4229046253,00 803518788070 $0,220 0,00116 b737 $106.000.000 $561.363.015 5768926753 580940674740 $0,116 0,00115 a330 (wide body) $265.000.000 $976.758.198 2003243706 865339012950 $0,620 0,00143 b777 (wide body) $375.000.000 $331.947.962 876490394 324301445780 $0,807 0,00218 tc1: aircraft purchasing cost + maintenance cost / total fh’s of aircraft tc2: aircraft purchasing cost + maintenance cost / total fh’s of aircraft mehmet fatih numanoğlu &i̇smail ekmekçi̇ 134 references airbus, (2018), a320 maintenance planning document (private document) bazargan m, hartman j., journal of air transport management, (2012), elsevier. zorbaci b., baynal kasim, uçak bakım planlamada meydana gelen problemler ve çözüm önerileri boeing, (2012) airplane maintenance program development, commercial aviation services, usa. boeing, (2009), airline maintenance program development seminar, usa. boeing, (2018), b737, b777 maintenance planning document (private document) central bank of the republic of turkey, “real effective exchange rate“, available at: https://www.tcmb.gov.tr/wps/wcm/connect/tr/tcmb+tr/main+menu/istatistikler/doviz+kurlari/reel +efektif+doviz+kuruu/ gerdes m., scholz d., galar d., (2016) effects of condition-based maintenance on costs caused by unscheduled maintenance of aircraft hu c-ing, li h. , lui s. m., chao c.c, (2010) aircraft replacement scheduling: a dynamic programming approach, taiwan: department of transportation technology and management, national chiao tung university, hsinchu 300. history of airbus industrie, (2018) available at: https://www.britannica.com/topic/airbus-industrie history of boeing industrie, (2018) available at: https://www.britannica.com/topic/boeing-company https://www.mytechnic.aero/hakkimizda mcallister, e.w., (2015). pipeline rules and thumb, gulf proffessional publishing, 806p, usa. onur air airlines, (2018), “about“ available at: http://www.onurair.com/tr/kurumsal/detay/hakkimizda/3/1/0 directorate general of civil aviation of turkey, 2019. havacılık personeli. //web.shgm.gov.tr/tr/havacilikpersoneli/2125-hava-araci-teknisyeni turkish airlines, (2018), “investor relation“, available at: https://investor.turkishairlines.com/tr/maliveriler/filo journal of international trade, logistics and law, vol. 6, num. 1, 2020, 1-13 1 the relationship between exchange rates and stock markets for the fragile five countries kadra yusuf hersi i̇stanbul commerce university ayben koy i̇stanbul commerce university received: may 01, 2020 accepted: may 26, 2020 published: june 01, 2020 abstract: this paper aims to determine the significance relation and direction of stock markets and exchange rate on fragile five countries (south africa, turkey, indonesia, india, and brazil) from january 2010 to december 2019. this study applied the var analysis and granger causality test to determine the relationship between exchange rates and stock indexes. the results show that south af rica and turkey exchange rates and stock indexes are in bidirectional relationships, for india and brazil, there is a one-way causality finding from the exchange rate to stock price, and the results for indonesia show no causality. keywords: exchange rate, stock indexes, granger causality. jel code: g10, g15 1. introduction the "fragile five" is a term invented in 2013 by a morgan stanley financial analyst to characterize emerging market economies that were dependent on unreliable foreign investment to empower their development desires. this paper aims to determine the relationship for the stock markets and exchange rates on fragile five countries (south africa, turkey, indonesia, india, and brazil) from january 2010 – december 2018. the period of the study was characterized to be a response to the global financial crisis recovery. developed financial markets like the u.s. and the u.k., were improving from the financial crisis that happened in 2008. many investors started moving their investment out of the emerging countries and back into u.s. dollars and pounds. these powerful outflows originated principally from india, brazil, turkey, south africa, and indonesia. their currencies—the indian rupee, the brazilian real, the turkish lira, the south african rand, and finally the indonesian rupiah. these currencies encountered significant vulnerability and made it difficult to finance their account deficits. furthermore, this results in high comovement between the exchange markets and the stock markets. indeed, there has never been a period in which these two vital macroeconomic variables have moved so strongly. the intense interaction between exchange rates and stock prices has been primarily investigated empirically and theoretically by researchers, academicians, investors, and regulators. although many papers examine the relation ship between the stock market and exchange rate with numerous methods, this highly controversial subject in the literature remains unsettled because of the founded different outcomes. even though research findings vary regarding the countries under analysis and sample period, it is said that both market fundamentals and investors view mainly drive the relationship. according to economic and finance theories, there are several theoretical explanations for their relationships. ramasamy and yeung (2005) proposed that the reason for these inconsistent results is that the characteristics of the interaction between stock and exchange rate markets are sensitive to the stage of the corporate cycle, and broader economic aspects of these five countries decreased in value against foreign currencies. as a result, bond yields increased, and stock exchanges suffered substantial losses in value. ayben koy 2 2. literature review there are two theoretical approaches background that propose the link between the stock market and the exchange market: a traditional approach and a portfolio approach. the traditional approach is about the "flow-oriented" exchange rate models (dornbusch & fischer 1980), recommending a granger causality driving from exchange rates to stock prices, and it states that exchange rate fluctuations affect international competitiveness. then the less favorable terms of trade may affect real income and so stock costs. moreover, as a result of the estimated value of a stock equals the discounted add of its expected future capital flows, they react to macroeconomic events as well as the rate of exchange changes. according to evelyn (2010), the fluctuation in the exchange rate would influence the change in the firm's market value. changes in market value will impact the investor's evaluation of the current and potential success of the company in the coming future, expressed in the strength of demand and supply in the company's stock exchange (market value). consequently, the changes in demand and supply of stock shares would ultimately impact shifts in stock price. local exchange depreciation would fuel export growth and rise in returns and drive its stock price up. at the same time, the company that imports more commodities in the depreciation of local the money would result in a rise in the cost of production impacting the company's earnings, which also affects the company's profits and its stock price (yucel and kurt, 2003). according to adler and dumas (1984), the exchange rate also affects the companies which operate entirely in the domestic sphere. the impact lies in the input and output price changes of the company due to changes in macroeconomic conditions caused by exchange rate changes. however, the difference between the local currency exchange rate and foreign currencies will also influence the competitive position of the company against foreign competitors in the region. additionally, the portfolio approach is based on “stockoriented” exchange rate forecasts, hence suggesting that the changes on exchange rates are because of the stock prices. the ‘stock-oriented’ model (branson 1983; frankel 1983) suggests that innovations in the stock market determine the capital of investors in demand for money. for instance, the rising stock price encourages capital inflows. it thereby increases the need for and thus appreciation of the local currency, which declares that if the domestic stock price rises, it will influence investors to buy more local goods by selling different products to obtain local currency. expanded interest for the domestic money will lead to an appreciation of the domestic capital. on the other hand, an increase in the prices of local goods will increase wealth, which also will increase the demand for cash by investors. more foreign investment will be attracted by this situation, which will increase international demand for domestic currency, and the concluding result will be an appreciation of the local currency. in sum, the theoretical structure implies that the causality of granger may vary from exchange rates to stock prices or from stock prices to exchange rates. there is no conclusion on a theoretical aspect of the link between exchange rates and stock prices. the outcomes of several studies find insufficient evidence of the relationship between exchange rates and stock prices (e.g granger, huang, and yang, 2000; smyth and nandha, 2003; hatemi-j and roca, 2005; patra and poshakwale, 2006; ehrmann fratzscher and rigobon, 2011; chen and chen, 2012), while others like (e.g., tsagkanos & siriopoulos (2013); pan, fok & liu 2007; jayasinghe & tsui 2008; and yau & nieh 2009; liang, lin, and hsu (2013)) discover that the relationship between exchange rates and stock prices is substantial and causal. interestingly, research shows that granger causality is frequently divided into four catalogs of links on various financial markets: bidirectional relationships, unidirectional relationships between stock prices and exchange rates, unidirectional relationships between currencies, and stock prices, and no relationship. even though there is no agreement on either theoretical or empirical evidence on the relationship at a theor etical level between exchange rates and stock prices, in this sector we will examine both theoretically and empirically these two key lines of inquiry related to the interaction between stock prices and exchange rates. there is overabundant empirical proof relating to the traditional approach, which proposes that changes in the exchange rate ought to lead stock price movements. examining the relationship between us stock market indexes and the dollar's trade-weighted value for the 1974-78 period, aggarwal (1981) finds a positive correlation between stock prices and exchange rates. a shift in the exchange rate may directly alter multinational corporate stock prices and indirectly alter domestic corporate stock prices. as one of the first to research the effect of exchange rates on stock prices, soenen & hennigar (1988), between 1980 and 1986, they placed monthly us stock prices and dollar the relationship between exchange rates and stock markets for the fragile five countries 3 exchange rates and noticed a clear negative correlation between stock prices and exchange rates. besides, a dominant or deficient currency, rapid in the 1990s, can't change this outcome. donnelly and sheey (1996), suggesting the causality path from exchange rates to stock prices, showed that the entire measure of uk stock market response to exchange rate fluctuations carries many months to operate into share prices. nieh & lee (2001) analyzed the complicated relationship within exchange rates and stock prices for the g-7 countries (france, germany, canada, italy, japan, the united kingdom, and the united states) applying regular data from 01/10/1993 until 15/02/1996. they find that short-term causality in germany, canada, and the uk, driving from exchange rates to stock prices, is particularly relevant for just a day. explicitly, the german financial market will be excited by currency appreciation even though it reduces stock returns in canada and the uk. abdalla & murinde (1997) studied the changes in developing financial markets. because of a lack of data availability, monthly data from india, korea, the islamic republic of pakistan, and also the philippines from 01/1985 to 07/1994. he discovered that the relation linkage between exchange rates and stock prices reflects the traditional approach in india, korea, and the islamic republic of pakistan. it suggests the fluctuations in exchange rates confirm stock return changes in india, korea, and the islamic republic of pakistan. as much as great empirical studies are supporting the traditional approach, there are the same amount of studies that show empirical proof for the portfolio approach, designating that there is unidirectional causality from stock prices to exchange rates. ajayi and mougoue (1996) suggested that a rise in the total domestic stock price has a negative short-run effect on local exchange value. in the long run, however, rises in stock prices have a positive impact on local exchange value. ajayi et al. (1998), investigating seven advanced markets and eight emerging asian markets, it was found that equity markets and currency markets are interconnected with established markets, leading from stock returns to currency rates to causalities. ramasamy and yeung (2001) suggested that causality may vary depending on the study duration, and they also found that stock prices lead exchange rates for malaysia, singapore, thailand, taiwan, and japan. also, the impact on the stock market can be substantial sufficient to make the real exchange rate appreciated as a consequence of expansionary monetary policy. to put in the away the stock market will significantly affect the foreign exchange rate market. smith (1992) was in her early years, one of the proponents of the portfolio method. smith (1992) uses quarterly data from the first quarter of 1974 to the third quarter of 1988 to research the correlation between exchange rates and stock prices in the united states. he used equities in the portfolio balance model of exchange rates to drive an approximate equation of exchange rates and found that stock prices in the uk would lead to adjustments in exchange rates between the uk pound and the us dollar. he technically reexamined this relationship, using a multi-country approach. smith (1992b) revealed a theoretical model of optimal preference over risky assets to generate an approximate equation of the exchange rate. unlike past examination, the assets involve equities, government bonds, and property. this model has been calculated using quarterly data from the 1974-1988 period. everything was found that the german-u.s. mark value the dollar and the japanese yenus dollar exchange rates have a significant impact on their stock prices. in many research for the developing markets, bidirectional causality between exchange rates and stock prices have been found. for reference, granger, huang & yang (2000) used daily data from 03-0-1986 to 16-06-1998 to investigate the short-term dynamics between exchange rates and stock prices for several asian countries during the asian crisis. they conclude that there is a primary feedback relationship between the stock market and exchange rates in hong kong, malaysia, singapore, thailand, and taiwan. this result for singapore and the philippines is confirmed by wongbangpo & sharma (2002), based on monthly observations between 1985 and 1996. the first study to propose this feedback interaction between the two markets was bahmani-oskooee and sohrabian (1992). cointegration and the granger causality tests are applied from 07-1973 to 12-1988, using monthly data. the findings imply a bidirectional correlation between exchange rates and us stock prices. ajayi & mougoue (1996) present similar results for france, germany, italy, japan, the uk, and the us. this bidirectional relationship is noted by murinde & poshakwale (2004) for the czech republic and poland during the pre-euro period. more sophisticated techniques can also demonstrate the result. doong, yang & wang (2005), for example, use a garch-m model to study the complex causality between exchange rates and stock prices for the emerging asian markets. ayben koy 4 some research suggests support relationships between the exchange rates and stock prices. for instance, inci & lee (2014) re-examines their complicated relationship between the two by integrating lagged effects and causal relationships, based on long-term annual data from 1984 to 2009. we point out that even this connection is vulnerable to the business circle. there is compelling proof of bidirectional correlations among these two variables in france, germany, switzerland, the united kingdom, the united states, canada, and japan. for india, indonesia, and korea, lin (2012) confirms the result. similarly, for the us, canada, japan, italy, france, the uk, south korea, and hungary, chen & chen (2012) discover non-linear bidirectional relations between exchange rates and stock prices. moreover, there are particular theoretical structures for the collaboration between trade rates and stock costs, and there are a few investigations that cannot discover whatever connection between them in specific nations. it is just plain obvious, for instance, granger, huang, and yang, 2000; smyth and nandha, 2003; hatemi-j and roca, 2005; patra and poshakwale, 2006; ehrmann fratzscher and rigobon, 2011; chen and chen, 2012; among numerous others. for appearance, although granger, huang, and yang (2000) find proof for the traditional and portfolio approach in individual nations, there is no indication of any connection between exchange rates and stock costs in indonesia and japan. a comparative outcome is found for bangladesh and pakistan by smyth and nandha (2003). hatemi-j and roca (2005) examined this adequate causality in the asian emergency time frame. the outcome shows that stock prices were not impacted by exchange rates, or lousy habit visa for malaysia, indonesia, the philippines, and thailand, during the asian emergency. around the same time, mishra (2005) found that the indian securities exchange wasn't identified with its foreign trade advertising, which is following the contentions of hatemi-j and roca (2005). patra and poshakwale (2006) analyzed the modifications of stock costs and they consider that the athens stock trade is not recognized with its outside trade showcase, utilizing month to month information from 1990 to 1999 in their investigation. ongoing examinations additionally affirm this sign. for instance, there is no proof of any momentary relations between trade rates and stock costs in the us, as proposed by ehrmann fratzscher and rigobon (2011). correspondingly, it is inconvenient. in summary, several studies have suggested no proof either of the conventional approach or the portfolio approach, implying that exchange rates and stock prices in the empirical literature may not be related to those countries. 3. data and methodology we used a secondary data from weekly observations of the foreign exchange markets and stock markets. the data beginning from january 2010 to december 2019 includes the stock ‘index’ of indonesia (jkii), south africa (jtopi), turkey (xu100), brazil (bvsp), and india (bsesn), and each countries’ currency against us dollar. we used the vector autoregression (var) model, granger causality and impulse response tests of the var model. to apply the var model, the series should be stationary. in the first step, we used unit root tests. in the second step, var lag order selections are done for the stock index – exchange rate duals for each country. in the following steps, impulse response tests and granger causality tests are done to examine the short term relationships for every dual. 3.1. unit root test dickey-fuller tests (df test and adf test) one of probably the most famous and most commonly used unit root tests is the dickeytest (dickey, fuller, 1979). it concentrated on the autoregressive first-order process model (box, jenkins,1970): 𝑦𝑡 = ∅1𝑦𝑡−1 +𝜀𝑡 t = 1,…, t (1) where ∅1 is the autoregression parameter, 𝜀𝑡 is the non-systematic component of the model that meets the characteristics of the white noise process. the null hypothesis is 𝐻0 = ∅1 = 1, i.e. the process contains a unit root and therefore it is non-stationary, and is denoted as i(1), alternative hypothesis is 𝐻1 : l ∅1 l < 1, i.e. the process does not contain a unit root and is stationary, i(0). to calculate the test statistic for df test, we use an equation that we get if 𝑦𝑡−1 is subtracted from both sides of the equation (1): ∆𝑦𝑡 = β𝑦𝑡−1 + 𝜀𝑡, (2) the relationship between exchange rates and stock markets for the fragile five countries 5 where 𝛽 = ∅1 1. the test statistic is defined as: 𝑡𝐷𝐹 = ∅1 −1 sф1 (3) where ∅1 is a least square estimate of ∅1 and sф1 is its standard error estimate. under the null hypothesis this test statistic follows the dickey-fuller distribution, critical values for this distribution were obtained by a simulation and have been tabulated in dickey (1976) and fuller (1976). 3.2. vector autoregression models (var) analysis var model is a blend of simultaneous equation methods and univariate time series models (brooks 2008). var model is employed to get direct interdependencies among many time series. all variables used in the var model are viewed as endogenous, making it progressively adaptable to a more extensive cluster of factors (brooks, 2008, p.6). the following are the purest form of the var model with only two equations as shown; we may write the stationary, 𝑘-dimensional, var(p) process as 𝑦𝑡 = 𝐴1𝑦𝑡−1 + ⋯ + 𝐴𝑝𝑦𝑡−𝑝 + 𝐶𝑥𝑡 + 𝜀𝑡 (4) where • 𝑦𝑡 = (𝑦1𝑡,𝑦2𝑡, … . , 𝑦𝑘𝑡 )′ is a vector of endogenous variables, • 𝑥𝑡 = (𝑥1𝑡,𝑥2𝑡, … . , 𝑥𝑑𝑡 )′ is a vector of exogenous variables, •𝐴1, … . , 𝐴𝑝 are 𝑘 × 𝑘 matrices of lag coefficients to be estimated, • 𝐶 is a 𝑘 × 𝑑 matrix of exogenous variable coefficients to be estimated, • 𝜖𝑡 = (𝜖1𝑡, 𝜖2𝑡 , … 𝜖𝑘𝑡 )′ is a 𝑘 × 1 white noise innovation process, with 𝐸(𝜖𝑡 ) = 0, 𝐸(𝜖𝑡 𝜖𝑡’) = ∑ 𝜖 , and 𝐸(𝜖𝑡 𝜖𝑠’) =0 for 𝑡 ≠ 𝑠 . the last statement implies that the vector of innovations are contemporaneously correlated with full rank matrix ∑ 𝜖 , but are uncorrelated with their leads and lags of the innovations and (assuming the usual 𝑥𝑡 orthogonality) uncorrelated with all of the right-hand side variables. 3.3. impulse responses the impulse response is an essential step in econometric studies that use autoregressive vector models. their principal aim is to explain one or more evolution of the variables of a model in reaction to a shock. the above method allows tracking the transmission of a single shock within an equation structure that is otherwise noisy and therefore makes them very useful tools in the evaluation in time series. 3.4. granger causality granger causality analysis is a scientific test for determining if a single time series can predict the other. the resulting relationship can either be unidirectional or bidirectional (hunter et al., 2017, p.3). granger causality test is usually used to investigate the short term connection among variables. it is precious to anticipate the progression of one variable with the assistance of another variable. one prerequisite for using the granger causality test is establishing the stationarity of the variables. granger (1969) addresses the issue whether x triggers y to see how much of the present y can be clarified by y's previous values, and then see if adding lagging x values will boost the interpretation. y is said to be granger-caused by x if x aids in predicting y, or comparably if statistically important are the coefficients on the lagged x's. note that two-way causation is repeatedly the case; 𝑋 granger causes 𝑌 and 𝑌 granger causes 𝑋. it is significant to note that the declaration “𝑋 granger causes 𝑌” does not imply that 𝑌 is the influence or the outcome of 𝑋. granger causality measures superiority and information content but does not by itself indicate causality in the more common use of the term. 𝑦𝑡 = 𝑎0 + 𝑎1𝑦𝑡−1 + ⋯ + 𝑎𝑙 𝑦𝑡−1𝛽1𝑥𝑡−1 + ⋯ + 𝛽𝑙 𝑥−1 + 𝜖𝑡 𝑥𝑡 = 𝑎0 + 𝑎1𝑥𝑡−1 + ⋯ + 𝑎𝑙 𝑥𝑡−1𝛽1𝑦𝑡−1 + ⋯ + 𝛽𝑙 𝑦−1 + 𝑢𝑡 (5) for all possible pairs of (𝑋, 𝑌) series in the group. the reported f-statistics are the wald statistics for the joint hypothesis: ayben koy 6 𝛽1 = 𝛽2 = ⋯ = 𝛽𝑙 = 0 (6) each equation. the null hypothesis is that in the last regression, x does not granger-cause y, and in the subsequent regression, x does not granger-cause. 4. empirical results when the stock index data by country are analyzed at the level value, h0 hypothesis is accepted since the prob>0.01 for all analyzed countries. when the first differences of the series were taken, h0 hypothesis is rejected as the prob<0.01 for all series. 4.1. unit root test table 1. unit root test for stocks stocks i(0) i(1) test statistic prob test statistic prob brazil -0.53029 0.8823 -8.49828 0.00* india -0.29084 0.9235 -7.92183 0.00* indonesia -2.33993 0.1599 -5.98321 0.00* south africa -1.83556 0.3631 -6.0048 0.00* turkey -1.26648 0.6464 -7.07532 0.00* *0.01, **0.05, ***0.10 when the exchange rate data by country are analyzed at the level value, h0 hypothesis is accepted as the prob>0.05 for all analyzed countries. when the first differences of the series were taken, h0 hypothesis was rejected because the prob<0.05 for all series. it is seen that exchange rate series become stable in the first difference. table 2. unit root test results for exchange rate exchange rate i(0) i(1) test statistic prob test statistic prob brazil -0.691986 0.8462 -5.458280 0.00 india -1.490961 0.5376 -5.944766 0.00 indonesia -0.750504 0.8313 -9.960656 0.00 south africa -1.121601 0.7087 -6.078535 0.00 turkey 0.441096 0.9845 -6.542150 0.00 *0.01, **0.05, ***0.10 the lag length results for the variables discussed are shown in the next tables (table 3-7). according to this table, it is seen that the lag length is 1 for the variables. according to table 3., the lag order for the model of india is taken to be two (2) as suggested by final prediction of lr, fpe, aic, sc and finally hq hannan-quinn information criterion. table 3. var lag order for indian rupee and bse sensex 30 lag logl lr fpe aic sc hq 0 470.7095 na 0.000547 -1.834480 -1.817899 -1.827979 1 2908.697 4847.349 3.99e-08 -11.36085 -11.31111 -11.34135 2 2991.310 163.6081* 2.93e-08* -11.66853* -11.58563* -11.63603* 3 2992.199 1.753988 2.97e-08 -11.65636 -11.54029 -11.61085 4 2993.059 1.689808 3.01e-08 -11.64407 -11.49484 -11.58556 the relationship between exchange rates and stock markets for the fragile five countries 7 5 2994.525 2.869825 3.04e-08 -11.63415 -11.45176 -11.56265 6 2995.665 2.221799 3.07e-08 -11.62296 -11.40741 -11.53845 7 2996.146 0.933134 3.11e-08 -11.60918 -11.36047 -11.51168 8 2998.350 4.261860 3.14e-08 -11.60215 -11.32028 -11.49165 the lag order for the model brazil is taken to be one (1) as suggested by final prediction of lr, fpe, aic, sc and finally hq hannan-quinn information criterion (table 4). table 4. var lag order for brazilian real and bovespa lag logl lr fpe aic sc hq 0 -71.30650 na 0.004567 0.286914 0.303495 0.293414 1 2462.305 5037.474* 2.29e-07* -9.613719* -9.563976* -9.594218* 2 2463.171 1.714416 2.32e-07 -9.601451 -9.518548 -9.568950 3 2465.691 4.970518 2.33e-07 -9.595658 -9.479593 -9.550156 4 2468.134 4.800660 2.35e-07 -9.589565 -9.440339 -9.531064 5 2471.298 6.192769 2.35e-07 -9.586295 -9.403907 -9.514793 6 2472.700 2.731914 2.38e-07 -9.576125 -9.360576 -9.491623 7 2475.057 4.575085 2.39e-07 -9.569694 -9.320983 -9.472191 8 2476.891 3.545939 2.41e-07 -9.561216 -9.279344 -9.450713 the lag order for turkey is chosen to be (5), as suggested by the concluding estimate of lr, fpe, aic (table 5). table 5. var lag order for turkish lira and bist100 lag logl lr fpe aic sc hq 0 45.10938 na 0.002896 -0.168726 -0.152145 -0.162225 1 2366.761 4616.043 3.33e-07 -9.239768 -9.190026* -9.220267* 2 2371.630 9.644045 3.32e-07 -9.243172 -9.160268 -9.210671 3 2375.449 7.533045 3.32e-07 -9.242463 -9.126398 -9.196961 4 2379.931 8.806476 3.31e-07 -9.244350 -9.095123 -9.185848 5 2387.752 15.30506* 3.26e-07* -9.259304* -9.076917 -9.187802 6 2389.940 4.265110 3.29e-07 -9.252213 -9.036664 -9.167711 7 2390.733 1.539420 3.33e-07 -9.239661 -8.990951 -9.142159 8 2392.675 3.753047 3.36e-07 -9.231603 -8.949731 -9.121100 tabl e 4. tabl e 4. as shown in table 6, for the model of south africa, the lag order is taken to be one (1) as suggested by final prediction of lr, fpe, aic, sc and hq hannan-quinn information criterion. table 6. var lag order for south african rand and ftse_jse top 40 lag logl lr fpe aic sc hq 0 436.1649 na 0.000627 -1.699275 -1.682695 -1.692775 1 2523.949 4151.054* 1.80e-07* -9.854986* -9.805244* -9.835486* 2 2524.265 0.625339 1.83e-07 -9.840566 -9.757663 -9.808065 3 2526.214 3.845890 1.84e-07 -9.832541 -9.716477 -9.787040 4 2530.073 7.580468 1.84e-07 -9.831986 -9.682760 -9.773485 ayben koy 8 5 2534.079 7.840835 1.84e-07 -9.832013 -9.649625 -9.760511 6 2537.332 6.339466 1.85e-07 -9.829087 -9.613538 -9.744584 7 2539.275 3.773057 1.86e-07 -9.821038 -9.572328 -9.723535 8 2539.943 1.290377 1.89e-07 -9.807995 -9.526123 -9.697492 according to table 7, the lag order for the model of indonesia is taken to be five(5), as suggested by the final prediction of fpe and aic. table 7. var lag order for indonesian rupiah and jakarta islamic (jkii) lag logl lr fpe aic sc hq 0 664.0365 na 0.000257 -2.591141 -2.574560 -2.584641 1 2873.392 4392.770 4.58e-08 -11.22267 -11.17293 -11.20317 2 2887.682 28.30079 4.40e-08 -11.26294 -11.18004* -11.23044 3 2890.767 6.085380 4.42e-08 -11.25936 -11.14330 -11.21386 4 2906.899 31.69522 4.21e-08 -11.30685 -11.15762 -11.24834* 5 2912.692 11.33701 4.18e-08* -11.31386* -11.13148 -11.24236 6 2916.351 7.130540 4.19e-08 -11.31253 -11.09698 -11.22802 7 2918.765 4.686029 4.21e-08 -11.30632 -11.05761 -11.20882 8 2924.528 11.14423* 4.19e-08 -11.31322 -11.03135 -11.20272 4.2. impulse response tests the impulse response function maps the effect of a one-time shock on one of the developments of the endogenous variables on current and future values. to examine the shock response on one variable to another; this analysis used cholesky decomposition. cholesky uses the inverse of the residual covariance matrix cholesky factor to orthogonalize the impulses. the impulse-response of indian rupee to indian rupee is shown in the first figure. a positive shock on indian rupee and naturally lead the indian rupee to go up by the sum of shock-hence and the slight declines but does not go below 0.08 up to the 10th week. indian rupee responses to the shocks applied to bse sensex shows a different path. a shock on the index does not affect the indian rupee. on the other hand, bse sensex respond negatively to the shocks on indian rupee. the stock price immediately felt the shock, and it started to decline in the second week. the relationship between exchange rates and stock markets for the fragile five countries 9 figure 1: impulse response of indian rupee and bse sensex 30 in the figure two, the responds of bovespa and brazilian rupee to the shocks applied to each other are shown. according to the results, brazilian real responds to the shocks on bovespa negatively but bovespa does not responds to the shocks on brazilian real, which means no effect it around 0. moreover, the negative respond of bovespa does not decrease significantly in the first 10 weeks. figure 2: impulse response of brazilian real and bovespa the respond of turkısh lira to the shocks on turkish lira shown in the first graph as a positive respond, but it slightly declines and does not go below 0.015 up to the 10th week. turkish lira’s respond to the shocks on bist100 shows a different path. a positive respond starts after the second week to the shocks on turkish lira and it slightly goes up. on the other hand, bist100 responds to turkish lira negatively. the stock price immediately fell in the first week, and it decreases until the 10th week. ayben koy 10 figure 3: impulse response of turkish lira and bist100 south african rand responds to the shocks on ftse_jse_40 positively. the positive respond in the first week increase thought out the 10th week. on the other hand, ftse_jse_40 responds to the shocks on south african rand negatively. stock index immediately fell, and it recover until the the 10th week. figure 4: impulse response of south african rand and ftse_jse top40 jakarta islamic index’s responds to the shocks on indonesian rupiah shows a small shock, above 0. the respond starts after the first week and continues until the 10th week. on the other hand, the indonesian rupiah responds to the shocks on jakarta islamic negatively. this negative respond recovers until the 10th week. the relationship between exchange rates and stock markets for the fragile five countries 11 figure 5: impulse response of indonesian rupiah and jakarta islamic (jkii) 4.3. granger causality test the causality test was applied to the series where the stationarity findings were obtained as a result of unit root tests. analysis of the results shows the foreign exchange and stock prices for south africa and turkey are in a bidirectional relationship. for india and brazil, there is a one-way causality finding from the exchange rate to the stock market indexes. finally, any relation could not found between the stock market and the exchange market of indonesia. h0: there is no causality between the variables. h1: there is a causal relationship between the variables table 8. granger causality test results stocks → exchange rate test statistic df prob brazil 0.50857 2 0.7755 india 2.746441 2 0.2864 indonesia 3.44909 2 0.4417 south africa 9.442639 2 0.0089* turkey 5.128902 2 0.0770*** exchange rate → stocks test statistic df prob brazil 5.028166 2 0.0809*** india 15.65251 2 0.0000* indonesia 2.305969 2 0.1127 south africa 5.10141 2 0.0780*** turkey 12.29221 2 0.0021* *0.01, **0.05, ***0.10 5. conclusion this research investigates 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(2004) price and volatility spillovers between stock prices and exchange rates: empirical evidence from the g-7 countries, international journal of business and economics, 3(2), pp139—153. journal of international trade, logistics and law, vol. 5, num. 2, 2019, 31-40 31 factors affecting export performance in the context of strategic management: proposal of a theoretical model ozan kalaycioğlu türk eximbank, turkey halit keski̇n yıldız technical university, turkey received: nov 19, 2019 accepted: dec 04, 2019 published: dec 30, 2019 abstract: exporting attracts attention as an international sales activity, which has been studied by the country’s economic managements, firm managers and academic researchers as it reduces the current deficit by providing foreign exchange inflow in economy and has p ositive effects on the profitability indicators at the firm level. though there are many studies on the factors that affect export performance of firms, in the literature, most of the studies are not theoretical. for firms, export activity is the most common strategic option to access to the international markets. considering the export activity from the strategic management perspective provides a high prediction in terms of understanding the factors that affect export performance. in this study, the factors that affect export activity of the firms are examined from the strategic management perspective within the scope of the theoretical approaches presented in the literature. in this regard, the effects of competitive strategies within the scope of the industrial organization theory, and of firm resources and capabilities within the scope of the resource-based view on export performance are discussed, and a theoretical model has been presented. keywords: export performance, resource based view, firm capabilities, competitive strategies 1. introduction globalization, which has accelerated within the last thirty years in the world trade, has made it compulsive for firms to search foreign market opportunities continuously in order to have and maintain a competitive advantage. in this regard, liberal trade policies have been initiated to be implemented in the closed economies of south asia, eastern europe, and latin america, and the firms in the newly industrialized countries such as south korea, taiwan, and singapore have entered international markets and achieved success. these achievements have caused the developing countries, which follow import substitution policies all around the world, to abandon such policies and adopt exportoriented growth policies (aulakh et al., 2000). in parallel with these developments in the world economies, local firms also in turkey have been encouraged to carry out their business activities in international markets, and economic policies have been followed to ensure that such firms can compete in foreign markets since the end of 1980s (celebi, 1990). in this regard, activities carried out by both government and firm managers and academic researchers to develop export and determine the factors that affect the success of export have been accelerated within the last thirty years (sousa, 2004). export-oriented firms pay attention to the performance shown in export activities as such firms allocate a great part of their resources and energy to this field. global competition, which has increased with the continuous increase in global trade has made the determination of the factors affecting export performance, more important, and various studies have been conducted for this purpose. though there are various studies conducted to determine the factors affecting export performance in the literature, it has been seen that the relevant literature is in a fragmented structure which prevents scientific progress (katsikeas et al., 2000). the lack of a comprehensive theoretical basis for explanation of the factors that affect export performance makes the collection of the results acquired from different ozan kalaycioğlu & halit keski̇n 32 studies in harmony difficult and prevents the progress of scientific knowledge regarding the concept (aaby and slater, 1989). many descriptive models regarding the factors that affect export performance have been conducted by scientists (for instance, aaby and slater, 1989; zou and stan, 1998; sousa et al., 2008; chen et al., 2016). in the light of these models, the factors that affect export performance have been classified theoretically and especially practically, and this classification has been made in accordance with the factors that can be controlled and cannot be controlled by the firm or the factors inside and outside the firm. in the study conducted by gemunden (1991), it has been found that more than seven hundred explanatory variables on the determinants of export performance have been used until 1991. for this reason, the need for a unique model with a strong theoretical framework, which can be tested also with different country data regarding the factors affecting export performance, has been mentioned by many relevant researchers (cavusgil and zou, 1994; zou and stan, 1998). in this regard, a theoretical framework in the context of strategic management for determination of the factors that affect export performance has been presented in this article. within this scope, firstly, the development of export performance has been explained chronologically. then, the factors that affect export performance have been discussed strategically, and a theoretical model proposal has been presented. in the conclusion, various suggestions on the implementation of the model have been made. 2. literature review the history of researches on export performance dates back to the studies conducted by anderson in 1960 and tookey in 1964 (leonidou and katsikeas, 2010). bilkey (1978), who examines the studies conducted until 1978, has emphasized that the most important obstacles to exporting are insufficient finances, foreign country restrictions, difficulty in reaching the information on export sales opportunities, restrictions on product distribution in foreign markets, and the lack of foreign market connections. in the same study, it has been found that exporter firms are managed more professionally than non-exporter firms, the export tendencies of small firms are low, and that there is a positive correlation between export and firm size (aaby and slater, 1989). in the studies conducted until the 1980s, the reasons of firms’ tendency to export, the factors that affect export activities, and the increase level in firms’ commitment to export activities have been examined. the most important contribution of the studies conducted in these issues is that the factors specific to the firm and the decision-making characteristics which support export performance have been researched. in this period, the internationalization process model has been adapted to the field of export, and dynamic models on export behavior have been developed (bilkey and tesar, 1977; tookey, 1964). in the 1980s, a serious increase has been seen in the number of empirical studies conducted on export behavior. most of the studies have examined the export behavior of small and medium sized firms. the effects of managers’ attitudes, operational resources and product specifications on export performance have been investigated (beamish and munro, 1987; denis and depelteau, 1985). in addition, the relationship between export strategies and export performance has begun to be considered in that period. the 1990s was a period in which methodologically significant developments have been provided for export studies, and comparative and large-sampled researches have been conducted. the fact that controllable factors have been investigated in most of the studies conducted in that period reveals the conviction of researchers that export performance is under the control of firm management. for instance, the effect of internal-controllable factors has been investigated more than the effect of internal-uncontrollable factors. on the other hand, as the number of findings reported on the effect of ‘’external-uncontrollable factors’’ is the lowest, it has been found that the environmental effect is the least-researched variable group in the studies conducted in that period (zou and stan, 1998). general characteristics of the studies conducted in the relevant field since the end of the 1990s can be explained, as follows: more studies have been conducted outside the usa, and the majority of the studies focus on manufacturing and small and medium-sized firms. though there is a continuous increase in the sample size, the export venture has been more preferred than the firm level as the unit of analysis. advanced statistical methods such as least squares method and structural equation modeling which reveal more detailed correlations have been used in data analysis. also mediating and moderating effects of the variables have been examined. again in that period, the number of studies, that investigate the effects of external environment conditions and domestic market characteristics, has increased (sousa et al., 2008). factors affecting export performance in the context of strategic management: proposal of a theoretical model 33 since the beginning of the 2000s, important developments have been recorded in the theoretical framework of the studies conducted in the field of export performance, in the literature. it has been seen that the research models ha ve been developed based on one or several theories such as the resource-based view, institution-based view, contingency approach, and organizational learning theory. on the other hand, most of the studies have been conducted in developed countries as in the past (chen et al., 2016) 3. theoretical framework when the recent studies conducted on the factors that affect export performance are examined, disarrangement in the literature draws the attention. the effects of various independent variables are still being examined through many different theoretical approaches and statistical research methods in a way that prevents integrity in the literature. it is necessary to synthesize different theories and develop field-specific theoretical approaches, which express the relevant concepts more clearly, in order to decrease such nonintegrated structure and provide focusing. in the literature, export activity has been conceptualized as a response given by the firm management to the mutual interaction of internal and external factors, and it has been emphasized that the performance analysis of export activity can be provided through the general theoretical framework presented by ‘’the strategic management’’ (cavusgil and zou, 1994). different approaches have been revealed in the strategy literature in which the reasons of the differences in firms’ performance are questioned. however, it has been seen that the starting point of the approaches are actually divided into two. the first of the approaches emphasizes that the external factors should be taken into consideration in strategic decisions, and the second of the approaches emphasizes that the internal factors should be taken into consideration. according to the first view, strategic decisions should be made through the analysis of the effects of sectoral forces and internal design of the firm should be shaped in accordance with this analysis. on the other hand, the second view adopts a strategic approach which determines the resource of the competitive advantage as the firm resources and capabilities (barca, 2009). the abovementioned first strategic view, which tries to explain the firms’ performance differences in the strategy literature, is the ‘’industrial organization’’ (io) theory which associates the resource of the competitive advantage to the industry structure within the framework of the structure-conduct-performance (scp) paradigm. according to the io approach, the competitive advantage on the basis of the firm can be achieved through the strategies followed in accordance with the characteristics of the competitive environment in the industry. in this regard, the factors affecting the competition in the external environment should be analyzed and competitive strategies should be applied to gain advantageous position in the industry (karacaoglu, 2006). in accordance with the scp paradigm, which is the basis of the io theory, performance to be shown by a firm has been determined by the characteristics of the industrial environment the firm takes place in. according to this view, the environment characteristics (structure) affect the firm behavior (conduct). in addition, the strategy applied is effective in the performance. in this regard, the firm performance depends on an effective implementation of the competitive strategies planned to provide a position advantage in the target market. though compliance of the strategies with the environment determines the success of the strategies, the scp paradigm assumes that the industrial structure will not change within this triple mechanism in the long term (morgan et al., 2004; porter, 1980; schendel, 1994). in a limited number of studies conducted theoretically on exporting, the determinants of export success have been investigated through the scp paradigm (aaby and slater, 1989; axinn, 1994; cavusgil and zou, 1994). the second strategic approach is ‘’the resource-based view’’ which associates the resource of competitive advantage to the firm resources and capabilities. the resource-based view (rbv), which comes into prominence through various empirical studies in the strategic management literature especially after 1990, considers the internal (weakness/superiority) analysis, which has not been completed by the io theory, as the focus, and provides different explanations regarding the resource of firms’ competitive advantage. the rbv argues that positional and performance advantage can be achieved as a consequence of the superiority of the firm resources and capabilities. these resources and capabilities reflect the result of past investments made in order to enhance competitive position of the firm. the sustainability of the competitive advantage achieved requires that the firm resources and capabilities cannot be imitated. in this regard, the firm should continuously consider the imitativeness of its resources and capabilities (day and wensley, 1988). ozan kalaycioğlu & halit keski̇n 34 according to this new paradigm developed in the strategic management literature, it is important to choose where to compete. however, there is not any universal law for it, and no market is inherently profitable than the other. on the other hand, firm resources and capabilities are the basis of the competitive position. having strong resources does not always provide a competitive advantage as firms needs the right capabilities to benefit from the strong resources (collis and montgomery, 2008; baden and fuller, 1995). the improvement of the capabilities in a firm is not a simple combination of various resources within the framework of any firm function. capabilities are related to the complicated coordination between the employees and other resources. the perfectness of this coordination requires learning through repetitions. similar to individual capabilities acquired and developed through repetitions in time, capabilities practiced by the organizations can also be developed through experiences and repetitions in time. however, in industries where technological change is rapid, new firms may acquire a competitive advantage against established firms through their new routines and fast learning potential (grant, 1991). in this context, the capability discussions have focused on volatile markets, environmental uncertainty and change towards the end of the 1990s. it has been observed that superior market positions of the firms have rapidly decreased, and it has caused to question the specific set of capabilities determined to provide a competition advantage. in this respect, the emphasis on competitive advantage has shifted to the rapid development of new organizational capabilities as a critical prerequisite for providing a sustainable competitive advantage (schreyogg and kliesch-eberl, 2007). the concept of ‘’dynamic capabilities’’ used to define the dynamization of organizational capabilities has drawn attention in the relevant discussion. the characteristic of dynamic devoted to the concept means the continuous renewal of organizational capabilities in order to meet the demands of rapidly changing environment. in this regard, the term of capability has been defined through the functions of integration, adaptation and restructure of internal and external corporate capabilities and resources in order to adapt to changeable environmental conditions (teece et al., 1997). the dynamic capabilities approach suggests that the firm’s current competitive advantage has been acquired through its previous experiences and processes, and that the capabilities based on such processes and structures under high competition conditions have limits in the short run (teece and pisano, 1994). in this regard, the rbv has been revised through conceptualization of the market and business capabilities as dynamic and flexible with the dynamic capabilities approach (helfat and peteraf, 2003). dynamic capabilities ensure that the firm can acquire new resources and capabilities under changeable environmental conditions, and that these capabilities can be developed and maintained. strategically, dynamic capabilities notice the opportunities and threats offered by the firm’s environment, and support that the firm’s tangible and intangible resources can be integrated to benefit from these opportunities and that the competition can be sustainable through restructuring of the assets when required (ayar, 2016). 3.1 internal strategic factors that affect export performance within the framework of the rbv, firms are defined as the stock of resources. in this regard, firms have been evaluated within the scope of their tangible and intangible resources, and it has been emphasized that the resources are the determinant of superiority or weakness. within the scope of the rbv, firm resources refer to all inputs obtained as a result of the strategies applied (hall, 1992). in the rbv literature, firm resources are defined as “anything which could be thought of as a strength or weakness of a given firm” (wernerfelt, 1984), “physical and non-physical assets the firm owns” (aaker, 1989), “inputs involved in the production process” (grant, 1991), “stocks of available factors that are owned or controlled by the firm” (amit and schoemaker, 1993), and “intangible and tangible assets used by the firm to develop and apply a strategy” (barney, 2001). resources are private company assets such as capital, equipment, employees’ capabilities, patents, and trademarks. capabilities that express what the firm can do are the result of resources used together to achieve productive activities (sadler, 2003). the type, amount and quality of the resources owned by the firm have a restrictive effect on the scope and the standard of the activities to be performed by the firm. for this reason, firm resources significantly affect the possible activities of the firm (grant, 1991). firm resources are a great variety of tangible and intangible assets used and controlled by the firm. on the other hand, firm capabilities refer to the firm’s skills to use these assets in accordance with its purposes. the structure of the firm’s capabilities, which is acquired through evaluation of the resources with organizational processes in the organization, makes these capabilities specific to the firm. in this regard, firm’s capabilities increase the productivity factors affecting export performance in the context of strategic management: proposal of a theoretical model 35 of the firm’s resources, and provides a strategic flexibility and protection against its competitors (keskin and kalaycıoğlu; 2017). firm capabilities defined as socially complex routines determine the efficiency of the firm to transform inputs into outputs. within this framework, there are two characteristics of the firm capabilities. the first is that the firm capabilities are embedded in firm routines, and that the firm routines are a product of the organization as a whole. accordingly, the firm capabilities are not only manifestations of observable corporate structures and processes as they reside in the firm’s corporate culture and network of the employees’ relationship. in addition, firm capabilities cannot be transferred to any individual, and they cannot be defined by any individual because they are supraindividual and not reducible to individual memory. another important issue is that the capabilities can transform physical inputs into outputs. thanks to this characteristic, capabilities complete the technological determinants of the firm’s production efficiency. accordingly, superior capabilities as well as superior technologies ensure that the activities required for product manufacture and reaching the products to the customers can be performed more effectively (collis, 1994). as the firm’s capabilities are embedded in its complex organizational processes, it is difficult for competitors to determine these capabilities. therefore, the relevant capabilities which cannot be imitated easily provide the firms with an advantage against their competitors (krasnikov and jayachandran, 2008). on the other hand, firm’s current capabilities ensure that the firm can acquire new capabilities, and that the competitive advantage can be maintained (danneels, 2002). in this regard, it can be said that firm’s capabilities are the main determinants of competitive advantage and performance superiority (day, 1994). for instance, it has been found that the exporter firms with high performance have superior product development capabilities than the exporter firms with low performance, as a result of the study conducted on 312 exporter firms in the united kingdom (piercy et al., 1998). in the study conducted on 230 firms in the usa, it has been determined that the marketing capability which consists of pricing, product and distribution management, marketing communications, selling, marketing planning and marketing implementation, has a positive effect on the firm’s performance (morgan et al., 2009). as a result of the study conducted on 287 american manufacturer-exporter firms, it has been found that the firms with high export performance have more developed informational capabilities than the firms with low performance (morgan et al., 2004). in the study conducted by lingyee and ogunmokun (2001) on 111 exporters in china, it has been determined that the relational capabilities provide the exporter firms with cost and differentiation advantages against their competitors. in the study conducted by kaleka (2002) on 202 industrial manufacturer firms with export experience in england, it has been determined that the firms’ capabilities to establish a relationship with their customers provide cost and product/service differentiation advantages against their competitors, and that their capabilities to establish a relationship with their suppliers provide a cost advantage. h 1: firm resources have a positive relationship with firm capabilities. h 2: firm capabilities have a positive relationship with export performance. according to the scp paradigm, one of the main determinants of the firm performance is the firm’s capability to apply its planned competitive strategy effectively. porter suggests that cost leadership and differentiation strategies should be applied in order to provide a position advantage in industry. accordingly, a firm, that applies these strategies skillfully, can take an important advantage against its competitors, and generate profit above the industry average (porter, 1980, 1985). the main aim of the cost leadership strategy is to ensure the firm to become the lowest costly firm in the market. reaching the scale economies, having the leading technologies which provide a productivity increase in the relevant field, and accessing the raw materials easily can be regarded as various ways to achieve this purpose. in terms of export, cost leadership strategy can be applied through competitive pricing, product standardization and competitive price/quality combinations (kumlu, 2014). with the position advantage based on a low cost, the firm can acquire a return above the sector average even after the competitors’ competitive moves which reduce the profitability of the sector (ulgen and mirze, 2013). in this regard, it has been thought that the exporter firms can achieve a cost advantage against their competitors by improving production and operational efficiency, maintaining experienced ozan kalaycioğlu & halit keski̇n 36 and trained employees, and adopting innovative manufacturing methods and technologies within the framework of cost leadership strategy (morgan et al., 2004). differentiation strategy requires being a company that provides products or services that are uniquely identified by customers. this aim is usually achieved through superior brand image, technology, customer services or innovative products. firms that apply differentiation strategy aim to prevent new ventures in the market through customer loyalty. through the brand loyalty provided, the elasticity of demand against price will reduce, and thus, the profit margins will increase (porter, 1985). it can be said that the firms, that provide higher quality and innovative products than their competitors and export highly differentiated products, will acquire a product advantage in the target market within the scope of the product differentiation strategy (vorhies and harker, 2000). strategies based on product differentiation and providing high quality products, especially for the markets with dynamic environmental characteristics such as export markets, have been evaluated as an important competitive weapon in order to be permanent in the market (leitner and guldenberd, 2010). as suggested by porter, competitive strategies based on low cost or differentiation of the products according to the markets/countries can provide an advantage against the competitors and affect the export success (louter, 1991). in addition to the direct effects of competitive strategies on export performance, the indirect effect of these strategies can also be taken into consideration. export venture competitive strategies are planned patterns of the resources and capabilities owned by the firm. compatibility of the firm resources and capabilities with the competitive strategy is important for the applicability of the strategy. for instance, financial resource and production capabilities are required for formation of the production line which will provide high productivity needed for the cost leadership strategy. for the effectiveness of the differentiation strategy, firm’s strategic human resources and r&d capabilities are important. in this regard, it can be said that competitive strategies can affect export performance through implementation of these strategies successfully within the scope of the compatibility of the firm resources and capabilities with the market requirements (morgan et al., 2004). within this framework, the following hypotheses have been developed in terms of the relationship between the export performance and the internal determinants of export performance: h3: competitive strategies have a positive relationship with export performance. h4: competitive strategies show a mediating variable effect in the relationship between firm capabilities and export performance. 3.2 external strategic factors that affect export performance according to the fundamental premise of the scp paradigm, one of the main determinants of the firm performance is competitive intensity of industry in which the firm carries out its activities. in terms of export venture, competitive intensity reflects the level of willingness and capabilities of the competitors in the target export market to response to the firm’s export venture activities (morgan et al., 2004). competition among existing competitors in the market includes competitive tactics for positioning such as price competition, advertising battles, product presentation, and increased customer services or warranties. firms’ competitive moves, especially price competition, may reveal mutual retaliation and thus, total income potential of the market may be damaged if such competitive moves increase (porter, 1980). it can be said that the perception of low competition intensity strengthens the firm’s tendency of rigidity (ferrier, 2001). in the low competition intensity, firms can predict the results of their operational activities. in addition, firms do not need for development of their marketing capabilities because of the predictability of the market (martin and javalgi, 2016). the increase in the expectation of making profit easily due to the lack of competition threat reduces organizational activity and differentiation efforts. in the markets with high competition, it can be foreseen that the relationship between the firms’ targeted strategies and competitive advantages may strengthen due to the competitors’ high penetration and promotion policies. because the firms know that a weakness in their differentiation and productivity efforts will have a negative effect on their performance in the markets with intense competition and increase their efforts in these issues (kaleka and morgan, 2019). as a result, firms need more capabilities in export markets with high competition and have to show more efforts in order that their strategies can reach the aimed result. factors affecting export performance in the context of strategic management: proposal of a theoretical model 37 on the other hand, some market opportunities offered or obstructed by the domestic market the firms carry out their activities are an important factor in firms’ tendency towards export and continuation of their export activities. in the studies conducted within this scope, it has been determined that the competition in the domestic market is another external factor which affects export performance (lages, 2000). for cavusgil (1980), the reason of a firm’s efforts for internationalization is the high competition in the domestic market. eshghi (1992) emphasizes that a saturated domestic market forces the firms to export (zahra et al., 1997), and a positive relationship between the decrease in the attractiveness of the domestic market and the export performance has been determined in the study conducted by madsen (1989). in this regard, the following hypothesis has been developed in terms of the export performance regulatory effects of the external determinants of export performance: h5: competitive intensity in export market and domestic market moderates the effects of firm’s capabilities and strategies on export performance. in figure 1, internal and external factors that affect export performance have been shown within a theoretical framework in accordance with the relevant literature. figure 1: strategic factors that affect export performance 4. conclusion when the recent studies conducted in the field of export performance are examined, it has been found that the relevant concept offers various research potentials. however, the lack of specific theoretical framework has been observed in the studies conducted. in this respect, it can be said that the studies regarding the determination of the factors that affect export performance are still in the development process. in the theoretical model presented within this study, a systematic approach has been shown for the factors that affect export performance within the framework of the theoretical approaches presented by the io theory and the resource-based view. in this regard, it has been thought that the relevant model will be considered as a guide for qualitative and quantitative researches to be made at different levels. in addition, a framework has been formed for the firm managers in order that they can reveal their resources, capabilities and strategies that affect the firms’ export performance. in various studies conducted in the literature, the effects of the firm resources and capabilities and the competitive strategies on export performance have been investigated. the theoretical model presented in this study has not been limited with any firm resource or capability in order that the researchers can examine various resources and capabilities. if the firm resources and capabilities are valuable, specific and not imitated and substituted, these resources and capabilities can support the competitive strategies and increase the export performance (barney, 1991). while the capabilities of the firms whose impacts were investigated in the first period of research in the literature ozan kalaycioğlu & halit keski̇n 38 were production, finance, marketing etc. in accordance with the basic business functions, it is not possible to provide competitive advantage based on these capabilities in today’s world with the disappearance of borders and technological developments. for this reason, more complicated capabilities such as information, network development and innovation are also required. in applied researches to be made within this scope, the effects of resources and capabilities which provide competitive advantage on export performance should be determined. in today’s world where the intensity of competition increases day by day, the common implementation of cost leadership and differentiation strategies defined as rare by porter has become necessary in order to achieve 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(1997), “the effect of the environment on export performance among telecommunications new ventures”, entrepreneurship theory and practice, 22(1), 25-46. zou s. and stan s., (1998), “the determinants of export performance: a review of the empirical literature between 1987 and 1997”, international marketing review, 15(5), 333-356. journal of international trade, logistics and law, vol. 6, num. 1, 2020, 106-115 106 research trends of service export: a bibliometric study 1 talha karadayi istanbul commerce university, turkey doğan mert akdemi̇r istanbul commerce university, turkey received: may 10, 2020 accepted: may 26, 2020 published: june 01, 2020 abstract: export is the first stage of internationalization for companies to enter new markets with the aim of marketing their products and services, promoting growth, and reducing risk. service export, on the other hand, can be defined as the service provided by a resident company to individuals or companies residing abroad. service exports have become increasingly important thanks to developments that will facilitate the physical distances to be exceeded, such as increased transportation facilities, the widespread of the internet, and the fact that portable smart devices become more important in our daily life. within the scope of this study, using the bibliometric analysis method, academic studies published on the web of science (wos) database for 45 years, including 1975 and 2019 years, were analyzed and the thematic development of the service export topic was examined by scientific mapping. with this study, it is aimed to reveal the interest of service exports, which increase the popularity of businesses and promise a high value-added income, and to determine which themes and dynamics are explored with service export. the study also aims to provide awareness and perspective to researchers who want to carry out studies in this field. in the research conducted with the title constraint on web of science, 312 studies were determined, 92 of these studies were excluded because they were irrelevant to the subject, and examinations were made for the remaining 220 studies. accordingly, the number of publications, citations, themes, research areas, the distribution of publications by years, the h-index, and the document type, institution, country data on this issue were examined. the paper shows that research interest in the service export theme has been growing in recent years, and mainly some topics such as developing countries, productivity, innovation, and human capital have emerged as the thematic areas in the field of service export. keywords: service export, international trade, bibliometric analysis, vosviewer, scientific mapping abbreviations: web of science: wos, organization for economic cooperation and development: oecd, foreign direct investments: fdi, gross domestic product: gdp, jel code: f19 1. introduction when the changes and developments experienced in the world and business ecosystem in the last 100 years are looked at, it is realized that it has been progressing at a dizzying speed. in particular, after world war ii, the passion of the companies to open up to foreign markets, to address different geographies, cultures, and needs increased (altınbaşak et al., 2008). in this context, countries have become competitive with each other in the context of the internationalization strategy. thanks to the cut-throat competition between countries, the transfer of not only products but also services to other countries has gained importance in the light of technological developments. 1 paper online presented at the 5th intraders international conference on international trade, 13-14 april 2020 research trends of service export: a bibliometric study 107 according to the definition of organization for economic cooperation and development (oecd), service trade in the simplest way; it refers to the value of services exchanged between those who are resident in an economy and those who are not. service trade; guides the exchange of ideas, know-how and technology (oecd, 2020). services are an essential part of the global economy and produce more than 66% of global gdp. at the same time, the service sector accounts for over 75% of foreign direct investment in developed economies. it employs the most workers worldwide and continues to create new jobs worldwide (oecd, 2020). the service sector has come to the forefront by leaving behind the agriculture and industry sectors in developed economies since the 1950s. this sector started to show itself not only in developed economies but also in developing economies in the following years. therefore, the importance given to the services sector in developed and developing countries has increased. for this reason, it can be stated that both developed and developing countries have shifted many of their investments to the service sector to increase their shares in service trade. because, the services sector has a superiority that increases the welfare and development level of all the countries of the world (oecd services trade, restrictiveness index: policy trends up to 2020, 2020: 1). in a globalizing world economy, companies or firms tend to export services rather than products. to increase the export of services in a country, the service sector must be developed in that country (i̇şleyen et al., 2018: 953). when we look at the countries that export the most services in the world, we see that these countries are also the most developed in the service sector. the service export figures of these countries in 2018 are in table 1 as follows: table 1: top services exporters with export figures of 2018. top service exporters value (usd billions) in 2018 united states of america 823 united kingdom 397 germany 343 france 294 people’s republic of china 234 source: oecd. (january 2020). oecd services trade, restrictiveness index: policy trends up to 2020 these countries account for 35% of the global trade in services (oecd services trade, restrictiveness index: policy trends up to 2020, 2020: 1). according to world bank data, while the volume of service exports in the world was $ 208 billion in 1976, 42 years later, this figure reached $ 5 trillion 92 billion in 2018. likewise, while the volume of service exports in turkey was $ 549 million in 1975, by 2018, it reached $ 49 billion (world bank, 2020). the change in the volume of service exports worldwide can be examined more easily from the figure below. figure 1: worldwide chart of service export volume in billion $ source: (https://data.worldbank.org/indicator/bx.gsr.nfsv.cd?end=2018&start=1960&type=shaded&view=chart) talha karadayi & doğan mert akdemi̇r 108 when we look at the 2019 employment rate of turkey, we see that 5 million 97 thousand people in agriculture, 5 million 561 thousand people in the industry, 1 million 550 thousand people construction and 15 million 872 thousand people were employed in the service sector. when the employment figures are taken into consideration, it is easily realized that only the job opportunities provided by the service sector are more than the sum of other sectors. compared to 2018, the number of employed people decreased by 200 thousand in agriculture, 113 thousand in industry, 442 thousand in construction but increased 98 thousand in the services sector (tui̇k, 2020). in their study, i̇şleyen et al. (2018: 953) investigated the effects of service exports and tourism expenditures on economic growth in turkey between the years 1996-2017. according to the results, they showed that there is a positive relationship between "service exports and tourism expenditures" and "economic growth". it was observed that the increases in these two sectors had a positive effect on economic growth. ahmad et al. (2017: 113) tried to empirically examine the determinants of service exports based on the period 19852012 in the developing asian countries (china, hong kong, south korea, india, iran, indonesia, malaysia, philippines, singapore, thailand, kuwait, saudi arabia, and turkey) they selected in their research. as a result of the study, it has been determined that exchange rates, foreign revenues, foreign direct investments (fdi), the added value of services and existing communication facilities may affect service exports in these countries. this result shows that developing countries can increase their service exports as a result of focusing on the factors mentioned above and developing their potential. thus they have the opportunity to compete globally. when the development of the service sector and related service exports in the last 50 years are analyzed, it can be seen that the service sector has developed and gained importance more than ever in the last 20 years. in addition to this, it is understood that the service sector -especially service exportsis an indispensable trade area for the economic development and global competitiveness of a country. therefore, “countries” and “businesses in the countries” are expected to export services, thereby contributing to economic development and competitiveness. in this study, we present a bibliometric analysis by examining the scientific publications on service exports in the academic community from different perspectives in the last 45 years. with this study, we aim to provide an overview of the last 45 years of the adventure of scientific publications on service exports. we hope that this study will shed light on their literature review studies in this field. 2. bibliometric analysis bibliometrics is defined as a quantitative analysis of the publications produced by institutions or individuals in a particular area, in a specific time, and in a particular theme (ulakbim, 2020; pritchard, 1969). bibliometrics stands out as an increasingly important tool that measures scientific quality and productivity and evaluates scientific outputs produced by researchers (moed et al., 1995). thanks to the bibliometric studies, scientific studies can be assessed, and determinations can be made regarding the current situation in the study area. in light of the findings, the phases of the subject that were investigated can be determined, and future predictions can be made (şakar & cerit, 2013). there are two primary purposes of bibliometric studies (noyos et al., 1999). one of them is performance analysis, which refers to the analysis of citations, and distributions of literature based on journals, institutions, research areas, countries, and authors. science mapping, the other one, aims to reveal direct results by using varied visualization techniques (tang et al., 2018). in this study, vosviewer software, which is one of the functional software, and allows us to interpret data easily in bibliometric studies (van eck & waltman, 2009) is used as a graphical representation as a part of bibliometric mapping. the "service export" title has been scanned in the web of science (wos) database, one of the most widely accepted multidisciplinary databases in the academic community for over 115 years globally (michigan state university, 2020). the concept of service export was searched in four databases within the body of wos (web of science core collection, kci-korean journal database, russian science citation index, scielo citation index) with the limitation of title, and years (1975-2019). as a result of the search, a total of 312 publications were found. ninety-two publications, which were found to be irrelevant from the subject, were excluded from the study, and this analysis was made on 220 publications. in the analyses made by using the statistics provided by web of science, the number of publications related to this topic, the distribution of by years, by countries and by research categories, citation analysis were examined and research trends of service export: a bibliometric study 109 visualized with various graphics. while making these analyses, the web of science database excluded some studies from the analysis on the grounds that it does not contain the necessary information to be analyzed. in the study, such situations were partly encountered, and these limitations were mentioned in the relevant sections of the study. in addition, keyword analysis was done through vosviewer, one of the data visualization software used in the field of scientific mapping to facilitate understanding of data in the study. the data taken from the wos database was uploaded to the vosviewer software in the appropriate format for keyword analysis by making necessary adjustments. necessary adjustments here; these are the changes made by combining synonym data in the data taken from the wos database and reducing the risk of the deviation of the analysis in order to be uploaded into the vosviewer software and analyze keyword from there. 2.1. web of science-assisted analyses the web of science database also provides its statistics for scientific publications within its body. these statistics provide researchers with some numerical and verbal data based on the subject being searched in order to provide more qualified results in light of the reported data. making the analyses included in the study, the data which is showing the total number of publications of wos and the distribution of these publications according to years, countries, organizations, categories, and types of publications were used. a total of 220 publications in the web of science (wos) database, which were produced between 1975-2019 and included service export in their title, were identified. wos could not generate a citation report for three studies that did not have sufficient data for the analysis. for this reason, the three publications mentioned were left out of the analysis, and the remaining 217 publications were examined. this situation can be observed in figure 2 in 2011, 2016, and 2017 years respectively. based on the annual average of 220 publications produced over the course of 45 years and evaluated within the scope of analysis, it is possible to say that 4.88 publications enter the wos database annually. when the data of the 220 publications included in the study are examined, it is seen that the level of publication production of the researchers has increased significantly after 2005. figure 2: publication per year about service export resource:(http://ezproxy.ticaret.edu.tr:2110/citationreport.do?product=ua&search_mode=citationrep ort&sid=d68p2ygelwvzb8cuwkn&page=1&cr_pqid=1&viewtype=summary&from_ml=true) from 1975 to 2020 (2020 is not included), it is seen that the total number of citations is 755, with an average of 16.77 citations per year, and each publication has an average of 3.53 citations, and the h-index is 15. however, as can be seen in figure 2, only three scientific outputs were published about “service export” from 1975 to 1984, and as shown in figure 3, no citations were available in the publications produced until 1987. taking this into account, it was emphasized that the average of the citations between 1987-2019 was 22.87. 2019 is the year in talha karadayi & doğan mert akdemi̇r 110 which the most publications were produced after 2015 with 19 publications, and the highest number of citations were made in the 45-year period with 83 citations. figure 3: sum of times cited per year about "service export resource:(http://ezproxy.ticaret.edu.tr:2110/citationreport.do?action=home&product=ua&search_mod e=citationreport&cr_pqid=24&qid=24&iscrhidden=&sid=e5qhlodrhmcpwyz34at) when analyzed in figure 2 and figure 3, it can be seen that the interest in service exports has made fluctuating progress until 2005 in terms of the number of publications and 2007 in terms of the number of citations. in the following years, an increasing trend has been observed in the context of service export. this indicates that the interest in the issue of service exports in academic publications continues to increase and will continue to increase as long as there are no radical developments. the published records are in various document types, and it is seen that 71% of the publications in the database are articles, while the others are conference papers, books, editorials, reviews, and letter types. 61% of these publications were in business economics, 10% in international relations, 9% in public administration and the rest in other areas. besides, the number of publications on service exports has been examined from the point of institutions. it has been concluded that a total of 220 publications have been presented in 238 institutes. the reason for this is that some publications have been published in more than one institute. considering the number of publications of institutions within the context of service exports, it is remarkable that the leading institution is the world bank. with this statistic, the world bank has left many universities behind. the top ten most-cited articles that include the "service export" term in their titles have been shown in table 2 as follows: table 2: top 10 most cited publications in web of science no title source times cited 1 export services in postindustrial society papers of the regional science association 91 2 export of health services from developing countries: the case of tunisia social science & medicine 63 3 service exports and regional growth in the postindustrial era journal of regional science 53 4 gateway cities the metropolitan sources of united-states producer service exports urban studies 47 5 exporting and productivity in business services: evidence from the united states international business review 40 6 the influence of human capital investment on the exports of services and goods: an analysis of the top 25 services outsourcing countries management international review 34 research trends of service export: a bibliometric study 111 7 the determinants of export behaviour in uk service firms service industries journal 28 8 impact of medical travel on imports and exports of medical services health policy 27 9 executive insights: exporting services to southeast asia: lessons from australian knowledge-based service exporters journal of international marketing 27 10 self-selection into export markets by business services firms evidence from france, germany and the united kingdom structural change and economic dynamics 23 finally, it will be useful to examine the distribution of academic studies by country. looking at the countries of origin of the studies, the usa ranks first with 35 publications, while china ranks second with 17 publications. at the beginning of the study, it was emphasized that the usa was in first place with 823 billion dollars in service exports according to 2018 data, and britain was in second place with 397 billion dollars. accordingly, while the usa's sectoral interest and academic interest are in parallel, the same parallelism for england is not in question within the database examined. figure 4: “service export” publication by countries/regions resource:(http://ezproxy.ticaret.edu.tr:2241/ra/analyze.do?product=ua&sid=d2cen4y7kfh7vkj21kl &field=cu_countryterritory_countryterritory_en&yearsort=false) when the data of the top 5 countries in figure 4 and the top 5 service exporter countries published by oecd in 2018 are compared; it is seen that china, which ranks 5th in terms of service exports, ranks 2nd in academic publications in this field, and india, which is not in the top five in service exports ranking, is in the 3rd place in academic publications. from this point of view, it can be anticipated that there will be an improvement in the service export figures of china and india in the coming years and will be higher in related export reports. 2.2. vosviewer-assisted analyses the keywords used by the authors in their studies are of great importance in order to accurately identify the subject investigated in the field of service exports and to determine the prominent research themes effectively (xu & yu, 2019). in order to identify the topics mentioned, the co-occurrence analysis feature of vosviewer software, which focuses on keywords, was used. as part of the study, 50 data selected from the kci-korean journal database were not included in the keyword analysis since the keyword data could not be drawn from the system. in accordance with the data obtained from the remaining 170 studies, the steps to perform the analysis are as follows: 1. exporting the data of the related publications in text format from the web of science database, talha karadayi & doğan mert akdemi̇r 112 2. uploading the data into vosviewer software and converting it into keyword data, then exporting again, 3. editing and combining some terms that the software perceives as different words in the exported data, (these result from letter errors (such as innovation, ınnovation) and the use of words in a different order (such as service export, export of service)) 4. converting the edited data back into text format and adding it to the vosviewer software using thesaurus option, 5. increasing the threshold level gradually in order to make the words that frequently used in "service export" topic more transparent and visible, 6. excluding the jel codes (d24, l10, f10, o57, p22) in the keyword list, as they cannot be evaluated as keywords and can make it difficult to access essential data, 7. implementation of scientific mapping as a result of these arrangements, the software has more clearly presented which other themes that the service export has been related to. when the necessary data is uploaded into the software, if the irrelevant or low-frequency keywords are included in the mapping as a result of not increasing the threshold level, themes would become challenging to understand. in such a case, the visualization of keywords would be as in figure 5: figure 5: service export: the keyword co-occurrence network of publications (threshold level 1) therefore, the threshold level was increased step by step to understand the themes related to service exports more clearly. so, scientific mapping was performed with the threshold level 5 option, which provides the most precise information. this mapping was created in two different visualization modes as "network" and "density" (figure 6, and figure 7). there are a total of 399 keywords, 15 words used in at least five publications. in figure 6, the circle size shows the frequency of the keywords, the circle colors indicate which keywords are used together, and the lines between the circles show that the words are related to each other. accordingly, it is seen that the most frequently used words or phrases are export, services trade, services exports. when the most frequently used keywords are clustered, it is seen that 5 cluster structures of different colors are formed. words in the same color are used more frequently with each other. considering that the title searched within the framework of bibliometric analysis is "service export," such a result in visualization can be met with normality. on the other hand, other words in the mapping related to these main topics also provide substantial clues to the researchers in terms of providing a detailed and holistic perspective on the studies conducted so far. the concepts of innovation, human capital, knowledge-intensive services, gravity model, international trade, developing countries, productivity, foreign direct investment, export performance, educational research trends of service export: a bibliometric study 113 services export are determined as the thematic titles. it is seen that india, one of the asian countries, is among the themes as well. figure 6: service export: the keyword co-occurrence network of publications (threshold level 5) in terms of completeness, the density map was also included in the study (figure 7). the use of yellow color moves in parallel with the usage intensity of the words. words with intense yellow color represent the most used words in the keyword analysis. the color of the keywords that are used less frequently is shown in blue. figure 7: service export: the keyword co-occurrence density of publications (threshold level 5). 3. conclusion nowadays, countries are in a tight race to export goods and services to other countries in a rapidly globalizing world and business ecosystem. export is the first step of entering international markets and has less risk than other internationalization stages. opening up to new markets, reaching other people in different geographies for introducing products and services that will respond to their needs and wishes immediately, means profit and growth potential for businesses and plays a crucial role in internationalization. therefore, most of the large and small-sized enterprises are considering the export option in order not to stay out of the race in the global competitive market. so, they are willing to export frequently and operate in this field. service export, on the other hand, is the term given to any services presented by a person or company in one nation to another person or company located in another nation. when the developments in terms of exports in recent years are analyzed, it is seen that the share of service exports on the global gdp has reached 70%. while developed economies have intensified their investments in service exports since the 1950s, it is observed that the importance given to service exports has also increased in developing countries in recent years. consequently, service exports have started to overgrow all over the world and emerge as a significant trend. talha karadayi & doğan mert akdemi̇r 114 in this study, it is aimed to develop a perspective on academic studies in the field of service exports between 1975 and 2020. for this purpose, the bibliometric analysis method was used to demonstrate the effectiveness of scientific publications and other related data such as country, institutions, citations, trend themes concerning these publications. in this context, web of science (wos) database, one of the most widely accepted databases in social sciences, has been scanned, academic publications have been scanned, the analysis offered by the database has been examined, and the themes related to service exports have been identified through the vosviwer software. approximately 220 publications on “service exports” may appear less in a half-century period compared to other research topics. however, it is not difficult to understand why the number of publications has been low up to the last 20 years, as the importance of service exports has increased parallel the ease of transportation, the spread of the internet and the introduction of technological devices. while there were 33 publications on service exports from 1975 to 2000, there were 184 publications between 2000-2019. it is not surprising that 71% of the publications made in the database appear as articles. in parallel, the results of the analysis can be observed in many other research areas. the fact that the world bank is far ahead among the broadcasting organizations was in parallel with the world bank's mission to support international trade, but it was surprising that there was no remarkable organization among the universities. the fact that the usa, which exports the most services in the world, ranks first in the academic studies in this field has shown that the sectoral and academic interest is parallel. contrary to the usa, india, which could not be in the top five in the world rankings in service exports, was ranked 3rd in academic publications and included in the most frequently used and researched themes together with service exports as a result of the analysis made using the vowviewer software. unlike the usa, india, which could not be in the top five in the world ranking in service exports, attracted attention by being ranked 3rd in academic publications and being among the most frequently used themes researched together with service exports as a result of the analysis made using vowviewer software. accordingly, we anticipate that india will follow an interesting trend in service exports in the coming years. "innovation, human capital, international trade, productivity, export performance, educational services export and knowledge-intensive services" themes used with india were the expected results. because innovation from these concepts is a concept used in every field of the economy today and other concepts are directly related to either the service sector or export. however, the "developing countries" and "foreign direct investment" themes can offer us different tips in this area. the fact that "service export" is explored with "developing countries" indicates that there is much more to be talked about in this area. besides, it is worth exploring why the concept of "service exports" (services offered from within the borders of the country to other countries) and "foreign direct investments" have been mentioned so much together. references ahmad, s. a., kaliappan, s. r., & ismail, n. w. 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(2019). a bibliometrics analysis on big data research (2009–2018). journal of data, information and management, 1(1-2), 3-15. journal of international trade, logistics and law, vol. 5, num. 2, 2019, 59-69 59 turkey foreign trade interaction with cross exchange rates: beneath the currency wars orhan özaydin i̇stanbul commerce university received: nov 11, 2019 accepted: der 02, 2019 published:dec 30, 2019 abstract: in recent years, due to global crisis and economic slowdown, major countries have been pushed to make economic actions. currency wars have been debated and summoned again as before used in economic history to deal with economic slowdown by developed and emerging countries such as us, china, eu and japan. their actions on exchange rate policies would affect their bilateral trade balance as mentioned previous literature. previous literatures have investigated bilateral country trade balance. this study, differs from previous ones, has investigated whether these countries’ cross exchange rates have an interaction with turkey foreign trade. data started from 2012:01 to 2019:09 which was one of milestone of currency wars. by help of ardl econometric model, different level of stationary series have been used in same model to understand the long run and short run relationships among variables. it seems that, in long run eu, us and china economic actions on currency policies might be affected turkey’s trade volume, externally. eur/cny currency has statistically insignificant results for two analyzed trade market. keywords: foreign trade, exchange rates, currency wars, ardl 1. introduction as many country faced, turkey foreign trade performance has interacted in many aspect of global and local economic and political issues. compared to previous years, from 2002 to 2012, in recent years turkey’s export figures slightly have increased and import figures have steadily continued on horizontal zone. turkey’s potential growth lead this tremendous performance in previous year however global and political matters weighted more in recent. looking at the aspect of recent global matters, it seems that the global economic slowdown and trade balances getting bigger between developed and emerging countries. as known -political tooa real devaluation in the domestic currency may push economic growth and eliminating the deficit in the trade balance, (halıcıoğlu, 2008). the trade and currency wars have come up among these countries, especially us, china, japan, eu. instead of japan, three of these big economies are turkey’s leading trade partners. turkey under conditions of the global economy, both exports and imports through the movement of goods, as well as the rest of the world is linked to the direction of capital flows. many previous literatures have investigated that turkey’s total foreign trade deficit effected or not effected by real effective exchange rates. other literatures have said that bilateral trade of two countries has been affected by opposed real exchange rates of these two ones. this study aimed to observe further. it has inquired that whether turkey’s regional foreign trade is affected by cross exchange rates of two countries which are major actors of currency wars, out of turkey. the falling demand after the global crisis has revived the discussion of competitive exchange rate policies. the weak growth in the global economy is expected to push the economies towards exchange wars in order to compete with each other (ertürk, 2017) . countries that started to stagnate with the global financial crisis blamed each other's external deficits and surpluses in order to get rid of the recession and mutually opposed each other. these leading countries have been the us, eu, japan and china. the reason why the exchange war took place among these four actors is that they are both the world's largest economies and each other's biggest foreign trade partners (bircan, 2016) orhan özaydin 60 2012 was one of milestone of currency wars because of economic activities and changing leaders of major countries. thus data has started from 2012 year. turkey’s eu export market and china import market have been analyzed. eu is the top export market of turkey, last seven years average is 45% of total export (table 1). china is second goods import market; it has 10% contribute in turkey’s import on average. these data has been used as dependent variables. real cross exchange rates are independent variables in models. by help of ardl econometric model, different level of stationary series have been used in same model to understand the long run and short run relationships among variables. in long run, bilateral exchange rates of turkey and target trade country have an interaction with trade. beside, cross exchange rates included usd, also has an interaction with trade volume. eur/cny currency is insignificant for two investigated trade market, since eu has not been a leading actor on currency war as respect of us and china. table 1: between 2012-2019 monthly foreign trade of turkey on average (usd) total export export to eu total import import from china 12,891,626 5,839,272 18,725,927 1,919,567 2. theory and literature the concept of “currency war” is not a new concept. in order to explain the similar situation in the 1930s, economist robinson (1937) described the current policies as "beggar-thy-neighbor" concept, is said to have been inspired by a card game. according to this game, if there is a winner, there is surely a loser. “beggar-thy-neighbor” policy in economic terms; it is a policy implemented by a country against the countries in which it implies import restrictions and exchange rate policies in order to solve the problems such as inflation, balance of payments and unemployment in the economy. the main argument of this policy is the devaluation of domestic currency against foreign currency. domestic currency, whose value is depreciated against foreign currencies, makes exports cheaper and imports expensive. in this case, while exports increase, imports decrease. thus, there is an increase in the employment rate and income of the country implementing this policy. as a result, while the policy implementation is positive for a country, it harms other countries. because the devaluation of the country's value of money as a result of the decline in exports of other countries. in this case, since other countries start to buy the goods that they have previously produced, at a cheaper from the country devaluated its domestic currency, they stop producing them itself and their foreign trade gives a deficit. the fact that the devaluation gives an improvement in the current trade balance depends on the marshall-lerner condition, that is, the sum of the elastic demand of domestic demand (m) and the elastic demand of export goods (x) are greater than one ( m + x ≥1 ). the contributions of marshall (1923) and lerner (1944) in elasticity approach has become popular in the literature and the commonly known marshalllerner condition. although a close relationship between exchange rate and import-export volume has been proved in the literature readings, both theoretically and practically, the direction of causality between exchange rates and terms of trade remains controversial in the literature (doğan & kurt, 2016) .the economic literature states that an increase in the exchange rate makes the purchase of export goods cheaper and makes the price of imported goods more expensive. in this case, it is argued that an increase in foreign exchange rates will increase exports, while on the other hand, it will cause a decrease in imports and as a result, the trade balance will be positively affected. here are some studies below investigating currency and trade relationships. this study differs from them that it has also investigated the third countries’ cross exchange rates in the models whether they would affect the its trade, too or not. eren (2019) analyzed real exchange rate effects (rer) on bilateral trade in particular turkey, china, russia and germany over 2004:01 to 2018:11 period monthly. long and short term analyzes were performed by ardl method. as a result of long-term analysis; the increase in the turkey’s real exchange rate affected the trade balance positively against china and germany, it is determined that adversely affect the foreign trade balance that against russia. in the short-term analysis; the increase in the real exchange rate turkey’s foreign trade balance against china and germany still was positive, the foreign trade balance against russia, which was found to be statistically insignificant levels. as totally, j curve hypothesis in the turkey’s trade balance between china, germany and russia were not valid. turkey foreign trade interaction with cross exchange rates: beneath the currency wars 61 bozdan et al. (2018) aimed to investigate the effect of foreign exchange rates on exports and imports. the monthly data was between over 2010:01 and 2017:10. variables that is usd/try was independent and turkey export and import data was dependent. they set up the ardl cointegration test and perform the granger causality analysis. it is observed that there is a long-term relationship between exchange rate and export-imports according to the ardl cointegration test. no causality relation was found between variables according to granger causality test. doğan and kurt (2016) studied turkey's economy for interactions of foreign exchange rates, investment goods and consumer goods empirically from period 2003:01 to 2015:10. granger causality analysis, impact response analysis and variance decomposition methods were used in the study. as a result of the econometric analysis, a causality relationship was found between a change in exchange rates effects investment and consumption goods of imports. a foreign exchange rate change in turkey’s economy affects production and exports as an element of the cost matter. as a result, it is concluded that exchange rates affect investment and consumption goods imports. kızıldere et al. (2015) examined the effects of exchange rate factors particularly on the foreign trade of turkey. time series analyzes were used for this purpose and the series used in the study covers the years 1980 and 2010. real exchange rates, gdp, external income and political rights were used as explanatory variables. export and import values were taken as dependent variables. cointegration and ecm were used to determine short and long term relationships. they concluded that impact of exchange rates does not have a significant effect on turkey foreign trade and they observed that foreign trade structure of the turkey transforms into exporting by increasing importing (re-exporter). tapşın and karabulut (2013) have aimed to assess that whether real exchange rate in turkey have causal relationship between the imports and exports in terms of economics. for the 1980 2011 years in turkey real exchange rates (rer), import (imp) and export (exp) were studied investigating the relationships. the causality analysis developed by toda and yamamoto (1995) was applied to the data. as a result, there is a one-way causality relationship from import variable to export variable and from real exchange rate index to import variable. karaçor and gerçeker (2012) investigated the relationship between foreign trade and turkey in the real exchange rate. they applied var model, cointegration analysis, ecm methods on these two dates which were examined empirically with monthly data covering 2003:01 2010:12 period. according to the findings, the existence of a cointegration relationship between real exchange rates and foreign trade volume was determined. on the other hand, while there is a causality relationship from real exchange rates to foreign trade volume in both short and long term, it was determined that there is a causality in foreign trade volume to exchange rates only in the short term. yazıcı and islam (2011) observed long-run and short-run impact of real exchange rate fluctuates on the trade balance of turkey with 15 european union (eu) countries. they established the bounds testing approach to the cointegration by using the quarterly data for 1982:q1 to 2001:q3 period. they found that the exchange rate has no significant effect on the trade balance of turkey with eu (15) whilst domestic income has significant negative effect on it. saatçioğlu and karaca (2010) studied the dollar-euro parity how impact of the turkey's exports within the quarterly data from 2002 2010 years. they used the model to find the long-term relationship between parity and exports, and the ecm to find the short-term relationship. they have concluded that the change in parity affect turkey's exports in the short term and long term as well. halıcıoğlu (2008) has investigated the j-curve phenomenon of an empirical application for turkey data. j-curve phenomenon explains that the devaluation leads the foreign trade deficit to increase in the short term and in the long term that occurs to reduce. also he set up the direction of granger causality between reel effective exchange rates (reer) and trade balance (tb). the data was selected over beginning of the 1980 and end of the 2005 quarterly period. turkey’s trade balance was dependent variable and reer was independent. he established ardl model for cointegration long run relationship and used ecm model for short run term. it was found that only one long run relationship existed from result of bound tests of ardl model which the tb is the dependent variable. in the longrun, reer is granger cause to the trade balance, in the short-run there is a feedback relationship between the reer and trade balance. berüment and dincer (2008) pointed out turkey's economy is based on imports in dollars and exports in euro, so the risen dollar-euro parity (eur/usd) is stated that the external terms of trade rise and consequently improve the economy. to test this, monthly data covering the period 1985:01 to 2003:07 and the var model were used. they orhan özaydin 62 found that a positive shock to the dollar-euro parity caused an increase in the trade balance and that relative income would increase in the long run, but that the real exchange rate would appreciate. bahmani-oskooee and alse (1994) examined the cointegration relationship between real exchange rate and foreign trade balance in a data set of 19 developed and 22 emerging countries. the existence of a cointegration relationship was found for 6 countries and the evidence supporting j-curve was obtained for these countries. the authors argue that these results may not have long-term effects on the trade balance of devaluations for other countries. 3. data this study has investigated empirical data the date after the year 2012 which was an interim milestone of trade wars and so currency wars. the beginning of the exchange wars was based on shinzo abe's election as prime minister of japan in december 2012 and saying that he would change economic policy (pınar & uzunoğlu, 2013). as of the spring of 2011, the us-china foreign exchange war was silent after rhetorical and political struggles between china and the united states on exchange rates. however, the key issues are still unresolved. the leadership changed in china in 2012 and the presidential elections hold in the us in the same year (rickards, 2012). by 2011, china had us $ 950 billion in us bonds. this was a bilateral threat to the us and chinese economy. the foreign trade of china which was the leader until 2012, was lost when it came to 2012 because the employment problem existed for china (polat, 2015). in september of 2012, the fed announced its third round of quantitative easing, qe3. this iteration involves the fed buying an additional $40 billion in mortgage-backed securities each month until it sees improvement in the labor market (yardeni research, 2019). in 2011 and 2012, low-interest, high-volume loans provided by european banks were the basis for currency wars, too (wlodarczyk, 2014). in light of these matters, year 2012 was an interim milestone for currency wars for us, china and eu area. in this research has investigated data over 2012:01 to most recent 2019:09 monthly period. the fundamental idea of the marshall-lerner condition is that a change in the nominal exchange rate can affect the trade balance only by changing the ‘real’ exchange rate (kenen, 1989, s. 298-300). changes in real exchange rates affect various other macroeconomic variables, especially foreign trade (bayar & tokpunar, 2013). reer (real effective exchange rates) contains information about the relative price or cost development between countries and is therefore considered as one of the key macroeconomic indicators used to assess the competitiveness of economies (saygılı, saygılı, & yılmaz, 2010). the result formed by eliminating the relative price effects in nominal effective exchange rate, is called real effective exchange rate (reer). since the cbrt announced that it would take into account the reer based on the cpi for the exchange rate intervention, the most relevant calculation is the cpibased calculation. in light of empirical and theoretical literature, in this study, nominal exchange rates have been converted into real exchange rate (rer) for this investigation of impact of exchange rates to trade volume. the rer calculation made in this study is the product of the nominal exchange rate of the currencies and the ratio of cpi between the two countries. the equation is rer=ep*/p, where, e is the nominal exchange rate, say eur/try; p* is the average price of a good in the foreign country, eu cpi; and p is the average price of the good in domestic country, cpi of turkey. major currency wars actors are big brothers of trade us and china, thus these countries exchange rate would affect to turkey’s trade. moreover, still turkey has made it’s the most export to eu. although top import area of turkey is eu, import from china observed in this study, since it is second after eu and an important actor of currency wars with us. to conclude; turkey’s eu export and china import have been included as dependent variables; these data were retrieved from tui̇k web site. the focused currencies in the investigation are eur/try, eur/usd, eur/cny, usd/cny, eur/cny, cny/try would be effected to turkey’s trade. data was retrieved from tr.investing.com, europan statistic (eurostat) and oecd web sites. nominal exchange rates were converted into rer and then all data were filtered by hodrick-prescott filter at level form to remove trending issues. abbreviation and short definition of data are shown in table (2). turkey foreign trade interaction with cross exchange rates: beneath the currency wars 63 table 2: abbreviation and definition of variables abbreviation definition hp_euexp (euexp) export to eu countries (28), hp filtered. hp_chimp (chimp) import from china, hp filtered. hp_r_cnytry cny/try rer value, hp filtered. hp_r_eurcny eur/cny rer value, hp filtered. hp_r_eurtry eur/try rer value, hp filtered. hp_r_eurusd eur/usd rer value, hp filtered. hp_r_usdcny usd/cny rer value, hp filtered. 4. methodology cointegration tests are used to examine the long-term relationship between variables. frequently used in the literature engle-granger (1987), johansen (1988) stating that the level of cointegration tests that are found to be non-stationary two variables may be a stationary combination. these tests require the same degree of integration of variables. however, this constraint, which is a significant obstacle in practice, has been described by peseran et al. (2001) and it is solved by ardl approach which allows revealing the relationship between the integrated variables of different degrees. several advantages of ardl model are mentioned in the literature. one of these advantages is that the variables to be used in the model are stationary i(0) or stationary i(1) in the first difference does not interfere with the application of the boundary test. another advantage of this model is that it uses the unrestricted error correction model so that it can give statistically more reliable results than classical cointegration tests. the most important feature of the error correction model is that it contains information about short and long term dynamics between variables. in order to investigate the relationship between variables first set the regression models like (1). our regression model represents; in the first model turkey’s eu export (euexp) is dependent, exchange rates of eur/try, eur/usd, eur/cny are independent variables. in second model, import from china (chimp) is dependent, cny/try, eur/cny and usd/cny are independent variables: 𝑌𝑡 = 𝛼𝑡 + 𝐾𝑡 + 𝐿𝑡 + 𝑀𝑡 + 𝑡 (1) the boundary test reveals whether there is a long-term relationship between the variables. when the limit test is applied and the test statistic exceeds the upper critical limit, short and long term coefficients can be estimated. the error correction model (ecm) for the ardl boundary test approach is shown in equation (2): ∆𝑌𝑡 = 𝛼𝑡 + ∑ 𝛽1∆𝐾𝑡−𝑖 𝑝 𝑖 + ∑ 𝛽2∆𝐿𝑡−𝑖 𝑞 𝑖 + ∑ 𝛽3∆𝑀𝑡−𝑖 + 𝑟 𝑖 𝛿1∆𝐾𝑡−1 + 𝛿2∆𝐾𝑡−1 + 𝛿3∆𝐾𝑡−1 + 𝑡 (2) in the above equation, estimating the regression equation in equation (2), the determination of a long-term relationship is performed with the wald test (statistic f). the hypotheses related to this test are as follows: 𝐻0: 𝛿1 = 𝛿2 = 𝛿3 = 0 (𝑁𝑜 𝐶𝑜𝑖𝑛𝑡𝑒𝑔𝑟𝑎𝑡𝑖𝑜𝑛) 𝐻1: 𝛿1 ≠ 𝛿2 ≠ 𝛿3 ≠ 0 (𝐶𝑜𝑖𝑛𝑡𝑒𝑔𝑟𝑎𝑡𝑖𝑜𝑛 𝑒𝑥𝑖𝑠𝑡) orhan özaydin 64 the calculated f-statistic is compared with asymptotically derived significance levels in peseran et al.'s (2001) studies. davidescu (2015) has re-explained what ardl f-test depends upon: “the asymptotic distributions of the fstatistics are non-standard under the null hypothesis of no cointegration relationship between the examined variables, irrespective of whether the variables are purely i(0) or i(1), or mutually co-integrated. the f test depends upon (i) whether variables included in the ardl model are i(0) or i (1) , (ii) the number of regressors, and (iii) whether the ardl model contains an intercept and/or a trend.” if the calculated f-statistic is less than the lower limit “i(0)”, then the null hypothesis cannot be rejected and it is concluded that there is no cointegration. another case is that the calculated statistical value f is greater than the upper limit of critical values “i(1)”. in this case, the hypothesis h0, which states that there is no long-term relationship between the variables, will be rejected and the hypothesis h1, which accepts the existence of a long-term relationship, will be accepted. if the calculated f statistics value falls between the upper and lower critical value, in other words, if it falls into the zone of instability, then no interpretation can be made as to whether there is cointegration. in such a case, it is recommended to use er ror terms for cointegration and to apply other cointegration tests according to the degree of stationarity of the variables. if a long-term relationship between variables is detected by the boundary test, the estimation of long-term coefficients is passed in the next step. when the equation (1) is taken into consideration, ardl(p,q,r) model in equation (3) has been formed in order to estimate long term coefficients. 𝑌𝑡 = 𝛼𝑡 + ∑ 𝜃1𝐾𝑡−𝑖 𝑝 𝑖 + ∑ 𝜃2𝐿𝑡−𝑖 𝑞 𝑖 + ∑ 𝜃3𝑀𝑡−𝑖 + 𝑟 𝑖 𝑡 (3) after determining the coefficients of the long-term relationship, the diagnostic tests of the model are examined and the suitability of the model is determined. cusum and cusumq tests can also be used for the stability of the variables in the ardl model. a short-term error correction model (4) can be used to determine the short-term relationships between variables. ∆𝑌𝑡 = 𝛼𝑡 + ∑ 𝜆1∆𝐾𝑡−𝑖 𝑝 𝑖 + ∑ 𝜆2∆𝐿𝑡−𝑖 𝑞 𝑖 + ∑ 𝜆3∆𝑀𝑡−𝑖 + 𝑟 𝑖 𝜆4𝐸𝐶𝑀𝑡−1 + 𝑡 (4) in equation (4), the variable indicated by 〖ecm〗_(t-1) is the error correction term. this term refers to a lagged value of the residues of the model from which the long-term relationship between variables is obtained. the coefficient of the term ecm shows how much of an imbalance in the short term will improve in the long term. the term error correction is expected to be negative and significant. 5. results stationary is a concept that expresses that the series approach a certain value over time, in other words, the series have a constant average, a constant variance and a covariance based on the level of delay. the augmented dickey fuller (adf) test is one of the most commonly used stationary tests. however, perron (1989) found that the adf test failed in cases of structural breakage in the data set. therefore, in addition to adf test, philip-perron (pp) tests were included in the study. data have different levels of stationary table (3). in the circumstances, ardl allows the all classification of unit root of variables into pure i(1), pure i(0) or both in the same model. eviews statistical computer program was used for calculations. turkey foreign trade interaction with cross exchange rates: beneath the currency wars 65 table 3: unit root statistical test results of variables (all intercept) adf adf pp pp i(0) (level) i(1) (1st diff) i(0) (level) i(1) (1st diff) hp_euexp -1.836932 -3.159088** -8.740928*** -35.64191*** hp_chimp -4.452864*** -10.81792*** -8.679812*** -22.7693*** hp_r_cnytry -3.642371*** -8.382882*** -3.677788*** -8.334182*** hp_r_eurcny -2.645068* -8.139148*** -2.780099** -8.13444*** hp_r_eurtry -4.172148*** -8.461456*** -4.257071*** -11.64048*** hp_r_eurusd -2.660243* -4.094289*** -2.275721 -7.641135*** hp_r_usdcny -3.682217*** -6.402249*** -2.96952** -6.274485*** *level of significance at 10% **level of significance at 5% ***level significance at 1% two dependent variables has been studied, hp_euexp and hp_chimp, so two different regression models have been established (equation 5 and 6). then after, lag length should be stated to establish an ardl model. according to akaike criterion (aic) value, the best fit lags in ardl models are ardl (3, 4, 2, 3) for hp_euexp and ardl (5, 5, 7, 4) for hp_chimp. 𝐻𝑃_𝐸𝑈𝐸𝑋𝑃𝑡 = 𝛼𝑡 + ∑ 𝜃0𝐻𝑃_𝐸𝑈𝐸𝑋𝑃𝑡−𝑖 𝑠 𝑖=1 ∑ 𝜃1𝐻𝑃_𝑅_𝐸𝑈𝑅𝑇𝑅𝑌𝑡−𝑖 𝑝 𝑖=1 + ∑ 𝜃2𝐻𝑃_𝑅_𝐸𝑈𝑅𝑈𝑆𝐷𝑡−𝑖 𝑞 𝑖 + ∑ 𝜃3𝐻𝑃_𝑅_𝐸𝑈𝑅𝐶𝑁𝑌𝑡−𝑖 + 𝑟 𝑖 𝑡 (5) 𝐻𝑃_𝐶𝐻𝐼𝑀𝑃𝑡 = 𝛼𝑡 + ∑ 𝜃0𝐻𝑃_𝐶𝐻𝐼𝑀𝑃𝑡−𝑖 𝑠 𝑖=1 ∑ 𝜃1𝐻𝑃_𝑅_𝐶𝑁𝑌𝑇𝑅𝑌𝑡−𝑖 𝑝 𝑖=1 + ∑ 𝜃2𝐻𝑃_𝑅_𝐸𝑈𝑅𝐶𝑁𝑌𝑡−𝑖 𝑞 𝑖 + ∑ 𝜃3𝐻𝑃_𝑅_𝑈𝑆𝐷𝐶𝑁𝑌𝑡−𝑖 + 𝑟 𝑖 𝑡 (6) the acceptance or rejection of the hypothesis “h0: there is no cointegration relationship between the variables can be determined according to the following process. if the f statistic is greater than the critical upper limit i(0), h0 is rejected. if the f statistic is less than the critical lower limit i(0), h0 is accepted. if the f statistic is between the critical lower and upper limits, other cointegration tests should be consulted because there is insufficient evidence to accept or reject the h0 hypothesis (pesaran et al. 2001). moreover, serial correlation, heteroskedasticity and normal distribution statistical values of models with ardl limit test have resulted statistically significant (table 4). orhan özaydin 66 table 4: ardl bound test and diagnostic stats of models model euexp; ardl(3, 4, 2, 3) chimp; ardl(5, 5, 7, 4) bound test i(0) i(1) i(0) i(1) f stat 14.158750 9.197969 10% 2.370000 3.200000 2.370000 3.200000 5% 2.790000 3.670000 2.790000 3.670000 1% 3.650000 4.660000 3.650000 4.660000 diagnostics stats stats. prob. stats. prob. r^2 0.558825 0.632815 adj. r^2 0.468172 0.488349 f-stat 6.164477 0.000000 4.380370 0.000002 breusch-godfrey lm 1.037185 0.595400 0.309263 0.856700 arch lm 0.001634 0.967800 0.076088 0.782700 jarque-bera normality 0.532892 0.766097 0.519777 0.771137 according to table (4), the h0 hypothesis was rejected because the f statistical values calculated at the 1% significance level, was greater than the upper limits, thus, it was found that there was a cointegration relationship between the variables for both models. in addition, table (4) presents the diagnostic test results of the ardl model. accordingly, it is understood that the model does not have any autocorrelation (breusch-godfrey lm test), heteroskedasticity (arch lm test) problem, and the error term has a normal distribution (jarque-bera normality test). after determining the existence of a long-term equilibrium relationship between the variables, it is necessary to estimate the parameters reflecting the long-term relationship. the results of the method estimated by least squares (ols) are given in tables (5) and (6). table 5: euexp and chimp long-run statistical results long-run euexp variable coefficient t-statistic prob. hp_r_eurcny 61,748 0.252283 0.801500 hp_r_eurtry 498,283 2.083544 0.040700** hp_r_eurusd 2,778,182 1.968862 0.052800* c -4,077 -0.145858 0.884400 long-run chimp variable coefficient t-statistic prob. hp_r_cnytry -5,923,865 -7.015447 0.000000*** hp_r_eurcny -64,880 -1.411658 0.163100 turkey foreign trade interaction with cross exchange rates: beneath the currency wars 67 hp_r_usdcny -628,779 -6.364972 0.000000*** c 986 0.104110 0.917400 *level of significance at 10% **level of significance at 5% ***level significance at 1% according to long run relationships in variables, in eu-export model, r_eurtry and r_eurusd coefficients have been found statistically significant in levels and positive. as mentioned before in literatures, real exchange rates represented the competition magnitude of trade between bilateral countries. appreciated r_eurtry affected eu export volume from turkey positively as expected. main reason of that eu market has been the top goods market of turkey for years. r_eurusd also same behavior on export due to usd is one of the most used currencies in importing activities. hereby, currency war between eu zone and us would be effected turkey’s export performance to eu. moreover, according to coefficient of these two meaningful variables, r_eurusd is over 5 times more than r_eurtry, because of that importing goods are mainly usd so costs are effecting the export performance to eu. it is seen from table that the eu vs china currency wars has no effect on turkey eu export volume statistically because of insignificant r_eurcny statistical value. for r_chimp which is dependent variable in import-fromchina model, is affected negatively by exchange rate of cny/try. when r_cnytry value increases import from china decreases in long term. this result is proper as previous literature that currencies of bilateral countries have been important role on opposed trade. statistical values of r_usdcny have been indicated that it is also important for chimp. between us and china currency wars would be affected turkey’s import-from-china, hereby appreciated usd over cny would be led it negatively. in respect of coefficient magnitudes, r_cnytry is over 9 times more than r_usdcny. r_eur/cny’s statistical result is insignificant, thus means, trade war of eu and china is not material for turkey import-from-china. one cause might be, as mentioned currency war literature, eu area has not been a leading player in currency wars, as considering us and china. seen in table (6), two of the model error correction coefficients are negative and significant in %1 levels, as expected and needed acceptance of short-run relations among variables. according to narayan and smith (2006), the error correction coefficient has a value between -1 and -2, indicating that the system fluctuates to equilibrium. the fluctuation decreases each time, instead of converging directly as monotonous while bringing the model to equilibrium and it will come to equilibrium in the long term. table 6: ecm variable statistical values model (#) variable coefficient t-statistic prob. euexp (eq.5) cointeq(-1) -1.380651 -8.641347 0.000000*** chimp (eq.6) cointeq(-1) -1.531176 -7.000398 0.000000*** *level of significance at 10% **level of significance at 5% ***level significance at 1% cusum and cusumq tests which were developed by brown et al. (1975), are used to measure the consistency of the coefficients used in the models. in case of structural change, the sum of squares of residues of the model will grow. the graph acknowledges that there is a structural break at the points that extend beyond the red boundaries. cusumq (square) is more sensitive than cusum, based on the calculation of successive residues. when the cusum and cusumsq graphs are examined in figure (1), it shows that there is no structural breakage related to the variables used in the analysis, long-term coefficients calculated according to ardl boundary test are stable and the model can be estimated without using any artificial variables to express the breakage. orhan özaydin 68 figure 1: cusum and cusumq test for model euexp and chimp. 6. conclusion in recent years, because of global crisis and economic slowdown, major countries have been prompted to take economic actions. currency wars again have been debated and summoned as before used in economic history to deal with economic slowdown by developed and emerging countries. their actions on exchange rate policies would affect their bilateral trade balance as mentioned previous literature. although us, china, japan, eu etc. countries main actors of currency wars; us, china and eu have been interested in this study because of being major trade partner of turkey. previous literatures have investigated bilateral country trade balance. this study differs from previous ones has investigated whether these countries cross exchange rate have an interaction with turkey foreign trade. data started by 2012:01 to 2019:09 which was one of milestone of currency wars. eu is the top export market of turkey and china is second goods import market; these datas have been used as dependent variables. real cross exchange rates are independent variables. by help of ardl econometric model, different level of stationary series have been used in same model to understand the long run and short run relationships among variables. according to findings, in long run, eur/usd and cny/try are significant and most effecting exchange rates trade volume export to eu positively and import from china negatively, respectively. eur/try and usd/cny have also significant values but have less impact. eu, us and china economic actions on currency policies might be affected externally turkey’s trade volume. eur/cny currency is insignificant for two investigated trade market, since eu has not been a leading actor on currency war in respect of us and china. for further research, investigation area might be widen by selecting more turkey foreign market. equation for euexp, cusum test. equation for euexp, cusumq test. -30 -20 -10 0 10 20 30 2013 2014 2015 2016 2017 2018 2019 cusum 5% significance -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 2013 2014 2015 2016 2017 2018 2019 cusum of squares 5% significance equation for chimp, cusum test. equation for chimp, cusumq test. -30 -20 -10 0 10 20 30 iii iv i ii iii iv i ii iii iv i ii iii iv i ii iii iv i ii iii 2014 2015 2016 2017 2018 2019 cusum 5% significance -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 iii iv i ii iii iv i ii iii iv i ii iii iv i ii iii iv i ii iii 2014 2015 2016 2017 2018 2019 cusum of squares 5% significance turkey foreign trade interaction with cross exchange rates: beneath the currency wars 69 references bahmani-oskooee, m., & alse, j. 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